Workshop 1
Summary
December 5, 2012
Welcome
Mr. Doug Esamann, President of Duke Energy Indiana, welcomed participants and explained that their ideas and suggestions will be considered in preparing the 2013 Integrated Resource Plan (IRP). He outlined the objectives of the stakeholder outreach program that begins with this workshop and expressed his appreciation to those who attended.
Agenda & Process Overview
Dr. Marty Rozelle, the facilitator for the meeting, reviewed the proposed stakeholder engagement process and outlined the agenda and meeting ground rules.
Participants and Duke Energy staff were asked to introduce themselves and briefly stated their interest in the IRP process.
Duke Energy staff involved in preparing the 2013 IRP presented a description of the process and major components, as described below.
Overview of 2011 IRP
Robert McMurry - Director, Midwest IRP
- Mr. McMurry reviewed the main features and elements of the most recently filed 2011 IRP and said that the 2013 IRP will be similar in approach and content, but will include the evaluation of multiple scenarios. Shale gas, which dramatically drove down the cost of natural gas from 2009 to the present, will likely continue to be a major driver in future IRPs. Mr. McMurry also stressed that the way in which carbon is regulated or legislated in the future will impact many aspects of the IRP (the 2011 IRP assumed a carbon-constrained future). Also, though the potential of new nuclear generation was not a part of the 2011 IRP, it could have a place in a carbon-constrained future. Duke Energy Indiana also assumes full implementation of energy efficiency goals by 2020.
Questions from participants included the following.
In the 2011 IRP, what was the GWh of EE assumed by 2030?
What is 11.9% energy efficiency in terms of MW?
Does wind generation assume a constant capacity factor over 20 years, or build in technological changes?
What are you saying about distributed generation and solar storage?
Will we have an opportunity to review confidential data /model inputs on cost assumptions for this process, to better follow Duke’s methodology? We understood that the purpose of this process was to have stakeholders understand and have access to data used as inputs – and allow stakeholders to offer data – so there is a common understanding among all, and reduce possibilities of intervention and contention at the Commission for filings.
Does Duke understand the new Commission rule to include substantive changes as well as process changes?
IRP Overview
Janice Hager – VP Integrated Resource Planning & Analytics
Ms. Hager explained the planning process used in developing an IRP. She noted that the forecasting models are exceptionally complex. In the screening phase, Duke Energy inputs assumptions that result in portfolios. In the analysis phase, portfolios are analyzed under different scenarios to see which performs best overall. Environmental variables and other qualitative factors are also evaluated in making decisions. In this process, Duke Energy must use judgment in evaluating which sensitivities will make a difference.
Questions for Ms. Hager included the following.
Will Duke be placing a 2% reduction for energy efficiency (Order 42693) in the IRP? Will it be an input or an output?
If we get to August and the stakeholders don’t agree with results, is there time to re-do the analysis?
Is the Midwest Independent Transmission System Operator, Inc (MISO) reserve margin commonly accepted, or do utilities have flexibility?
How can stakeholders submit data to Duke for use in creating these scenarios? Is there a process?
What is the distinction between the methodology for the 2011 plan versus the 2013 plan? Will it be different, i.e. more sensitivities/variation?
What is the optimization framework today compared to historic ones? Are assumptions used unique to Duke Energy Indiana, or are they integrated with other utilities and common to the greater market, for example, optimized among Indiana, Ohio, and Kentucky?
How does qualitative analysis inform the selection of the final portfolio?
When does Duke look at macro-economic and socio-political considerations?
What type of biomass fuels do you model for?
Why not use animal waste? They have anaerobic digesters in Northern Indiana Public Service Company (NIPSCO) territory and will share information with Duke.
On the capacity need chart, the implication is that this means "generation."
What is the basic methodology for quantifying the Combined Heat and Power (CHP) potential?
Scenario Development and Analysis
Robert McMurry
Mr. McMurry explained the process of creating scenarios, developing an optimal portfolio for each, performing sensitivity analyses, and identifying a preferred portfolio to be included in the IRP. He outlined how driving forces in global and national issues directly affect the assumptions made in developing alternative scenarios, and noted that discussion of these driving forces is the subject of discussion among participants today.
Questions and comments on this presentation included the following.
Comment: Look at Tennessee Valley Authority’s IRP. Their approach is “backwards” from Duke’s, in which they developed portfolios and then 8 scenarios that they ran the portfolios through.
How is Duke going to use macro-factors in scenario development? For example, global warming shouldn’t be in the regulatory risk category but should be recognized as a geophysical phenomenon that has real physical and cost impacts to infrastructure, due to such factors as drought, water levels and flows in shallow Indiana rivers. What does it mean in the competition for social capital among utilities? What percent or amount of capital investment should be focused on this issue?
What does “Midwest IRP” mean in Bobby’s job title?
Are Duke's IRPs and assumptions consistent across regions?
Workshop Exercise Background
Brandon Snyder - Senior Engineer, IRP and Analytics
Mr. Snyder described the driving forces and input variables that will be used in developing the IRP and gave definitions and examples of them as background for participants to use in the workshop exercise.
Workshop Exercise
Dr. Marty Rozelle instructed participants to answer the following questions about each driving force in their small group discussions.
- Do they make sense?
- Are any missing?
- What is the range of realistic futures for each over the next 20 years?
A spokesperson for each table reported to the entire group. The comments are summarized below. Participants were encouraged to complete individual worksheets on driving forces and input variables as well as a comment form that will help improve future meetings.
Closing comments from Mr. Esamann
Mr. Esamann thanked participants for coming. He assured them that Duke Energy Indiana wants to hear their opinions, whether consistent or not with the company’s. This is the first step of a four-step process. Please let us know your comments and ideas on the process. Put January 30th on your calendar for the next workshop. This has been very valuable to Duke Energy Indiana, and we hope it was for you as well.
Driving Forces
Detailed Table Reports taken from flip charts and verbal presentations
Group 1
Economic Outlook:
- Entitlement spending up, tax burden up, lower disposable income
- Rising labor productivity + strong intellectual property rights = manufacturing retention and attraction increases
- Reduced private capital pool causes more government-financed projects = demand growth
- Higher interest rates affect capital costs
Energy and Environmental Factors:
- Continuity of already-promulgated regulations
- Coal will be regulated as a solid waste, not hazardous waste.
- Federal renewable incentives
- Solid waste and coal ash regulations
- Incentives for CHP
Customer Values:
- Customers will “push back” on electricity/gas/petroleum if costs reach 12% of disposable income
- Greater interest in customer self-generation, including solar and wind
- Energy consumption per capita = flat to slightly higher
Technology (most important driver, impacts policy and IRP most):
- Renewable energy capital cost will decrease faster than traditional technology costs due to global demand.
- Whether renewable or coal, cost decreases due to:
- Lower fuel component costs
- Higher labor productivity = lower labor costs
- Cost of private capital goes down faster than traditional
- Smart grid technology costs will decrease.
- Storage technology helps solar
- Use of more gasification technology at landfills.
- Traditional central station vs. distributed generation (DG) paradigm
Group 2
Economic Outlook:
- Near term = flat growth, little spike in GDP in short term, but overall economy stays relatively flat (or bumpy) for plan period
- Could have a spike, but overall less than 2% growth through 2032
- Interest rates and access to capital
- Stay low in short term
- Credit-worthy entities will be OK, have access to capital
- Interest rates long-term go up after about 5 years
- Some spikes in inflation after that
Energy and Environmental Factors:
- New coal plants highly unlikely - continued decline of coal, either with or without a CO2 tax.
- Low gas cost
- Government incentives or mandates will push more energy efficiency
- Increased regulation and cost of carbon (at federal level) but not in Indiana.
- Compliance costs associated with air, water and waste will affect new generation choices.
Customer Values:
- Young people are more exposed to energy efficiency, new technology, environmental awareness – but they won’t want to give up their gadgets.
- Customer-owned generation will go up as financing is made available and/or costs go down.
Technology:
- Demand-related
- Smart grid
- Building efficient technologies (renewable)
- LED lighting & cooling
- Supply-related
- Storage as a complement to renewable
- Biomass from waste (water)
- Environmental controls keep existing units running
Table 3
Economic Outlook:
- Competition and deregulation
- Desire for modular, smaller increments
- Distributed generation
- Uncertainty and cyclicality
- International trade and manufacturing
- Global geo-political events can pop up
- Distinguish between GDP growth and load growth
Energy and Environmental Factors:
- Increased competition and deregulation in energy policy.
- Future of carbon regulations - Carbon constraint is very important.
- Natural gas prices are very important.
- More use of natural gas to generate electricity – by customers to save money
- Political conflict and gridlock in short term creates uncertainty in environmental policy.
Customer Values:
- Desire for personal energy independence
- Want more choices and competition to control costs
- Increased interest in environmental issues/savings among some (e.g. Google wants “green energy” to locate facilities), and others just wanting cheapest electricity.
Technology:
- Storage technology will be game-changer.
- Micro-grid movement
- DC over AC
- Solar photovoltaic to reduce peak load - pricing for solar PV (e.g. fee-in tariffs)
Group 4
- Suggested that climate change should be included as a driving force (availability of water).
- Prioritized the driving forces as follows:
Technology:
- Centralized vs. decentralized resources
- Micro-grid possibilities
- Photovoltaic
- Compressed air
- Battery storage
- Electric vehicles as resource
- Expansion of smart grid
Economic Outlook:
- 1% on low end
- 3.5% on high end
Energy and Environmental Factors:
- Need to consider politics at national level
- Greenhouse gas (GHG) regulation in next 10-15 years
- No Renewable Portfolio Standard (RPS) in foreseeable future
- Some incremental federal legislation
Customer Values:
- Don’t believe this is easily quantified; however, customer adoption will drive all other drivers.
- Increased interest in environmental issues/savings among some, and others just wanting cheapest electricity.
(Grouop 3 notes on Input Variables)
Load Growth:
- -3 to +3%
- Decoupling of GDP and energy growth
Coal Price:
- Rise of middle class in China = export coal to China
Natural gas price:
- Volatile, but increases over 20-year period
- Depends on viability of syn-gas from coal
Price of carbon:
- Implied price of carbon
- Active carbon market in Europe
- OFA influence in next four years vs. how much of Koch brothers’ influence
Capital & Construction Costs:
- Retirement of old coal plants
- What Deutsche Bank says about appetite for financial risk
- Smaller units with shorter lead times to bring online
- “Fiscal cliff” debate and resolution of U.S. debt
Notes prepared by: Debra Duerr, The Rozelle Group Ltd.
