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CEO FORUM: Dealing with Disruption

Leaders adapt to strategic shifts in the utility landscape.

Fortnightly Magazine - June 2010

some battery capacity, there are two compressed-air energy storage (CAES) projects that are still in the vetting stage. One of those has a potential capacity of 2,700 MW. Also we’re working on a 20-MW flywheel project. My favorite technology though, and I hope the smart grid makes it available, is water-heater storage. Water heaters already exist throughout the system. Prices could encourage heating water at night and lowering the temperature during the daytime, but this does require smart-grid control systems.

This will be a slow-moving process. It’s a very large system, and as we add wind we’ll need a lot of storage, much like we added 23 GW of pumped-storage to the country’s grid in order to integrate nuclear power in the 1970s and 1980s, to allow nuclear power to run at base load. Nuclear plants have a very good fuel cost, and so do wind farms. We’d like to have the same kind of flexibility in the portfolio going forward.

Another important part of the resource plan is shale gas. It’s not a zero-carbon resource, but it can buy time to integrate renewables. Natural gas balances out with wind much better than nuclear or coal plants do. Shale gas is very heavy in the PJM region and it’s closer to load centers than wind or coal-fired generation, so that might represent a sea change. But you have to do it right the first time, in terms of protecting the environment and the water supply in particular, or you might not get another opportunity.


Negawatt Planning

Fortnightly: What roles do you expect conservation and demand management to play in the future resource strategy?


Ratcliffe, Southern Company:  We’ve done a lot of work within the industry, at EPRI and other groups, looking at what could be done with energy efficiency and conservation. We know we could do more but it has to be economically effective to deploy. There’s nothing that doesn’t cost money. We can pass building codes that will require more efficient new construction going forward, and we can provide economic incentives for retrofitting with new lighting and motors. We’ve been successful at reducing the peak demand with different rate structures. We can demonstrate 3,000 MW of demand on our system that doesn’t exist because of interruptible loads and peak pricing. We think we can do more in that regard, and we’ll spend as much as $1 billion to create incentives to reduce peak demand over the next 10 years. From that we expect we can get a further 1,100 MW off our system.

But all of these things are a function of cost, the current mix of resources, and regulatory requirements at the state and national levels. More than 25 states have mandated renewable energy. What makes economic sense depends on your average cost of electricity, and the cost for renewables, efficiency or conservation. The higher your average rates are, the more it makes sense to deploy efficiency and conservation programs. Many programs, when measured against a rate-impact model, actually cause rates to go up, and therefore regulators won’t—and