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ScottMadden's Energy Industry Update for the 2019 Utility Supply Chain Conference

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As economic growth continues, and policies are increasingly driven by state and regional issues, utilities are placing bets, with large investments, on various growth strategies. They continue to face opposition and challenges from various stakeholders with disparate interests. Energy and utility companies will try to thread the needle of developing and upgrading much needed infrastructure, while satisfying those interests. During the 2019 Utility Supply Chain Conference, Cristin Lyons reviewed the latest Energy Industry Update and shared key highlights for topics including: - Electrification: A summary of increased electrification activities (ie: transportation/space heating) being promoted by electric industry stakeholders, and electrification’s pros and cons - Wholesale energy infrastructure development: A discussion of proposed gas and power transmission projects, potential regulatory changes, and surrounding issues/implications - Grid modernization: Noteworthy efforts around the nation, including both the programs and the common themes. Learn more at www.scottmadden.com.

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1

Energy Industry Update—Don’t Stop Believin’ A Special Edition for the Utility Supply Chain Conference January 21, 2019

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Efficient Electrification The Electric Industry Sees a Growth Opportunity

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. What Is Electrification? 2 Efficient Electrification Efficient Electrification: Electrifying the end use of energy—where it is more efficient to do so—for the benefit of customers, the environment, and society. – Electric Power Research Institute Electrification: The process of switching from the combustion of non-electricity based fuel (i.e., natural gas or propane) to electricity to provide a comparable service ▪ Light-duty vehicles ▪ Transit/school buses ▪ Heavy-duty trucks Transportation ▪ Variable refrigerant flow heat pumps ▪ Variable-capacity rooftop heat pumps ▪ Heat pump water heaters Commercial ▪ Air-source and ground-source heat pumps ▪ Variable-capacity ducted heat pumps Residential ▪ Infrared curing and drying ▪ UV curing ▪ Induction surface treatment ▪ Induction furnaces Industrial

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. Gas Utilities Electrification Stakeholder Groups 3 Efficient Electrification Electric Utilities End Users Local Governments ▪ Growth in electric load ▪ Decrease in GHG emissions ▪ Decrease in local air pollution ▪ Decrease in natural gas consumption ▪ Low-cost clean energy Expected Outcomes Environmental Groups

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. Electrification Futures Study: Scenarios of Electric Technology Adoption and Power Consumption for the United States U.S. National Electrification Assessment Recent Electrification Studies 4 Efficient Electrification Implications of Policy- Driven Residential Electrification

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. Industrial 31 Quads Total 10 Quads Electricity Residential 21 Quads Total 14 Quads Electricity Commercial 18 Quads Total 14 Quads Electricity Electrification Opportunities by Sector The electrification of the transportation sector is widely seen as having the largest potential increase in electricity usage. 5 Efficient Electrification Transportation 28 Quads Total 0 Quads Electricity

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. Drivers/Enablers of Electric Vehicle Growth 6 Efficient Electrification

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. U.S. Electric PEV Forecast The United States hit a total of one million PEVs in October 2018. 7 Efficient Electrification

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. Electric Grid Impacts 8 Efficient Electrification Load Factor Estimates for NREL Electrification Scenarios (2017 to 2050) LoadFactor YearSource: NREL Sources: EIA, Argonne Nat’l Lab Year GWh PEV Consumption (GWh) (2017 Actual and 2020–2030 Projected)

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. Load Growth through Transportation Electrification 9 Efficient Electrification Reference Scenario Projections for U.S. Electricity Demand 3.5 Quads Source: EPRI

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. Key Takeaways Efficient Electrification: The Electric Industry Sees a Growth Opportunity 10 Electrification 1 2 3 Grid investment may be needed to support significant growth of PEVs Transportation has the highest potential for electrification Electrification may provide significant load growth

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Gas and Power Infrastructure Development Challenges and Opportunities

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. DRIVING FACTORS Tailwinds Abating 12 Infrastructure Development RESTRAINING FACTORS Reliability Needs Increasing Renewables Convergence of Electric and Gas Infrastructure Retirements Grass Roots Opposition Lower ROEs Competition for CapitalPipeline Contracting Rules Jurisdictional Challenges and Uncertainty

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. Power Transmission Investment – Current Status 13 Infrastructure Development Completed U.S. Transmission Projects by Year (2009–2017) (in Line Miles) Construction Expenditures for Transmission by Investor-Owned Utilities (2009–2016) (Real 2016$B) Source: S&P Global Market Intelligence; ScottMadden analysis Source: EEI

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. Marcellus and Utica Shale Production 14 Infrastructure Development - 20 40 60 80 100 120 140 160 180 - 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Natural gas (Mcf/d) Production per Rig Appalachia Region Rig Count RigCount ProductionperRig (MCF/day) Source: EIA 0 5 10 15 20 25 30 35 40 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Marcellus (PA, WV, OH, NY) Utica (OH, PA, WV) Permian (TX & NM) Production(BCF/day) Source: EIA Appalachia Region Rig Count and Rig Production (Aug. 2009–Aug. 2018) Dry Shale Gas Production (Sept. 2009–Sept. 2018)

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. Introduction to Gas Pipelines 15 Infrastructure Development U.S. Gas Pipeline Development Projects (by Expected Year in Service) Source: S&P Global Market Intelligence Source: S&P Global Market Intelligence

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. Gas Pipeline Electric Transmission Infrastructure Projects 16 Infrastructure Development “…a new antiestablishment movement …has energized a new generation to stand in front of the bulldozers and coal trucks.” – Scott Parkin of the Rainforest Action Committee ** Project Cancelled ** Northern Pass $1.6B ** Project Delayed ** Grain Belt Express $2.3B ** In Development** PennEast $1B ** Project Delayed ** Mountain Valley $4.6M ** Project Delayed ** Atlantic Coast $6B to $6.5B ** In Service ** Atlantic Sunrise $3M ** In Service ** Sabal Trail $3.2B ** In Development** Northern New England Clean Energy Connect $950M ** Under Construction ** Great Northern $558M to $710M ** Under Construction ** Big Stone South to Ellendale $290M to $340M

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. Early Generation Retirements 17 Infrastructure Development NERC Generation Retirement Scenario “Ensuring reliability throughout a significant retirement transition will likely include construction of new transmission and fuel infrastructure.” – NERC Findings ▪ On a regional scale, significant replacement reserves are needed, requiring expedited queues ▪ Gas is expected to be the predominant replacement resource ▪ Large amounts of retirements may result in extensive transmission network upgrade requirements Location of Thermal Violations in Studied Case Summer 2022 Source: NERC 500 kV 345 kV 230 kV

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. North America Poised to Lead 18 Infrastructure Development Actual and Forecast LNG Exports by Region (BCF/Day) Source: BP Cumulative Capacity Additions 2017 2019 2023 2.7 BCF/day 7.1 BCF/day 11 BCF/day Additional 16 facilities totaling 27.3 BCF/day pending approval

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. Key Takeaways Infrastructure Development: Challenges and Opportunities 19 Infrastructure Development 1 2 3 Coal and nuclear retirements will drive transmission investment Challenges to siting and permitting will continue Infrastructure continues to move ahead but at a slower pace US LNG exports will require new facilities and pipeline capacity 4

21

Grid Modernization States and Utilities Test the Waters

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. What Is Grid Modernization? 21 Grid Modernization Grid Modernization: Investments—some of which may be considered foundational and/or DSP-enabling—that improve the reliability, resiliency, efficiency, and automation of the T&D system. Such investments can include the sensors, data, and communications networks that enable enhanced visibility and understanding of the behavior of the network; technologies and equipment that facilitate greater customer engagement regarding energy usage and alternatives; and the underlying systems, data management and analytics that facilitate situational awareness, asset management, contingency and risk analysis, outage management and restoration. These necessary core investments underpin the required focus on grid reliability and resiliency. They provide the basis for increased operational flexibility, can enable efforts toward achieving state policy goals, such as the integration of various types of DER, and are beneficial for any resource mix. – New York Joint Utilities

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. Grid Modernization Drivers 22 Grid Modernization DER Penetration Aging Infrastructure Policy Drivers Customer Expectations Technology Advances

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. Grid Modernization Technologies 23 Grid Modernization Tools and Analytics Advanced technologies, including big data analytics, to enhance decision making and/or real-time operations Communicating sensors and switches that can operate autonomously or through centralized control systems Distribution Automation Grid Edge Sensing Sensors and other smart devices that provide enhanced visibility and situational awareness Flexible Resources Resources or management systems that enable the use of a more diverse and distributed mix of supply or services Foundational Systems and Infrastructure IT and OT systems and equipment necessary to enable current and future capabilities

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. Latest News 24 Grid Modernization Q3 2018 Legislative and Regulatory Action on Grid Modernization Source: N.C. Clean Energy Technology Center 276 Total Actions in Q3 2018 Massachusetts $220M, 3 years Duke Energy $2.5B, 4 years SCE $1.3B, 2019–2020 PSE&G NJ $4B $3.2B, (EIMA) 2011 ComEd $1.4B, 2019–2021 Ameren $1B, 5 years AEP $12.8B, 3 years and First Energy $500M Published grid mod report FP&L $3B, past 10 years PNM AMI Rejected ConEd $1.5B, AMI Hawaiian Electric $86M, 2019–2023 Dominion $800M, 2019–2021

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. Paying for Investments 25 Grid Modernization Rate Cases Grid Modernization Riders Legislative Action

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Copyright© 2019 by ScottMadden,Inc.All rights reserved. Key Takeaways Grid Modernization: States and Utilities Test the Waters 26 Grid Modernization 1 2 3 Regulatory treatment and rate impacts matter Grid modernization is not just happening in NY and CA; it’s all over the United States A confluence of factors are driving grid modernization programs The anticipated spend is significant4

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Cristin Lyons Partner and Energy Practice Leader Cristin Lyons Partner and Energy Practice Leader ScottMadden, Inc. 2626 Glenwood Avenue Suite 480 Raleigh, NC 27608 cmlyons@scottmadden.com O: 919-781-4191 M: 919-247-1031 www.scottmadden.com

More Related Content

ScottMadden's Energy Industry Update for the 2019 Utility Supply Chain Conference

  • 1. Energy Industry Update—Don’t Stop Believin’ A Special Edition for the Utility Supply Chain Conference January 21, 2019
  • 2. Efficient Electrification The Electric Industry Sees a Growth Opportunity
  • 3. Copyright© 2019 by ScottMadden,Inc.All rights reserved. What Is Electrification? 2 Efficient Electrification Efficient Electrification: Electrifying the end use of energy—where it is more efficient to do so—for the benefit of customers, the environment, and society. – Electric Power Research Institute Electrification: The process of switching from the combustion of non-electricity based fuel (i.e., natural gas or propane) to electricity to provide a comparable service ▪ Light-duty vehicles ▪ Transit/school buses ▪ Heavy-duty trucks Transportation ▪ Variable refrigerant flow heat pumps ▪ Variable-capacity rooftop heat pumps ▪ Heat pump water heaters Commercial ▪ Air-source and ground-source heat pumps ▪ Variable-capacity ducted heat pumps Residential ▪ Infrared curing and drying ▪ UV curing ▪ Induction surface treatment ▪ Induction furnaces Industrial
  • 4. Copyright© 2019 by ScottMadden,Inc.All rights reserved. Gas Utilities Electrification Stakeholder Groups 3 Efficient Electrification Electric Utilities End Users Local Governments ▪ Growth in electric load ▪ Decrease in GHG emissions ▪ Decrease in local air pollution ▪ Decrease in natural gas consumption ▪ Low-cost clean energy Expected Outcomes Environmental Groups
  • 5. Copyright© 2019 by ScottMadden,Inc.All rights reserved. Electrification Futures Study: Scenarios of Electric Technology Adoption and Power Consumption for the United States U.S. National Electrification Assessment Recent Electrification Studies 4 Efficient Electrification Implications of Policy- Driven Residential Electrification
  • 6. Copyright© 2019 by ScottMadden,Inc.All rights reserved. Industrial 31 Quads Total 10 Quads Electricity Residential 21 Quads Total 14 Quads Electricity Commercial 18 Quads Total 14 Quads Electricity Electrification Opportunities by Sector The electrification of the transportation sector is widely seen as having the largest potential increase in electricity usage. 5 Efficient Electrification Transportation 28 Quads Total 0 Quads Electricity
  • 7. Copyright© 2019 by ScottMadden,Inc.All rights reserved. Drivers/Enablers of Electric Vehicle Growth 6 Efficient Electrification
  • 8. Copyright© 2019 by ScottMadden,Inc.All rights reserved. U.S. Electric PEV Forecast The United States hit a total of one million PEVs in October 2018. 7 Efficient Electrification
  • 9. Copyright© 2019 by ScottMadden,Inc.All rights reserved. Electric Grid Impacts 8 Efficient Electrification Load Factor Estimates for NREL Electrification Scenarios (2017 to 2050) LoadFactor YearSource: NREL Sources: EIA, Argonne Nat’l Lab Year GWh PEV Consumption (GWh) (2017 Actual and 2020–2030 Projected)
  • 10. Copyright© 2019 by ScottMadden,Inc.All rights reserved. Load Growth through Transportation Electrification 9 Efficient Electrification Reference Scenario Projections for U.S. Electricity Demand 3.5 Quads Source: EPRI
  • 11. Copyright© 2019 by ScottMadden,Inc.All rights reserved. Key Takeaways Efficient Electrification: The Electric Industry Sees a Growth Opportunity 10 Electrification 1 2 3 Grid investment may be needed to support significant growth of PEVs Transportation has the highest potential for electrification Electrification may provide significant load growth
  • 12. Gas and Power Infrastructure Development Challenges and Opportunities
  • 13. Copyright© 2019 by ScottMadden,Inc.All rights reserved. DRIVING FACTORS Tailwinds Abating 12 Infrastructure Development RESTRAINING FACTORS Reliability Needs Increasing Renewables Convergence of Electric and Gas Infrastructure Retirements Grass Roots Opposition Lower ROEs Competition for CapitalPipeline Contracting Rules Jurisdictional Challenges and Uncertainty
  • 14. Copyright© 2019 by ScottMadden,Inc.All rights reserved. Power Transmission Investment – Current Status 13 Infrastructure Development Completed U.S. Transmission Projects by Year (2009–2017) (in Line Miles) Construction Expenditures for Transmission by Investor-Owned Utilities (2009–2016) (Real 2016$B) Source: S&P Global Market Intelligence; ScottMadden analysis Source: EEI
  • 15. Copyright© 2019 by ScottMadden,Inc.All rights reserved. Marcellus and Utica Shale Production 14 Infrastructure Development - 20 40 60 80 100 120 140 160 180 - 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Natural gas (Mcf/d) Production per Rig Appalachia Region Rig Count RigCount ProductionperRig (MCF/day) Source: EIA 0 5 10 15 20 25 30 35 40 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Marcellus (PA, WV, OH, NY) Utica (OH, PA, WV) Permian (TX & NM) Production(BCF/day) Source: EIA Appalachia Region Rig Count and Rig Production (Aug. 2009–Aug. 2018) Dry Shale Gas Production (Sept. 2009–Sept. 2018)
  • 16. Copyright© 2019 by ScottMadden,Inc.All rights reserved. Introduction to Gas Pipelines 15 Infrastructure Development U.S. Gas Pipeline Development Projects (by Expected Year in Service) Source: S&P Global Market Intelligence Source: S&P Global Market Intelligence
  • 17. Copyright© 2019 by ScottMadden,Inc.All rights reserved. Gas Pipeline Electric Transmission Infrastructure Projects 16 Infrastructure Development “…a new antiestablishment movement …has energized a new generation to stand in front of the bulldozers and coal trucks.” – Scott Parkin of the Rainforest Action Committee ** Project Cancelled ** Northern Pass $1.6B ** Project Delayed ** Grain Belt Express $2.3B ** In Development** PennEast $1B ** Project Delayed ** Mountain Valley $4.6M ** Project Delayed ** Atlantic Coast $6B to $6.5B ** In Service ** Atlantic Sunrise $3M ** In Service ** Sabal Trail $3.2B ** In Development** Northern New England Clean Energy Connect $950M ** Under Construction ** Great Northern $558M to $710M ** Under Construction ** Big Stone South to Ellendale $290M to $340M
  • 18. Copyright© 2019 by ScottMadden,Inc.All rights reserved. Early Generation Retirements 17 Infrastructure Development NERC Generation Retirement Scenario “Ensuring reliability throughout a significant retirement transition will likely include construction of new transmission and fuel infrastructure.” – NERC Findings ▪ On a regional scale, significant replacement reserves are needed, requiring expedited queues ▪ Gas is expected to be the predominant replacement resource ▪ Large amounts of retirements may result in extensive transmission network upgrade requirements Location of Thermal Violations in Studied Case Summer 2022 Source: NERC 500 kV 345 kV 230 kV
  • 19. Copyright© 2019 by ScottMadden,Inc.All rights reserved. North America Poised to Lead 18 Infrastructure Development Actual and Forecast LNG Exports by Region (BCF/Day) Source: BP Cumulative Capacity Additions 2017 2019 2023 2.7 BCF/day 7.1 BCF/day 11 BCF/day Additional 16 facilities totaling 27.3 BCF/day pending approval
  • 20. Copyright© 2019 by ScottMadden,Inc.All rights reserved. Key Takeaways Infrastructure Development: Challenges and Opportunities 19 Infrastructure Development 1 2 3 Coal and nuclear retirements will drive transmission investment Challenges to siting and permitting will continue Infrastructure continues to move ahead but at a slower pace US LNG exports will require new facilities and pipeline capacity 4
  • 21. Grid Modernization States and Utilities Test the Waters
  • 22. Copyright© 2019 by ScottMadden,Inc.All rights reserved. What Is Grid Modernization? 21 Grid Modernization Grid Modernization: Investments—some of which may be considered foundational and/or DSP-enabling—that improve the reliability, resiliency, efficiency, and automation of the T&D system. Such investments can include the sensors, data, and communications networks that enable enhanced visibility and understanding of the behavior of the network; technologies and equipment that facilitate greater customer engagement regarding energy usage and alternatives; and the underlying systems, data management and analytics that facilitate situational awareness, asset management, contingency and risk analysis, outage management and restoration. These necessary core investments underpin the required focus on grid reliability and resiliency. They provide the basis for increased operational flexibility, can enable efforts toward achieving state policy goals, such as the integration of various types of DER, and are beneficial for any resource mix. – New York Joint Utilities
  • 23. Copyright© 2019 by ScottMadden,Inc.All rights reserved. Grid Modernization Drivers 22 Grid Modernization DER Penetration Aging Infrastructure Policy Drivers Customer Expectations Technology Advances
  • 24. Copyright© 2019 by ScottMadden,Inc.All rights reserved. Grid Modernization Technologies 23 Grid Modernization Tools and Analytics Advanced technologies, including big data analytics, to enhance decision making and/or real-time operations Communicating sensors and switches that can operate autonomously or through centralized control systems Distribution Automation Grid Edge Sensing Sensors and other smart devices that provide enhanced visibility and situational awareness Flexible Resources Resources or management systems that enable the use of a more diverse and distributed mix of supply or services Foundational Systems and Infrastructure IT and OT systems and equipment necessary to enable current and future capabilities
  • 25. Copyright© 2019 by ScottMadden,Inc.All rights reserved. Latest News 24 Grid Modernization Q3 2018 Legislative and Regulatory Action on Grid Modernization Source: N.C. Clean Energy Technology Center 276 Total Actions in Q3 2018 Massachusetts $220M, 3 years Duke Energy $2.5B, 4 years SCE $1.3B, 2019–2020 PSE&G NJ $4B $3.2B, (EIMA) 2011 ComEd $1.4B, 2019–2021 Ameren $1B, 5 years AEP $12.8B, 3 years and First Energy $500M Published grid mod report FP&L $3B, past 10 years PNM AMI Rejected ConEd $1.5B, AMI Hawaiian Electric $86M, 2019–2023 Dominion $800M, 2019–2021
  • 26. Copyright© 2019 by ScottMadden,Inc.All rights reserved. Paying for Investments 25 Grid Modernization Rate Cases Grid Modernization Riders Legislative Action
  • 27. Copyright© 2019 by ScottMadden,Inc.All rights reserved. Key Takeaways Grid Modernization: States and Utilities Test the Waters 26 Grid Modernization 1 2 3 Regulatory treatment and rate impacts matter Grid modernization is not just happening in NY and CA; it’s all over the United States A confluence of factors are driving grid modernization programs The anticipated spend is significant4
  • 28. Cristin Lyons Partner and Energy Practice Leader Cristin Lyons Partner and Energy Practice Leader ScottMadden, Inc. 2626 Glenwood Avenue Suite 480 Raleigh, NC 27608 cmlyons@scottmadden.com O: 919-781-4191 M: 919-247-1031 www.scottmadden.com