Policy Forum Series: Reha - The Role of Natural Gas in Minnesota's Energy Future

 The  Role  of  Natural  Gas  

in  Minnesota’s  Energy  Future    by  

Phyllis  A.  Reha,  Commissioner  Minnesota  Public  Utilities  Commission  

Environmental Initiative Policy Conference Concordia University, September 21, 2012

At  the  Cross  Roads  •  One cannot avoid risk by avoiding decisions.

•  The future is uncertain, so decisions about the future will always involve uncertainty.

•  Electric utilities must spend very large amounts on long-lasting systems under both political and economic uncertainty.

•  Regulators must help ensure wise investments that address uncertainty and mitigate risks.

Present  Energy  Prices  (US-­‐Energy  Information  Administration)  

  Energy Source   Minnesota Price   U.S. Avg. Price   Period  

Natural Gas: City Gate   $3.21/thousand cu ft   $4.32/thousand cu ft   May-12  Natural Gas: Residential   $9.26/thousand cu ft   $12.19/thousand cu ft   May-12                   

Coal Delivered to Electric Power Sector   $ 2.01 /million Btu   $ 2.41 /million Btu   May-12  

  Electricity   Minnesota   U.S. Avg.   Period  

Residential   11.31 cents/kWh   11.97 cents/kWh   May-12  Commercial   8.58 cents/kWh   10.02 cents/kWh   May-12  Industrial   6.23 cents/kWh   6.57 cents/kWh   May-12  

Minnesota  Home  Heating  (US-­‐Energy  Information  Administration)  

Home Heating Source   Share of Households   U.S. Avg.   Period  

Natural Gas   68 %   51.2 %   2000  

Fuel Oil   6 %   9.0 %   2000  

Electricity   12 %   30.3 %   2000  

Liquefied Petroleum Gases   10 %   6.5 %   2000  

Other/None   4 %   1.8 %   2000  

Minnesota  Electricity  Generation  (US-­‐Energy  Information  Administration)  

Minnesota   Share of U.S.   Period  

Total Net Electricity Generation   3,872 thousand MWh   1.1 %   May-12  

Petroleum-Fired   6 thousand MWh   0.6 %   May-12  

Natural Gas-Fired   786 thousand MWh   0.7 %   May-12  

Coal-Fired   1,243 thousand MWh   1.1 %   May-12  

Nuclear   824 thousand MWh   1.3 %   May-12  

Hydroelectric   113 thousand MWh   0.4 %   May-12  

Other Renewables   873 thousand MWh   4.6 %   May-12  

Public  Utilities  Commission  •  Protects and promotes the public interest in safe, adequate, and

reliable utility services at fair, reasonable rates.

•  Provides independent, consistent, professional , and comprehensive oversight and regulation of utility service providers.

•  Balances private and public interests affected in each docket so decisions are “consistent with the public interest” including –  protecting the environment, –  ensuring universal access to utility services, –  reliability of utility services, –  Promoting competitive markets and other public policy goals

directed by lawmakers.

Next  Generation  Energy  Act  (Laws  of  Minnesota,  2007,  Ch.136,  Art.1,  Sec.  2,  Subd.2)  

Energy Policy Goals. It is the energy policy of the state of Minnesota that:

1.  The per capita use of fossil fuel as an energy input be reduced by 15 percent by the year 2015, through increased reliance on energy efficiency and renewable energy alternatives; and

2.  25 percent of the total energy used in the state be derived from renewable energy resources by the year 2025.

Next  Generation  Energy  Act  

Utility Energy Savings Goals –  1.5% annual savings goal for all utilities* – Adjustable to 1% by commissioner – Supply side projects up to 0.5%**

•  Electric utility infrastructure improvements •  Waste heat to electricity generation

* Small municipal gas utilities with sales of ≤ 1 billion CF exempted from CIP. Interim savings goal of 0.75% for 2010-2012 for natural gas utilities per 2009 legislation. 1% savings goal in subsequent years.

** Gas utilities may count biomethane purchases per 2009 legislation.

Integrated  Resource  Plans  (IRP)  (Stat.  216B.2422;  Rule  7843.0100-­‐0600)  

•  Examines a utility’s customer needs and the resources needed to meet them for next 15 years

•  Develops a least cost plan, including environmental costs, to ensure that adequate resources are available in a cost-effective manner

Integrated  Resource  Plans  (IRP)  (Stat.  216B.2422;  Rule  7843.0100-­‐0600)  

•  Considers cost-effectiveness of using both demand side and supply side resources to meet future needs

•  Ensures the utility complies with all applicable laws in planning for future generation.

•  Provides a public forum for stakeholders and the Commission to be informed and to have input into the plan

Challenges  Today  

•  Estimating natural gas supply, demand and price relationships in future markets

•  Internalizing environmental “externalities”

•  Valuing energy efficiency and DSM

•  Valuing renewable energy

Uncertain  Natural  Gas  Market  •  Natural supplies are presently growing as

domestic shale gas is developed

•  Fracturing the rock around these wells (“fracing”) may require additional costs to safely produce the gas

•  Demand for natural gas is expected to grow as the overall economy improves

•  Prudent planning cannot assume an endless supply of cheap natural gas

Projected  Prices  Depend  on  Shale  Gas  Resource  Economics  (US-­‐EIA,  Annual  Energy  Outlook  2012)    

Uncertain  Environmental  Costs  

•  US-EPA initiatives -- Mercury and Air Toxics Standards (MATS) -- Cross State Air Pollution Rule (CSAPR) -- Carbon Pollution Standard for New Power Plants

•  “Beyond Gas” campaign by Sierra Club and others raising concerns over natural gas development and continuing CO2 emissions.

Valuing  DSM/Efficiency  •  Benefits

-- Saves money -- Energy independence and security -- Improves system reliability -- Reduces peak demand, water use by power plants, GHG

emissions and other pollution detrimental to public health •  Barriers

-- Need for timely, useful consumer information that can be acted on to save money and/or reduce energy use

-- Need to develop community culture -- Process of uncoupling utility rewards from maximizing

energy sales

       NGA  Paper:  Enhancing  State  Energy  Efficiency  by                  April  23,  2012  Better  Informing  and  Motivating  Consumers                Table  1:  Average  Cost  of  Energy  3      

Resource Average or

Levelized Cost (cents/kWh)

Energy Efficiency 2.5 – 4.3 Natural Gas (conventional combined cycle) 6.6

Coal (conventional) 9.5 Onshore Wind 9.7 Nuclear 11.4 Solar Photovoltaic 21.1 Offshore Wind 24.3

3 Energy efficiency costs: Friedrich et al 2009 and Cooper and Wood 2012. Levelized electricity costs: US Energy Information Administration, Annual Energy Outlook 2011 (Washington, DC: EIA, December 2010). http://www.eia.gov/oiaf/aeo/electricity_generation.htmlhttp://www.eia.gov/oiaf/aeo/electricity_generation.html

Looking  Forward  

•  A robust portfolio of both demand-side and supply-side options will reduce the eventual environmental costs of global warming and shale-gas fracturing.

•  Minnesota’s Integrated Resource Planning process gives stakeholders the opportunity to be informed about, and to influence, these choices.

Thank  You  !  

•  Phyllis A. Reha Minnesota Public Utilities Commission

121 7th Place East St. Paul, MN 55101 [email protected] 651-201-2240