electric utility primer john chowdhury 2012 final

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US Utility Industry and Regulatory Landscape

Utility of the Future series 2012

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What’s In This Research

How can you Profit from it?


Key Utility Processes

US Electric Utility

KeyValueSteps

Value ofSmart Grid

How Smart Grid can Benefit?

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Why you should consider this report

• Understand US Electric Industry• Regulatory Landscape• Key Utility Processes• How Smart Grid can Benefit the Industry• Example Components

US Electric Utility Primer 2012

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John Chowdhury:• has been working in the Utility Industry for the last 23 years• His clients includes CenterPoint, San Diego Gas & Electric, APS, Southern California Edison, Vectren, TXU, NIPSCO to name a few

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US Electric Utility 101


Contents• Electric utility industry overview

– Industry structure and value chain steps– Market and utility types– Regulatory overview

• Overview of each value chain step• Factors that incentivize electrical utilities• Benefits of Smart Grid for electrical utilities• Appendix


• Convert fuel energy into electrical energy

• Increase (‘step up’) voltage for efficient transmission

• Transmit electricity over long distances

• Deliver electricity to large industrial customers

There are 3 Core Physical Elements of the Electric Utility Value Chain

• Reduce (step down’) voltage

• Deliver electricity locally to commercial and residential customers

Generation Transmission Distribution

6

Role

Start and end points

• From fuel to the high‐voltage output of the generating station*

• From the high‐voltage output of the generating station to the transformer in the substation*

• From the substation transformer to the customer meter

Fuel

* Some utilities consider the step up and step down transformer to be part of the transmission network


Examples of Electric Utility Assets


Distribution wires &Low‐voltage transformer

Pad mount gear

Residential meters

Coal

Natural gas

Nuclear

Hydroelectric

Generation transformer

Transmission substation

765 KV transmission lines

230 KV transmission lines

Substation


In the Beginning, Utilities Were Granted Monopoly Status with Oversight by Regulators

•Granted monopoly status due to economies of scale

•Allowed recovery of reasonable and necessary operating costs

•Allowed reasonable return on invested capital

•Approved capital investment plans and operating costs

•Ensured excessive costs borne by utility investors

•Required utility to support social goals

Utilities (Electric, Gas, Water, Telephone, Railroad)

Regulator


Over Time Some States Deregulated and Broke Up the Monopolies

Until the late 70s

•Oil shock leads to push for lower energy costs

•Environmental awareness increases

•Generation no longer seen as a natural monopoly

•Independent power producers (IPP) emerge in some states

•Existing utilities become hesitant to build capacity

Late 70s – mid 90s

•Government pushes to deregulate many industries

•Some large commercial users push for deregulation in hopes of lower prices

•Some states begin to deregulate – CA is first

•Independent organizations are created to oversee access to transmission & wholesale power*

•Energy retailers are created in some states

Mid 90s – early 00s Early 00s ‐ today

•Regulators attempt to achieve lower prices, but several backfire

•Deregulation stalls

•Regulators attempt to encourage utilities to build generation and save energy

•Utilities act as monopolies

* Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs)


Wholesale and Retail Businesses Emerged Due to Deregulation

Purchase fuel and produce power

Generation Wholesale trading

Facilitate buying/ selling of power between Generation and Retail players

Transmission Distribution Retail

Transmit power over long distances

Deliver power locally to customers

Sell power to customers and handle billing



There are 3 Types of Electric Utility Markets Across the US

IPP*

Generation Wholesale trading

Trans-mission Distribution Retail

Fully regulated

Hybrid-regulated

Deregulated

Regulated

Un-regulated

Fully regulated Utility

Utility Holding Company

Utility Holding Company

Generation subsidiary

* IPP = Independent Power Producer

Generation subsidiary

Trading subsidiary Wires / T&D Utility

Hybrid-regulated Utility

Retail subsidiary

Example market

Alabama

California

Texas

Market Type

IPP*


Most States are Still Regulated

• Regulated: 34

• Deregulated: 16*

• Hybrid: 1

* Includes Washington DC, 6 states are deregulated but have a rate cap or state oversight of rates (AZ, MI, NH, OH, PA, RI)Source: USA Today Aug‐10, 2007

Deregulated

Hybrid

Regulated

• Regulated: 34

• Deregulated: 16*

• Hybrid: 1


There Are Also 3 Types of Electric Utility Companies, Differentiated By Ownership TypeInvestor‐Owned Utilities(IOU)

Municipally‐Owned Utilities(Munis)

Cooperatives(Coops)

• Publicly traded company• Electricity only• One of US’s largest generators of

electricity (38 GW)• US largest electricity transmission

system (39k miles)• States served: AK, IN, KY, LA, MI, OH,

OK, TN, TX, VA, WV• Regulated according to each state’s

regulatory framework

• 210 IOUs in the US (7% of US utilities)• Serve 105M customers (74% of total)

• 2009Munis in the US (65%)• Serve 14% of customers

• 883 Coops in the US (28%)• Serve 12% of customers

• Owned by customers• Electricity only• Regulated by an elected Board of

Directors• 6th largest publicly owned utility• 3.3 GW peak capacity• Own transmission and distribution• Serve Sacramento County and a

portion of Placer County

• Owned by customers• Electricity only• Regulated by 10‐person elected

Board or Directors• Operates in 14 counties north and

west of Austin, TX

Source: EIA, aep.com, smud.org, bluebonnetelectric.coop


IOUs are Influenced by Several State and Federal Entities (CA example)

• Reliability of interstate electricity transmission• Interstate electricity sales and wholesale electric rates*

• National standards related to air and water quality

• Reactor safety• Reactor licensing• Radioactive material safety

Federal State

• Service standards and safety rules• Utility rate changes• Monitoring anti‐competitive behavior• Energy efficiency and conservation programs• Programs for low‐income households

• State standards related to air and water quality• Proposed construction

• Promoting energy efficiency, renewables• Licensing large thermal power plants

* Also regulate interstate natural gas and oil transport and sales

These organizations are independent of the utilities


Some Utilities Offer More than Electricity

INDICATIVE ESTIMATE;NOT COMPREHENSIVE

30

76

52

2

0

24

26

0

1

0 20 40 60 80 100

Munis

Coops

IOU

Electricity only

Electricity & Gas

Electricity & Water

Electricity & Gas &Water

• 2/3 of IOUs offer electricity only, most of the rest also offer gas

• Coops are largely designed to provide rural electricity

• ~1/2 of Munis offer electricity only, while half offer electricity and water

Utilities Offering Different ServicesCount (from a sample of 213 large utilities)


Contents• Electric utility industry overview• Overview of each value chain step

– Generation– Wholesale– Transmission and Distribution– Retail

• Factors that incentivize electrical utilities• Benefits of Smart Grid for electrical utilities• Appendix


Mechanical energy Electrical energy

Spinning turbine Alternating current (AC)

Magnet

Fuel

Generation: Power Plants Convert Fuel Energy into Electrical EnergyChemical, atomic, thermal energy

• Most electricity in the US is produced in steam turbines

• In a fossil‐fueled steam turbine, the fuel is burned in a furnace to heat water in a boiler to produce steam

• Turbine converts the kinetic energy of a moving fluid (liquid or gas) into mechanical energy

• Steam hits the blades and rotates the shaft connected to the generator

• The generator has a stationary cylindrical conductor that is wrapped with a coil (wire)

• The shaft has a magnet attached to it, which rotates within the conductor

• When the magnet rotates, it induces an electric current in the wire

text

text

text

text

Furnace / Boiler

steam


Generation: Coal, Natural Gas and Nuclear Generate 90%+ of US Electricity

* Includes hydro pumped storageSource: EIA

US Electricity generation by source, 2008Percent

49%

21%

20%

6%3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Other*

Other Gases

Petroleum

OtherRenewablesHydroelectricConventionalNuclear

Natural Gas

Coal45%

42%

12%

1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Solar/PV

Geothermal

Wind

Biomass

Generation of Other Renewables, 2008Percent4,110 TWh 123 TWh

•Coal + Natural Gas + Nuclear generate 90%+•Coal is the dominant source, almost 50% of generation•Non‐hydroelectric renewables make up only 3%


1/1 12/31

Annual

Minimum load

Maximum Peak load

Cycling load• Semi‐predictable demand• Energy sources must be flexible to follow changes in demand

Generation: Electricity Demand Fluctuates Throughout the Day and Year – This Requires Energy Sources with Varying Levels of Flexibility

Demand

MidnightNoonMidnight

Reserve marginCapacity

Daily (peak day)ILLUSTRATIVE

Base load• Predictable level of demand•Addressed by very large power plants that produce energy inexpensively when operated continuously at high utilization (…you can’t just crank them up and down with demand)

Peak load•Unpredictable demand

• Sources must be able to start quickly – or be held in reserve

• Resulting energy cost is high


Peak load capacity

Cycling loadcapacity

Base loadcapacity

Wholesale: Facilitates Matching Demand with SupplyILLUSTRATIVE

The lack of efficient storage for electricity creates the need to match demand and supply in real time

Additional power may need to be acquired through wholesale markets to meet demand

Demandcurve

DemandDaily; MW

Time of Day

Supply available at a given time may not exactly track demand.Excess power may need to be sold off through wholesale markets


Source: EIA

Transmission: NERC Divides the Nation’s Transmission and Distribution into 3 “Interconnections”

Each interconnection effectively acts as an independent grid system, with limited power crossing between “seams”

ERCOT

WesternInterconnection

ERCOTInterconnection

EasternInterconnection

Source: FERC


Transmission and Distribution: Deliver Power from Power Plants to Customers

• High voltage transmission lines transport power to distribution substations• Because transmission infrastructure impacts so many customers downstream,

transmission has been equipped with ‘smart technologies’ (sensors, automated controls and communications) for many years

• The distribution network delivers power over medium‐ and low‐voltage power lines

• Transformers (that look like big buckets hung on power poles) further reduce the voltage to normal household electrical service

• The distribution network includes the electricity meter


87.2%

37.1%

12.2%

35.6%

0.6%

27.4%

0.0% 0.2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

TransportationIndustrialCommercialResidential

Retail: Electrical Utility Customers and Consumption

• Residential customers make up almost 90% of all customers. Commercial customers make up almost all of the rest.

• Although Residential is the biggest sector by sales (in other words, consumption) at 37%, sales are more evenly distributed across sectors

• Net result… average sales per customer is very low for Residential relative to Commercial and Industrial

Electrical Energy Sales by Sector, 2007Percent, 100% = 3.7M GWh

* The Transportation sector ‘s 750 customers constitute less than 0.1% of customers

Source: EIA

Customers by Sector,2007*Percent, 100% = 142 M

Average sales per customer (MWh/yr)

11,000

1,300

77

11

#


The U.S. is the Largest Electricity Consumer in the World

* Australia is ranked 14 worldwide (not 11) and Mexico is 17, but they are shown here for referenceSource: EIA

0 1,000 2,000 3,000 4,000 5,000

Mexico

Australia

South Korea

Brazil

France

India

Canada

Germany

Russia

Japan

China

United States 23%

15%

6%

5%

3%

3%

3%

3%

2%

2%

1%

1%

Consumption of Electrical Energy by Country, 2006 – Top 12*GWh

Share of GlobalConsumption

69%

• US is the largest consumer

• Top 10 consuming countries plus Australia and Mexico consume 69% of world total


Contents

• Electric utility industry overview• Overview of each value chain step• Factors that incentivize electrical utilities

– Financial– Operational– Environmental– Typical utility behavior

• Benefits of Smart Grid for electrical utilities• Appendix


New Challenges are Emerging for Utilities

OperationalFinancial

• Providing affordable electricity • Reliability

• Safety

IOUs have a profit motivation, Munis and Coops do not

Some Munis also are responsible for Police & Fire services

Traditional Tension

Environmental

New Tension New Tension

• Likely legislation on carbon cost• Renewable power standards and energy efficiency requirements

• Growing penetration of distributed generation (especially rooftop PV)

• Emergence of electric vehicles

• Expectation for more efficient operation

• New environmental costs increasing

• Generation costs increasing

• Increasingly stringent reliability metrics

• Integrating distributed and intermittent generation, EVs, microgrids

• Maintaining power grid security

Italics: new challenges


Financial: First… How Do Utilities Earn Profits?

• Munis and Coops are owned by their customers, so they are not profit‐oriented

IOUs

Munis

Coops

• Generation companies earn profits through selling electricityGeneration companies

• Retail companies (which operate in deregulated markets) earn profits through buying and re‐selling electricity

Retail companies

• However, (T&D) IOUs do NOT earn profits on the electricity they sell• Yes, they do receive revenues for the electricity through the rates that

consumers pay…• But the regulators set rates so they cover utility costs to purchase and

deliver that energy• The rates also cover their other costs• Regulators grant the companies a “fair rate of return” on the value of their

assets, such as the distribution lines, transformers, meters, etc. This return, too, is reflected in the rates that utility customers pay.


Financial: Many Regulators Set IOU Revenues Based on Cost‐of‐Service

Cost‐of‐Service Calculation

RR = O + T + D + r*(RB)

Integrated utility

Monopoly status and fair rate of return

Payment for service

Guarantee of reliable service at reasonable rates

Customer

Regulator

Obligation to serve

RR = utility’s revenue requirementO = operating costsT = taxesD = depreciation allowancer = fair rate of returnRB = rate base• Generally represents the property and assets

used to provide utility service• May be based on fair value, prudent

investment, reproduction cost, original cost

* ROE rules differ by state. Can be based on treasuries/borrowing costs, peer‐group ROEs

Roles

• IOUs make profits based on the rate of return (r) and the rate base (RB), so there is an incentive for IOUs to increase the rate base.

• They don’t make money on the commodity. They just recover their costs for it.


Financial: What Utilities Show on Your Bill (PG&E Example)

Source: pge.com

Back page of your bill (the fine print)

These per‐kWh rates include amounts for cost recovery and the rate of return

• As you can see, the rate includes many elements (described on the back page of your bill)

• Generation and Distribution make up 81% of this bill• Generation includes fuel and purchased power• Both also include construction, maintenance and

financing costs


Financial: There are Several Approaches to Billing for Usage

Time of use (TOU)

Critical Peak Pricing (CPP)

Real‐time Pricing (RTP)

Tiers

Description

• Different rates charged for electricity used at different times during the day: higher rates are charged during times of greater demand

• Allows the utility to better match revenues with their energy procurement costs and encourages consumers to use less during peak demand times

• Utilities project energy demand for the following day and, if demand is expected to be very high as on hot summer days, designate the following day as a “critical peak” day

• Utilities charge higher rates on CPP days and lower rates on non‐CPP

• Within CPP days, there may be more than one rate in TOU pricing

• Rates are set “real‐time”, so they are more dynamic than TOU

• Based on shorter time intervals, typically minutes, not blocks of hours

• Not yet widely adopted – requires frequent meter reads and either consumer access to price signals or direct utility control of customer loads

• Multiple rates based on consumption

• Baseline: based on average monthly usage for a given customer type

• Higher rates charge for consumption above the baseline quantity allocated

Consumption

Timing

Demand response (DR) mechanisms

PG&E bill excerpt

Source: pge.com

The purpose is to reduce and shift energy demand during peak times


Financial/Environmental: Demand Response is Emerging

* Includes Hawaii (not shown on the map)Source: FERC September 2009; California Flex Your Power

States with established Demand Response Plans (as of Sept‐09)

11states* have established Demand Response programs or plans

In CA, between the 3 IOUs, there are 26 DR programs, but only 3 (1 each) geared to residential customers


Financial/Environmental: ‘Decoupling’ Profits from Energy Sales to Encourage Efficiency

Source: National Resource Defence Council

• As of the end of 2008, 6 states had adopted electric decoupling

• Expectation is for increased decoupling; 9 states were pending

• Decoupling separates a utility’s revenues from its energy quantity sales to not discourage energy efficiency• Rates (per kWh) for the utility are adjusted up if energy sales quantity goes down (or down if they go up)

Revenue_old = Rate_old * Quantity_old = Rate_new * Quantity_new = Revenue_new


Environmental targets: Energy Efficiency Targets

Source: Pew Center

States with EE targets (2009)Summary• The primary purpose of EE is to

reduce overall demand and secondarily to reduce peak demand

• 22 states have EE targets• Target level, ramp up, elements (e.g.,

demand, peak demand) differ by state

• Typical programs:• Rebates for energy‐efficient

appliances and lighting• Loans for energy‐efficient

building• Incentives and penalties also differ

by state. For example:• CO and MI have incentives to

exceed targets but no penalties for non‐compliance

• In CT, providers that fail to meet efficiency requirements must pay a per‐kWh charge to the PUC


Environmental targets: Renewable Portfolio Standards• Summary• A renewable portfolio standard (RPS)

is a state policy that requires electricity providers to obtain a minimum percentage of their power from renewable energy resources by a certain date

• 24 states and DC have RPS policies in place and 5 others have nonbinding renewable portfolio goals (RPG)

• Standards can differ by type/size of utility in a state

• Incentives and enforcement are managed by individual states

• Relative to the US average of 3% of power from RPS, these targets represent a significant increase

* From ~13% in 2008Source: US Department of Energy ‐ Energy Efficiency and Renewable Energy, DSIRE and NREL; CA CPUC

States with RPS or RPG (2009)

CA: 33% by 2020*

NY: 24% by 2013

NC12.5% by 2021 (IOUs)10% by 2018 (co‐ops & munis)

OR25% by 2025 (large utilities)5%‐10% by 2025 (smaller utilities)


Operational: Reliability has a Major Impact on Businesses

• Costs due to interruptions vary widely by business type

• In total (not shown) electrical interruptions cost US businesses more than $100B annually**

* Digital Economy includes companies that rely heavily on data storage, retrieval and processing (e.g., telecom, financial services, research and development); Continuous Process Manufacturing includes companies that continuous feed raw materials, often at high temperatures; Fabrication and Essential Services includes other manufacturing as well as utilities and transportation** Conservative estimate based on CEIDS calculation of $104B‐$164B in 2001. Loss categories include: production, labor, materials, equipment damage, backup, overhead, restart, otherSource: CEIDS (Cost_of_Power_Disturbances_to_Industrial_and_Digital_Technology_Companies.pdf)

0

2,000

4,000

6,000

8,000

10,000

1 second 3 minutes 1 hour

Average cost per business by interruption durationDollars

020,00040,00060,00080,000

DigitalEconomy

ContinuousProcess Mnfr

Fabrication& EssentialServices

Average annual cost of interruptions by business type*Dollars

• Even momentary interruptions can be costly• Average of $1477 per business for 1 second interruptions

• For continuous manufacturing, average 1 second interruption cost is much higher: $12.6k on average (not shown)


Operational: Utilities Have Reliability Metrics and Incentives/Penalties for Missing Them

• Benchmark: 56 minutes• Increment: +/‐ 1 minute• Incentive: +/‐$2M (up to $18M)

* Metrics exclude planned outages. Metrics also have a duration threshold (typically 5 minutes), so interruptions shorter than the threshold are not counted in SAIDI, CAIDI or SAIFI.** Targets established in 2004

SAIDI• System Average Interruption Duration Index • Average total outage time (in minutes) over a year for

each customer servedCAIDI• Customer Average Interruption Duration Index • Average outage time (in minutes)

Duration‐based

Frequency‐based

Metrics* Example (Southern CA Edison**)

SAIFI• System Average Interruption Frequency Index • Average number of interruptions for each customer

served

MAIFI• Momentary Average Interruption Frequency Index• Average number of momentary interruptions for each

customer served• Definition of ‘momentary’ differs by utility (typically

under 5 minutes)

• Benchmark: 1.07/yr• Increment: +/‐0.01• Incentive: +/‐$1M (up to $18M)

• Benchmark: 1.26• Increment: +/‐0.01• Incentive: +/‐$0.2M (up to $3.6M)• Threshold: 5 minutes

These incentives are an alternative proxy for the value of reliability


Contents

• Electric utility industry overview• Overview of each value chain step• Factors that motivate electrical utilities• Benefits of Smart Grid for electrical utilities• Appendix


Reliability

Environment

Customer

There are Many Benefits to Smart Grid Solutions…

• Fewer outages• Shorter duration of outages• Better power quality

• More efficient operations and maintenance• Energy/Grid efficiency• Energy conservation• Reduced peak demand

Cost

• Reduced energy demand• Ability to integrate renewables• Enabling EVs

• Consumer empowerment• Improved customer

satisfaction• Lower energy bills

Example Benefits of Smart Grid Solutions

… but benefits can differ between regulated and deregulated markets


Let’s Look at 2 Examples – First Demand Response

• DR programs are designed to…– Shift loads from peak to off‐peak times

– Reduce overall energy demand• DR programs use energy rates that are more expensive during times of higher demand

– Time‐of‐use (TOU) billing– Critical peak pricing (CPP)– Real time pricing (RTP)

• The action at the customer can be taken by the customer or by the utility using direct load control

Demand Response (DR) Energy Efficiency (EE)


Demand Response – Greater Benefits in Regulated Markets

• Peak load reduction

Regulated market

Utility

• Deferred distribution capacity expansion

• Can target DR at specific circuits

• Potentially lower energy bill

UtilityDeregulated market

• Peak load reduction

• Potentially lower energy bill

Retail

No distribution benefits because Utility owns the wires but Retail owns the DR program and customer interface, so the Utility doesn’t have full control

Generation Transmission Distribution Customer


Now Let’s Look at Energy Efficiency

• DR programs are designed to…– Shift loads from peak to off‐peak times

– Reduce overall energy demand• DR programs use energy rates that are more expensive during times of higher demand

– Time‐of‐use (TOU) billing– Critical peak pricing (CPP)– Real time pricing (RTP)

• The action at the customer can be taken by the customer or by the utility using direct load control

Demand Response (DR) Energy Efficiency (EE)

• EE programs are designed to…• Reduce overall energy demand• And in doing so, reduce peak load

• EE programs incentivize behavior byusing rebates for efficient appliances or lighting as well as loans for energy efficient construction

• Programs are funded through surcharges on customers (included in electricity rates)


Energy Efficiency – Greater Benefits in Regulated MarketsRegulated market(with decoupling)

Utility

Deregulated market

Utility Retail

Generation Transmission Distribution Customer

• Customer reduces usage

• Utility makes same profit

• Deferred generation

Challenging to implement:Retailers compete with rates. If they sell less energy, they make less money.


Appendix

• Recommended reading• Electricity fundamentals• Utility 102 starter materials• Other examples


Recommended Reading• Electric Power System Basics for the

Nonelectrical Professional– Steven W. Blume– ISBN: 978‐0‐470‐18580‐3– January 2008, Wiley‐IEEE Press

• Understanding Today's Electricity Business– Authors: Bob Shively & John Ferrare– ISBN 0‐9741744‐1‐6– www.enerdynamics.com

• From Edison to Enron: The Business of Power and What It Means for the Future of Electricity

– Author: Richard Munson– ISBN: 978‐0313361869

• Electric Power Industry in Nontechnical Language– Author: Denise Warkentin‐Glenn– ISBN‐10: 1593700679 – ISBN‐13: 978‐1593700676

• Electric Power Distribution Reliability• Richard E. Brown

• Distribution System Modeling and Analysis• William H. Kersting

• Business Essentials for Utility Engineers• Richard E. Brown


Electricity Basics (1/2)

Direct current (DC)

Alternating current (AC)

• Current flows in one direction• Batteries produce direct current

• Current amplitude and direction change over time• The electrical grid and wiring in our homes and businesses use

AC. Why?...• Energy can be transmitted over long distances with less

line loss than with DC• AC voltage can be stepped up or stepped down via

transformers

AC

DC


Electricity Basics (2/2)

Single phase

Three phase

• Single‐phase electric power refers to the distribution of electric power using a system in which all the voltages of the supply vary in unison

• Used to supply electricity to residential customers and smaller commercial customers• In North America, there are generally 3 wires that come to your house, but they are

all on the same phase

• Three‐phase electric power systems have three alternating currents (of the same frequency) which reach their peak values at different times

• Delta between peaks is the phase difference• Used to supply electricity to industrial and some commercial customers• Combination of phases has the effects of giving constant power transfer over each

cycle of the current


Technical losses in the electrical grid

% loss

Coal: ~65%Gas CCGT: 50%Nuclear: 2%

Substation transformers: 0.7%*

Substation transformers: 0.7%

Primary network:1.0%

Distribution transformers: 2.1%

Customer connection: 0.3%

Meter: 0.3%

Total: ~9% (for Nuclear) to ~70% (for Coal)

* Assumed equal to distribution substation transformer loss** T&D losses are from the Indiana URCSource: Indiana URC 2007; DOI USBR; NEI

Transmission lines: 0.5%

BASED ON INDIANA URC EXAMPLE**


Power System Devices (1/4)Definition

Generation / power plant

• Generates electricity from a fuel source (potential energy) into electrical energy

• Fuel types include: biomass, coal, natural gas, geothermal, solar, wind• Built to a nameplate capacity rated in MW (MegaWatts)

Trans‐mission line

• Transports electricity at very high voltages (usually 66‐765kV) over long distances

• In the US, transmission is primarily alternating current (A/C), direct current (DC) is used in some areas

Substation • The location where electricity is converted from one voltage to another via large transformers

• Step down substations reduce the voltage (used to send electricity from transmission lines to distribution lines), step up substations increases the voltage

High voltage transformers

• The devices that convert or “transform” the electricity from one voltage to another

• Rated in k/MVA (Volt‐Amperes), which is theoretically the same as watts



Load tap changer

• Located inside the substations, LTCs are mechanical devices that control and change the voltage being sent down the line, more granularly than the transformer

• Generally, lifetimes of load tap changers are a function of the number of “taps” or actions taken

• Some utilities will use voltage regulators or large capacitor banks to perform the same function

Circuit breaker

• An automatically operated switch that opens the circuit (ie – stops power flow) when it detects an overload or short circuit in order to protect the circuit

Lightning arrestor

• Located in substations, and through the electric grid, lightning arrestors protect the power system from the effects of lightning, which can cause surges on power lines

• Aka – surge arrestor

Voltage regulators

• Device that senses voltage on input side and raises or lowers the voltage on output side to maintain a preset voltage level plus or minus a bandwidth

• Generally in substations, may also be along feeders



Sectional‐izer

• Protection device that opens a circuit, but does not have the ability to interrupt a line with current on it

• Requires devices on source side to interrupt current and voltage so it can open

• Replaces fuses with the advantage that it can be used multiple times without needing to replace pieces (the fused elements)

Recloser • Protection devices that opens a circuit, but can be programmed to close a pre‐set number of times to allow a line to be re‐energized if the fault is momentary

• Has the ability to interrupt fault current

Load break switches

• Used primary to isolate faults and transfer load between connecting feeders or substations

• Can be opened or closed to transfer sections of load from one feeder to another

Fuses • Device located in the electric grid, on a single phase, that protects the grid against excessive current, literally melting (thus, fuse) to open the circuit and interrupt power flow



Capacitor banks

• Devices that offset reactive power on a system, creating the potential to reduce losses due to reactive power

• Rated in kVAR (kilo Volt Ampere Reactive)

Low voltage transformers

• Converts higher distribution voltages (primary side) to lower voltages for use in premises (secondary side), usually 120/240 volts in US

• Most ubiquitous grid device after the meter

Meter • Measures electricity consumed at the premise• More advanced meters also can measure other elements – voltage,

reactive power, etc…

Faulted circuit indicators

• Provides visual or audio indication of fault current to identify where a fault has occurred

• Aka – Fault Current Indicators


Peak •Low fixed costs•High variable costs•Quick start capability

Generation: Due to This Variability, A Portfolio of Generation Types is Needed to Efficiently and Effectively Meet Demand

•Combustion turbines•Pumped storage hydro

Load type Generation plant characteristics Typical plant types

Cycling •Lower variable costs relative to peak capacity

•Lower fixed costs relative to base capacity

•Load following capability (i.e., ability to move quickly between varying levels of demand)

•Oil and gas steam plants

Base •High fixed costs•Low variable costs•Reliability

•Coal•Nuclear•Hydro plants•Combined cycles

• Traditionally, utilities have looked at demand as uncontrollable, so they’ve needed various types of supply to meet the demand.

• With renewable energy supplies like solar, utilities face uncontrolled supply, which requires active loads (e.g. electric vehicles and demand response) to balance.


Transmission: Role of RTOs and ISOs• RTOs (Regional Transmission Organizations)

• Independent, federally regulated entities established to coordinate regional transmission in a non‐discriminatory manner and ensure the safety and reliability of the electric system

• Play a role in coordinating wholesale trading• Usually operate across state borders

• ISOs (Independent System Operators) play a similar role to that of RTOs but each typically operates within a given state

Source: FERC


Distribution: Network Topology

Substation33kv 12kv

33kv

Feeders (3 phase)

750kv

Large Industrialcustomer

Commercial& Industrial customer

Lateral (single phase)

TransformerTransformer

Home Home Home Home Home

TransformerAll single phase

Transformer

Typically 5 homes served by each of these transformers

Feeder (3 phase)

Feeder (3 phase) S Sectionalizer

RR

Reclosers


Distribution: Substation MapHV line in (33kV)

EXAMPLE: SIMPLE LAYOUT

Disconnect switch

High‐voltage circuit breaker

Power transformer…

…with voltage regulating load tap changer at output

Breaker

Feeder breakers

Feeders(11kV)

HV line in (33kV)

Feeders(11kV)

Normally open

Normally open

BusBus


Financial: How Utilities Recover Costs (PG&E Example)

Operating & Maintenance costs

Depreciation &Amortization

Other taxes

Return, interest,and taxes

Fuel & Purchased Power

DWRcontractcosts*

PGC charge

FERC/CAISO costs

Cost of ServiceComponent

Source: PG&E GRC filings

Rate component

▪ FERC/CA ISO costs

Rate-setting structure

▪ FERC jurisdictional transmission revenue requirements and CA ISO pass through costs

▪ Public Goods Charge

▪ Recovery of costs related to Energy Efficiency and other public good components (e.g., appliance and CFL rebates, customer care programs)

▪ DWR Revenue Requirement

▪ During the 2000-2001 CA Energy Crisis, the Department of Water Resources procured long term power for the utilities, which is recovered in rates

▪ Energy Related Recovery Account (ERRA)

▪ Filed twice a year, one forecast and one historical for fuel & purchased power costs▪ Has a balancing account mechanism to true-up for fluctuations between forecast

and actual costs▪ If costs are >5% of forecast, automatically triggers the process for a rate increase

▪ General Rate Case (GRC)

▪ Cost of Capital (COC)

▪ Special purpose balancing accounts

▪ Three year cycle, de-coupled from energy sales▪ Covers all Operations & Maintenance and other opex▪ Cost reductions/overruns within 3 year cycle flow to earnings

▪ Filed annually▪ Covers the allowed ROE and capital structure

▪ Created to recover costs of special one-time projects (e.g., AMI)▪ Generally have a fixed cap for expenditures, but under spent

portions are not recovered

• Utility accounting is complex (!)

• Rates are adjusted over time to provide cost recovery – and ensure that cost improvements flow back to rate payers

• Investment cost overruns are borne by the utility

• The combination of low reward for risk leads to risk aversion


Financial: Measurements used for Billing

Measurement Description

Applicable for

• Based on energy consumed

• Measured in watt‐hours (Wh): a 40 watt light bulb operating for 2 hours will consume 80 Wh

• Usually appears as thousands of watt‐hours (kWh)

• Based on the maximum kilowatts needed at any instant over the course of the billing period

• Measured in watts and expressed at kilowatts (kW)

• The utility needs to have enough capacity available to meet demand, so they levy an additional charge

• Power factor is a ratio between the “real power” available to the customer (W) and the “apparent power” that the utility provides (volts*amps or VA)

• In a perfect world, the W = VA

• They are not the same in the real world because some devices (e.g., motors) create a sort of resistance (called reactance)

• To overcome this reactance, the utility needs to provide more VA for each W. The difference is called volts amps reactive (VAr)

• To pay for this extra generation capacity, utilities charge based on the power factor (W/VA) or the VAr.

Usage

Demand charge

Power factor(or VARs)

Residential and SmallCommercial

Large Commercial and Industrial

Yes Yes

No Yes

No Yes

Source: Detroit Edison Tariff Structure

Example PF penalty

Real power

Reactive power


Example Electricity Rates: NC IOU Example (Duke Energy)

For environmental compliance, taxes and homeland security

For fuel purchases

For transmission

Source: Duke Energy

Flat rate for distribution

Additional distribution fee

Energy charge

Generation charge

Additional generation charges


If you have any questions…Please email or call me:

John ChowdhuryPhone: 214‐213‐6226

[email protected]://www.smarterutility.com.

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