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42 ENERGY OUTLOOK 2015

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34 34 The Evolving Distribution Grid As the distribution grid of the future evolves, new business opportunities for utilities will emerge—driven by changing customer expectations. BY PAUL DE MARTINI

42 Energy Outlook 2015 As the 114th Congress convenes, 42 Electric Perspectives asked four energy association CEOs to offer their insights and outlook for energy policy in the New Year.

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JANUARY | FEBRUARY 2015 3 ELECTRIC PERSPECTIVES

STAFF Clare James Johnson DIRECTOR OF STAKEHOLDER COMMUNICATIONS [email protected] departments Bruce Cannon ASSOCIATE EDITOR JANUARY/FEBRUARY 2015 • VOLUME 40, NUMBER 1 [email protected] Nhu Mai Le SENIOR GRAPHIC DESIGNER [email protected] Suzette Herchig 6 52 SUBSCRIPTION COORDINATOR [email protected] president’s message innovation EDITORIAL BOARD A look to the future. Partnerships transforming the Edward Comer VICE PRESIDENT, GENERAL COUNSEL, power sector. AND CORPORATE SECRETARY Richard McMahon VICE PRESIDENT, ENERGY SUPPLY 8 AND FINANCE Jim Owen powering change EXECUTIVE DIRECTOR, MEMBER RELATIONS AND MEETING SERVICES Meeting tomorrow’s demands today. David Owens EXECUTIVE VICE PRESIDENT, BUSINESS OPERATIONS AND REGULATORY AFFAIRS 10 Quin Shea VICE PRESIDENT, ENVIRONMENT 56 Stephanie Voyda editor’s note MANAGING DIRECTOR, Striking up a conversation. environment COMMUNICATIONS EPA’s proposed greenhouse gas Brian Wolff EXECUTIVE VICE PRESIDENT, PUBLIC POLICY emissions guidelines. AND EXTERNAL AFFAIRS 12 CIRCULATION Suzette Herchig 202.508.5607 news + trends 58 [email protected] Driving innovation in electric Subscriptions are $100 per calendar year; transportation… and more. distribution however, the cost is prorated throughout the year. Please contact Unlocking the opportunity in smart Ms. Herchig for the current inverters. prorated amount. ADVERTISING SALES Marshall Boomer THE YGS GROUP 62 717.430.2223 [email protected] Justin Wolfe plugging innovation THE YGS GROUP A bright future for Tucson community 717.430.2238 23 solar program. [email protected] Mailing label corrections: send old label and correct title and energycareers@work address to Subscription Coordinator, Electric Perspectives at EEI. Diversity is key in energy workforce 64 Allow 12 weeks. recruitment. Postmaster: send address changes to the edge Subscription Coordinator, Electric Perspectives, EEI, Plug-and-play power grid. 701 Pennsylvania Avenue, N.W., Washington, DC 20004-2696. Periodicals postage paid at Washington, DC, and additional mailing office. Electric Perspectives (ISSN 0364-474X) connect with us is published bimonthly by Edison Electric Institute, Inc. On the cover: Ted Craver, chairman, 701 Pennsylvania Avenue, N.W., facebook.com/EdisonElectricInstitute Washington, DC 20004-2696. president, and CEO of Edison International www.eei.org and chairman of the Edison Electric Institute, The title is a registered trademark of discusses the grid of the future. Edison Electric Institute. twitter.com/Edison_Electric Statements of fact and opinion are the (Photo courtesy: Southern California Edison) responsibility of the author(s) alone and do not imply an opinion on the part of EEI, youtube.com/user/EEITV its employees, or members. Each advertiser and advertising agency assumes full liability for all contents of advertisements printed. Copyright © 2015 by 4 ELECTRIC PERSPECTIVES | www.eei.org/ep Edison Electric Institute, Inc. EEI Publication No. 43-15-01. Protect Your Steel Transmission Assets

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JANUARY | FEBRUARY 2015 5 AN INSIGHTFUL LOOK AT WHAT’S AHEAD FOR president’s message THE ELECTRIC POWER INDUSTRY.

A Look to the Future By Thomas R. Kuhn, president, Edison Electric Institute.

he New Year is upon us, which means that it is not only a time for refl ec- tion, but also an opportunity to look ahead and think about change. Many of you have probably made a New Year’s resolution or two. Here at the T Edison Electric Institute (EEI), we remain resolved to meet the ever-rising tide of changes happening across the electric power sector. With a strategic and renewed focus, EEI will be working with policymakers and stakeholders on issues that impact our member companies, and we will be educating consumers about the critical role of our industry, the value of electricity, and the many customer-focused innovations transforming the electric power grid. I always say that there are three key drivers to change—new technologies, shifts in public policy, and evolving customer and market expectations. How our industry adapts to and leads these changes, while continu- ing to provide value to our customers, will defi ne our long- term success. Two of the drivers of change—technology Utilities have established and public policy—are discussed throughout this edition of Electric Perspectives. But, as we settle into the New Year, relationships with their I fi nd myself thinking about the third element: the import- ant role of customers. customers, and customers As utilities continue to develop and leverage new today are driving innovation technologies to transform how they generate and deliver electricity, customers also are changing how they use our and change. product. The typical U.S. home now has, on average, at least 25 electronic products—99 percent of which must be plugged in or recharged. After all, electricity is the power behind our smart phones, smart appliances, and smart homes and businesses. Indeed, customers want to be able to plug in their new devices or access new services, and they expect that they will commu- nicate seamlessly. Customers also want more control over their energy usage and costs, and smart appliances are communicating with the grid to meet those expectations. In short, customers expect us to develop and sustain a grid that supports all of these needs and that gives them fl exibility and choice in how they use energy. More broadly, every facet of the economy is experiencing a major shift in how it works, how it communicates, and how it serves its customers—and our indus- try is powering the technologies that make this possible. This undeniable trend of increased digitization and automation will only increase the importance of electricity to the economy and consumers. There are many discussions taking place about the evolving distribution grid—or what some call the ”utility of the future”—including what it is, what it will look like, who will be the key players, and what will be the role of customers.

6 ELECTRIC PERSPECTIVES | www.eei.org/ep I fi rmly believe that utilities must continue to operate the distribution system. Since utilities already plan, build, and operate the grid, it makes sense that they should continue to plan, invest in, and operate the distribution system, working in partnership with third-party technology providers, our regulators, and our customers. Utilities have established relationships with their customers, and customers today are driving inno- vation and change. The smart meters, smart technologies, and smart rates being deployed nationwide give customers more options and provide new services, such as bill man- agement tools, energy use notifi cations, energy control, and smart pricing programs. Every facet of the economy Utilities also will continue making major investments is experiencing a major in the grid to enhance outage detection and restoration, improve distribution system monitoring, increase opera- shift in how it works, how it tional effi ciency, and integrate new resources. It is important that the utility of the future assures and communicates, and how it enhances the reliability and resiliency of the grid. Custom- serves its customers—and ers want ever-greater service reliability. Investor-owned electric utilities and stand-alone transmission companies our industry is powering the invested a record-high $37.7 billion in transmission and distribution infrastructure in 2013 to strengthen the grid. technologies that make this Distribution investments are certain to remain high as possible. distributed generation, storage, and electric vehicle and energy control technologies expand. To enhance our resilience to threats, electric utilities are proactively safeguarding the grid and are partnering with federal agencies to coordinate efforts to prepare for, prevent, respond to, and recover from national-level incidents or threats to critical infrastructure. This is important when one consid- ers the recent cyber attacks on Sony Pictures and in other industries. Going forward, utilities must be able to go “behind the meter” in order to provide full customer service, achieve greater system effi ciencies, and offer greater options to their customers. I envision utilities providing many kinds of distributed energy resources, including community and rooftop solar, microgrids, and storage, as well as energy effi ciency and demand response. In the end, the utility of the future will be about collaboration, investment, innovation, new service options, reliability and resiliency, and affordable pricing for all customers. In short, it will be about our customers. It truly is an exciting time to be part of the electric power industry. It also is an exciting time for our customers, who will have more choices than ever. As we delve into 2015, and the changes and opportunities that the New Year will bring, EEI is look- ing forward to a bright future for its member companies and the customers that they serve. I am truly optimistic about what’s ahead.

JANUARY | FEBRUARY 2015 7 THOUGHTS ON THE EVOLVING ELECTRICITY powering change LANDSCAPE.

Meeting Tomorrow’s Demands Today By Brian L. Wolff, executive vice president, public policy and external affairs, Edison Electric Institute.

redicting the future is diffi cult. While we don’t commute by fl ying cars or per- sonal jetpacks as predicted back in the 1960s and 1970s, we do enjoy some of the innovations that captured our collective imaginations back then. Today our PTVs are a lot thinner and have much better resolutions. Our phones fi t in our pockets and can travel with us wherever we want to go. But one thing hasn’t changed: these technologies are all still powered by electricity. Whether we are surfi ng the Inter- net or enjoying our latest gadget, the electric grid is the connecting and enabling force. It also feels as though the pace of change—and innovation—has accelerated recently. For example, look at the boom in new energy resources, grid optimization and fl exibility, and customer solutions highlighted in The Edison Foundation Insti- tute for Electric Innovation’s recent book, “Innovations Across the Grid, Volume II.” (See “Partnerships Transforming the Power Sector” on page 52.) In large part, these technological advances and partnerships are being driven by an increasingly inde- pendent and demanding class of customers—and utilities have responded with personalized solutions that are rapidly trans- forming the role of the grid. So, how do we predict tomorrow’s reality? How do we anticipate our customers’ future expectations? Customers are looking for As EEI Chairman and Edison International Chairman, Pres- the next generation of the ident, and CEO Ted Craver explains on page 24, we should remember that electric utilities and their technology partners grid and are hungry for the have been innovating and solving generation, distribution, and transmission challenges since the late 1880s. Notable innovations new innovations that will from just the last 5-10 years include integrated suites of smart- improve their daily lives. grid technologies, automated system sectionalizing and reclosing to enhance reliability and resiliency, and utility-controlled elec- tric vehicle (EV) battery charging. While electric utilities continue to transform the grid and develop new technologies, their customers already benefi t from the interconnection of existing technologies over a common and easy-to-use platform. Much has been written lately about “the Internet of things” and the emerging “grid of things” where all of the technologies utility customers want to own and manage are connected together on an integrated grid. Many of these plug-and-play technol- ogies exist today, such as solar panels, storage batteries, EV charging systems, smart appliances, and home energy management systems. Other technologies and prod- ucts haven’t even been invented yet—but they will change and improve our lives in ways we cannot predict or anticipate. Our industry is embracing change and innovation on a constant basis. What is sometimes called “the democratization of the grid” presents a tremendous opportu- nity for electric utilities to refi ne their business models and strengthen their customer relationships. Customers are looking for the next generation of the grid and are hun- gry for the new innovations that will improve their daily lives. As it invests more than $90 billion each year to transition to a cleaner generating fl eet and to enhance the electric power grid to meet the needs of our 21st-century economy, the electric utility industry will continue to deliver on that promise.

8 ELECTRIC PERSPECTIVES | www.eei.org/ep Electricity powers our everyday lives. It’s the power behind the “smart” in our smart phones, smart appliances, and smart homes and businesses—and we need smart energy solutions to power us forward. Why ‘We Stand For Energy’ We Stand For Energy will work to ensure our nation’s energy policies:

• Are fair and protect all electricity customers • Create local electric power-related jobs • Strengthen local communities and economies • Spur development of innovative technologies • Enable us to use a diverse supply of domestic energy sources to meet the demand for electricity • Provide a secure energy future for all Americans

Working together, we can help ensure electricity remains reliable, affordable, and increasingly clean for everyone. The Edison Electric Institute is proud to sponsor this national program.

Join us today! www.WeStandForEnergy.com WHAT’S HAPPENING BEHIND THE SCENES AT editor’s note ELECTRIC PERSPECTIVES.

Striking Up a Conversation By Clare James Johnson, director of stakeholder communications, Edison Electric Institute.

here is a lot to talk about in the electric power industry today. Booming do- mestic energy production. The growth of utility-scale solar and distributed energy resources. The ongoing importance of fuel diversity. The evolving dis- Ttribution system. The common thread throughout these conversations is that our industry is transforming and leading to power today’s digital economy and “always connected” lifestyle. At the Edison Electric Institute (EEI), we’re transforming as well. In last year’s Editor’s Note, I talked about some of the changes underway at Electric Perspectives. In January 2014, we launched a new and modern print edition and enhanced our digital magazine, which is available at www.eei.org/ep. The look and feel of both our print and digital editions now better reflect how the electric power industry is changing and innovating. Our content reflects the changes sweeping our industry as well. In the past year, we’ve created distinct sections to talk in-depth about member companies’ efforts to develop the next generation workforce. We’re also talking much more about all of the innovative utility projects that are revolutionizing the future of the energy sector. And we’ve been collaborating closely with EEI member company leaders to tell our industry’s story. Electric Perspectives also Last January, American Electric Power Chairman, President, and CEO Nick Akins described how our industry is taking a is spending more time on proactive posture in strengthening the grid. In July, NextEra social media, engaging our Energy Chairman and CEO Jim Robo highlighted how inno- vative generation technologies are transforming the industry. readers in conversations And in November, Southern Company Chairman, President, and CEO Tom Fanning outlined how the industry is leading across the digital channels and improving its resilience to cyber and physical threats. they already know with In addition, Xcel Energy Chairman, President, and CEO Ben Fowke took to the pages of Electric Perspectives to discuss shareable content and how utilities must continue to embrace innovation, and FirstEnergy Corp. Executive Chairman Tony Alexander talked useful information. about the importance of meeting customers’ needs for reliable, safe, and affordable energy. Electric Perspectives also is spending more time on social media, engaging our readers in conversations across the digital channels they already know with share- able content and useful information. After all, today’s customers are always plugged in, involved, and interconnected. As EEI President Tom Kuhn states in his message on page 6, “Utilities have established relationships with their customers, and customers today are driving innovation and change.” Customers want flexibility and cutting- edge technology—and are excited to be part of the conversation and solution. We want to engage in that conversation, too. In October 2014, we launched “Energy Talk,” a monthly e-newsletter for readers at EEI member companies, in Washington, in the media, and throughout the industry. “Energy Talk” is an exciting new platform that allows us to cover issues of the day, from policy and legislative action to emerging trends and challenges. Email Suzette Herchig at [email protected] to sign up to have each issue delivered to your inbox. In the coming months, we’ll be looking at new ways to engage with our readers— both in print and online. Stay tuned for the launch of a redesigned EEI website in January—including a new hub for Electric Perspectives. As always, don’t hesitate to reach out to me at [email protected] or to Associate Editor Bruce Cannon at [email protected] with your article ideas. We’d love to hear from you.

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GEORGIA POWER SHINES IN Driving Innovation in Electric Transportation SOLAR PROGRAMS he electric power industry is undertaking major initiatives to further commer- he Solar Electric Power Association Tcialize electric transportation technologies. PG&E Corporation Chairman, CEO, Trecently named Georgia Power the and President Tony Earley and Edison Electric Institute (EEI) President Tom Kuhn 2014 Investor-Owned Utility of the Year, announced the initiatives at a recent White House event with Energy Secretary recognizing the company as a leader Ernest Moniz and Counselor to the President John Podesta. in developing innovative, cost-effective To date, more than 70 investor-owned electric utilities have committed to devote solar programs that tap into Georgia’s at least fi ve percent of their annual fl eet acquisition budgets to the purchase of competitive solar marketplace. plug-in electric vehicles (PEVs) and technologies. This represents an investment With new solar facilities planned or of approximately $50 million annually, and it directly aligns with the goal of the under construction across the state, Department of Energy’s (DOE’s) EV Everywhere Grand Challenge to encourage Georgia currently has one of the fastest- PEV adoption in public and private fl eets. growing solar industries in the country. EEI also announced an Employee Adoption and Education Initiative to help drive Georgia Power anticipates that it will PEV adoption among utility employees. As part of this effort, EEI will serve as an have procured more than 900 mega- ambassador to DOE’s Workplace Charging Challenge and will encourage its mem- watts (MW) from new solar generation ber utilities to participate. With more than 500,000 direct employees across the by the end of 2016—the largest vol- country, EEI member companies have a unique and powerful opportunity to help untary portfolio in the nation—and that drive electric vehicle adoption and education among their employees. more than 500 new solar projects may “We are pleased that the Administration recognizes the unprecedented effort and be constructed in Georgia as a result of commitment by our industry to lead by example and to drive innovations in the elec- its programs. tric transportation market,” said Kuhn. “Through these combined efforts, we look for- Georgia Power, in coordination with ward to continuing to work with the Administration to build on the current successes the Georgia Public Service Commission, of the electric transportation market and to accelerate deployment even further.” most recently fi led for certifi cation of Expanding the adoption of PEVs and technologies in commercial and retail more than 500 MW of utility-scale solar transportation markets supports environmental goals, builds customer satisfaction, power purchase agreements as part of reduces operating costs, and assures the future value of existing assets. its competitive Advanced Solar Initiative The EEI white paper, “Transportation Electrifi cation: Utility Fleets Leading the (ASI) selection process—the largest Charge,” offers a road map for a long-term, coordinated effort to further spur the acquisition of solar resources in Georgia development of EV technologies in the transportation market. The effort is led by to date. Georgia Power’s ASI program EEI’s Electric Transportation Task Force, co-chaired by Tony Earley and Portland was developed in coordination with the General Electric CEO and President Jim Piro. commission as well. For more information on Georgia PG&E Power’s solar programs, visit www.georgiapower.com/solar.

Georgia currently has one of the FASTEST-GROWING SOLAR INDUSTRIES in the country.

PG&E Corporation Chairman, CEO, and President Tony Earley announces the electric utility industry’s commitment to fl eet electrifi cation at the White House.

12 ELECTRIC PERSPECTIVES | www.eei.org/ep INDUSTRY TAKES ACTION ON EPA WATERS RULE orking with a broad cross- Wsection of associations, EEI is educating members of Congress and other policymakers and stakeholders about the electric power industry’s con- cerns with the Environmental Protection Agency’s (EPA’s) proposal to revise the regulatory definition of “Waters of the United States” (WOTUS). EEI submitted comments on the rule that encourage EPA to withdraw the proposed rule and engage in a mean- ingful stakeholder dialogue to create reasonable and focused rulemaking. In April, EPA and the U.S. Army Corps of Engineers published the proposed rule, which would fundamentally change the way the Clean Water Act (CWA) operates nationwide—expanding fed- eral jurisdiction under the Act beyond traditional navigable waters, interstate waters, territorial seas, tributaries, and adjacent wetlands to a number of other waters. While EPA’s objective is to make the process of identifying waters of the United States less complicated by increasing CWA transparency, predict- ability, and consistency, the proposed rule does not meet that goal. Instead, it allows the federal government to extend its reach into virtually any landscape that can carry water—from ditches used to channel stormwater to erosional features in the arid Southwest that may carry water once every few years. This will result in some very real and meaningful unintended consequences: replacing state authority with expanded EPA control and slowing the transition to increasingly clean fuel sources. Read more about the WOTUS rule at www.eei.org/resourcesandmedia/ energynews.com.

JANUARY | FEBRUARY 2015 13 news + trends

ENHANCING THE GRID: STRATEGIES FOR SUCCESS ore than 1,100 industry thought Mleaders converged in Dallas in mid-November for EEI’s 49th Financial Conference to discuss the changing energy landscape and how utilities must evolve. Attendees heard from George W. Bush, 43rd president of the United States. General session highlights included: “Cyber and Physical Security in Today’s World,” with Michael Chertoff, co-founder and executive chairman of The Chertoff Group and former secretary of the Department of Homeland Security; and “Distributed Generation: Challenges and Opportunities,” a panel discussion featuring Hawaii Public Utilities Commis- sioner Lorraine Akiba, First Solar CEO Jim Hughes, Constellation Senior Vice Pres- ident of Distributed Energy Gary Fromer, American DG Energy President and CEO Hawaii Public Utilities Commissioner Lorraine Akiba addresses Financial Conference attendees. Barry Sanders, and SunPower Corporation President and CEO Thomas Werner. In addition, NiSource and CMS Energy were both recognized with EEI Index Awards for their long-term fi nancial achievement. For the fi ve-year period ending September 30, 2014, NiSource was the top-ranking large-cap company with a 262-percent return. DTE Energy and Sempra Energy were the next highest large caps with returns of 168 percent and 148 percent, respectively. CMS Energy was the top-ranking small-cap company with a total return of 170 percent. OGE Energy and PNM Resources were the second- and third-place fi nishers among the small-cap electric utilities with returns of 160 percent and 150 percent, respectively.

XCEL ENERGY SETS HYDRO GENERATION RECORD cel Energy’s Upper Midwest hydro fl eet generated more electricity Xin September 2014 than in any other September. The fl eet includes 19 plants in Wisconsin and the St. Anthony Falls facility in Minnesota. The dams provided 130,537 megawatt-hours of clean, renewable energy, breaking the previous record set in September 2002. “It’s been a very productive year for hydro,” said Scott Crotty, manager of Xcel Energy’s hydro operations. “Seven of our last nine months have been signifi cantly above the 10-year average for hydro generation.” Substantial rain and runoff are credited with much of the increase, but facility upgrades and modernization also play a role. Dells Hydro in Eau Claire, WI, was upgraded in 2009-2010 to reduce the number of turbines from seven to fi ve, while increasing the generating capacity by 35 percent to 11.7 megawatts. Xcel Energy also recently installed new equipment at the St. Anthony Falls plant in Minneapolis and the Big Falls, Chippewa Falls, Menomonie, St. Croix Falls, and Wissota plants in Wisconsin. In a typical year, hydroelectric power—including both owned and purchased power—makes up about 8 percent of the power Xcel Energy provides to its nearly 1.7 million electricity customers in Michigan, Minnesota, North Dakota, South Dakota, and Wisconsin.

Xcel Energy’s St. Anthony Falls hydroelectric plant in Minneapolis, MN.

Xcel Energy

14 ELECTRIC PERSPECTIVES | www.eei.org/ep RELIABLE AND RESILIENT GRID new report commissioned by EEI A examines the resiliency of the American electric grid against cyber and physical security threats. “Addressing Dynamic Threats to the Electric Power Grid Through Resilience” outlines the industry’s multipronged approach to grid security, including critical infrastructure standards, voluntary security initiatives, incident response preparations, and partnership with the government to enhance the reliability of our nation’s electric power grid. “Our country’s electric grid is a vast network that powers the American economy by providing vital service to millions of families and businesses,” said EEI President Tom Kuhn. “The in- dustry takes its responsibility as a criti- cal infrastructure provider very seriously, which is why EEI asked The Chertoff Group’s experts to assess the industry’s security posture and help us continue to combat emerging threats.” The report details how electric com- panies and government stakeholders are implementing best practices in risk assessment to prevent and mitigate cy- ber and physical security attacks in the foreseeable future. As threats evolve and the grid transforms, the industry continues to strengthen its partnerships and tactics to create a more reliable and resilient power grid for all Americans. To read the report, visit www.thechertoffgroup.com.

JANUARY | FEBRUARY 2015 15 news + trends

POWELL NAMED POWER-GEN WOMAN OF THE YEAR ary Powell, president and CEO of Vermont’s Green Mountain Power (GMP), was named MPower-Gen 2014 Woman of the Year at Power-Gen International in December. Powell was selected based on her work in advancing the power generation industry and her leadership and community involvement. “It is an incredible honor to be recognized by our industry for the work that is happening in Vermont. Energy can be transformational in moving customers and society to a more secure and environmentally sound future, and we are determined to lead the way,” Powell said. “GMP is partner- ing with customers to accelerate the pace of change as Vermont’s Energy Company of the Future. We are fi nding new ways to help Vermonters save money and be more comfortable, while moving to cleaner local sources of energy.” A cornerstone of Vermont’s energy transformation includes a new collaboration with NRG to make Vermont a leader in sustainable energy. Beginning in early 2015, the partnership will bring innovative, cost-effective, clean energy products and services to Vermont, helping customers manage energy use and save money. It will also transform the distribution grid from a 100-year-old electric delivery model to a new system designed to create effi ciencies and distributed energy solutions through renewable technologies and energy storage.

FORECASTING GROWTH nergy industry CEOs are optimistic about the possibilities for industry and organizational growth over the next three years, Eaccording to a recent study by KPMG. The study of 54 industry CEOs in the United States found that 41 percent are confi dent about the prospects for growth in their industry, and 52 percent are more confi dent about their own companies’ prospects for growth. Nearly two-thirds expect the industry to record its greatest profi ts in 2016 and 2017. Encouraged by the economic recovery, executives ranked organic growth, reducing cost structures, and diversifying into new business areas as the top spots where they plan to focus business operations going into 2017. However, despite overall optimism, they suggested that adapting to government regulation and geographic expansion will be critical challenges over the next three years. Despite these concerns, energy CEOs indicated moderate overall growth strategies, with two-thirds focused on mostly organic growth via new product development and geographic expansion. CEOs also reported that they are looking to support their business priorities by strengthening their talent pipeline. One of the top three concerns executives expressed about their companies is fi lling the skills gap that will be created when a generation of energy industry professionals retires. Sixty-one percent of energy CEOs noted that their organizations have felt the effects of the skills gap and are adequately investing in signifi cant training and technology to adjust for this gap. Thirty percent said they are exploring non-traditional ways of attracting the resources to serve their future needs.

Are confi dent about the prospects for growth in U.S. ENERGY 41% their industry. INDUSTRY CEOS Are more confi dent about their own companies’ 52% prospects for growth.

Expect the industry to record its greatest profi ts in 2/3 2016 and 2017.

16 ELECTRIC PERSPECTIVES | www.eei.org/ep LANTERN LIVE new mobile app from the Depart- A ment of Energy helps consumers quickly fi nd and share critical informa- tion about nearby gas stations and power outages during energy emergencies. Lantern Live allows users to report the operational status of local gas stations, fi nd fuel, and look up power outage maps from local utilities. It also offers useful tips and guidelines to improve national energy preparedness in the face of extreme events that can result in power disruptions. Created in response to lessons learned from Superstorm Sandy, Lantern Live also builds on the White House Offi ce of Science and Technology Policy’s Disaster Response and Recovery Initiative, which is designed to accelerate the development of open data for power outages. The app also helps to lay the groundwork for emerging best practices of mobile app development across the federal government. Lantern Live is currently available free for Android devices through Google Play.

Department of Energy

JANUARY | FEBRUARY 2015 17

PROTECTING THE ELECTRIC GRID embers of the Electricity Subsector Coordinating Council (ESCC) met in October to Mcoordinate efforts to secure our nation’s electric grid and enhance sector-wide resilience to cyber and physical threats. Chaired by EEI Vice Chairman Tom Fanning, Southern Company’s chairman, president, and CEO, the ESCC brings together senior Administration offi cials and senior utility executives to protect against, prepare for, and respond to threats to the nation’s power grid. The council includes investor-owned utilities, cooperatives, and municipal utilities, as well as representatives of the nuclear industry, independent power producers, Department of Energy independent system operators, EEI, and other electricity trade associations. Elec- tricity is the only sector with direct CEO leadership and involvement in national security and business assurance through a sector coordinating council. The ESCC focuses on the electric utility industry’s efforts to address cyber- security, physical terrorism, and disaster response, and develops tools to assess and respond to cyber threats. It fi lls the critical need for improved information sharing among government agencies and industries responsible for critical infrastructure.

ESCC leadership discusses industry-government collaboration at an October meeting in Washington, DC.

MAKING RECYCLING COOL ichigan residents are doing cool things for their budgets, the environment, and Mthe economy, recycling more than 100,000 refrigerators and freezers since 2009 with the help of Consumers Energy. “By recycling old appliances, which are often several decades old, we are able to fulfi ll our promise to help Michigan save energy,” said Garrick Rochow, Consumers Energy’s vice president of customer operations and quality. “We see the benefi ts of appliance recycling in so many ways, from the rebates that people receive to the Michigan jobs this effort creates.” Consumers Energy customers collect $50 for every refrigerator or freezer they recycle, and they save even more on their bills by switching to more energy-effi cient models. If a refrigerator is more than 15 years old, it could be using up to four times more energy than a new version. A household could save $150 a year on its electric bills with a new refrigerator. 700,000 Some facts about appliance recycling and energy effi ciency: T $575 million: The amount of money Michigan homes and businesses served by Consumers Energy have saved through energy effi ciency since 2009. The number T 50: The number of jobs that the appliance recycling program has helped to create of tons of at facilities in Grand Rapids and Livonia, MI. carbon dioxide T 700,000: The number of tons of carbon dioxide removed from the air by recycling removed from the air 100,000 refrigerators and freezers—the same as taking approximately 100,000 by recycling 100,000 cars off the road. refrigerators and freezers. “We know the least expensive form of energy is the energy we don’t use,” Rochow said. “Appliance recycling has made a tremendous impact in our state, and we look forward to recycling the next 100,000 refrigerators and freezers.”

JANUARY | FEBRUARY 2015 19 WHEN IT COMES TO TRANSMISSION, one name towers above all others.

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d atcllc. com A POWERFUL PARTNERSHIP SMART CHARGING AT LOW COST elta Products Corporation recently unveiled its new smart electric vehicle (EV) charging technology—targeting large-scale Ddeployment of smart charging systems at low cost—at the Detroit headquarters of DTE Energy. Representatives from the Department of Energy (DOE), DTE, Mercedes Benz, KVA, GM, Ford, Chrysler, and Bosch attended. Delta’s project partners, DTE Energy and Mercedes, also presented their advancements and projections on smart EV charging. With communication capabilities and a site-management system, Delta’s smart-grid-capable EV chargers can prioritize and optimize EV-charging activities of a group of EV and hybrid plug-in EV (PEV) workplace charging stations based on utility energy profi les. The smart-charging system will allow utilities to reduce infrastructure costs and manage load during peak hours. It also will benefi t consumers by taking advantage of off- peak electricity rates for EV charging. As a result of the partnership with DTE, Delta has deployed 24 charging stations in the MGM Grand parking garage adja- cent to DTE Energy headquarters, making it the largest cluster of charging stations in the state. The chargers are available for use by DTE employees and MGM guests. “The cooperation with Delta has been outstanding in this DOE project,” said Vince Dow, DTE Energy’s vice president of distribution engineering. “By the end of 2015, we hope to show how clusters of charging stations such as the one in this project can be reliable adjuncts to the electric grid.”

INNOVATION EXPO FOCUSES ON INTERNET OF THINGS EEI Spring merging technologies from drone robotics to smart-home Edevices were on display in early November at Exelon Cor- National Key Accounts poration’s third Innovation Expo. Held at M&T Bank Stadium Workshop in Baltimore, MD, the event brought more than 500 Exelon employees and industry experts together to explore how to apply creative solutions to complicated business challenges. Building on the last expo’s theme of “data-driven decisions,” the event focused on the “Internet of Things,” a growing fi eld that explores ways to leverage the connectivity of the Internet with a wide range of data devices, including everything from smart thermostats to WiFi-connected smart appliances. The expo also highlighted innovative ways Exelon has deployed technology to improve processes throughout the enterprise. “Exelon is making investments in technologies that improve March 15-18, 2015 services for our customers and employees,” said Exelon President and CEO and EEI Vice Chairman Chris Crane. Hyatt Regency New Orleans “We continue to encourage employees across the company New Orleans, LA to use innovative solutions to drive best-in-class performance and create value for our cus- tomers and the communities we serve. Visit www.eei.org/meetings The Innovation Expo is a great oppor- and register today! tunity for us to celebrate employee innovations and to continue to learn from others in the industry.”

JANUARY | FEBRUARY 2015 21 2015 Accounting and Auditing CONFERENCE & TRAINING CALENDAR FERC Reporting**** Utility Internal Auditors’ MID MARCH 2015 • WEBCAST Training Course T Training Seminar AUGUST 24-26, 2015 • WASHINGTON, DC

Spring Accounting Conference Public Utility Accounting MAY 17-20, 2015 • BOSTON, MA Training Courses T Budgeting & Financial Forecasting AUGUST 24-27, 2015 • WASHINGTON, DC T Corporate Accounting T Introduction T Property Accounting & Valuation T Advanced

Property Accounting & Accounting for Energy Depreciation Derivatives** MAY 20-21, 2015 • BOSTON, MA SEPTEMBER 16-18, 2015 • CHICAGO, IL T Training Seminar T Seminar/Workshop

Revenue Recognition*** Accounting Standards JUNE 1-2, 2015 • CHICAGO, IL Committee* T Training Seminar SEPTEMBER 27-30, 2015 • SEATTLE, WA

Accounting Leadership Fall Accounting Conference Conference NOVEMBER 15-18, 2015 • PHOENIX, AZ JUNE 14-17, 2015 • AUSTIN, TX T Corporate Accounting T Property Accounting & Valuation Chief Audit Executives’ Conference * EEI ONLY JUNE 14-17, 2015 • AUSTIN, TX ** With EY *** With PwC **** With Deloitte For registration information: www.eei.org For information on meeting content and sponsorship Be sure to take advantage of these opportunities: outstanding opportunities! Most are Randall Hartman, [email protected] off ered jointly with the American Gas Dave Dougher, [email protected] Association (AGA). Kim King, [email protected] CREATING THE NEXT GENERATION OF ENERGY energycareers@work WORKERS.

Diversity Is Key in Energy Workforce Recruitment By Thomas H. Graham, CEWD chair and vice president, people strategy and human resources, Pepco Holdings, Inc.

uilding a diverse, highly skilled energy workforce still serving, allowing veterans to seamlessly transition is a critical component of meeting tomorrow’s out of the military. energy needs. Utilities across the country are The industry also is reaching out to students with Bthinking innovatively when it comes to recruit- targeted training and assistance for low-income young ment strategies to build a broader, well-rounded pool of adults and those interested in STEM education. In an ef- employees who reflect the communities they serve. fort to reach younger female students, utilities like Nicor Diversity was a major theme during the 2014 Center Gas are involved in STEM-specialty, girls-only summer for Energy Workforce Development (CEWD) Summit, camps. Other utilities, like Tucson Electric Power, provide held last November. More than 150 energy and education summer internships to teachers from underprivileged leaders discussed workforce challenges and opportuni- areas. After the internship, these teachers take what they ties facing the sector. Utility executives, human resource learn back to the classroom to educate and excite students officers, and technical and community college represen- about energy career opportunities. tatives explored academic and recruitment strategies to More and more utilities are recruiting among the mil- meet long-term energy needs while providing employees lennial generation. These young adults not only think with rewarding, sustainable careers in the industry. and work differently than employees who joined the en- Working with schools, veterans, and faith-based ergy workforce 20-30 years ago; they are looking for a organizations, utilities are recruiting in a completely completely different career experience. Many utilities different way than they did just a decade ago, reaching are introducing an employee resource concept such as out especially to minorities, women, youth, low-income the Employer Resource Group (ERG). The ERG provides young adults, and veterans. opportunities for this generation of workers to network with others across industry. The younger generation is The Importance of Recruiting Veterans an important element of a diverse energy workforce, and, Walter Tillman, a representative of Student Veterans of to retain millennials, utilities must be able to give them America, spoke during the CEWD Summit about the challenging career opportunities and keep them engaged. importance of utilities recruiting veterans. In many cases, As the industry continues to face workforce challenges, veterans have the science, technology, engineering, it is imperative that diversity plays a key role in recruit- and math (STEM) training and education desired by ment initiatives. Good faith efforts alone aren’t enough— the energy sector. A recent study looking at a sample of utilities must strategically work toward the goal of hiring 790,000 veterans found that 51.7 percent have received and retaining a diverse workforce. a postsecondary degree or certificate—a completion At the end of the day it’s about people—customers rate similar to traditional college students, and greater should feel connected to their local utility workforce, and than nontraditional students. This is exceptional, par- employees should feel that they are engaged in rewarding, ticularly considering that veterans enter the classroom sustainable energy careers. with unique challenges that most traditional students don’t face—such as families they are helping to support by working part- or full-time jobs, delayed enrollment, deployments, and service-connected disabilities. Further, according to Tillman, many troops are recruited into the military from underprivileged socio-economic backgrounds and have limited technol- ogy experience. But, by the time they leave the military, they have acquired a world-class, hands-on education in technology. This demonstrates that veterans can learn and adapt to whatever the energy sector throws their way. (Left to right) Tom Graham, Nicor Gas President Beth Reese, and Through the industry-led initiative Troops to Energy National Grid Executive Vice President and Chief Operating Officer Jobs, many utilities are proactively hiring veterans. Geor- John Donleavy discuss strategic workforce planning at the gia Power, for example, has developed a unique program CEWD Summit. through which it recruits and trains troops while they are

Formed in March 2006, the Center for Energy Workforce Development (CEWD) is a non-profit consortium of electric, natural gas and nuclear utilities and their associations: the Edison Electric Institute (EEI), American Gas Association (AGA), Nuclear Energy Institute (NEI), and National Rural Electric Cooperative Association (NRECA).

JANUARY | FEBRUARY 2015 23 BUILDING THE 21ST-CEN POWER SY

24 ELECTRIC PERSPECTIVES | www.eei.org/ep The electric utility industry will use technology, innovation, and creativity to build the safe, reliable, and affordable grid of the future.

n 2003, the National Academy of Engineering published its list of the top 20 engineering achievements of the 20th century. The list included some undeniably profound break- throughs that defi ne the modern age: IThe Internet was 13th. The telephone, ninth. Radio and TV together were sixth. The automo- bile was number two. And number one? At the top of the list was the engineering achievement that enabled many, if not most, of the other 19: the electric power system. Calling it “the workhorse of the modern BY THEODORE F. CRAVER, JR. world,” the Academy said, “From street lights to supercomputers, electric power makes our lives safer, healthier, and more convenient.” The building of our national—and global— power systems is truly an historic achievement. Our industry is full of stories of visionary pio- neers and amazing engineering feats. There’s a good example of this from our NTURY history at Edison International. In 1898, the Edison Electric Company (as it was called at the time) was struggling to keep up with rapidly growing demand in downtown Los Angeles. The YSTEM challenge: How to get power from a recently constructed hydroelectric plant to Los Ange- les, more than 80 miles away. Never before had such a long transmission line been attempted. The key to success was to increase the voltage of the line, but this required a much-improved insulator. One of the company’s engineers, named Orville Ensign, envisioned a new type of insula- tor made from porcelain instead of glass. He cre- ated the “Redlands” insulator, and the following year the transmission line into Los Angeles was complete. The Journal of Electricity, Power and Gas wrote that the 83-mile, 33,000-volt line was “for years unequaled, both in length and volt- age, by any line in the world.” Ensign’s porcelain insulator was a simple idea that had profound consequences. It illustrates the innovation, creativity, and can-do attitude that has marked our industry for decades.

JANUARY | FEBRUARY 2015 25 All images: Southern California Edison Building today’s power grid was an historic achievement. Building tomorrow’s power system will be equally as important.

Southern California Edison

Now that we are in the 21st century, even shelter, food, and water would we are faced with repeating this grand not be possible without it. In Cali- achievement. It is time to build the fornia, where our Southern Califor- next-generation power system for this nia Edison utility operates, about 12 century and beyond. percent of electricity is supplied by hydropower and nearly 20 percent of A Changing Landscape all electricity is consumed to pump, The fi rst and most obvious question transport, or store water. Electricity is: Why do we need to modernize the and water are very much intertwined. system—hasn’t it served us well for In our increasingly digital, net- more than 100 years? The U.S. elec- worked world, electric reliability tric system was designed and built to is more important than ever. be durable and inexpensive. Electric Power outages, even brief fluctua- bills, on average, consumed only 1.48 tions, can disrupt a wide variety of It is time to build the percent of the expenditures of Amer- microprocessor-based devices, from next-generation ican households in 2014 (through computers running the Internet to November), according to the most life-support systems. power system for this recent data from the Department of For homeowners, if the power goes century and beyond. Commerce. out even for a couple of seconds, they But the demands of our customers have to go around the house and re- are changing, and changing rapidly. Re- boot all of their digital devices. That sponding to new technologies as well is not high on customers’ satisfaction as public policy that favors environ- list. It’s even more damaging for busi- mental protection, customers want an nesses. More and more of our busi- enhanced power system that is more ness customers have their processes secure, reliable, and environmentally computerized, so even a momentary responsible, and that offers them more outage can knock out their comput- choices and control over their usage— erized controls, requiring them to while remaining affordable. reboot their systems. The downtime These are not mere conveniences. can be expensive. Electricity is essential to modern life; Customers’ demands for power

Ted Craver is chairman, president, and CEO of Edison International and chairman of the Edison Electric Institute.

26 ELECTRIC PERSPECTIVES | www.eei.org/ep FIGURE 1 LEVELIZED COST OF ELECTRICITY BY GENERATION TYPE (Assumes New Construction)

Natural Gas 6-9¢/KWH

Coal 6-15¢/KWH

Wind 4-8¢/KWH

Utility Solar 6-9¢/KWH

Commercial Solar 13-17¢/KWH

Residential Solar 18-27¢/KWH

Source: Lazard’s Levelized Cost of Energy Analysis - Version 8.0

quality are only going up. Today agree: In 2006, the legislature passed a percent of our electric system is used our industry averages 99.99 percent greenhouse-gas reduction law, and in on average. availability—less than an hour of 2010 voters soundly defeated a ballot One way to improve capacity uti- downtime per year. That sounds initiative to roll it back. lization is to increase the amount of good, but it will not be sufficient go- The challenge is to build a low- electric usage in off-peak periods. ing forward. carbon power system that is safe, This is one of the reasons that Edison reliable, and affordable. Edison In- International actively supports elec- Looking Toward the Future ternational and Southern California tric vehicles. When electric vehicle All electric utilities have essentially Edison intend to be among the lead- owners charge their cars overnight the same mission: to provide safe, ers in accomplishing this. Technology, during our off-peak period, they help reliable, and affordable electricity to innovation, and creativity are the best to improve capacity utilization by us- their customers. At Edison Interna- tools for achieving these goals. His- ing some of that idle system resource. tional, that’s been our mission for de- torically, utilities have been technol- Longer-term, there is the oppor- cades. More recently, an important ogy companies in many ways, and we tunity to improve system efficiency fourth element has been added, and still are today. The ability to develop by modernizing the grid. As we in- that is to do this in an environmen- innovative approaches to enable this troduce more digital monitoring and tally responsible way. massive transformation will be one of control devices, we will improve the There are tradeoffs between afford- the distinguishing characteristics of dispatch efficiency of the grid, and ability and environmental responsi- successful companies. thereby cut line losses and reduce re- bility. Our challenge is to figure out I believe there are four key actions serves and slack in the system. how to provide electricity with little we must take to provide electricity in The second step is to increase environmental impact and without a way that is environmentally respon- the use of renewables, but in a cost- choking off growth and job creation. sible and affordable. efficient manner. Here’s where some of Energy fuels economic growth, so we The first is to improve the effi- those trade-offs come in. While costs need to provide it affordably. ciency of the system. Our national for renewable power are falling, con- California, probably more than power networks are designed to be ventional and utility-scale renewable any state in the nation, has set green- able to meet expected peaks in de- generation are still less expensive than house-gas reduction as a central mand, with additional power sources distributed renewable generation. feature of public policy. The gover- in reserve. That helps to guarantee The levelized cost of energy—the nor and the legislature believe that there will always be sufficient power unsubsidized cost in real dollars of climate change is one of the biggest supply, but it also means that much of building and operating a generating problems facing mankind. A major- the time the system is underutilized. plant over its assumed lifespan—for ity of California’s voters appear to In Southern California, only about 48 a new combined-cycle natural gas

JANUARY | FEBRUARY 2015 27 Southern California Edison

Customers want an enhanced power system that is more secure, reliable, and environmentally responsible, and that offers them more choices and control over their usage— while remaining affordable.

plant is 6 to 9 cents per kilowatt-hour solar industries already have done shining or the wind isn’t blowing, (KWH), according to Lazard’s 2014 quite a bit. Lazard’s analysis shows which makes it difficult to synch their analysis. New utility-scale wind and that the levelized cost of energy for so- output with changes in demand. Edi- solar installations are in a similar lar has fallen about 80 percent in the son recently procured (through a com- range. Solar panels on commercial/ last five years. Solar prices have come petitive solicitation) demand response industrial facilities range from 13 cents down mostly due to improvements in resources—in which customers vol- to 17 cents per KWH, while solar pan- the way that the panels are produced unteer to reduce usage when needed, els on a homeowner’s roof range from and put on the roofs. We need to con- and to deploy energy storage systems, 18 cents to 27 cents. (See Figure 1.) tinue to reduce those costs. such as grid-scale batteries, alongside At Edison, we have been finding Aside from their costs, there also is conventional and renewable genera- ways to drive down the cost for re- the issue of dispatching variable re- tion, to create a novel solution. newables through competitive solici- newables. Wind and solar don’t gen- A third key to balancing environ- tations for generation. The utility and erate electricity when the sun isn’t mental concerns with cost concerns

FIGURE 2 UPGRADES TO ENABLE DISTRIBUTED ENERGY RESOURCES

Circuit A Conventional Power Commercial Generation Better Circuit Installation Monitoring Larger Wires Circuit D

Residential Solar Installation

Advanced Voltage Controls and Protection Equipment Substation

Circuit C Circuit B

Source: Southern California Edison

28 ELECTRIC PERSPECTIVES | www.eei.org/ep The levelized cost of energy for solar has fallen about 80 percent in the last five years.

Southern California Edison

JANUARY | FEBRUARY 2015 29 Southern California Edison

is to improve the emissions profi les of fossil-fuel plants. This issue has re- turned to the forefront recently with the U.S. Environmental Protection Agency’s (EPA’s) proposed 111(d) guidelines for power plant emissions, also known as the Clean Power Plan. The nation’s electric generation fl eet is already becoming signifi cantly cleaner. This is the result of several factors, including the increasing use of cleaner-burning natural gas as a re- placement for coal-based generation, deployment of renewables, and com- pliance with other EPA rules such as the Mercury and Air Toxics Standards. Our industry provided EPA with suggestions regarding many of the concerns that utilities have with the 111(d) guidelines as they have been proposed. It is critically important that EPA provides states with achiev- able reduction goals and compliance deadlines. The fourth area to look at is where new sources of generation are lo- cated in relation to the load. Most big central plants, including large-scale wind and solar farms, are typically in Our challenge is to fi gure out remote areas. That means long trans- how to provide electricity with mission lines are required to bring power to homes and businesses. little environmental impact and Utility-scale renewables today are more cost efficient than customer- without choking off growth owned generation and will remain important in the 21st-century power and job creation. Energy fuels system. But if we also can place some economic growth, so we need of the new generation sources close to where the load is, near homes and to provide it affordably. businesses, we can both improve the effi ciency of the overall system and reduce emissions.

30 ELECTRIC PERSPECTIVES | www.eei.org/ep The grid of the future is a platform that connects homes and businesses and facilitates the use of customer devices, whether solar panels, batteries, electric vehicles, or other technologies.

There is much speculation today about distributed generation and bat- tery storage allowing customers even- tually to go off the grid. This may work for some customers in some cases, but we believe the distribution sys- tem will become even more import- ant in the future. Customers with rooftop solar need a grid that is capable of managing two-way fl ows of electricity so they can sell their excess power back into the grid. In fact, solar customers use the power grid and its services around the clock, just like other customers. When the sun doesn’t shine, or it’s dark or cloudy, solar customers have to rely on the grid to supply power. If they don’t have a grid to do that, they must create a fully functional, This is the opportunity afforded by electricity helps facilitate more dy- self-contained system. distributed energy resources, which namic dispatch of traditional and That requires battery storage. To include rooftop solar, energy storage, non-traditional resources in the most achieve true independence from the energy efficiency, and demand re- effi cient manner. (See Figure 2.) grid, home batteries will have to be sponse programs. At Edison, we have very large—and very expensive. To a pilot project underway in Orange illustrate: When turning on a central The Grid of the Future County that is making use of all these air conditioning unit, it takes a large tools as a way to replace the power This brings me to the grid of the fu- surge of power to overcome the in- from our decommissioned nuclear ture. We envision this enhanced ertia of the A/C unit’s motor. A home plant without adding new fossil-fuel power system as a platform, a net- battery has to be signifi cantly over- generation. work, which connects all homes and sized to be able to meet that surge It’s important to note that the lo- businesses with a uniform system and requirement, and will remain un- cation of new distributed energy re- facilitates the use of any customer derutilized most of the time. sources is crucial. We need to focus device, whether solar panels, batter- The grid is the most effi cient way placement of distributed generators ies, electric vehicles, or technologies to generate and use electricity. We on the more robust urban circuits we can’t even imagine today. We refer see battery storage as an important where we have suffi cient load to ab- to it as a “plug-and-play” network. resource in managing intermittency, sorb the excess power they put back It won’t matter what customers plug but it is expensive and less reliable into the grid at certain times. Also, into it, we just need to make sure that if the objective is solely to make a enhancing the distribution system we can maintain that 99.99 percent or homeowner’s system completely in- to accommodate two-way flows of better reliability. dependent from the grid.

JANUARY | FEBRUARY 2015 31 Grid-scale battery storage may be a key part of the 21st-century power system. Southern California Edison

Distributed energy resources will systems. The grid of the future is what are part of our community. We helped put huge demands on our distribu- will power this new, less resource- build Southern California, and the tion system and will require it to be intensive, more energy-effi cient world. region’s growth built Edison. much more sophisticated than it Ultimately, a utility can be success- We are only prosperous if the com- has been historically. That’s why to- ful only if it serves the will and needs munity is prosperous. This is one of day at our company we are investing of its customers and communities. the reasons that we invest heavily in between $4 billion and $4.5 billion Utilities don’t have the luxury of relo- our communities. It is why we are a year to build the next-generation cating if they don’t care for the busi- committed to building a low-carbon power network. ness conditions where they operate. electric power system that is safe, re- Let’s look at some examples of how There’s a reason why Southern Cal- liable, and affordable for our custom- this grid of the future could enable ifornia Edison has been serving our ers and our communities. innovations and efficiencies. Think region for more than 128 years. We about traffi c control. Sitting at a red light with the engine idling when there are no cars going in the other direction can be a waste of time and fuel. If digital monitoring and control devices are installed along roads, it is The grid of the possible to identify traffi c fl ows and adjust the traffi c lights accordingly. future is what will We could have a dynamically dis- patched traffi c system just like we al- power this new, less ready have a dynamically dispatched electric system. The same could be resource-intensive, done with municipal trash collection or any physical inventory system. more energy- Many innovations of this sort effi cient world. could make our cities smarter. Op- timizing activities and dynamic dispatch requires sensing through digital devices, analyzing their data, and then activating control devices. The technologies required to do this are advancing rapidly. It also requires modernizing and integrating electric, communications, and computing

32 ELECTRIC PERSPECTIVES | www.eei.org/ep Together We’re Generating More Than Electricity

Southern California Edison proudly supports Diverse Business Enterprises through bidding opportunities, technical assistance and capacity building. We have spent more than $4 billion with these firms over the last 4 years.

Southern California Edison, an Edison International company, is proud to support the Edison Electric Institute

For information on Supplier Diversity and Development, please visit our website at: sce.com/sd 1-800-275-4962

JANUARY | FEBRUARY 2015 33 FOR OVER 100 YEARS...LIFE. POWERED BY EDISON. The

34 ELECTRIC PERSPECTIVES | www.eei.org/ep DISTRIBUTION GRID BY PAUL DE MARTINI As the distribution grid of the future evolves, new business opportunities for utilities will emerge— driven by changing customer expectations.

he electric utility industry is in the midst of a historical tran- sition toward a more customer-driven business powered by changing customer expectations and technology innovation. This change presents uncertainties and challenges for util- ities across the world, and requires utilities to re-think the Tbusiness models and regulatory strategies needed to achieve success through this evolution. In response to this transition, utilities in the United States are focusing their strategies on building 21st-century customer and electric distribution platforms that create superior value. The overall objective is to enable customers to take advantage of new products and services in energy management and distributed generation. Ide- ally, these “utility of the future” business strategies will ensure that utilities remain attractive investments by transitioning successfully to a service-based world.

JANUARY | FEBRUARY 2015 35 Evolving Customer Expectations regulatory, and competitive risks,” ac- traditional utility services and Businesses across all sectors are fac- cording to a 2012 Ernst & Young sur- emerging services in the market- ing the challenge of responding to vey of 100 global corporations. Many place for active energy management, well-informed customers who have residential customers have similar alternative energy supply, and rising service expectations. As J.D. concerns about the impact of electric reliability enhancement. Power noted in 2014, “Consumers bills on their monthly budgets and are becoming more familiar with a service reliability, as noted by several Active Energy Management higher level of service in their daily recent national surveys. This follows Customers are taking advantage activities with other service providers Best Buy’s 2010 household survey of greater access to information and and, as a result, their expectations that found 36 percent of customers automation to manage their energy are rising.” Sometimes called the “ex- were interested in buying products spending. New technology from tradi- pectation economy,” these expecta- and services that enabled them to tional building automation and con- tions are fed by nearly unlimited and protect their home both fi nancially sumer products fi rms, as well as new transparent information on the best, and physically. Not surprisingly, the entrants, are empowering customers cheapest, most unique, and most rel- focus for successful residential home to manage their energy use. Security evant products and services via the energy management, solar photovol- fi rm ADT reported that 70 percent of Internet. (See Figure 1.) For the elec- taic (PV) systems, and backup gen- all new customers are choosing its tric utility industry, these increased eration marketing is to tap into this Pulse service, which includes home expectations include reliability of value proposition of lower bills and/ automation. Also, Google’s Nest has service, lower cost, and eco-friendly or improved power reliability. There is reportedly sold more than 1 million supply options that embrace giving not one customer solution, but rather learning thermostats. These auto- customers the control to make their a need to offer differentiated, person- mated systems, combined with in- own energy decisions. alized services designed for specifi c formation from more than 50 million Business customers’ decisions on customer segments. utility smart meters and customer sys- energy and related services “have be- It is clear that business, government, tems, enable customers to see their come an integral aspect of managing and residential customers will seek usage dynamically in the context of key fi nancial, energy security, brand, to optimize their service between projected monthly spending along

Paul De Martini is the former chief technology & strategy offi cer for Cisco’s Energy Networks business and vice president of advanced technology at Southern California Edison. He is currently a visiting scholar at Caltech and an industry consultant.

FIGURE 1 INTERNET USE, 1995-2014 (% of American adults who use the Internet, over time)

100% 87% 79% 75% 66%

46% 50%

25% 14%

0% 2014 1995 2000 2005 2010

Source: Pew Research Center surveys, 1995-2014.

36 ELECTRIC PERSPECTIVES | www.eei.org/ep with options for reducing costs to fi t SolarCity and Sunverge are incorpo- within their monthly budget. rating energy storage batteries into their commercial and residential Alternative Energy Supply solar offerings. Customers are seeking alternative Also, sustained low natural gas distributed generation supply op- prices have spurred a renewed tions based on retail costs, reliability, interest in combined heat and power and environmental objectives. (CHP), particularly as part of micro- Total net-metered rooftop solar PV grid systems. In 2012, the White systems exceeded 5 gigawatts (GW) House announced an initiative to ex- in 2014, according to the Energy pand CHP by 50 percent, reaching Information Administration 120 GW in the United States by 2020. (EIA). Growth increasingly The economics of alternatives do vary will be due to reaching un- greatly by utility service area based on subsidized retail rate par- local service factors, including appli- There is not one customer ity through declines in cable tariffs, regulation, federal and both technology and in- state subsidies, and individual cus- solution, but rather a need stallation costs, as well tomers’ perception of value. as improvements in to offer differentiated, solar cell effi ciency. Reliability Enhancement While not a direct Superstorm Sandy and other recent personalized services supply option, energy weather events have highlighted storage is being bundled that the value of electric service to designed for specifi c with rooftop solar PV to customers, communities, and local create more effective and economies grows exponentially over customer segments. resilient customer sup- time. Businesses and residential ply options. Over the past customers are taking actions four years, energy storage to enhance their resiliency and technology advancement has reliability. Generac, the market benefited from global research leader, reports 16 percent average an- and development initiatives total- nual growth over the past ten years ing more than $7 billion. Firms like in residential and small commercial

JANUARY | FEBRUARY 2015 37 stationary backup generators sensors, actuators, and connectivity primarily fueled by natural gas. Gen- are becoming ubiquitous—what is erac also estimates about 3 percent often referred to as the “Internet of of U.S. homes now have stationary Everything.” Cisco estimates that backup generators and another 12 more than 50 billion things will be percent have portable generators. connected to the Internet by 2020. Additionally, a growing number Every energy consuming, produc- of customers are pursuing micro- ing, or storing device is increasingly grids that can integrate energy man- connected. Not only are they becom- agement systems (such as build- ing smart nodes on the Internet— ing automation and industrial they are becoming smart nodes on controls), clean onsite distributed the electric grid. This convergence is generation, and backup generation creating an energy network that re- to create improved resiliency. These quires significant operational data customer perceptions and invest- management and analyses. Accord- ments suggest an opportunity ing to Bit Stew Systems, “a utility with to consider differentiated two million smart meters in the fi eld reliability services. is inundated with approximately 750 million data elements each day”— Low-cost sensors, Utility Business Models that’s almost twice the number of and the Energy Internet global tweets daily. of Things This is no longer a signifi cant chal- actuators, and connectivity Development of lenge due to analytics driven by pow- unique customer erful algorithmic engines. The pace of are becoming insights and energy information and control technology production/consumption advancement is staggering. Comput- ubiquitous—what is often optimization skill sets ing power and telecom bandwidth is essential to future have increased more than 1,000 times referred to as the business models. Solar during the past 20 years. However, PV and energy storage the real driver behind transforming advancements are chang- mountains of data into actionable “Internet of Everything.” ing the traditional electric information is the advancement utility industry value chain, in algorithm efficiency, which has but sustained value will come advanced by roughly 30,000 times be- from their optimization. Low-cost tween 1991 and 2008. As exemplifi ed

38 ELECTRIC PERSPECTIVES | www.eei.org/ep processes, and technology represent the foundation for an effective plat- form for serving large numbers of di- verse customers. In fact, as recognized in the recent New York State Public Service Commission “Reforming the Energy Vision” (REV) proceeding, these capabilities represent a signifi - cant asset that have inherent econo- mies of scope and have already been paid for by customers. Utilities can become effective marketing channels and provide service support for a wide range of utility and third-party prod- ucts and services. This will, however, require partnerships with competitive technology and services fi rms. Retail banking, for example, has transitioned successfully to offer customers a wider range of services and provides an by Amazon’s recommendation Utilities are considering several effective marketing channel for third- engine and Apple’s Genius selec- options to pursue with customers party products. tions, these innovations are enabling and growing distributed energy The evolution of utilities as facil- operational efficiencies, as well as resources markets. It is import- itators of customer choice begins personalized services, for customers ant to note that while growth rates with enhancing customers’ decision- based on unique insights. This emerg- have been strong, the distributed support capability and empowering ing “algorithmic economy” is directly resource opportunity is still at an their decisions about energy budget applicable to advanced grid manage- early stage. There remains signif- management and electric service ment and personalized, differentiated icant potential to benefit from a reliability. This includes powerful an- customer services. more distributed and customer- alytics that leverage a combination centric system. Two general business of the customers’ data, utility oper- Emerging Utility Business options are taking shape, facilitating ational data, public data, and rele- Opportunities customer choice and providing vant commercially available data. Value creation in today’s digi- enabling distribution system services. These decision-support and budget- tized global economy requires cus- management tools would be available tomer-centric thinking—thinking Facilitating Customer Choice to customers on any computing plat- focused on customers’ needs and pri- Customers increasingly expect a form, particularly mobile. And these orities—and the identifi cation of op- range of personalized services en- services could be expanded through tions through which these needs and abled by innovative technology— social media to create communities priorities can best be met. Custom- including options from their utili- of interest and lay the foundation for ers’ distributed resource adoption ties. A 2013 Swiss Re survey showed digital business opportunities. pathway is becoming clearer. Fun- that more customers would rather Concurrently, a utility could of- damentally, more customers are self- buy renewable energy from utilities fer customer-to-market facilitation optimizing their energy costs and than generate their own. In addition, services. This includes developing reliability; becoming prosumers— several state commissions recently an Internet shopping portal to facil- both consuming and producing have recognized market gaps and the itate customer access to third-party energy; and actively providing ser- enabling role that utilities can pro- services fi rms—similar to what por- vices to manage distribution and bulk vide. Existing utility relationships tals such as Expedia do for travel. A power systems directly or through with their customers provide tangible few utilities already are launching services fi rms. This evolution is mir- franchise value that hasn’t been fully revenue-generating sites to facilitate rored by opportunities to evolve the explored to mutual benefi t. Expand- customers’ ability to shop for and distribution system capability and ing utility service offerings, on a level compare offers on retail energy pro- utility operations to enable integra- and non-discriminatory playing fi eld, viders, distributed energy resources, tion, optimization, and market facil- can enable choice for all customers. and back-up generation. Also, the itation services. Customer service team members, ability to originate fi nancial services

JANUARY | FEBRUARY 2015 39 and process any payments could be distribution operations, plus the re- enabling services to facilitate distrib- valuable to third-party providers and lated transaction management services. uted resource services. finance firms. Taking this further, The electric distribution system is utilities could become a marketing Providing Enabling Distribution System a valuable asset that can be evolved channel for third parties by leverag- Services into an enabling platform that cre- ing existing workforce bandwidth to As a more distributed future unfolds, ates significant value for customers, originate leads and sales—and bene- the distribution utility naturally can services firms, and utilities. The in- fit those customer segments that are become a more valuable link between dustry is currently investing to en- too expensive for competitive firms customers’ resources and bulk power hance the electric power grid to meet to access profitably. markets. Utilities have an opportunity the needs of our 21st-century econ- For a number of utilities, develop- to profitably develop their existing omy. PG&E, like other utilities, has ment of distributed generation assets single-purpose distribution systems incorporated changes in distribution for customers through community into open platforms to enable seam- infrastructure to improve safety and solar or onsite resources is an attrac- less integration of distributed energy reliability, including investments in tive option. Ultimately, a segment resources (DER) and independent larger distribution wire sizes, trans- of customers will want an energy- microgrids. Additional investments in formers, and automation to help optimization service offering. This more advanced grid and operational enable integration of distributed could include managing customers’ technology and related grid designs resource at scale. distributed resources to achieve bud- for distributed resource integration An open platform builds on these get objectives and providing services are needed, as well as new opera- current investments through more back to the bulk power system or tional responsibilities and market- advanced technology to evolve

40 ELECTRIC PERSPECTIVES | www.eei.org/ep from the traditional closed, single- transmission system operators and The Distribution Grid of the Future purpose system to a more open, balancing authorities. As recognized Value creation in today’s digitized flexible, operationally visible, and in New York’s REV and California’s global economy starts with customer- resilient platform that can inte- “769” proceedings, central aspects centric thinking—particularly in- grate distributed resource growth. of the emerging distribution system sights into customers’ needs and Such a distribution platform may operator are a natural and desirable priorities, as well as decision fac- fully enable the synergies from extension of a utility’s core business. tors. This is essential as customer electrification of transportation This will likely require state regula- interaction with the power system and convergence with water systems. tory operational standard-of-conduct is becoming more active with dis- Caltech estimates another $100-$200 protocols similar to Federal Energy tributed resource adoption and billion in utility investment may be Regulatory Commission standards. energy management systems. needed through 2030 to address this Ultimately, if distributed re- This means that not only are cus- added capability. sources reach the scale envisioned tomer insights desirable to deter- To provide enhanced reliability in places like New York or California, mine new business opportunities, for select customers and/or commu- there will be a need for transaction- they are necessary to manage the nities, utilities may offer expanded management services to facili- evolving grid. Utilities increasingly grid-based premium reliability services tate a large number of multi-party are leveraging these insights and through premium grid reliability micro-transactions across a dis- using future scenarios to assess infrastructure, including utility tribution system that interfaces new business opportunities as well microgrids. A segment of customers with wholesale markets. The size as potential exposure to stranded is clearly seeking, and willing to pay of individual DER transactions will infrastructure investment. Migration for, premium reliability services. be very small and involve complex from status quo to any future busi- Differentiated reliability services terms that standard billing systems ness model is accomplished in in- on the grid-side of the meter are an don’t accommodate. This could cremental steps through roadmaps. option for utilities to consider as an result in many tens of millions of Each step on a roadmap represents alternative for customers doing it unique transactions annually, each a necessary evolution in business themselves. Aside from traditional worth less than a dollar. Back-end strategy, regulation, technology circuit reconfiguration, dual feeds, management of these transactions investments, and organizational and undergrounding, utilities may is needed to facilitate scheduling, capabilities. Investment plans will develop distributed assets or micro- settlement, and clearing among the necessarily align with customer grids on the grid-side of the meter. parties based on the corresponding needs, regulation, and the pace of The current microgrid market is physical fl ows across the distribution technological change. highly fragmented and ill-defi ned— to transmission system. These ser- The electric distribution business presenting an opportunity for utili- vices are analogous to transaction- has tremendous business opportuni- ties to take a lead in providing pre- management services needed for ties into the future based on becom- mium grid-based reliability services online purchase of digital music or ing the platform for customer value to those customers willing to pay. videos and the related royalty and maximization. Investment choices Advanced distribution system jurisdictional tax settlements. in the distribution platform business operations capabilities will be versus services to facilitate customer required to manage the bi- choice are not inherently mutually directional power flows from exclusive. There are important regu- large numbers of distributed latory questions to consider. But, as resources across the distribu- discussed in several states, these can tion system in a safe and be addressed in a manner that reliable manner. In par- enables a level and fair playing ticular, this will require fi eld for utility and compet- additional functional The electric distribution itive services to the benefi t responsibilities for of all customers. The elec- utility distribution business has tremendous tric utility industry has an system opera- immediate opportunity tors, and they will to begin envisioning its actively coordinate business opportunities into business as an enabler safe and reliable of customer choice and operation of the the future based on becoming public policy. electric system with the platform for customer

value maximization. JANUARY | FEBRUARY 2015 41 ENERGY OUTLOOK

42 ELECTRIC PERSPECTIVES | www.eei.org/ep s the 114th Congress convenes in early January, Electric Perspectives asked four energy association CEOs from the American Public Power Associa- tion, America’s Natural Gas Alliance, ANational Rural Electric Cooperative Associ- ation, and Nuclear Energy Institute to offer their insights and outlook for energy policy in the New Year. On the following pages, these industry leaders outline their top priorities for energy legislation in the new Congress, thoughts about the natural gas and nuclear infrastructures needed to meet future demand from utilities and consumers, and 2015 their organization’s top regulatory initiatives in 2015.

JANUARY | FEBRUARY 2015 43 Sue Kelly President and CEO American Public Power Association www.publicpower.org

What are your organization’s top rule would determine which streams, wetlands, and other priorities for energy legislation in the bodies of water are protected under the Clean Water Act. 114th Congress? APPA believes this proposed rule would impose serious The American Public Power Association (APPA) remains compliance problems for electric utilities. extremely concerned about regulations proposed by the In September, I sent a letter to several leaders of the Environmental Protection Agency (EPA) under the Clean House of Representatives in which I noted APPA’s support Air Act’s section 111(d) and the Clean Water Act (Waters of for bipartisan legislation that would prohibit EPA and the the United States). Army Corps of Engineers from moving forward with im- APPA has voiced concerns about EPA’s 111(d) proposal plementation of the proposed rule. APPA would also like

to reduce carbon dioxide (CO2) emissions from existing the proposed Waters of the United States rule withdrawn, power plants since it was fi rst unveiled in June. If imple- revised, and a new version proposed. mented in its current form, the proposed plan will create Grid security is another challenge that public power economic ineffi ciency, impose additional costs on elec- and the electric industry as a whole are actively working tricity customers, potentially threaten the reliability of the to address, but Congress also has a role to play. As I told a electricity system, and force risky over-reliance on a single Senate hearing in April, the power sector’s top priority is to fuel—natural gas—to generate electricity. protect critical power infrastructure from cyber and physi- As we noted in our comments on EPA’s proposed rule, cal threats by partnering with all levels of government and there are many questions as to whether suffi cient natural sharing critical information. gas pipeline and storage infrastructure will be available APPA joined with a number of electric industry groups to support increased use of natural gas for electric gener- in urging the Senate to pass the Cybersecurity Informa- ation, given the obstacles in constructing and expanding tion Sharing Act of 2014 to improve the nation’s ability to pipelines, barriers posed by certain restructured whole- defend against cyber attacks. Since the Senate failed to sale electricity markets, and differences in the business pass the bill before the end of the 113th Congress, APPA models for the electricity and gas pipeline industries. will urge the 114th Congress to consider similar bills in the APPA has long advocated that Congress address the House and Senate.

issue of CO2 emissions through comprehensive, econ- APPA is very concerned about calls to tax municipal omy-wide legislation. Failing that, we would like to see bonds in Congress and by the Administration. Taxing EPA withdraw the proposed 111(d) rule, revise it, and municipal bonds will impose higher borrowing costs that re-propose it. We are, however, very actively engaged in will limit investment by public power utilities in critical the EPA rulemaking proceeding, as we must be if we are infrastructure and, ultimately, impose higher electric rates to fully represent our members on this important issue. on residential and business customers. APPA believes We filed lengthy comments with EPA on December 1 that federal tax exclusion of the interest from municipal laying out both our legal and practical concerns with bonds should not be limited or replaced with a tax credit its proposal. or direct payment subsidy. We will continue to oppose any We’ve supported legislation, sponsored by Representa- measures that would undermine this critical fi nancing tive Whitfi eld (R-KY) and Senator Manchin (D-WV), which mechanism for public power utilities. would, among other things, block EPA from setting new APPA will continue to work to educate members of the

CO2 emissions standards for existing power plants unless 114th Congress about issues tied to greater penetration Congress passes legislation setting a date for the standards of distributed generation technologies, especially solar. to take effect. We will continue to support this or similar Public power systems often have taken a leadership role legislation that may be introduced in the 114th Congress. in deployment of distributed generation. We also see a need for Congress to intervene in response But electricity rates must be calibrated to ensure that to the Waters of the United States proposal unveiled by solar rooftop customers are treated fairly when providing EPA and the U.S. Army Corps of Engineers. The proposed value to the electric grid, while at the same time ensuring

44 ELECTRIC PERSPECTIVES | www.eei.org/ep that those same customers pay their fair share of the costs evidence to show that mandatory capacity markets are not of the power (and the grid that provides that power) when performing as advertised and are failing to deliver benefi ts the sun is not shining. These rate-related issues are best to electricity customers. resolved at the state and local levels, by governing bodies In October, APPA released a study that points out that closest to the affected retail customers. almost all new generation capacity in 2013 was fi nancially supported by long-term power purchase agreements or What are your organization’s top utility ownership. Only six percent of all capacity con- regulatory initiatives in 2015? structed in 2013 was built within the footprints of one of One of APPA’s top concerns heading into this winter is the regional transmission organizations (RTOs) with man- railroad coal delivery challenges. Continued coal deliv- datory capacity markets, and even some of that generation ery disruptions could impose additional costs on con- benefi ted from non-RTO market funding streams. sumers and are posing a threat to the reliable operation APPA also will keep close tabs on the fate of FERC Order of the power grid for another cold winter projected No. 745 on wholesale demand response. We were pleased for 2015. that the U.S. Court of Appeals for the District of Columbia APPA has been trying to raise Circuit in May ruled that FERC ex- awareness about the coal issue. ceeded its legal authority under Along with EEI and other groups, the Federal Power Act when it is- we’ve urged the Federal Energy sued Order No. 745, and vacated Regulatory Commission (FERC) to the entire order. The court noted hold a public workshop on railroad Grid security is that demand response is part of coal delivery challenges. APPA and the retail market and outside of its members have been active in another challenge that FERC jurisdiction. proceedings at the Surface Trans- public power and the But the situation remains un- portation Board (STB) on issues electric industry as settled. Since the May decision, important to captive shippers. there has been additional legal While these proceedings could re- a whole are actively wrangling, with the appeals court sult in some regulatory improve- working to address, in October approving a request by ments, legislative solutions are still but Congress also has FERC that it delay fi nalizing the needed to enhance competitive a role to play. decision that vacated Order No. transportation and improve rail 745. The federal government has customer protection mechanisms decided to seek Supreme Court re- and STB enforcement. view of the appeals court’s ruling. We continue to let regulators Legislation also was introduced know about our concerns with late in the 113th Congress that organized wholesale power markets. One of the central seeks to codify FERC’s Order No. 745. Should such legis- premises of mandatory capacity markets is that they will lation be reintroduced in the 114th Congress, APPA will provide incentives for generators to build power plants oppose it. in a particular region or subregion. But there is plenty of

JANUARY | FEBRUARY 2015 45 Marty Durbin President and CEO America’s Natural Gas Alliance anga.us

What are your organization’s top another 55 billion cubic feet per day of capacity are proposed priorities for energy legislation in the to come online by 2018. Clearly, a move to more natural 114th Congress? gas baseload power should make siting infrastructure America’s Natural Gas Alliance (ANGA) has a unique, easier because the cost is spread across more megawatts. market-oriented mission for a Washington-based associ- We do need a stronger push for infrastructure in New En- ation of energy producers. We exist to promote increased gland. Success will require continued political will through- use of natural gas, and we support efforts to safeguard out the region and constructive collaboration among development. With signifi cant interplay among Congress, stakeholders. The good news is that we head into this winter the Department of Energy (DOE), EPA, and other regula- with record storage and production, rebounding entirely tory agencies, we seek to advance policies in an integrated from the record drawdowns of last winter. As for the long fashion that more fully realize the benefi ts of our nation’s term, from 2013 through 2015, 57 percent of all investment natural gas abundance for our economy, environment, in new pipeline is being directed toward the Northeast. and energy security. Current priorities include: What are your top regulatory Q Energy infrastructure. Enhancing natural gas pipeline initiatives in 2015? and storage infrastructure is essential to realizing the We will work to ensure that regulations recognize the value full benefi ts of domestic natural gas. As we saw last of a growing role for natural gas in the delivery of reliable, winter, this is particularly important in the Northeast. affordable, and clean energy. Perhaps most relevant to EEI Improving the federal permitting process and enabling members, we will focus signifi cant attention on the states new and developing projects are critical. as they develop their 111(d) compliance plans. We under- Q LNG exports. While facility approvals are progressing, stand the concerns many of our customers have with these strong and bipartisan Congressional support for ex- rules, so we are focused on positioning natural gas as a tool pediting the DOE licensing process will be important that can help with compliance. to continuing that progress in a timely manner. The As with any regulation, implementation matters. We benefi ts of a robust export policy are signifi cant, and are emphasizing how a rate-based approach to measuring numerous economic studies show there is little to no emissions (versus mass-based) and the exclusion of emis- impact on domestic prices. sions from natural gas combined cycle plants will allow load Q Ozone. EPA’s new proposed ozone regulation is a step in to grow along with economic and manufacturing growth. the wrong direction. Senator Thune’s (R-SD) and Repre- Meanwhile, to help avoid unnecessary regulation of sentative Olson’s (R-TX) legislation—which would pre- methane emissions, we are highlighting the great prog- vent new ozone regulations until the existing standards ress made by the entire natural gas sector in dramatically are met—is an example of a balanced path forward that reducing methane emissions, all while natural gas produc- would keep us from impeding manufacturing growth. tion signifi cantly increased. Overall, we want to ensure decision-makers fully under- Given the concerns about the future stand, and take into account, the game-changing nature of baseload generation in electricity of the shale gas revolution. Independent experts agree markets, does your organization believe we have abundant natural gas for generations to come. that the natural gas infrastructure is Technology innovations brought us this revolution and adequate to meet future demand from continue to drive progress in effi ciency and environmen- utilities and consumers? tal performance as we produce far more gas today from In 2013 and the fi rst half of 2014, natural gas-based power far fewer wells with far fewer emissions. I can’t wait to see plants accounted for more than 50 percent of new utili- what the future will bring, not only for our industry, but for ty-scale generating capacity. Nationwide, infrastructure the economic, environmental, and energy security bene- is keeping pace. Pipeline additions more than doubled fi ts natural gas is making possible for the nation. between 2007 and 2013 compared to 2000-2006, and

46 ELECTRIC PERSPECTIVES | www.eei.org/ep Jo Ann Emerson CEO National Rural Electric Cooperative Association www.nreca.coop

What are your organization’s top may have threat or vulnerability information that should be priorities for energy legislation in the shared in a timely and actionable manner. NRECA will advo- 114th Congress? cate for measures that increase industry access to actionable On many issues, the National Rural Electric Cooperative intelligence—encouraging utilities with critical assets to Association’s (NRECA’s) regulatory and legislative teams share threat and vulnerability security information by pro- work in tandem pursuing solutions to environmental chal- viding appropriate liability and Freedom of Information Act lenges without imposing undue costs on co-op consumer protections on information shared in good conscience—and members in the form of higher electric bills. that enhance grid-protection efforts by industry. As we assist our co-op members in complying with the new coal ash rule, NRECA continues to pursue a perma- Given the concerns about the future of nent legislative solution that will protect a non-hazardous baseload generation in electricity designation and provide for state-level enforcement of markets, does your organization believe standards that include federal requirements. that the nation’s natural gas infrastructure We also support legislation introduced in the 113th is adequate to meet future demand from Congress, the Waters of the United States Regulatory Over- utilities and consumers? reach Protection Act (H.R. 5078). Enactment of H.R. 5078 Not today. It will take several years and lots of invest- would lead to a better rule by requiring the agencies to ments in new and expanded gas pipelines to bring that conduct a transparent, representative, and open consul- system up to the level needed to meet electric peak tation with state and local offi cials to develop a consensus system demands during high-demand periods and avoid on waters that fall under federal jurisdiction. most generation curtailment scenarios. The electric util- Last year’s polar vortex raised reliability concerns ity sector also will have to solve several other problems, among utilities and reliability watchdogs alike. Electric including how we justify the investment in gas infrastruc- co-ops frequently comply with emergency orders to pro- ture that may only be needed to provide firm service tect reliability, even if not mandated to comply. Compli- during just a few hours in a year and how we can bring ance could result in violations of environmental laws, the gas and electric systems and markets into better align- particularly the Clean Air Act. During the 113th Congress, ment. In the short term, our increased reliance for electric NRECA supported Senator McCaskill’s (D-MO) bill shield- ing entities that voluntarily comply with emergency orders to protect the electric system from such liability. We will continue to push for this legislation. Electric co-ops are engaged in public-private partner- ships and coordinating across critical infrastructures on resiliency: from information sharing to cyber and physi- Electric co-ops are engaged cal security to recovery planning and exercises. NRECA’s in public-private partnerships regulatory and legislative teams work in tandem to ensure any new policies improve system security and resiliency and coordinating across critical without imposing undue costs or requirements on co-op infrastructures on resiliency: consumer members. Valid threats to electric systems need from information sharing to cyber to be addressed with diligence and careful consideration— not in reaction to the latest scare story. and physical security to recovery The electricity sector is unanimous in calling for better planning and exercises. information sharing. In most situations, owners and oper- ators protect the bulk electric system without government intelligence information. However, intelligence officials

JANUARY | FEBRUARY 2015 47 generation on a natural gas infrastructure not designed, and events we have responded to for decades. built, or operated for that purpose raises reliability con- NRECA also believes industry and policymakers would cerns. In the long term, that increased reliance on natu- benefi t from an ongoing dialogue focused on how to en- ral gas and increased investment in accompanying gas sure all parties are making the right investments in re- infrastructure raises affordability concerns for electric liability, security, and resiliency tools and technologies ratepayers. without harming the grid or prohibitively increasing elec- tric rates for consumers. What are your organization’s top Across the country, co-ops are planning and deploying regulatory initiatives in 2015? solar projects and distributed generation (DG) technol- Not-for-profi t electric cooperatives serve 93 percent of the ogies that meet the needs of their consumer-members country’s “persistent poverty” counties. Electric co-ops and support their systems. Currently, two-thirds of co-ops are very concerned about how increased costs resulting interconnect with member-owned generation. from the array of new environmental regulations, some NRECA is creating photovoltaic system packages that fi nal and some still in process, will affect these members. include standardized designs for 1-megawatt (MW), 0.5- The long list of environmental regulations in the pipeline MW, and 0.25-MW installations to support co-ops de- includes: carbon dioxide limits for power plants, new veloping community and utility-scale solar. We also are ozone limits, coal ash disposal requirements, revisions to participating in efforts to develop policies, standards, and the Clean Water Act, and new endangered species listings. industry frameworks that enable co-ops to integrate these Co-op members and supporters submitted more than new resources in ways that are cost-effective for all con- 1.1 million comments to the EPA opposing the new and sumers, sustainable, and scalable. existing power plant rules. NRECA will follow up this tre- We also are working with our members to educate the mendous grassroots effort by educating policymakers on public and policymakers about the need for sustainable the disproportionate impacts of these proposals on co-op DG policies that enable consumer choices, minimize consumer members and support members as they engage cross-subsidization between consumers, respect the value in state implementation activities. of the electric grid, and honor the important relationship Electric co-ops understand that electric utilities, other between consumers and their electric cooperatives. critical industry sectors, and our government partners The Department of the Interior’s Office of Surface share the responsibility to protect the electric system and Mining may propose new restrictions on the use of coal related critical infrastructure for the benefi t of electric ash based on a demonstration of environmental bene- consumers and the nation as a whole. fi t. NRECA supports a continuation of the current mine NRECA is pursuing a dual track in its efforts to placement regulations. The fact that no one has identifi ed strengthen the nation’s electric system—including the any proven damage cases as a result of ash placement vast distribution network owned and maintained by ru- into a mine is a strong indication that mine placement is ral cooperatives—from both cyber, physical, and natural managed well. threats. First, NRECA is actively engaged with the Home- NRECA is concerned that EPA’s and the Army Corps land Security, Energy, and Defense Departments, as well of Engineers’ redefi nition of Waters of the United States as the North American Electric Reliability Corporation under the Clean Water Act (CWA) will make permitting and FERC, to establish a workable, effective framework under the CWA far more onerous, even unworkable. In- for prevention, mitigation, response, and recovery from a creased costs and delays for constructing and maintaining multitude of potential events. power lines, operating and maintaining existing genera- At the same time, NRECA will continue to educate and tion, developing new generation (including renewables), provide training for our member co-ops on new tech- and decommissioning existing generating facilities would nologies that will help them to operate their systems result in little enhanced protection for the nation’s waters. more efficiently during normal and emergency condi- NRECA is calling on the agencies to withdraw the rule and tions. Technology will be key to improving reliability and conduct an analysis of the impact on small businesses, as security, and also for improving recovery from new threats required by the Regulatory Flexibility Act.

48 ELECTRIC PERSPECTIVES | www.eei.org/ep Marvin S. Fertel President and CEO Nuclear Energy Institute www.nei.org

What are your organization’s top (GW) of nuclear generating capacity, which represent ap- priorities for energy legislation in proximately 10 percent of the nation’s installed generating the 114th Congress? capacity, 20 percent of U.S. electricity production, and We expect that energy policy legislation will be consid- nearly two-thirds of the carbon-free electricity supply. The ered, and it will include nuclear energy and used nu- United States must move forward with a second license clear fuel management provisions. The fate of that and renewal for many of our existing plants and build addi- other measures will depend ultimately on how the White tional nuclear generating capacity if it hopes to maintain House and the Republican-controlled Congress work to- nuclear energy’s contribution at 20 percent or more of U.S. gether. Certainly in the case of used fuel management, electricity. there are a lot of new members of Based on the 0.7-percent-a-year Congress whose positions must load growth forecasted by the En- be assessed, and stumbling blocks ergy Information Administration in that previously have hindered en- its “2014 Annual Energy Outlook,” actment of legislation still remain. maintaining nuclear energy at 20 However, serious consideration percent of U.S. electricity supply of that issue will resume, and Worldwide, 71 new would require 13 GW of new nuclear the Nuclear Energy Institute (NEI) nuclear energy facilities capacity by 2025—in addition to will strongly support that effort. the Watts Bar 2, Vogtle 3 and 4, and Beyond energy policy legis- are under construction, Summer 2 and 3 reactors already lation, the nuclear industry and and an additional 173 under construction in Tennessee, manufacturers and suppliers of are in the licensing and Georgia, and South Carolina, re- nuclear energy technologies will advanced planning spectively. continue their support for reau- If today’s nuclear plants retire at thorization of the Export-Import stages. 60 years of operation, 22 GW of new (Ex-Im) Bank. The Ex-Im Bank is nuclear generating capacity would one of the nation’s most important be needed by 2030, and 55 GW by tools to increase exports and create 2035, to maintain a 20-percent fuel American jobs. Worldwide, 71 new share. If today’s reactors operate to nuclear energy facilities are under construction, and an 80 years, 18 GW of new nuclear capacity would be needed additional 173 are in the licensing and advanced planning by 2030, and 23 GW by 2035, to maintain a 20-percent stages. This global expansion of nuclear energy provides share of U.S. electricity supply. the United States a signifi cant opportunity to increase U.S. Given the long lead times necessary to license and build exports and create American jobs. Without Ex-Im Bank, new reactors, planning for this capacity must begin in the U.S. companies will be shut out of this large and growing early 2020s. The industry and federal and state govern- global market. ments must work cooperatively to put in place the policy initiatives necessary to replace the reactors that do not Given the concerns about the future of reach 60 years or that retire at the end of 60 years of oper- baseload generation in electricity ation, and to expand the size of the U.S. nuclear footprint markets, does your organization believe beyond today’s reactors. U.S. energy and environmental that the nuclear generating fl eet is goals would be seriously compromised if nuclear energy’s adequate to meet future demand from share of U.S. electricity supply were to decline. A continu- utilities and consumers? ing, growing contribution from nuclear energy is essential No. The United States has approximately 100 gigawatts for grid reliability and to produce baseload electricity at

JANUARY | FEBRUARY 2015 49 stable prices and to sustain reductions in carbon emis- on the Nuclear Regulatory Commission’s own Principles of sions and other pollutants. Good Regulation and is much more efficient and focused on those matters that are most important to safety. It is What are your organization’s top important to prioritize activities consistent with safety to regulatory initiatives in 2015? ensure that the industry and regulators stay focused on Top nuclear industry regulatory initiatives this year in- their primary task: safe and reliable operation of nuclear clude: focus on the implementation of post-Fukushima energy facilities. safety measures, cybersecurity protection, second license renewals, completion of the Yucca Mountain license re- view, and efficient new reactor oversight. An overarching regulatory initiative is reducing the cu- mulative impact of regulation. This is a priority issue for the industry because of the safety implications. Regulation has an important role in assuring the safety of our facili- ties, but we need a 21st-century approach that is founded

50 ELECTRIC PERSPECTIVES | www.eei.org/ep Save the Date for DON’T MISS OUT! These Upcoming Meetings

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JANUARY | FEBRUARY 2015 51 innovation Partnerships Transforming the Power Sector

nnovative electric utility projects are Chapter 2 showcases 21 projects Virginia Power’s (DVP’s) understanding helping the electric grid meet the underway aimed at grid optimization of community-based solar energy. Ineeds of the 21st-century digital and flexibility, including enhanced grid The study will assess the impact and economy. reliability and operational efficiency, grid benefits of solar power, while supporting “Innovations Across the Grid (Volume intelligence and self-healing, substation and encouraging solar energy growth in II),” published by The Edison Founda- automation, and outage management. Virginia. DVP will construct and operate tion Institute for Electric Innovation in The final chapter focuses on customer up to 30 megawatts (MW) of company- mid-December, features more than solutions, such as energy tracking, owned solar facilities on leased rooftops 50 case studies documenting how smart pricing, bill alerts, outage commu- or on the grounds of commercial busi- electric utilities are integrating new nication, and smart thermostats. nesses and public properties. When fully energy resources into the grid; providing Following are three examples that implemented, the program will generate customer solutions; and optimizing the provide a glimpse into how utilities and enough power for up to 7,500 homes. grid itself. their technology partners are designing The Solar Partnership Program allows Chapter 1 (from which the following and building the grid for the next century. DVP to gain experience in operating three case studies were selected) high- “Innovations Across the Grid” can be distributed solar generation while also lights 18 projects detailing the develop- downloaded at www.edisonfoundation.net. offering unique opportunities to partner ment and integration of both large-scale with eligible business customers with and distributed solar, microgrids, battery Dominion’s Solar Partnership suitable facilities for solar installation. storage, and community solar, as well Program For the purposes of the program, as the monitoring and forecasting that Launched in late 2012, the Solar DVP has identified two host-site partic- are needed for successful integration of Partnership Program is a multi-year pilot ipant groups. The majority will consist of these resources. program designed to expand Dominion larger sites that can accommodate

(L to R): NorthWestern Energy President and CEO Bob Rowe, Berkshire Hathaway Energy Vice President of Legislative and Regulatory Affairs Jonathan Weisgall, Commonwealth Edison President and CEO Anne Pramaggiore, and Pepco Holdings Executive Vice President and General Counsel Kevin Fitzgerald speak at the IEI book launch in mid-December.

The Edison Foundation Institute for Electric Innovation

52 ELECTRIC PERSPECTIVES | www.eei.org/ep distributed solar generation greater and collect the necessary data to PG&E’s Battery Energy Storage than 500 kilowatts (KW). The company develop a distributed solar generation System Pilots also will partner with four smaller sites load model for the company’s distribu- Pacifi c Gas & Electric (PG&E) has capable of accommodating less than tion planning process; deployed two battery energy storage 500 KW, located on public or community Z quantify the reduction in line losses systems (BESS) as pilot projects. The buildings/sites for demonstration proj- from distributed solar generation Vaca-Dixon BESS is a 2-MW/14- ects. These smaller installations provide at various points on the distribution megawatt-hour (MWH) system de- opportunities for customer outreach and system; ployed at PG&E’s Vaca-Dixon Substa- education on solar technologies. Z study the operational impact of tion in Vacaville, CA. The Yerba Buena An educational program will coincide “high saturation” solar distributed BESS is a 4-MW/28-MWH system with solar installations on secondary- generation on a single circuit; and deployed at the end of a distribution level academic facilities throughout the Z assess the potential for solar feeder in San Jose, CA. Both utilize state and will provide opportunities to distributed generation to improve sodium-sulfur batteries supplied by expand local faculty and student know- conservation voltage reduction Japan’s NGK Insulators. The systems ledge on the operation of solar-powered performance. test and demonstrate a variety of func- systems. DVP also is planning to study As of September 2014, Dominion tionalities of grid-scale battery storage, electrical storage at one Solar Partner- had completed two projects, including including peak-shaving, participation in ship Program site as renewable gener- a 521-KW system on a heavily loaded California electricity markets, integration ation and its associated technologies circuit at Canon Environmental Tech- of variable renewable generation, and, become more prevalent in Virginia. nologies in Gloucester, VA, and the fi rst in the case of the Yerba Buena BESS, Over the course of the program, DVP demonstration site at Old Dominion Uni- islanding during grid disturbances. plans to partner with 20-30 commercial, versity in Norfolk, VA. A project located Under a project funded by California’s industrial, and academic customers. at the Prologis Concord Distribution Electric Program Investment Charge Each of these selected sites must meet Center in Sterling, VA, was announced (EPIC), PG&E is utilizing the Vaca one or more of the study objectives in July and will exceed 800 KW on two BESS to conduct a robust exploration to participate in the Solar Partnership adjacent rooftops. Additional projects of participation in the California ISO Program: are under construction with a total of (CAISO) energy and ancillary services Z determine the effects of solar distrib- 6 MW expected to be in service or in markets, including enabling full automa- uted generation on circuit loading, the fi nal stages of completion by tion in CAISO markets. Under a grant analyze the peak demand-reduction year-end 2014. For more information, from the California Energy Commission, benefi ts to the distribution system, visit www.dom.com. which also supplied some funding for

Dominion’s Solar Partnership installation at Old Dominion University’s student center was completed in July 2014.

Dominion

JANUARY | FEBRUARY 2015 53 innovation

Department of Energy Frequency regulation was added to this participation in September, and, as of November, the resource had logged approximately 100 hours providing both regulation up and regulation down services. This is part of a project under California’s EPIC program to robustly explore the real-world performance of battery storage in CAISO’s NGR market and deploy technology to fully automate battery response in CAISO markets. The Yerba Buena BESS project began operational testing in the fall of 2013, including testing for its islanding functionality, in which the system can disconnect from the distribution feeder in the event of a utility disturbance or outage and supply downstream loads. Other testing has been conducted to study the impact on system reliability, power quality, and renewable integra- tion under a grant from the California Energy Commission. The system also will be connected into and participate in the CAISO NGR market and is in the latter stages of the New Resource The Yerba Buena battery energy storage system (4-MW/28-MWH) is deployed at the end of a Implementation Process for doing so. PG&E distribution feeder in San Jose, CA. Approximately half the energy capacity of the system is planned for use for distribution support and half for CAISO the deployment of the systems, the operational specifications. Preliminary market services. For more information, Yerba Buena BESS is being used testing began with CAISO in the fall visit www.pge.com. to study the performance of battery of 2013. As this was the first resource storage for to participate SCE’s Preferred Resources Pilot peak-shaving, in CAISO’s Southern California Edison’s (SCE’s) improving The systems test and demonstrate a Non-Generator Preferred Resources Pilot (PRP) is power quality Resource (NGR) focused on supporting the company’s and reliability, variety of functionalities of grid-scale market model core mission—safely meeting its integrating vari- battery storage, including peak-shaving, developed for customers’ needs with reliable and able renewable participation in California electricity limited energy affordable electricity. It is conducting generation, and markets, integration of variable storage resources, a multi-year pilot to investigate and participating in both PG&E and demonstrate how the integrated use of CAISO ancillary renewable generation, and, in the case CAISO used preferred resources (energy efficiency, services mar- of the Yerba Buena BESS, islanding this testing to demand response, clean distributed kets. This work during grid disturbances. identify and generation, and energy storage) may is being done in resolve technical meet the growth in electricity demand in collaboration issues in sched- the PRP region—a transmission- with the Electric Power Research Insti- uling and telemetry. Market operations constrained area of SCE’s service tute, which is authoring reports on these were put on hold pending finalization territory encompassing 250,000 functionalities along with engineer-of- of a storage interconnection process customers. This area has an anticipated record reports for both systems. by PG&E’s Electric Generation Inter- load growth of more than 300 MW by PG&E began operational testing of connection group and deployment of a 2022. It is most directly impacted by the Vaca BESS in late 2012, which new dispatch control system developed the closure of the San Onofre Nuclear identified baseline system characteris- for managing energy storage. Both Generating Station and will be affected tics for use in evaluating resource per- were completed in July 2014, and the should the nearby ocean-cooled power formance over its lifetime and confirmed resource began participating in the plants close in 2020 as part of Califor- that the system met or exceeded its CAISO NGR day-ahead energy market. nia’s “once-through” cooling policy.

54 ELECTRIC PERSPECTIVES | www.eei.org/ep FIGURE 1 A DIVERSE PORTFOLIO OF PREFERRED RESOURCES

Distributed Generation Energy Effi ciency (Solar & combined heat and power)

Behavioral Initiatives MEETING (Time-of-use rates, etc.) Advanced Technology RELIABILITY (Inverters, control systems, active NEEDS distribution components, etc.)

Energy Storage Demand Response

Source: Southern California Edison

SCE seeks to meet the expected load can fi ll the remaining needs with distrib- of managing local load growth may growth and satisfy the region’s reliability uted generation and energy storage. reduce or eliminate the need to con- needs through the use of preferred SCE launched the PRP in 2013 by struct new natural gas plants in the resources. reaching out to and engaging customers, PRP target area. By the end of 2017, The PRP seeks to design, acquire, energy policymakers, regulators, and SCE will use data collected from the and measure a diverse portfolio of pre- electric system operators; completing a pilot to evaluate preferred resources’ ferred resources to meet the forecasted local, integrated resource plan; and performance capabilities to support electricity demands in developing a frame- deferral or elimination of the need for the PRP region. work and process to new natural gas-based generation in (See Figure 1.) Results from the PRP measure the perfor- the PRP region. Successful resource also will inform the mance capabilities of The PRP represents an innovative acquisition requires development of the grid of preferred resources. approach to meeting customers’ elec- understanding the In the coming years, tricity needs. One of its key goals, resources’ delivery the future and contribute SCE will continue to which is to manage load growth in capabilities in terms to California’s progressive engage stakeholders, the PRP region to net-zero solely with of meeting peak environmental and renewable acquire preferred clean resources, is unprecedented for needs and accounting energy goals. resources to meet SCE. It also departs from SCE’s past for the achievable the expected growth, practice of procuring clean resources resource potential. look for innovative simply to meet state energy policy goals, SCE’s most recent market potential opportunities to improve the use of adding the need to meet local reliability study estimates that, through 2017, preferred resources, and quantify the requirements as a driver of clean approximately 65 MW in potential grid-level contributions from preferred resource acquisition. Finally, it rep- peak-demand reduction can be resources. resents an additional departure from achieved through energy-effi ciency Results from the PRP also will SCE’s current practice of conducting measures in targeted sectors and an inform the development of the grid of top-down, system-wide integrated 81-MW reduction in potential peak the future and contribute to California’s resource planning to a bottom-up, demand can be achieved from demand progressive environmental and renewable targeted planning approach. For more response. It is expected that the market energy goals. Meeting the PRP’s goal information, visit www.sce.com.

JANUARY | FEBRUARY 2015 55 the most cost-effective actions and environment measures to achieve EPA’s 2030 goals. Proposed Goals In addition, any proposed goals must re- flect emission rates that are achievable EPA’s Proposed Greenhouse through the use of EPA’s “best system of emission reduction”—a combination Gas Emissions Guidelines of four building blocks that form the basis of proposed state-specific interim he electric power industry is proposed GHG reduction guidelines, and final emission rate goals. committed to providing reliable, known as the Carbon Pollution Emission The industry has many concerns Taffordable, and increasingly Guidelines for Existing Stationary Sources, with the four building blocks, including clean electricity to power the U.S. on December 1. EEI’s comments whether the proposed state emission economy and to enhance the lives of all identify issues and concerns with the rate goals are achievable. The final Americans. As part of that commitment, proposed guidelines and, where possi- guidelines should affirm the ability of utilities are investing more than $90 bil- ble, provide suggestions to help ensure states to include a wide range of mea- lion each year to transition to a cleaner that the final emission rate goals can sures—both those identified by EPA in generating fleet and to enhance the be achieved without compromising the the guidelines and those not specifically electric power grid to meet the needs of reliability and affordability of electricity. included—in an approvable state compli- our 21st-century economy. EPA’s proposed guidelines set ance plan to reduce emissions.

Utilities reduced carbon dioxide (CO2) state-specific CO2 emission rate goals Importantly, the proposed GHG emissions by 15 percent below 2005 that must be achieved by 2030, with reduction goals cannot be achieved levels by the end of 2013. And nitrogen interim rate goals that must be achieved without the existing nuclear fleet since oxides and sulfur dioxide emissions over the period 2020-2029. These all zero-emission electric generation from power plants have dropped by interim goals force states to achieve sources play a critical role in reducing almost 75 percent from 1990 levels, much of the required reductions before GHG emissions. It also is essential that during a period when electricity use 2020, which is insufficient time to EPA recognize the importance of elec- grew by more than 40 percent. develop, plan, design, and complete trification in reducing GHG emissions the infrastructure required to meet from all sectors of the economy. Section 111(d) the proposed interim goals, and is not “EEI will continue to work closely with The Environmental Protection Agency’s in synch with the time, infrastructure our member companies and with states (EPA’s) proposed guidelines for states development, and planning required and other stakeholders throughout the to regulate greenhouse gas (GHG) for the transition to a cleaner rulemaking process to provide EPA with emissions from existing electric gen- generating fleet. relevant information and data about the eration units under section 111(d) of As a result, EPA’s approach would impact of these guidelines on our indus- the Clean Air Act contain state-specific have a significant impact on electricity try’s ability to provide reliable, affordable, emission rate goals aimed at reducing customers and the nation in terms of and increasingly clean electricity to all

the average CO2 emission rate of the cost and overall reliability of the customers,” said EEI President Tom Kuhn. each state’s fleet of existing affected electric system. Eliminating the interim The full text of EEI’s comments is fossil-based electric generating units. goals would allow states to determine available at www.eei.org. After the guidelines are final, states will be required to submit compliance plans for EPA approval that demonstrate how EPA’s proposed emission guidelines they will achieve these goals. EPA’s proposed emission guidelines would require dramatic changes would require dramatic changes in how electricity is produced, transmitted, in how and consumed. It is critically important, electricity is as utilities continue to lead the way in reducing emissions, that EPA produced, transmitted, provides states with achievable GHG emission-reduction goals and compli- and consumed. ance deadlines.

Issues and Concerns EEI submitted comments on the

56 ELECTRIC PERSPECTIVES | www.eei.org/ep EEI Publications

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The purpose of this book is to give the reader a This edition contains chapters on mathematics, basic understanding of these electrical theory, and basic fi xed asset and depreciation electronics as an introduc- 2 0 concepts, and a glimpse into tion to the operation and 1 3 how the many questions practical application of HANDBOOK surrounding these topics can metering devices. Contri- FOR be answered. The text presents butions by industry experts ELECTRICITY the fundamentals of depreci- INTRODUCTION TO DEPRECIATION and manufacturers provide METERING For Public Utilities and Other Industries ation, providing the necessary a thorough treatment of ELEVENTH EDITION foundation for advanced the various types of equip- studies if desired. ment now in service. Available as a print Available as a print publication or publication or electronically as a PDF. electronically as a PDF.

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June 2-5, 2015 • Albuquerque Marriott Pyramid North • Albuquerque, New Mexico

JANUARY | FEBRUARY 2015 57 This creates a two-way flow of power on distribution economics the grid that historically was designed for one-way power flow. One small solar installation will not create localized distribution system disturbances. At a significant penetration level, aggregated Unlocking the Opportunity in solar systems may have an adverse effect depending upon the size and Smart Inverters location of these systems relative to BY TED DAVIDOVICH AND JOHN STERLING other utility distribution system assets and controls. nverters for solar photovoltaic (PV) projected for smart inverters provide As solar installations continue to systems represent the nexus between the link between distributed energy increase, utilities are faced with de- Ithe distributed generation (DG) resources and the utility distribution termining what penetration level may resource and the electric distribution system. Their capabilities can contribute cause instability and what can be done system. Today’s inverter technologies to grid stability and therefore system to plan ahead and mitigate problems can benefit the electric distribution sys- reliability—both in situations where the before they arise. tem through reactive and proactive grid distributed resource is the cause of the When power is injected into the support services and also may mitigate instability and where the distributed electric system, the voltage tends to impacts resulting from variable DG. resource can respond to instability from increase. The voltage effect depends on These same inverters can contribute another source. (See feeder characteristics valuable information on DG system op- the sidebar, “The and location of the eration, support the delivery of expanded Enhanced Capabili- power source. Near services to utility customers, and, in ties of Smart Invert- Utility ownership of smart substations contain- some markets, serve as a transition ers.”) Smart inverter inverters can pave the way ing voltage regulation away from incentive-based transactions. functions, if properly for a more resilient and equipment and where Before embarking on a standardized controlled and used, smarter grid that would impedance is lower, effort to tap the full functionality of can defer or avoid the the impact is gener- advanced or “smart” inverters, electric need for investments benefit all stakeholders. ally lower. However, utilities should ask two fundamental in distribution, trans- distributed solar sys- questions: What entity is best posi- mission, and electric tems commonly are tioned to enable these capabilities to supply. Inverters may even prove to be located away from substations, increas- service the system, and who should own the least-cost solution when compared ing the potential for voltage variations these disparate resources? In our view, to other devices needed for grid stability. and their associated negative effects. electric utilities are best positioned to Moreover, smart inverters can be a The variability of solar systems due to leverage the promised capabilities of stepping stone to incremental customer cloud cover and weather changes may the smart inverter and lead DG integra- smart grid offerings that leverage similar not be a problem if the variability is from tion to higher levels of penetration than real-time connectivity and dispatch. a small standalone system since utility currently exist. distribution system design is typically The most compelling reason for utility Solar Power and the Grid robust enough to absorb modest im- ownership is system reliability. DG PV Solar PV systems are unlike traditional pacts. A major problem on a distribution is becoming more widespread due to generation utility assets that are used feeder may occur when either a large lower system costs, increased availability, to balance supply and demand. PV PV system or a number of smaller PV and innovative financing. With access systems rely on the sun; they are non- systems (such as below 10 kilowatts) to the functions of networked inverters, dispatchable resources and do not have all experience the same variability at the the utility can more nimbly address the ability to follow changes in demand. same time. operational challenges caused by Due to cloud cover and other changes The typical response to high penetra- increased reliance on DG resources in the weather, the output from solar tion levels has been to upgrade distri- as an extension of overall grid man- systems is variable. bution system equipment, which can be agement. Moreover, utility ownership For rooftop solar installations, the very costly. An alternative is to introduce of smart inverters can pave the way for inverter is typically located between the interoperability with the solar system a more resilient and smarter grid that solar panels and the house meter. Any inverter, which allows it to make dynamic would benefit all stakeholders. power not used in the house is exported adjustments to solar system output to Specifically, innovations and capabilities to the local utility distribution system. minimize problems such as voltage viola- tions. This technology exists today in the Ted Davidovich is manager of utility planning and John Sterling is senior director of research and advisory services at the form of remotely controllable smart in- Solar Electric Power Association. verters; however, because of unresolved

58 ELECTRIC PERSPECTIVES | www.eei.org/ep questions on standards development and solar generation; however, strong oper- equipment ownership, these capabilities As solar installations continue to ational arguments can be made for this generally are not enabled. shift as well. As penetration of distrib- Many of the inverters in use today are increase, utilities are faced with uted solar increases across the country, not owned, operated, or controlled by determining what penetration level centralized operational visibility and the local utility distribution company. may cause instability and what can control will become imperative to ensure The inverters are part of the solar be done to plan ahead and mitigate reliable operation of the grid. system and reside on the customer problems before they arise. Utility inverter ownership will come side of the meter, where traditional as a new concept to many in the solar utility ownership stops. Interoperability industry. Interconnection standards and standards for distributed solar inte- requirements will necessarily change gration with distribution management similar to synchronous condensers and because the solar installer’s responsi- systems are underway, but national static compensators. bilities end at a different point in the standards that will allow exchange of These traditional utility assets, how- process. Viable methods to exchange inverter data to a utility distribution ever, are owned and controlled by the data with system owners and third- management system remain under host utility. At present, inverters are the party financiers, who today rely upon development. This places limitations property of the PV system owner, and the inverter for all of the data required on the current usage of smart inverter discussions surrounding ad hoc control to support customer agreements and functionality without adversely impact- of inverter capabilities are limited. Rec- financial reporting, must be developed. ing the grid or other equipment. ognizing the inverter as a distribution And regulators must be engaged early system asset, extending utility owner- on to establish why smart inverters Correlation to Existing ship to the inverter, and leveraging utility are needed and how utility ownership Transmission and Distribution operational control capabilities are is the best model to leverage these System Assets logical steps in managing the stability capabilities. Utility deployment and ownership of and reliability of the electric grid for The process will require deliberate, grid stability and reliability equipment all customers. The natural correlation thoughtful efforts on the part of both on the transmission system—and even between DG PV deployment and the utilities and solar stakeholders. Creating distribution feeders—are not new. In increased number of controllable the framework for a future transaction fact, this has been the expected and inverters underscores the importance that allows utilities to be more proac- desired practice for many years. Having of this discussion and its implications. tive and supportive of solar adoption smart inverters perform functions such at increasingly high penetration levels as voltage and reactive power support The Argument for Utility Ownership requires a new paradigm. Because draws direct comparison to traditional Direct ownership of the inverter by the smart inverter standards are still under utility assets. The potential speed of electric utility is an important step in development, utilities have the opportu- response provided by inverters places both the business model and the cus- nity to pursue a measured approach to them in the “best-in-class” category, tomer transaction around distributed this potential future.

FIGURE 1 SMART INVERTER OWNERSHIP ROADMAP Initial Project Initial Activities Building the Stakeholder Program Design Finalization & Implementation Business Case Engagement Approval

• Standards • Financial modeling • Engage installer • Finalize initial • Regulatory approval • Project development • Legal and regulatory and developer roll-out plan process measurement • Discussions framework community • Identify • Stakeholder and reporting with inverter for input and performance engagement • Expansion/exit • Customer feedback manufacturers on transaction measurement • Communications decision capabilities and • Preliminary factors • Operations plan plan • Existing system integration discussions • Develop expansion retrofit plan • Alignment of • IT, systems, and with regulatory checkpoints and development inverter ownership communication approval body exit considerations with long-term integration corporate goals and objectives • Identification of key stakeholder perspectives Source: Solar Electric Power Association

JANUARY | FEBRUARY 2015 59 distribution

Smart Inverter Ownership Roadmap meter), the utility will need to rethink the and control PV systems also will allow Creating a roadmap for utility ownership customer transaction. It will be import- resource planners to begin treating of smart inverters requires long-term ant to communicate and consider how distributed solar as a resource rather vision and commitment. (See Figure 1.) the customer retains the benefi t of the than a net load. The standards development and system generation and is appropriately On the customer program front, new adoption process is likely to demand a compensated for it. time-of-use rate designs can be created series of steps, technical investigations, After completing and analyzing the that account for the intricate relation- stakeholder discussions, and program- results of a limited pilot project, the ship between load and solar production. matic adjustments. Just as much focus, utility is likely to need regulatory ap- Enhanced web portals can be built to however, should be given to alignment proval prior to full-scale deployment and show real-time solar production across with corporate goals and objectives. inclusion of these assets in rate base. a utility’s service territory—even down Completing a business case for utility The due diligence required to establish to the neighborhood level. In addition, ownership of smart inverters requires and adopt new standards, build out a investment in interoperability efforts for due diligence and research into a robust business case, incorporate initial smart home devices could yield a future number of operational, fi nancial, legal, feedback, and develop an initial project where a customer’s thermostat automat- regulatory, and transactional areas. roll-out, measurement, and expansion ically cycles off the air conditioning unit After designing a conceptual path plan will provide the utility with a solid when PV production unexpectedly dips. forward, it is important to gain feedback foundation for successful engagement And home energy management services from the local and/or national solar with regulators and other stakeholders. could be the next frontier in utility offer- installer and developer community. ings being provided to customers. Moving the inverter from their supply Future Possibilities and New technological developments chain and responsibility to the utility’s Considerations are radically changing the way utilities will have an impact on their processes Smart inverters promise to unleash a interact with customers. As distributed and should be constructively discussed wealth of information for utilities, solar becomes more and more econom- prior to fi nalizing any equipment which can be leveraged for critical ical and penetration increases, smart standards, installation procedures, and distribution automation services, inverters appear to be the obvious customer transactions. With the utility integrated resource planning process- initial opportunity for utilities to main- owning the inverter (and that inverter es, or distribution system planning and tain and increase system reliability and interconnected on the utility side of the design initiatives. The ability to monitor performance. The Enhanced Capabilities of Smart Inverters

Smart inverters not only convert direct current (DC) to alter- duration events to “ride through” the disturbance. If the nating current (AC) for grid connectivity, they also have ad- disturbance continues beyond a specifi ed time period, vanced functional capabilities that have the potential—once the inverter will disconnect just like standard inverters. new standards are fi nalized—to support the stability, reliability, and effi ciency of the electric power grid. The following en- Z Modifi cation of ramp rates. Randomized timing allows hanced capabilities are often discussed in conjunction with for variations in disconnecting from the grid so that mul- smart inverters: tiple systems do not disconnect simultaneously from the Z Reactive power support. Reactive power is stored tem- same disturbance. Disturbance reconnection also is done porarily in either magnetic or electric fi elds due to inductive using ramping or random timing to prevent either a large or capacitive elements. These elements cause a phase dif- increase or decrease in generation at one time. The goal ference between voltage and current, resulting in losses, and is to relieve ramping rates on other generators and reduce therefore reduce the real power that can do useful work. The system wear and tear from the prevention of load spiking. ability to control reactive power through smart inverters by resolving phase differences will impact both power quality Z Communications capabilities. Advanced communica- and losses on the system. The power factor of the inverter tion capabilities allow real-time management of active and can be preset or manipulated depending on grid conditions. reactive power and voltage as necessary on the electric system. Operators receive signals from the fi eld and then Z Voltage/frequency ride-through. Standard inverters dis- issue signals that could change pre-programmed settings. connect during a system disturbance caused by These signals could relay prices, emergency conditions, or high or low voltage or frequency. Smart inverters will scheduled changes, such as weekend versus weekday op- allow the system to stay connected to the grid for short erating parameters.

60 ELECTRIC PERSPECTIVES | www.eei.org/ep Are you in control or being controlled? At Pace Global, we assist clients in developing strategies and programs to address dynamic challenges and opportunities, including distributed energy resources.

Flat sales, increasing alternatives to utility-provided to help prioritize asset investments, design customer- electricity, reliability concerns, aging asset replacement, aligned programs, and assist management in achieving regulatory pressures…the list of issues continues to grow. business objectives over the short and long term. Collectively, these dynamics are forcing many executives We work with clients to bound complexity, proactively to reconsider their wires business and develop new mitigate risks, and create options to protect and grow strategies to take advantage of opportunities and limit top lines, while preserving stability on the bottom line. threats. In doing so, management’s focus is being To learn more, contact Bo Poats at (703) 818-9100 driven to a more granular level to effectively deal with or email us at [email protected]. the potentially destabilizing operational and financial aspects of these dynamics. Pace Global’s structured approach assesses distributed energy resource opportunities and threats, and provides decision-makers with a financial plan at the circuit level

www.paceglobal.com INNOVATIVE UTILITY PROJECTS plugging innovation REVOLUTIONIZE THE FUTURE OF ELECTRICITY.

A Bright Future for Tucson Community Solar Program

tilities across the United States are leading the not under contract and are free to drop out of the BTCS development of community solar projects aimed program at any time. Because there are no upfront ex- at expanding access to clean, affordable power penses, equipment maintenance costs, or long-term Ufor their customers. contracts, the flexible, affordable program appeals to Arizona’s Tucson Electric Power (TEP) was the coun- TEP’s diverse customer base. try’s first investor-owned utility to offer residential Keys to Success and business customers Community involvement the opportunity to pur- Arizona’s Tucson Electric Power was critical to the early chase energy from local success of the BTCS pro- utility-scale solar arrays was the country’s first investor- gram, particularly in the in “blocks” of 150 kilo- owned utility to offer residential development of TEP’s 1.6- watt-hours (KWH). Cus- megawatt solar project at tomers can purchase each and business customers the University of Arizona block of locally generated Science and Technology solar power for $3 per the opportunity to purchase Park, which offered the month. energy from local utility-scale first blocks of solar for Under the Bright Tucson sale. The program has a Community Solar (BTCS) solar arrays in “blocks” of 150 wide range of customers, program, launched in and engagement has in- 2011, residential and kilowatt-hours. creased rapidly. In 2014, commercial customers more than 1,200 custom- can choose how much solar energy to purchase from ers purchased more than 3,300 megawatt-hours (MWH) company-owned photovoltaic (PV) solar systems. of locally generated solar energy through BTCS to meet TEP has expanded its utility-scale renewable re- their electricity needs—a tenfold increase in three years. sources by working with solar developers to design, site, For residential customers in good standing with TEP, build, and manage local solar resources. Customers who the BTCS program is not only more cost-effective than are eligible for BTCS can choose how much power to pur- purchasing a rooftop solar PV system, but it also allows chase through the program. them to purchase solar energy regardless of their credit scores. Factors critical to the program’s success include: Providing Customer Value Z A smart and simple choice. Today’s energy customers In developing BTCS, one of TEP’s goals was to offer a solar want guided choice, so they can make decisions with- program for the diverse set of customers who could not out feeling overwhelmed. Through BTCS, TEP gives or did not want to participate in rooftop solar, including customers choice in their program participation level. those who live in condominiums or apartments; cus- In addition, BTCS residential customers are allowed to tomers in single family homes that are geographically sign up and cancel at any time with minimal contract or structurally unsuited to rooftop solar; customers who period commitments. find the upfront costs prohibitive; and customers who Z Customer value ties back to the local community. One don’t want to make a long-term commitment to solar. The of the biggest benefits of community solar is the strong program also is an innovative and cost-effective solution link to where customers live. Only local solar resources for larger customers such as municipal governments. are used in the program, so customers know they are Customers purchase solar energy blocks in 1-kilowatt helping the community both environmentally and (KW) increments for $3 per 150-KWH block—adding economically. TEP also prefers to build the solar proj- about 2 cents per KWH to the customers’ average rate— ects on brownfield, previously disturbed, or limited- and giving all customers access to solar energy at very use properties. By investing in solar in the Tucson reasonable prices. On a monthly cost basis, TEP cus- metropolitan area, TEP expands its renewable energy tomers can purchase solar energy up to their average portfolio while helping to create jobs. monthly KWH consumption. When customers purchase Z Clear education on costs and benefits. TEP high- a block of solar energy, they receive an exemption from lights both the costs and the benefits of BTCS so that paying the fuel and purchase power charge and the customers can make the right choice for themselves. renewable surcharge on their monthly bill equivalent Z Long-term economic benefits. Because rooftop solar to the blocks purchased through BTCS. Customers are PV is often the reference point for many customers

62 ELECTRIC PERSPECTIVES | www.eei.org/ep David Sanders/TEP

Community solar at the University of Arizona Science and Technology Park.

evaluating community solar as an option, TEP com- municates the long-term economic benefi ts. Advantages of Community Solar Future Plans 1. Community solar democratizes solar access, giving TEP intends to modify its bill presentation and other eligible customers the option to go solar at a rea- customer communications to augment communica- sonable price. For residents in homes that are not tions about the benefi ts of the program. suitable for solar, such as renters and multi-family TEP received regulatory approval in mid-December dwellers, community solar is an ideal option. At for a plan to install rooftop solar panels at custom- most, 25 percent of U.S. homes, or 33 million ers’ homes and provide their electric service for a set homes, are rooftop solar PV appropriate. Commu- monthly fee that would remain fi xed for up to 25 years. nity solar also offers an affordable pay-as-you-go The Residential Solar Program will allow customers to solution that eliminates the upfront purchase cost go solar with no installation or maintenance costs. After or fi nancing hurdle. It also is fl exible, allowing cus- paying a $250 administrative fee, participants will pay tomers to decide how much solar energy to pur- a fi xed monthly electric rate that roughly matches their chase and for how long. current average bills, generating signifi cant savings if 2. Under current net energy metering practices, TEP’s rates or energy costs increase in the future. rooftop solar PV customers do not always share The fi rst-of-its-kind program will be made available equitably in the costs of the grid services they use. this spring to 500-600 customers. The company will seek These costs are shifted onto non-solar customers. participants in areas where TEP’s solar arrays would In contrast, community solar customers continue maximize benefi ts for the local electric grid that serves to pay for the grid services they use and do not all customers. System-size requirements, proximity to shift costs onto non-solar customers. the grid, and opportunities to integrate advanced inverter 3. With a community-scale, grid-tied project, the technologies will be considered. TEP also will look for utility is able to appropriately size and locate the sites where solar panels can be positioned to maximize solar resource. On a per-watt basis, these types of output that more closely coincides with peak demand. projects cost considerably less than rooftop solar TEP was recognized as the Solar Electric Power As- facilities. Community solar is cost-effective. sociation’s investor-owned utility of the year in 2012. To read more about TEP’s program, visit www.tep.com.

JANUARY | FEBRUARY 2015 63 WHERE INNOVATION AND EFFICIENT the edge WHERE INNOVATION AND TECHNOLOGIES MEET. EFFICIENT TECHNOLOGIES MEET. Plug-and-Play Power Grid By Lisa V. Wood, executive director of the Institute for Electric Innovation and vice president of The Edison Foundation.

s new energy services, technologies, and investment. Connecting operational technology and connection points with customers multiply, information technology will lay the foundation for a today’s electric distribution grid is evolving into smarter distribution system. Aa broad platform that enables new services and Today’s power grid is evolving from a one-way cen- technologies to “plug” in. For electric utilities, which tralized power delivery system to a more open, fl exible, operate the plug-and-play distribution grid, this means and multipoint digitized network (or platform) with a seamlessly integrating new energy resources, technolo- collection of technologies and assets, some controlled gies, and services. by the utility and some not. (See FIGURE 1 Public policies, new tech- Figure 1.) nologies, innovation, and con- sumer needs are driving this The Grid of Things transformation of the electric Utilities are investing almost distribution grid. Across the $21 billion in the distribution United States, this evolution is grid annually. Managing the well underway with signifi cant evolving and integrated dis- investments in grid technolo- tribution “grid of things” will gies, digitization, data analytics, require utilities to continue to distribution sensing and moni- invest in upgrading and modi- toring, and controls to enhance fying their distribution systems. operational efficiency and However, this new busi- integrate new resources. While ness environment relies significant progress is being increasingly on utilities collab- made, there is still more work to orating with three key strategic be done. partners: technology companies Source: PG&E to bring innovative products and Providing and Enabling More Value services to the market and to set and deploy standards; The distribution grid platform is evolving in real time regulators to define appropriate new business mod- to continuously meet three needs—integrating new els for the plug-and-play grid platform; and customers energy resources, providing customer solutions, and to provide the inspiration and solutions they want. optimizing the grid itself. The intersection of these In March 2015, The Edison Foundation Institute for three components creates new services for customers, Electric Innovation will hold its 5th annual Powering new processes for utilities, and new interfaces among the People (PTP) event in Washington, DC. PTP is a customers, energy resources, third-party providers, and celebration of innovation in the electric power sector, utilities. For example: and this year’s event will focus on the evolving power T The distribution grid will provide and enable more grid as a plug-and-play platform for new energy services “value” to customers as new assets and services are and technologies. This event is an opportunity for the added to it. For example, utility-provided integra- electric utility industry, technology companies, regu- tion of distributed energy resources and grid resource lators, federal policymakers, state and local offi cials, management is becoming increasingly sophisticated consumer advocates, and customers to engage in dia- as a result of new technologies and data analytics. logue and discussion about the broader grid platform These new resources also require new tools to opti- that is emerging. mize overall system effi ciency and energy use. A fully functioning power grid platform is a national T Managing and optimizing the distribution grid plat- asset. Electric utilities are the operators of the grid plat- form mean developing the capability to manage all form today and are indispensable to the scaled deploy- grid assets and business systems to achieve greater ment of grid-related assets and technologies because reliability, resiliency, and energy optimization. This only utilities have the end-to-end platform visibility to is a signifi cant undertaking and requires substantial ensure reliability, resiliency, affordability, and safety.

The Institute for Electric Innovation focuses on advancing the adoption and application of new technologies that will strengthen and transform the power grid. The Institute’s members are investor-owned electric utilities that represent about 70 percent of the U.S. electric power industry and are committed to an affordable, reliable, secure, and clean energy future.

64 ELECTRIC PERSPECTIVES | www.eei.org/ep FROM THE COMPANY THAT BROUGHT YOU SMART GRID AS A SERVICE POWER OF PURPLE 2.0 at DistribuTECH 2015

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