CEOs are Charged Up

Not since the Clean Air Act of 1970 - and its subsequent amendments in 1990 - has the utility world been so encumbered with environmental issues, namely the reduction of carbon dioxide emissions. Just how such companies cope with the pending requirements is a function of their geographies as well as their existing fuel portfolios.

Beyond the fuels that companies will use to meet their electricity demand, they are also zeroing in on new technologies, whether they be distributed generation, electric batteries or microgrids. And no matter where they fall on this spectrum, they are taking notice and trying to develop a strategy going forth.

To provide a mix of perspectives, Fortnightly has chosen to speak with four chief executives: Ian McLeod of Ergon Energy in Australia, Darrel Anderson of Idaho Power, Tony Earley of PG&E Corp. and Mark Vogt of the Wright-Hennepin Cooperative Electric Association in Minnesota.

Ian McLeod

CEO, Ergon Energy in Australia

Can you briefly describe your utility and the major issues you are facing in Australia?

Ian McLeod - CEO, Ergon Energy in Australia

Ergon Energy supplies electricity across a vast, diverse service area of more than one million square kilometers - across 97% of the state of Queensland. We are both a transporter and retailer of energy with a significant asset base consisting of 160,000 km's of lines but only 725,000 customers. With one of lowest density networks in the western world the integration of new technology creates both problems and opportunities.

Australia is challenged by growing customer dissatisfaction and energy substitution fueled by significant increases in electricity charges over the past 5 years. Price increases have been driven three key factors:

• Increased security and reliability standards
• Higher capital equity and debt allowances and costs following the Global Financial Crisis
• Poorly structured and targeted carbon policies.

To meet a carbon reduction commitment of 5% of 2000 levels by 2020, Australia has biased it policy interventions, and therefore investment, to supply solutions at the expense of more efficient and productive customer or demand side solutions.

Increasing prices, dropping consumption, an over-supply of generation and increasing customer choice is without clear leadership, collaboration and orderly transition, putting at risk the equitable, safe, reliable and economic supply of electricity to consumers as a whole.

Darrel T. Anderson - President and CEO, Idaho Power

How do distributed resources and storage factor into innovation and investments at Ergon Energy?

In 2007 the business, political and environmental factors pointed to a significant price increase in electricity prices in 2010 to 2015. The increase in prices and new carbon policies would result in the market accelerating alternative technologies and our customers would begin to seek choice. We developed a three-horizon strategic plan. Strategic objectives included being a leader in safety, leveraging climate change and modernizing the grid. But the key strategic objective in the 2015-20 horizon was empowered customers. This would deliver shared value.

Strategy execution involved regulatory, organizational and pricing (tariff) changes; securing financial resources and developing the capability of our people and the external market. With a long, skinny but low customer density network distributed demand and supply solutions became viable sooner.

Our demand management program resulted in the avoidance or deferral of $664 million in capacity augmentation for 2010-15.

Anthony F. Earley Jr. - Chairman of the Board, CEO and President, PG&E

From a governance and investment perspective demand management and distributed energy resources and customer end solutions must be considered before any investment will be made in to capacity. We have been piloting batteries since 2006 and now using lithium Ion batteries for grid support on long rural single wire lines. We are also piloting batteries at the customers premise to multiply value capture while enabling costs to be shared. Around 22% of our stand customer residences have roof top solar. We are actively refining technical standards and tariffs to allow greater penetration without a negative impact on network security.

We have around 1GW of distributed energy resources connected to our network that peaks at around 2.4GW. This includes 370MW of distributed roof top solar and 344MW of biomass (bagasse).

We see our grid as being an open access platform that enables an effective market for consumers, central utility and distributed energy resources and applications. The internet of power.

Are the driving factors more technological? More consumer demand?

Mark Vogt - President and CEO, Wright-Hennepin Cooperative Electric Association

It's a combination of all the factors. Customers demanding choice and control due to either increasing electricity prices, a desire to reduce their carbon footprint or simply to improve lifestyle. Governments creating policies and subsidies to accelerate new technologies to reduce carbon. Utilities using new technology to lower grid costs, reduce commercial risk and improve sustainability. And technology improving and reducing in cost.

I think the end point for distributed resources is the same no matter which way you look at it. It just the time and cost it takes to get there that is different.

How do regulators think about these issues where you are?

It has been mixed. On the positive side in the current period to July 2015 they allowed revenue for us to invest in non-traditional demand management solutions and this has enabled us to advance our capability and reduce capital investment going forward. This and lower cost of capital will bring down network tariff going forward. However there is still a lack of understanding of the evolving market and they are trying to resolve issues of the past with increased regulations rather than recognising the growing market forces.

Final thoughts?

It's in all our interest to ensure energy resources no matter where they are, are shared in an efficient and effective way. Networked resources whether social, information, communication, water or energy, deliver great outcomes more efficiently. In short the whole is greater than the sum of the parts. - Ken Silverstein

Darrel T. Anderson

President and CEO, Idaho Power

Thoughts on the Clean Power Plan?

Idaho Power is fortunate to have a clean, heavily hydro-based generation portfolio, the backbone of which is our series of 17 hydroelectric dams on the Snake River and its tributaries. Although Idaho is one of only a few states in the western U.S. without a renewable portfolio standard, Idaho Power already has abundant renewable energy on its system. Idaho Power's hydroelectric system, while a clean energy source itself, has helped the company to integrate other forms of renewable energy, including a large volume of intermittent wind generation.

We are also proud of our low carbon emissions intensity. While Idaho Power supports efforts to reduce carbon emissions, and has been taking efforts to reduce carbon emissions voluntarily for several years, the company does have concerns regarding the EPA's proposed Clean Power Plan.

We believe the proposed rule has unintended consequences when applied to Idaho, because of the state's unique set of circumstances. These include an absence of in-state coal-fired generation and a high proportion of existing and contracted in-state renewable energy generation, as mentioned above.

Idaho Power has submitted comments to the EPA individually and as a member of the Coalition for Innovative Climate Solutions; it also joined in the comments submitted by the State of Idaho and the Edison Electric Institute. We are hopeful the final rule will strike a practical and economically sensible balance for our company and our customers.

How will that alter your generation portfolio?

Idaho Power's integrated resource planning process helps guide our future generation portfolio. We file an integrated resource plan biennially and will release our 2015 IRP in June.

One concern with the proposed new rule is that as written, it would prevent Idaho Power from continuing to use the new Langley Gulch natural gas-fired power plant as planned to meet customer demand. This CCCT unit came on line in 2012. The plant is compliant with the EPA's proposed rule for new electric power plants and generates roughly half the carbon emissions (per megawatt-hour) of a coal-fired plant. It is also essential to enabling Idaho Power to respond to annual variability in hydro generation and shorter-term variability in renewable resources such as wind and solar.

The Langley Gulch plant was actually built instead of adding new coal-fired generation, which aligns with the intent of the rule. But because the plant was built prior to the proposed rule under the Clean Power Plan, Idaho Power would be unable to use it to its full capacity if the rule is implemented in its proposed form.

Beyond these concerns, we expect, as the industry does, that the rule as written could result in early retirement of coal-fired plants, which means we and other electric utilities could have to find alternative sources to replace these existing dispatchable resources, which increases costs to customers.

Are you implementing a lot more natural gas given its price?

The price of natural gas is certainly part of the equation when deciding what to construct in the long-term and which generation resources to dispatch in the short term. Idaho Power is focused on keeping customer rates low, and natural gas prices have helped in that regard.

Depending on the outcome of the Clean Power Plan and the timing of construction of our proposed Boardman to Hemingway (B2H) 500-kV project, Idaho Power would likely consider constructing another new natural gas plant. But this is not a preferred solution, as it does not have the regional and grid strengthening benefits of the B2H transmission line project.

What about transmission? What kinds of investments are you making there? Upgrades? Expansions?

We are currently working with other parties to permit and site two very sizable 500-kV projects, the 300-mile B2H line and the 1,000 mile Gateway West line. As "no-carbon resources," these lines can assist with meeting the EPA's proposed rule. B2H is a key resource in the portfolios we are evaluating for our 2015 IRP. The total investment for these combined projects is in the billions of dollars.

At the end of 2014, we achieved a notable milestone for B2H when the Bureau of Land Management released the draft Environmental Impact Statement (EIS) for the project. We expect the BLM to issue a final EIS for B2H during 2016. The Record of Decision (ROD) for eight of 10 Gateway West segments was released in November 2013. The BLM estimates it will publish a ROD on the remaining two segments during 2016.

It is worth noting that the transmission siting process has been very challenging, even though these two projects have been identified as a priority as part of the federal Rapid Response Team for Transmission. One significant challenge on B2H, which has involved considerable time and resources, has been aligning the separate state and federal permitting processes, which have different requirements.

If you see the demand for electricity expanding, how will you meet that need?

We have seen growth in our service area, and we expect that growth to continue. During the first three months of 2015, our customer count grew by nearly 1,600 customers, and for the twelve months ended March 31, 2015, the customer growth rate was 1.6 percent. Even with the anticipated growth, we believe that we have adequate resource capacity until at least 2021, depending in part on the final rules issued under the Clean Power Plan.

With the current projected in service date of B2H of no earlier than 2021, B2H is intended to help us to meet increasing customer demand. The line will interconnect with the mid-Columbia market and move energy generated by existing resources, including hydro, natural gas, wind, and solar. The project allows complementary regional exchange of energy; the Northwest experiences high winter energy use, while the Intermountain West, including Idaho Power's service area, experiences high summer energy use due to irrigation and air conditioning load.

Electric vehicle (EV) adoption is another area that could drive increased demand, to a point, in the future. New legislation recently signed into Idaho law will open the door to more public charging stations. Idaho Power supported that legislation, which rewrites a 100-year-old paragraph in the Idaho Code to allow businesses to charge a small fee to customers who use their charging station.

Idaho Power also encourages growth through economic development activities, including promotion of our attractive rates and reliability to large customers, and robust partnerships with local business development agencies. A number of businesses have recently constructed, or are in the process of constructing, sizable facilities in Idaho Power's service area, including office and manufacturing complexes, particularly in the food processing industry.

Thoughts on disruptive technologies like microgrids? energy storage?

There has certainly been increased customer adoption of distributed generation. New energy storage technology, to the extent it is affordable, could accelerate the adoption of distributed generation. However, we believe the grid will continue to be essential for long term reliability. That said, the industry will need to ramp up its efforts to learn how to integrate more distributed generation and ensure costs are allocated properly through equitable rate design. In addition, enhanced transparency around the value of the grid will be necessary so that consumers have a better appreciation for the value the grid provides. - Ken Silverstein

Anthony F. Earley Jr.

Chairman of the Board, CEO and President, PG&E

What are the priorities of a PG&E CEO?

I believe the first job of all leaders is to create a climate where their teams and the company can be successful. To me, that means setting clear priorities and direction, setting the right tone when it comes to the values of the company, and working to remove obstacles so the team can perform at its best.

At PG&E, our No. 1 value and most important responsibility is safety. We've set a goal to be the safest, most reliable utility in the country, and we're making great progress. We're equally committed to making sure our service continues to be affordable. And we're working to build on PG&E's strong history as a leader and innovator on clean energy and efficiency.

To deliver on this, we've had a strong focus on a number of areas, starting with operational excellence. In recent years, we've been rigorous in benchmarking ourselves against the best in the industry and driving improvements in our operating practices - particularly around safety. We've also focused on leveraging new technologies, engaging our workforce, strengthening our integrated planning, and helping to shape smart energy policy, among other areas.

Ultimately, the goal is to deliver for the customer, and we're proud that our customer satisfaction in 2014 hit its highest level in five years.

How is PG&E doing with the 33% by 2020 renewables mandate?

PG&E is on track to meet California's renewables mandate. In 2014, about 27 percent of our customers' electricity came from qualified renewable sources. That's up from 19 percent two years earlier, so we're making great progress. When you add our nuclear and large hydro assets, well over half of our customers' electricity comes from sources with zero greenhouse gas emissions-among the cleanest portfolios in the country.

Do you think Governor Brown's proposed 50% by 2030 renewables target is realistic?

We're fully committed to California's climate change goals, including the recent decision by Governor Brown to set a new interim target of cutting greenhouse gases 40 percent below 1990 levels by 2030. We're also committed to achieving the goals in the most affordable and efficient way for our customers. We think the key is designing policies that point the way forward while creating a wide playing field for innovators to develop the best solutions.

We're going to continue to grow PG&E's supply of renewables, and there's no doubt renewables will become a bigger part of California's overall energy mix in the future. We also know that other new clean energy technologies are going to continue to evolve that can also deliver emissions reductions and be part of the solution. Energy-efficiency technologies and electric vehicles are two significant examples.

In addition, we believe in policies that maximize innovation and greenhouse gas reductions across industries. From our perspective, an integrated approach will allow us to meet our clean-air goals while also managing costs for our customers and ensuring the continued reliability of the electric grid.

Will PG&E have the natural gas generation needed to balance that much renewables capacity?

The short answer is yes. But the question raises the very good point that having a balanced, diverse and flexible generation portfolio is imperative.

Tell me about PG&E's initiatives with electric vehicle charging infrastructure.

Addressing vehicle emissions is essential if California is going to achieve its climate and clean air goals over the next couple decades. That's why the state has set a goal to have 1.5 million zero-emissions vehicles on the road by 2025, and it's why Governor Brown proposed targeting a 50 percent cut in gasoline usage by cars and trucks. The only way to achieve those goals is by significantly increasing the adoption of electric vehicles, and we support that.

California already has more EVs on the road than any other state-more than 60,000 in PG&E's service area alone. But to grow that number it's critical to build a much more robust charging infrastructure. The fact is that charging infrastructure has been slow to develop. Utilities are in a unique position to help jumpstart that effort.

We're very excited about the proposal we've put together. PG&E has asked the CPUC for permission to deploy, own and operate more than 25,000 electric vehicle charging stations across our service area, which extends from the Oregon border to Bakersfield. That would be the largest utility-owned charging network in the country.

You were recently quoted to the effect that more utilities should be invested in EV technology because it helps further grid modernization efforts. Please expand on that thought.

Our interest and excitement around EVs is really about our customers and the direction that California has set on greenhouse gases. In California, utility revenues are decoupled from power sales, so for PG&E, selling more electricity to fuel EVs isn't about increasing earnings.

Down the road, though, broader adoption of EVs could have the added benefit of helping to offset slower growth in electric demand, which in turn helps keep rates more affordable because the fixed costs of running the system are spread across more unit sales. That's important for ensuring that we're able to continue investing in the grid for the future.

What would you like to see come out of the AB 327 process?

The Legislature passed AB 327 because there's an understanding that electric rates in California need to be more balanced and equitable for customers, and that we need a rate structure that can sustain the investment in the 21st century grid that is so critical to California's energy future.

Because of the current rate structure, some customers are paying top-tier rates that far exceed the actual cost of service-especially in areas like California's Central Valley, where customers' usage is often higher because of the extreme summer heat. Others are paying far less than the actual cost of service. We have proposed narrowing that discrepancy over time by simplifying today's four-tiered price structure down to two tiers. We also want to introduce an optional time-of-use rate with no tiers. For customers who can limit their usage during peak energy demand, this would be a very helpful money-saving option.

We've also proposed that California put in place a fixed charge like most other states so that the cost of essential infrastructure maintenance and modernization is shared more equitably among all customers who use the grid. Unfortunately, the recent proposed decision by the California Public Utilities Commission did not include the fixed charge. Nevertheless, we continue to believe it's important and we'll continue to actively support it.

How do you see the future of net metering in California?

California needs smart energy reform that will achieve two things for our future. First, we need policies that will ensure the right investments are made to build a smarter, more reliable and safer energy grid that will work for everyone well into the future. We also need policies that will keep solar growing and thriving. Solar is critical to California's clean energy future, and to help it grow even faster, we must work together to invest in a smart energy grid.

Do you see California being challenged by the EPA's Clean Power Plan? What does that plan mean for PG&E?

California has set its own climate goals and put programs in place to achieve them, which PG&E has fully supported. Our customers also support what California is doing. It's driving results and doing so cost-effectively. So our priority with regard to the EPA's Clean Power Plan has been to ensure that it offers the flexibility to allow those programs to continue working, and that it offers opportunities for California to partner with others in the west to achieve sustained emissions reductions as cost-effectively as possible.

Do you foresee PG&E being faced by load defection forced by solar-plus-storage economics?

PG&E has helped more solar customers connect to the grid than any other utility in the country, and we're adding a new solar connection every 11 minutes. We're proud of that track record, and we fully support our customers having the option to take advantage of new energy technologies, including battery storage. Our goal is to ensure that our system can both enable the interconnection of these new technologies and maximize their value for our customers.

Do you have concerns about a utility death spiral? Or what do you see as the future of utilities?

We see the utility electric grid being just as indispensable over the next 100 years as it has been over the past 100 years-perhaps more so. The reason I say that is because the grid is a platform for integrating and maximizing the value of all of these new and emerging energy technologies-from rooftop solar to electric vehicles to battery storage and smart appliances.

Customers and utilities will get far more value out of these technologies if they're connected together through the grid-the same way we get more value out of a computer when it's connected to the internet. It's the same concept as the Internet of Things. In fact, our vision for the grid of the future is called the Grid of Things.

We see a very bright future for utilities in providing this connectivity for customers and making it possible for this ecosystem of new technologies to grow and thrive. The result is going to be an energy future that's cleaner, more reliable and more efficient. - Herman Trabish

Mark Vogt

President and CEO, Wright-Hennepin Cooperative Electric Association

Mark Vogt has been the President and CEO of Wright-Hennepin Cooperative Electric Association since 1996. Wright-Hennepin Cooperative Electric Association is a member-owned, non-profit electric utility in Rockford, MN. Founded in 1937, it now serves over 46,000 homes, businesses and farms.

What are the important differences between electric cooperatives and electric utilities?

In terms of how we operate, there is probably not a lot of difference. The biggest differences are that cooperatives are customer-owned energy suppliers, not shareholder-owned utilities, and cooperatives are non-profits. We both have the duty to serve every account in our assigned area.

An investor-owned utility is in business to make a return for its shareholders. We are in business to provide power at the cost of service to customers, known as members. Any margin left after the cost of service is returned to members.

What is the difference between a generation and transmission cooperative and a distribution cooperative? Which type is Wright-Hennepin?

Most IOUs are vertically integrated. They make the power, transmit the power, and distribute the power. Co-ops are generally broken up into two entities. The generating and transmission cooperative (G&T) makes the power and gets it to Wright-Hennepin's substations. As a distribution cooperative, Wright-Hennepin takes the power from the substations and gets it to members.

Wright-Hennepin belongs to two G&Ts, Great River Energy (GRE) in Maple Grove, MN, and to Basin Electric Cooperative in Bismarck, North Dakota. By being in two organizations, if one is in a building cycle, it is likely the other one isn't, so there isn't as much rate impact as there would be if we only had one G&T. Wright-Hennepin gets about 70% of its power from GRE and about 30% from Basin. Because they are on different construction schedules, a power plant or transmission or any other big cost project doesn't hit us quite so hard.

Do electric cooperatives and investor-owned utilities have important things in common in the way they select their generation mixes?

They go through different processes but end up with the same result. Everybody in the utility industry is adding more renewable energy into their portfolios. We understand and appreciate that we are probably not going to generate power in the 21st Century like we did in the 20th Century. The IOUs probably tend to be moved in that direction by the Public Utilities Commissions. The co-ops are moving because the grass roots is saying they want a larger portion of their power to be from renewable energy.

Did the recession have a significant impact on Wright-Hennepin?

Wright-Hennepin serves a suburban territory right outside Minnesota's Twin Cities. Since 2008, when the recession began, we have not seen kilowatt-hour growth, though we have had home growth and new customer growth.

Historically, there has been 3% to 7% annual growth since 1937. But in 2008, demand turned flat.

At first I thought it was the economy or unusual weather. But clearly there are other forces at work.

One is the remarkable improvement in appliance and lighting efficiency in just the last three years to five years. The other is energy conservation, more specifically the automation of energy conservation.

Is the general state of Wright-Hennepin these days stronger than in the past or fading?

Some cooperatives could be threatened, but Wright-Hennepin is in excellent shape because 20 years ago we saw the potential for the possibility of legislated deregulation, and we started offering new services. We own seven different businesses now. They keep Wright-Hennepin financially strong and offer valuable new services to our customer base.

Wright-Hennepin owns a home security company in Minnesota, WH Security. The Cooperative, through its holding company, owns a home security 24-hour center monitoring business, WH International Response Center.

We looked at the technology of a home security system 20 years ago and decided it could be the most likely platform for providing not just home security but energy services and home automation. We thought it would have a strategic significance for the future of our business and that hunch turned out to be right. We thought we could either continue with the status quo for the next 70 years or we could grow this business in non-traditional ways.

We also now own WH Solar, a solar sales and installation company. We have only been in the solar business since June 2014. But I have never seen the positive response from consumers that I have seen to our solar offering.

We built the first community solar project in the state of Minnesota. We're told that it was the first one in the country that used battery back-up.

We own WH Services, which provides a host of consumer-related services from electric contractors to a number of innovative electric heating products to tree trimming and clearing services.

WH Generation builds onsite generators for commercial customers for load management.

With the success of these businesses, we have been able to reduce the price of power and stay competitive with the other power providers in and around our service territory.

Is Wright-Hennepin involved in the trend toward energy efficiency in homes and businesses?

Energy efficiency is part of the menu of services we offer through WH Services. Seeing the interest in energy efficiency, and their effect on kWh sales, was part of how the other businesses began. We were doing a lot of member research and we were talking to a lot of members. There seemed to be a recurring theme: We are motivated to save energy.

We were seeing and hearing that message so much that we realized we needed to include it into our strategic planning. Then we started looking for the technology to enable it. We literally stumbled across home security technology. When we started doing research on it, we decided it could be the logical platform for automated home energy management and home automation in the future.

Is Wright-Hennepin involved in the trend toward solar in homes and businesses?

We got into the solar business in a way that was similar to how we got into the security businesses. We do a lot of member polling. The response in 2013 was so strong we immediately saw there was a business opportunity.

The question became, 'why would Wright-Hennepin limit itself to coal-generated energy, natural gas-generated energy, and wind-generated energy, and not provide solar-generated energy?' But in 2013, solar was something no few utilities wanted to touch.

That survey opened our eyes. We said 'we better be in the solar business or someone else will be providing it to our members.'

The response from members on community solar was the strongest so we decided to start there.

Our tag line for WH Solar is 'solar made simple' because we intend to take the hassle factor out of the process for participants.

We are now getting started with the next phase - commercial rooftop. One of the cities in my territory just gave preliminary approval, pending final City Council vote, that they will put more than 100 kw of solar panels provided by WH Solar on top of city owned buildings.

There is an intangible about solar that our industry better not miss. There is a romance between solar and consumers.

What impact will the Clean Power Plan have on Wright-Hennepin?

We are awaiting the final 111D Clean Power Plan rule will be later this year. That kind of broad-based regulation could be a real game changer and have an impact on every utility. The potential for significant impact on retail rates is there.

Wright-Hennepin conducted a survey about two months ago that tested consumer support of 111D. The question asked about support of legislation to reduce CO₂. A '10' would be very high support and a '1' would be no support. About a third of my members answered with a '9' or a '10' and expressed high support. When we added just a $10 dollar per month electric bill cost from it, the support plummeted to 14%. When we added $25 a month to the electric bill, support almost evaporated.

We are trying to help customers connect the dots that the legislation could have a direct impact on their electric bills. Our communication goal here is to try to eliminate any surprises or price shocks for the members by being transparent about the possible impacts of the regulation.

Does Wright-Hennepin see plug-in vehicles as a market for increased electricity sales?

My utility owns a plug-in electric vehicle and I just ordered the first of the quick chargers that we will start installing throughout the system. It will be part of WH Services. By 2017, when electric vehicles have a 200 mile range, we anticipate electric vehicles will ramp up in this marketplace.

About six months ago we brought members who own electric vehicles into a Board Meeting and heard about their experiences. After that we decided to step up our leadership by installing quick charge stations around the service territory in 2015. - Herman Trabish