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Economics and Electricity Thursday, June 19, 2014

Economics and Electricity Thursday, June 19, 2014. Commissioner Julie Fedorchak North Dakota Public Service Commission www.psc.nd.gov. “I never drink coffee at lunch. I find it keeps me awake for the afternoon .” Ronald Reagan. Ben Franklin Discovered electricity, 1700s.

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Economics and Electricity Thursday, June 19, 2014

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  1. Economics and ElectricityThursday, June 19, 2014 Commissioner Julie Fedorchak North Dakota Public Service Commission www.psc.nd.gov

  2. “I never drink coffee at lunch. I find it keeps me awake for the afternoon.” Ronald Reagan

  3. Ben FranklinDiscovered electricity, 1700s

  4. "Opportunity is missed by most people because it is dressed in overalls and looks like work." – Thomas Edison Thomas Edison1847-1931 Inventions: telegraph, telephone, phonograph, electric lighting system, alkaline storage batteries and Kinetograph (a camera for motion pictures).

  5. How does the System Work? Where power comes from and how it gets to me Key Elements: Generation Transmission Distribution Customers

  6. Electricity Can’t Be Stored: Electric grid represents the ultimate “just in time” manufacturing. No practical way to store huge volumes of electric power Generators must continually match generation to what customers demand every day.

  7. Electricity has been a Great Value Increase in cost of selected consumer goods1985 – 2005 (nominal dollars)

  8. Ownership/Management of Utilities: Investor-Owned Utilities (IOUs) Cooperatively-Owned Utilities Government-Owned Utilities (federal, state, municiple)

  9. Utilities are Natural Monopolies Costly duplication of expensive fixed costs – generation, transmission and distribution facilities Providers of a vital product or service Regulated by State and Federal Agencies

  10. Rights • Protected service territory • Recovery of legitimate costs • Fair return on investment • Responsibilities • Obligation to serve • Expenditures must be prudent • Investments must be “used and useful” • All rate increases must be justified and approved

  11. Role of Regulators Prevent market abuses Excess monopoly profits Management inefficiency Assure adequate earnings so that utilities can compete for investors Ensure safety, reliability and affordability of services.

  12. Expenses + Return on Investment = Required Revenue

  13. The Basics of Rate Making Functionalization Classification Allocation Direct Assignment

  14. 40% Production 52% Transmission Distribution 8% Residential Customer’s Functionalized Cost

  15. 5% 12% Production Transmission Distribution 83% Large Industrial Customer’s Functionalized Cost

  16. Classification assigns costs by category of customers • Group costs within functional areas are based upon the nature of causation

  17. Current Regulatory Issues Major expansion of generation and transmission investments Regional Transmission Organizations Gas-Electric coordination On-site generation, net metering, etc. Public policy requiring carbon dioxide emissions restrictions Potentially large increase in electricity prices from fossil fuels if regulation deadlines precede technology Alternative generation sources Increased nuclear generation; Increased renewable fuels (wind, biomass)

  18. Demand for Power in ND

  19. Generation Investments Generation Investments are Fixed Costs, i.e., costs of the investments are the same whether being used or sitting idle. Generation resources have different characteristics, uses and costs Base Load Intermediate Load Peaking Load

  20. Comparing Different Sources 24

  21. Fuel Diversity:Key to Affordable and Reliable Electricity Every fuel source has strengths and weaknesses Fuel diversity protects consumers: Supply issues, price fluctuations, regulatory policy, weather challenges. Fuel prices greatly affect the price of electricity. Fuel costs are on the rise.

  22. Power Sector Generation Share, 2013 Source: Energy Information Administration .

  23. 2013 New Capacity Announcements by Fuel Type Source: Ventyx Inc. .

  24. Page 28 Source: EIA

  25. Page 29 Outlook for Electricity Generation By Fuel, 1990-2040

  26. Participants: EPA, NERC, power companies, coal companies, R&D, public Key Concerns Expressed: • Reliability • Cost • Commercial Availability of CCS • Flexibility/States Primacy/Timeframes PSC CO2 Symposium

  27. State by state approach • Limitations on premature closing of generators • Recognition for early investments • More time for technology to develop • Flexibility for total system vs plant by plant • Goal: Effective regulatory framework that supports innovation, efficiency, reliability, affordability and environmental goals. Necessary Elements of CO2 Regulations

  28. Effect on Family Budgets This new regulation will force families to cut back on other spending. ( See Family Budget Activity) How would your family adjust if your electricity bill increased by 40 percent?

  29. Thank You! North Dakota Public Service Commission www.psc.nd.gov 701-328-2400 Commissioner Julie Fedorchak

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