Introduction To Electricity 101 - CenterPoint Energy
Introduction to Electricity 1011
Introduction“ Is it a fact—or have I dreamt it—that, by means of electricity, theworld of matter has become agreat nerve, vibratingthousands of miles in abreathless point of time?‖– Nathaniel Hawthorne, 1804-1864American Novelist22
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The Early Years Mid-1700s—Interest in harnessing power of electricity 1882––First workable electric system built by Edisonat Pearl Street StationPearl Street Station, New YorkSchenectady Museum:Hall of Electrical History Foundation44
Industry Formation 1890s—Electric utilities began to develop primarily inurban areas because of economies of scale Industry had characteristics of a ―natural monopoly‖— A natural monopoly is where, for technical and socialreasons, it is most efficient to have only one provider of agood or service Provided service regarded as vital to economic andsocial fabric of community (i.e., a “public utility”) Operated through large, integrated networks Highly capital-intensive 1907—State regulation of electric utilities began inNew York and Wisconsin– Regulation spreads to two-thirds of states by 192055
Industry Formation By 1920s—Most urban areasare electrified Exclusive utility franchises(monopoly rights) also camewith an ―obligation to serve‖all customers in the definedregions Limited federal regulationof multi-state utilitiesTimes Square, New York, 1920s Corbis66
Holding Companies 1920s—Many small utilities were consolidated and became parts oflarger ―holding companies‖– Holding companies own other holding companies and operatingcompanies. This is a common corporate structure in many industries.– The rapid growth, consolidation, and complexity of the utility industryoutpaced the ability of many local regulators at the time. 1929—Stock market crash revealed that many holding companieswere over-leveraged– As a result, federal and state governments strengthened utilityregulation.77
Federal Regulation1935: Congress passed federal legislationaddressing interstate utility operations The Federal Power Act– Interstate sales ofelectricity– Primarily regulatesshareholder-ownedutilities The Public UtilityHolding CompanyAct (PUHCA)– Corporate structureof utilitiesFDR signs legislation Corbis88
Federal Regulation Federal and state regulatory scrutiny has grownsignificantly since 1935– The federal government regulates interstate powersales and services; mergers; corporate structure– State governments regulate retail electric service;mergers; facility planning and siting Other federal and state laws, rules, and regulationsalso apply to the electric utility industry, including,but not limited to:– Anti-trust laws / Dept. of Justice / FTC– SEC requirements, including Sarbanes-Oxley– Environmental regulations/EPA99
America Electrifies 1930-1970 Electricity finds many new applications in homes andbusinesses New power plants are built to meet customer needs– Because of economies of scale, electricity pricesactually go down as larger and more efficient powerplants come on line Transmission lines begin to connect utilities to oneanother– What we refer to today as "the grid" begins to takeshape1010
1970s: Rate Regulation Re-examined To encourage competition, Congressre-examined rate regulation model ofnatural monopolies, including:– Railroad, natural gas, trucking, airline, andtelecom industries Public Utility RegulatoryPolicies Act of 1978 (PURPA)–Requires utilities to purchaseelectricity produced bycogenerators and small powerproducers–Federal government expandsregulatory role in state ratepolicies1979—Motorists line up for first day of gas rationing1111 Corbis
Energy Policy Act of 1992 Creates new class of ―exempt wholesale generators‖ to sellpower in competitive wholesale markets Expands FERC’s authority to order transmission-owningutilities to provide transmission access to other wholesalemarket players Increases energy-efficiency standards for buildings,appliances, and federal government Encourages development of alternative fuels and renewableenergy Expands clean coal programs Reforms and streamlines nuclear plant licensing1212
1990s: Some States Move to Retail ChoiceStatus of Retail Electric Competition During the 1990s,a number ofstates adopteddifferent modelsto encouragecompetitionamong generatorsto serve retailcustomers1313
Energy Policy Act of 2005Electricity Initiatives: Requires mandatory reliability standards Promotes transmission investment and facilitatestransmission siting Repeals PUHCA and reforms PURPA Promotes fuel diversity Increases energy efficiency Gives FERC stronger consumer protection,anti-market manipulation authority1414
Energy Independence and Security Act of 2007Electricity Initiatives: Establishes stricter efficiency standards for variety ofappliances; includes initiatives to strengthen building codesfor commercial buildings Includes incentives to encourage development andproduction of electric drive transportation technologies,including plug-in hybrid electric vehicles Expands federal RD&D program for carbon capture andstorage technologies Encourages deployment of smart grid technologies withfederal matching funds for investment costs Directs FERC to create action plan on demand response1515
How Does the System Work?1616
Electricity: It’s All About Conversions Energy can neither be created nor destroyed - it can only betransformed (converted) from one form to another Our lives are surrounded by energy conversion technologies:– Chemical to thermal Home furnace using fuel oil, natural gas, or wood– Chemical to thermal to mechanical Automobile engine– Chemical to electrical Fuel cell– Electrical to mechanical Electric motor– Electrical to radiant Toaster, light bulb Power plants are simply energy-conversion facilitiesconverting fuel and energy sources into electricity1717
Mega What? Watt (W)—The basic unit of measure of electric power. The power dissipated by acurrent of 1 ampere flowing across a resistance of 1 ohm. Kilowatt (kW)—A unit of power equal to 1,000 watts. Kilowatt Hour (kWh)—A unit by which residential and most business customers arebilled for monthly electric use. It represents the use of one kilowatt of electricity forone hour.– A 100-watt light bulb burning for 10 hours would use 1 kilowatt-hour of electricity. Megawatt (MW)—A unit of power equal to one million watts. Megawatt Hour (MWh)—The use of 1 million watts (or 1,000 kilowatts) of electricityfor one hour. This term is used most often for large-scale industrial facilities and largepopulation centers.– The average U.S. household uses 11.2 MWh (11,202 kWh) of electricity everyyear. Power (measured in Watts) equals its current (measured in Amps) times its voltage(measured in Volts) or Volts X Amps Watts.1818
How Does the System Work?1. Electricity is generatedand leaves the powerplantElectricity, Where It Comes FromAnd How It Gets to Me2. Its voltage is increasedat a ―step-up‖ substation3. The energy travels alonga transmission line tothe area where the poweris needed4. Once there, the voltageis decreased or―stepped-down,‖ atanother substation5. A distribution power linecarries the electricity6. Electricity reaches yourhome or business1919
GenerationGenerating Power and Getting It to the Consumer2020
Transmission Thick wires on tall towerscarry high-voltage electricityfrom power plants to localcommunities and connectone region to another2121
Distribution Thinner wires on smallertowers (or in some casesunderground) carry muchlower voltage power tohomes and businesses2222
Sounds Simple, What’s the Catch? Electricity cannot be stored, so supply (generation)must be produced exactly when needed to meetcustomer demand and to avoid system failure Level in ―lake‖ mustbe kept constant atall times Laws of physicsdictate that powerflows on path ofleast resistance, notnecessarily wherewe’d like it toIndividual ―Lake‖ Model2323
Sounds Simple, What’s the Catch?―Lakes‖ Network Model2424
Industry Overview252521
Different Types of Ownership-Structure Shareholder-Owned Utilities Cooperatively Owned Utilities Government-Owned Utilities– Federally Owned Utilities– State-Owned– Municipally Owned– Political Subdivisions2626
Percentage of Customers ServedBy Each Type of Provider2727
Capital Expenditures of the Shareholder-OwnedElectric Industry Industry continuesto increase capitalspending to keeppace with growingdemand forelectricity.2828
The Industry’s Record292925
Electricity & GDPU.S. Economic Growth Is Linked to Electricity Growth3030
Increasingly CleanPower Plants Reduce Emissions Despite Increasing Electricity Demand3131
Fuel Sources for Electricity GenerationFollowing section would incorporate Tim’sgraphics that come from the Fuel Diversity piechart that appears on slide 10323228
What Are the Fuels Used to Generate Electricity?2007National Fuel Mix*Includes generation by agricultural waste, landfillgas recovery, municipal solid waste, wood,geothermal, non-wood waste, wind, and solar.** Includes generation by tires, batteries,chemicals, hydrogen, pitch, purchased steam,sulfur, and miscellaneous technologies.Sum of components may not add to 100% due toindependent rounding.Sources: U.S. Department of Energy, EnergyInformation Administration, Power Plant Report(EIA-906), and Combined Heat and Power PlantReport (EIA-920). 2008 by the Edison Electric Institute.All rights reserved.3333
Different Regions of the Country UseDifferent Fuel Mixes to Generate Electricity*Includes generation byagricultural waste, landfill gasrecovery, municipal solidwaste, wood, geothermal,non-wood waste, wind, andsolar.** Includes generation bytires, batteries, chemicals,hydrogen, pitch, purchasedsteam, sulfur, and miscellaneous technologies.Sum of components may notadd to 100% due toindependent rounding.Sources: U.S. Department ofEnergy, Energy InformationAdministration, Power PlantReport (EIA-906), andCombined Heat and PowerPlant Report (EIA-920). 2008 by the Edison ElectricInstitute. All rights reserved.3434
Fuel Diversity:Key to Affordable and Reliable Electricity No individual fuel is capable of meeting all of our nation’selectricity demands Maintaining the diversity of available fuel resources helps toensure that we do not become too dependent on one fuelsource Fuel diversity protects consumers from contingencies such asfuel unavailability, price fluctuations, and changes in regulatorypractices Fuel prices greatly affect the price of electricity—today, fuelcosts are on the rise3535
Environmental Aspects of Fuel Diversity Fuel choices allow environmental impacts to be balanced andstill assure reliable, cost-effective power supply to consumers Any fuel source for generating electricity involves someenvironmental impact Environmental effects can be air emissions, water qualityimpacts, fish and wildlife impacts, waste disposal concerns,and aesthetics Environmental impacts are significantly less than they were adecade ago3636
Electricity Generation from Coal Coal is a fuel source for almost 49% of electricity generated inthe United States Most abundant domestic energy resource—U.S. has about25% of world’s total coal reserves (275 billion tons) andconsumes 25% of world’s coal used annually Significant improvements in pre- and post-combustionemission reduction technology Like prices for other fossil fuels, coal prices are increasing,rising from 1.25/million Btu in 1999 to 1.78/million Btu in2007 Developing clean coal technologies, including carbon captureand storage technologies; resolving coal delivery problems;and maintaining coal’s ability to compete on costs are keydrivers to future use of coal3737
Electricity Generation from Natural Gas 21.5% of total current generation is natural gas-based; inpast decade, almost 95% of new plants have been naturalgas-based Lower emissions than other fossil fuels Low capital costs and regulatory barriers for other fuelsmake natural gas-based generation easier to site and build Declining production, limited access to natural gassupplies, and rising demand are causing natural gasprices to increase dramatically The average price electric utilities paid for natural gas rosefrom 2.38/million Btu in 1998 to 7.50/million Btu in 2007 Large volumes of onshore and offshore natural gas are offlimits due to moratoria, regulation U.S. isolated from global market and its plentiful supplyand lower prices3838
Electricity Generation from Nuclear 104 nuclear power plants in the U.S. provide 19.4% of thisnation’s electricity Nuclear power produces no sulfur dioxide, nitrogen oxides,mercury, or carbon dioxide emissions Uranium is plentiful and efficient. One pellet of enricheduranium—the size of the tip of your little finger—is theequivalent of 17,000 cubic feet of natural gas, 1,780 poundsof coal, or 149 gallons of oil Existing nuclear power plant performance continues toimprove High construction costs and used fuel disposal are twomajor challenges to building new plants3939
Electricity Generation from Hydropower 5.8% of electricity generation is from hydro—largest sourceof renewable energy Low-cost domestic fuel, emissions free, abundant in someregions, helps contribute to system reliability Provides flood control, navigation, irrigation, recreationalopportunities, and fish and wildlife benefits Difficult licensing renewal process often results ingenerating capacity reductions and loss of flexibility tooperate facility for electric reliability purposes. EnergyPolicy Act of 2005 contains provisions to improve thehydropower licensing process4040
Electricity Generation from Non-Hydro Renewables Generation from non-hydro renewables and other sourcesis 3.2% Biomass produces 1.3% of generation; wind, 0.8%;geothermal, 0.4% Largely CO2 emission free. (Emissions from biomasscombustion are CO2-neutral to the extent that theyrepresent atmospheric carbon fixed in plant materialthrough photosynthesis, a process that can be repeatedindefinitely.) Renewable technologies face high initial capital costs Current and future challenges include geographiclimitations, intermittent nature, transmission availability,frequent expiration of production tax credit, environmentaland aesthetic challenges4141
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Electricity: A Great Value The national averageprice for electricitytoday is less than whatit was in 1987, whenadjusted for inflation Even with recent priceincreases, the growthrate for electricity pricesremains comparable to,and even lower than,other importantconsumer goodsChanges in Electricity Prices ComparedTo Other Consumer Products4343
The Costs to Generate Electricity Are RisingAverage Cost of Fossil Fuels Fuel prices greatlyaffect the price ofelectricity Fuel prices haverisen considerablysince 1999,particularly fornatural gas At the same time,demand forelectricity continuesto grow4444
Demand for Electricity Is Growing While efficiency improvements have had a major impact inmeeting national electricity needs relative to new supply,the demand for electricity continues to increase– According to EIA, electricity consumption is expected to increase at least 30percent by 2030 To meet this increasing demand, electric utilities mustinvest in a new generation of baseload power plants, thosethat run continuously to meet the country’s minimumdemand– According to EIA, 240 gigawatts (GW) of new capacity will be needed by20304545
Infrastructure Investment Costs Are GrowingActual and Planned Transmission InvestmentBy Shareholder-Owned Electric Utilities Significant increase ininvestment coinciding withsurge in generatingcapacity– Since 2000, the electric powerindustry has invested more than 46 billion in nation’stransmission system– Preliminary data indicateshareholder-owned electriccompanies are planning to invest 37 billion from 2007-2010 Benefits include newertechnologies, biggermarkets, lower prices,reliability4646
Environmental Compliance CostsAre Significant All electric utilities are subject to hundreds ofenvironmental rules, including dozens of federal andstate air and water quality requirements created in thewake of the Clean Air Act and Clean Water Act According to the U.S. Environmental Protection Agency,complying with two federal regulations—the Clean AirInterstate Rule and the Clean Air Mercury Rule—wouldhave cost the electric utility industry almost 50 billionbetween the years 2007 to 2025– These rulemakings were recently overturned. As a result, actualcosts will almost certainly be higher since replacement regulatoryprograms at the federal and state levels will likely be at least asstringent and likely less flexible. The research, design, development, and deployment ofnew technologies needed to reduce greenhouse gasemissions will require additional investments.4747
Price Caps Set During IndustryRestructuring Are Expiring As part of the transition tocompetition, many statepolicymakers decreed thatcustomers’ bills would be frozen,and in many cases reduced,typically for a period ranging fromtwo to ten years The first rate caps were put inplace in 1997, and the last are setto expire in 2011 As rate freezes and reductions arebeing phased out, many customersperceive that their rates are being―increased,‖ when in fact they arereflecting the costs alreadyincurred by utilities4848
What Are Utilities DoingTo Help Control Rising Prices? Many utilities try to ―hedge‖ or enter into long-term, fixedcontracts for fuel at set prices– Not all companies have this option, and such forward contracts cannotcover all fuel needs Utilities have increased the productivity (capacity factors)of their power plants while at the same time decreasingtheir operations and maintenance costs Electric utilities have taken a leading role in developingenergy efficiency and demand response programs forresidential, commercial, and industrial customers– Between 1989 and 2006, electric utility efficiency programs saved about860 billion kilowatt-hours of electricity—enough electricity to power nearly76 million average U.S. homes for one year4949
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Electricity Use in the Typical U.S. HomeAnnual Electricity Use in the Typical U.S. HomeHas Increased 60% Since 19705151
Residential Electricity Use by End Use A typical U.S. householduses 934 kilowatt-hoursof electricity a month.5252
Average Household Expenditures Greater demand for electric power does not translatedirectly into higher household expenditures The average American household’s total spending onelectricity has fallen steadily over time5353
Key Challenges Natural gas supply Fuel diversity Environmental policy Coal transportation Rising costs of doing business Need for increasing infrastructure investment5454
Investing in America’s Electric Future Electric utilities are entering a new cycle of growthand investment, and a new era of ratemaking If utilities are able to make investments ininfrastructure improvements, benefits will include:–––––Long-term reductions in operating costsEnhancements of reliability and power qualityImprovements in competitive power marketsCleaner generationIncreased customer choice and control over energy use5555
Edison Electric Institute (EEI) is the association of U.S.shareholder-owned electric companies. Our members serve 95percent of the ultimate customers in the shareholder-ownedsegment of the industry, and represent approximately 70 percent ofthe U.S. electric power industry. We also have more than 65International electric companies as Affiliate members, and more than170 industry suppliers and related organizations as Associatemembers.Organized in 1933, EEI works closely with all of its members,representing their interests and advocating equitable policies inlegislative and regulatory arenas. In its leadership role, EEIprovides advocacy, authoritative analysis, and critical industry
Electricity Generation from Coal Coal is a fuel source for almost 49% of electricity generated in the United States Most abundant domestic energy resource—U.S. has about 25% of world’s total coal reserves (275 billion tons) and consumes 25% of world’s coal used annually Significant improvements in pre- and post-combustion
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