Addressing the Three Grand Challenges: Perspectives from the Electric Power Industry

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The Honorable Frederick F. Butler, Commissioner of the New Jersey Board of Public Utilities, moderated this important session that focused on how the utility industry is positioning itself to help meet the Three Grand Challenges.

Jan Schori, General Manager of the Sacramento Municipal Utility District (SMUD), stated that in her opinion the new direction to meet the Three Grand Challenges is the deployment of California's Renewable Portfolio Standard currently requires 17 percent of electricity generated from renewable energy resources, with a goal of 29 percent.  She indicated that in California new long distance transmission might enable an increase in renewable energy generation.  There will also be a large increase in customers in the State, which will make conservation and energy efficiency more important.  California is ramping up its energy efficiency efforts.  In response, SMUD conducted focus group meetings with various stakeholders as a part of this effort.  The SMUD focus group effort found that people are reluctant to change their behavior, but that deployment of advanced technologies, such as time-of-use and advanced metering, might facilitate change.  One suggested change that might occur in the future, according to Ms. Schori, is a new relationship between the utility and consumer in which the utility pledges reliability to the customer and the customer pledges to undertake efficiency and conservation efforts.  Ms. Schori concluded that it is time to invest in new technologies.

Jeff Sterba, Chief Executive Officer of PNM Resources, Inc., believes that transmission constraints and climate change are coming at a time when input prices are increasing much more rapidly than inflation (i.e. copper, gas).  Climate change has hit the "tipping point" and consumer expectations have changed significantly, according to Mr. Sterba.  He believes there are six things required to meet the Three Grand Challenges effectively.  He suggested that utilities must:

• Be financially healthy.
• Determine how to change its business model from being a low cost commodity provider to a high value provider of services.
• Leverage technology (metering, biomass, wind, microgrids, PVs, storage, smart inverters). Customers want their technology to make the most energy efficient and cost effective choices for them.
• Build internal capacity to implement the new business model.
• Actively engage in climate change debate (cap and trade legislation).
• Be realistic about timelines.

Ralph Izzo, President and Chief Executive Officer of Public Service Enterprise Group, Inc., noted that if no new generation was allowed, all forms of transmission were made illegal, and no one used electricity, the carbon reduction goal would still not be met.  According to Mr. Izzo, to achieve climate change goals the following are necessary:

• Energy Efficiency — create a "win-win" situation, incent investors, tax energy, and ban inefficient devices.
• Invest in renewable energy resources and educate the public about the real costs of carbon (via cost-benefit analysis).
• Wholesale power — allow the market to set a price for carbon.

Lloyd Yates, Chief Executive Officer of Progress Energy Carolinas, stated that in his State of North Carolina, there is an increase of 25,000 customers per year and the demand per customer is rising.  Mr. Yates indicated that such demand increase is both an opportunity and a challenge and can be managed through energy efficiency, load management, renewable energy resources and alternative energy, state-of-the-art generation facilities, and new nuclear generation.

Masheed Saidi, Executive Vice President and Chief Operating Officer, U.S. Transmission, National Grid, estimated that there is an expected rise of 35 percent in greenhouse gases (GHG) emissions by 2030.  Mr. Saidi suggested that there are several keys to examining the GHG issue:

• Understand the true cost of doing nothing
• Develop GHG and carbon markets
• Integrate renewable energy resources into the system
• Accelerate the development of a low carbon infrastructure
• Overcome economic challenges for renewable energy resources
• Allow renewable energy resources to compete in the market
• Fund efficiency for gas and electric
• Remove barriers to building transmission
• Recognize the role of utilities in energy efficiency

In response to a question, the panelists agreed that the biggest obstacles to addressing climate change are uncertainty regarding cost recovery and legislative and regulatory standards.  Ms. Schori believes that there is a fundamental level of uncertainty about costs and regulation.  Mr. Sterba commented that the key is looking at R&D and taking it to scale.

Commissioner Butler asked the panelists how to incentivize customers to utilize energy efficiency measures.  Mr. Yates stated that it is necessary to have an incentive for both the utility and the customer to achieve energy efficiency.  Ms. Saidi noted that customers want control, but also want and need education.  Mr. Sterba commented that change must be driven by the utilities.  In the SMUD customer focus group study, Ms. Schori said that lower income participants were the most creative with efficiency solutions, while the higher income group did not have time to think about it.  All panelists agreed that there is no one-size-fits-all energy efficiency solution.

When asked about how to fund research and development, Mr. Sterba argued that both government and utilities should fund R&D.  Mr. Yates stated that the federal government and venture capitalists should be investing in R&D.  Mr. Izzo stated that a national cap and trade program could fund R&D.

When discussing the costs of instituting climate change mitigation measures over the next 15 years and maintain trust, Ms. Schori believes communication and relationships with customers is paramount.  Mr. Sterba emphasized the importance of not misleading the public about the costs of climate change.