Three Grand Challenges: The Role of the Electric Delivery System in Addressing Climate Change, Demand Growth, and Energy Security

< Back to Session Summaries List

The Honorable Joseph Kelliher, Chairman of the Federal Energy Regulatory Commission, believes that the U.S. has two great challenges: security of supply and climate change. Demand growth is driven by economic growth, which makes it less problematic than security of supply or climate change, in his opinion.

Chairman Kelliher stated that in order to ensure security of supply, increased generation and major investment in transmission and development are necessary. There are several actions that can be taken to meet this challenge, according to Chairman Kelliher, including continued entry by Independent Power Producers, contract certainty, integrity of state and federal regulation driven by law rather than politics, strong demand response, greater elasticity of demand in electricity markets, fuel diversity (particularly more wind and transmission to accommodate it), and reasonable prices. Addressing climate change requires a balance between energy and the environment. Chairman Kelliher suggested that solutions for addressing climate change include investing in transmission and development, ensuring contract certainty, undertaking significant research and development (R&D), improving operating performance of existing generation, ensuring a robust grid, low emissions generation, reducing demand, and accepting higher prices for electricity. Chairman Kelliher concluded that competition can solve both challenges and that natural gas will play a significant role in the next 10 years.

North Carolina Utilities Commissioner the Honorable Sam J. Ervin, IV noted that North Carolina needs 750MW of new capacity each year to meet expected demand, yet 560MW is the most achievable energy efficiency goal each year. Commissioner Ervin commented that there is no "silver bullet" in addressing the Three Grand Challenges because all of the solutions have drawbacks: The total renewable energy potential is estimated at 1500-3000MW which includes co-fired biomass and coal plants and presents intermittency and cost barriers; availability issues, overuse, and cost are problematic in using natural gas; use of coal presents cost, siting, and environmental problems; nuclear energy incurs high costs, a waste management problem, siting issues, and public opposition; energy efficiency solutions have problems associated with availability and public acceptance; and biomass has supply availability and environmental issues. Commissioner Ervin concluded that there is a need for legislation to eliminate uncertainty surrounding climate change and increased federal effort in technology development and that the nuclear waste issue must be resolved.

The Honorable Phil Sharp, President of Resources for the Future, believes that climate change and energy policy have great overlap and that the uncertainty industry leaders and regulators face is problematic. Mr. Sharp contended that climate change is going to be a serious issue and there will be mandatory emissions reductions laws soon; although it is unlikely to happen in this term of Congress. It will probably take several years before legislation is in place. Either the new Administration or litigators will have to be aggressive. Decisions will no longer be based on the least cost option and a high premium will be put on efficiency. The environmental campaign against coal plants has been very effective and has led to energy efficiency measures and closure of old coal plants. Investment in generation has slowed. Mr. Sharp believes addressing climate change is worth the cost and that the EPA will be a significant player in addressing climate change.

The Honorable Eileen Claussen, President of the Pew Center on Global Climate Change, noted that demand growth and security are important, but "pale in comparison" to climate change. Ms. Claussen believes that a climate change law will be in place within three years because there is significant activity at the state level and the different approaches necessitate a national law. Coal will continue to be used and carbon capture and storage (CCS) will be an important piece in addressing climate change. Ms. Claussen said the role of regulators is to remove disincentives for investment in energy efficiency (i.e. decoupling), encourage CCS, conduct demonstrations, and take action soon to avoid retrofitting coal plants. Additionally, Ms. Claussen argued that there is no way to solve climate change without nuclear power and there needs to be a balance between environmental protection and ratepayer protection.

Kurt Yeager, Executive Director of the Galvin Electricity Initiative, stated that the emphasis in demand growth has mistakenly been on quantity rather than quality. He argued that the system has been denied innovation and investment and the value proposition needs to be changed. Additionally, electricity needs to be made a "smart" service. The distribution system should be divided into smart microgrids to deliver benefits to consumers. These electronic controls are needed to guard against natural and manmade disasters. Mr. Yeager concluded that market forces and consumers should be allowed to make decisions.

Moderator Michael T. Burr, Editor-in-Chief of Public Utilities Fortnightly, asked panelists if federal insurance and legislation similar to the Price-Anderson Act for nuclear power are needed for carbon capture and sequestration (CCS) technology, given the recent cancellation of CCS projects. Mr. Sharp responded that CCS technology is not ready for widespread use, but a Price-Anderson Act may help with deployment. However, there may be no long-term need for a Price-Anderson scheme as CO2 sequestration is less risky than generating nuclear power. Chairman Kelliher believes that the federal government needs to engage in demonstrations of CCS technology. The current situation differs from the Price-Anderson example because the technology is not ready for deployment as it was with nuclear power. Commissioner Ervin believes the main risk of CCS is determining how to set up the infrastructure. The geological characteristics of the U.S. do not allow for adequate storage space which necessitates a system of carbon delivery to storage locations. Mr. Yeager believes that CCS is a global issue because China and India are quickly building coal capacity without instituting CCS; therefore, the U.S. needs to set the standard for CCS to increase globally. Ms. Claussen believes it will be a long time before CCS is widely developed and in the interim, distributed generation capabilities and use of renewables should be increased in developing countries.

Mr. Burr asked the panelists to respond to the problem of consumer backlash against demand response programs in California and how it affects the cost-benefit analysis of smart metering and how best to educate consumers. Commissioner Ervin responded that it is not necessary to have every customer involved in demand response programs. The optimum level of consumer involvement is less than 100 percent and most of the benefits can be seen with penetration less than 10 percent. Mr. Yeager stated that the power system can treat customers as individuals and that no customer should be forced to participate.

Mr. Burr asked panelists if the increase in transmission investments were sufficient and adequately address remote generation. Chairman Kelliher believes that disaggregation of ownership is a major weakness of the U.S. grid. Regional Transmission Operator development can alleviate the problems caused by a disaggregated system by encouraging investment. The interconnection queue is also facing problems due to a high number of projects. Mr. Yeager commented there is always a need for new wires, but that building wires should be the last option. Photovoltaic building integration is a promising renewable energy technology that can create energy efficient buildings and reduce the need to build new wires. Commissioner Ervin commented on the difficulty of allocating costs of regional projects to consumers. Many interstate problems can be resolved if the cost allocation is appropriate and fair.

Mr. Burr asked panelists how, given the risk factors and changes occurring in the industry, utility stocks can remain a sound investment. Chairman Kelliher responded that it is a difficult time to be a regulator because prices continue to increase. Additionally, there have been assumptions made about the price of natural gas over the next 10 years that are risky. Competition for liquefied natural gas (LNG) supply is greatly increasing. The steady increase in cancellation of coal plants (54 percent since 2000) exerts pressure on LNG supply as well. Commissioner Ervin believes the needs of the investors should be balanced with the need to minimize costs placed on customers. Mr. Yeager reiterated that the value proposition should be changed from bulk energy to efficiency and quality of service. There is also a need to decouple as soon as possible.

An audience member asked how utilities can increase clean energy technology given that only one-third of research and development resources are devoted to this priority. Mr. Sharp responded that R&D needs to be "tied" to the potential use of the results. Ms. Claussen cited the auction system proposed under the Lieberman-Warner legislation as a possible source of funds for technology research if it (or a similar bill) is passed by Congress.