Indiana Change Location
Workshop 1

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.

Slides for this section.

Questions from participants included the following.

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In the 2011 IRP, what was the GWh of EE assumed by 2030?

3500 GWh

What is 11.9% energy efficiency in terms of MW?

345 MWs in 2020.

Does wind generation assume a constant capacity factor over 20 years, or build in technological changes?

We use averages throughout the year, same factor every year.

What are you saying about distributed generation and solar storage?

Technology needs to be commercially available to be considered, as well as cost effective; therefore, storage technologies were not considered in 2011.

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.

Duke Energy Indiana will carefully evaluate how data can be shared and what data can be made available. We most likely will not be able to offer confidential assumptions that are considered trade secrets, but will strive to find comparable and representative publicly-available data to serve as a proxy.

Does Duke understand the new Commission rule to include substantive changes as well as process changes?

Absolutely. This is a learning process for us too.

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?

We will ensure that the IRP includes, at a minimum, energy efficiency sufficient to meet the Commission’s requirements. Additional clarification: It will be an input if the output (what is selected by the models) doesn’t meet the Commission’s requirements.

If we get to August and the stakeholders don’t agree with results, is there time to re-do the analysis?

We wouldn’t want to completely redo the analysis, but there will be time for adjustments before the November 1st IRP filing. Interim workshops should help to make sure assumptions are commonly understood.

Is the Midwest Independent Transmission System Operator, Inc (MISO) reserve margin commonly accepted, or do utilities have flexibility?

States can develop their own reserve margins, but as far as we know all states use the MISO reserve margin.

How can stakeholders submit data to Duke for use in creating these scenarios? Is there a process?

That process starts today. You can use your comment sheet for citations, or submit via email or other methods.

What is the distinction between the methodology for the 2011 plan versus the 2013 plan? Will it be different, i.e. more sensitivities/variation?

We won't be doing unlimited sensitivities, but may have more full-blown scenarios with major inputs. Key drivers and inputs are the most important, and we want to make sure we have all the relevant ones.

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?

We use similar processes across jurisdictions but use inputs relevant to each state. We plan for Indiana using Indiana generation only (not from Ohio, etc.) and using MISO standards.

How does qualitative analysis inform the selection of the final portfolio?

It's more "art" than "science". We will explore this topic more in future workshops.

When does Duke look at macro-economic and socio-political considerations?

In scenario development, starting today and continuing in the January stakeholder meeting.

Comment: On the resource mix graphic, solar should be included in peaking as well as variable energy. We'd like to see peak load demand data, as well as where solar is in the territory to see how it matches up.

Comment: Don't lump solar and wind. They are very different and have different operating characteristics and purposes. Response: they are modeled separately.

What type of biomass fuels do you model for?

Woody biomass and landfill gas with micro-turbines (for baseload). However, sources are limited.

Why not use animal waste? They have anaerobic digesters in Northern Indiana Public Service Company (NIPSCO) territory and will share information with Duke.

Energy from hog waste is part of the Renewable Energy and Energy Efficiency Portfolio Standard in North Carolina, and so such energy is included in Duke Energy Carolinas IRP, but it's not cost-effective.

On the capacity need chart, the implication is that this means "generation."

Not necessarily

Comment: Suggested calling it “demand forecast” rather than “load forecast”. We need more serious consideration of energy efficiency, e.g. Pacific Northwest says 85% of new need can be met by energy efficiency (citation later provided).

Comment: A participant questioned increase in demand after 2020, which hasn’t historically happened after a decrease or flat period.

Answer: The increase seen on the slide appears more significant than it is due to the scale on the slide. We will provide more information on load forecast at future meetings.

What is the basic methodology for quantifying the Combined Heat and Power (CHP) potential?

We will need to discuss this more in future meetings.

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.

Duke Energy will look at this approach to see if it can lead to similar results.

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?

We can discuss stakeholder ideas about how we could measure or evaluate this. New York State was mentioned as an example of possible new regulations that can be researched.

Comment: A suggestion was made to conduct modeling for more severe conditions and disasters (e.g. Hurricane Sandy). This is one more reason to consider distributed generation.

What does “Midwest IRP” mean in Bobby’s job title?

It means he’s responsible for developing IRPs for Indiana, Kentucky, and Ohio.

Are Duke's IRPs and assumptions consistent across regions?

Yes, increasingly so as we expand to more states, but there are also state- and regional-specific standards where appropriate.

Comment: Owen Smith of Duke was mentioned as a resource (Carolina IRP), as he is a Board member of Solar Electric Power Association (SEPA). Duke should take advantage of their data and resources, since you are members.

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.