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Power Utilities in the Telecom Business in the USA: Past Failures and Future Trends

Power Utilities in the Telecom Business in the USA: Past Failures and Future Trends. Mike Oldak Vice President & General Counsel Utilities Telecom Council World Bank Sustainable Development Forum Energy Sector Day January 21, 2010. Mike.Oldak@UTC.org 202 833 6808. Where Are We?.

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Power Utilities in the Telecom Business in the USA: Past Failures and Future Trends

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  1. Power Utilities in the Telecom Business in the USA: Past Failures and Future Trends Mike Oldak Vice President & General Counsel Utilities Telecom Council World Bank Sustainable Development Forum Energy Sector Day January 21, 2010 Mike.Oldak@UTC.org 202 833 6808

  2. Where Are We?

  3. Demand Projected To Increase 40% 21% by 2030 Recession Impact? Billon kiloWatthours Sources: U.S. Department of Energy, Energy Information Administration

  4. Margins Projected to Fall Below Minimum Target Levels (2007) RFC (MISO)* 2008/2008 MRO 2009/2009(US) RFC (PJM) 2012/2014 NewYork 2011/2016+ Rocky Mtn 2008/2011 New England 2009/2009 California 2009/2012 AZ/NM/SNV 2009/2011 SPP 2015/2016+ *Excludes MISO resources outside the RFC boundary TRE (ERCOT) 2009/2016+ Source: NERC 2007 Long Term Reliability Assessment 4

  5. Coal Plant Cancellations / Closings2006 - 2007 Source: NRDC: The Growing Trend Against Coal-Fired Power Plants; other publications

  6. View Forward

  7. President Obama’s Energy / Environmental Views Renewable Portfolio Standards Climate Change 25% by 2025 80% reduction by 2050 H.R. 2454 20% by 2020 H.R. 2454 83% reduction by 2050 Smart Grid EnergyEfficiency Increased Government Support Overhaul of Federal Efficiency Codes In H.R. 2454 and stimulus package In H.R. 2454

  8. Utility Industry’s FutureTied to The Smart Grid • Smart Grid is • Smart devices and sensors from generator to end use consumer • New awareness and control over all aspects of the grid • Advanced communication linking all parts of the grid

  9. Utility Telecom Provides Unique Benefits Multiple Revenue Streams • Aggregate demand response to reduce wholesale market prices • Provide consumers with information and tools to optimize usage • Relieve congestion at transmission and distribution level • Avoid or defer G, T & D infrastructure investments • Optimize use of existing resources • Coordinate integration of new renewables and storage devices • Improve customer, distribution and grid reliability • Use smart grid fiber / spectrum to support other broadband needs Utilities are uniquely positioned to optimize the new smart grid and maximize the benefits from smart grid investments

  10. Value For Consumers and Utilities Baltimore Gas & Electric

  11. How Smart Grid and Smart Rates Can Help Critical Peaks

  12. Baltimore Gas & Electric 2009 Dynamic Peak Pricing: Weekdays (excluding Holidays) Pilot Pricing All – in Rate* Critical $1.30425 Peak $0.14425 Off-Peak $0.09425 * Includes generation, transmission and delivery $1.30 $0.14 $0.09

  13. Peak Time Rebate: Weekdays (excluding Holidays) • Schedule R summer rates are $0.14 / kWh for all summer hours • Up to 12 critical peak days will be called by 6 p.m. the prior day • Customers who use less during the critical period (2 – 7 p.m.) on any critical peak day will receive a rebate. Two levels being tested: • $1.75/kWh and $1.16/kWh Baltimore Gas & Electric 2009

  14. Hours in Each Summer Pricing Period 60 hours of higher “Critical Peak”

  15. Actual Load Shapes for Participants and Control Group during Critical Peak Event Load Profile on CPP Day before and after Demand Response (July 17, 2007) 3.5 3.0 2.5 2.0 Load (kWh/Hr) 1.5 1.0 0.5 0.0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Hour Load Profile PTRH PTRH_ET_ORB PTRH_ORB Ba

  16. Summer 2008 Pilot Smart Energy Pricing - Peak Demand Reductions * Orb & Switch Orb Only Orb & Switch Orb Only No Tech Orb & Switch No Tech No Tech Orb & Switch No Tech Orb Only Orb & Switch DPP Rate Low Rebate $1.16 /kWh High Rebate$1.75 / kWh % Change in Critical Peak Demand

  17. Estimated BG&E Deployment Costs$ 482 Million (2009-14) $30 Smart Energy Pricing $10 other $14 Communications $99 Information Technology $329 Meters and Modules

  18. Customer Savings Greatest BenefitProjected Life-cycle Saving >$2.6 B Energy Revenues Energy Conservation Energy Price Mitigation $49 $61 Avoided Transmission Infrastructure $104 Avoided Generation Capacity Cost $117 $661 Avoided Capital Expenditures $204 $408 Operational Savings $580 Capacity Price Mitigation $452 Avoided Distribution Capacity Cost ($'s in millions)

  19. BG&E Residential Bill Impact • Over the life of the recovery period, the average monthly electric and gas surcharge is projected to be $1.24 and $1.52, respectively $0.00

  20. Lesson from the PastUtilities and Telecom • In the 1990s utilities tried to compete with commercial telecom carriers – results were generally poor • Strengths of utilities • Efficient construction of backbone energy and telecom system • Ability to ensure highest reliability • Able to finance huge projects at low-risk rates • Operate in a regulatory environment where decisions will be subject to review for both correctness and cost containment • Strength of commercial telecom carriers • Willing to take risks and act quickly • No need to seek regulatory review • Part of core business • Solid understanding of business models

  21. Role for Utilities • Leverage core capabilities • Build out system as a carrier’s carrier • Leverage existing assets • Dark fiber • Existing infrastructure • Some utility technologies lend themselves, others do not! • Leverage economies of scope and scale • Uniquely positioned to access multiple revenue streams from investments • Relationships with local governments, authorities • Ability to energize a large, geographically diverse workforce

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