Presentation to Sequa Enron Energy Services August 1999

1
Aggregated DG and DR as Distributed Energy
Resources Benefits and Costs
Ritchie Priddy
Peak Load Management Alliance Fall Conference,
Orlando, FL
2
What Does the Future Hold?

• Hybrid model of regulation
• More political instability in producing regions
• More emphasis on energy independence management
• Reserves being written down
• Little drilling, more congestion (NIMBY, etc.)
• Security concerns
• Quality concerns
• More volatile fuel prices
• Depletion rates
• Risk increasingly moving to end-users
• More environmental restrictions
• Little Infrastructure investment
• No Energy Policy
• Problems ignored dont go away!

3
Smart Energy Management Drivers
Old Drivers
New Drivers

Future

• Emissions
• Efficiency
• Security
• Shrinking Supplies
• Congestion Management
• Innovative Rates
• TD Deferment
• Demand Response
• National Policy
• Technology
• Automation
• Rate Increases
• Liability
• Business Continuity

• Conservation
• Cost Savings
• Reliability

• Smart Grid (automation controls, demand
  response)
• Efficiency Gains (increased load
  factors)
• Clear Skies
• (emissions trading)

Risk Management!
4
Liability and Business Continuity Emerging Issues

• Liability concerns Two levels
• insurance coverage lacking
• holes in coverage will grow
• Business interruption riders
• - 77 million in claims due to blackout. Must
  have physical damage.
• Utility interruption insurance
• 24-hour downtime minimum
• - lack of infrastructure improvement means more
  problems ahead

• Business Continuity concerns
• concerns keeping businesses running during and
  after crisis
• rapidly growing industry
• mostly covers data issues, but power
  issues are beginning to be addressed
• most companies aware of issues, but remain
  unprepared

5
Liability and Utilities

• Traditionally not held liable except for gross
  negligence FirstEnergy lawsuits being litigated
  now.
• Liability insurance premiums are rising
• Many utilities are self-insured
• Trend toward higher jury awards
• Tremendous exposure businesses have been largest
  target for terrorists take up rate growing
  rapidly. Do they suspect something?
• Little infrastructure improvement.
• Huge costs for short-term improvement Is it
  cheaper to pay?
• Many areas affected Dallas-Fort Worth

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Liability Limits Industry Rankings Average
Limits Purchased, 2003
Top Five Industries (millions)
190 Chemical/Pharmaceutical 144 Mining and
Energy 136 Utilities (non-nuclear) 128
Transportation Equipment 108 Telecommunications
Source Limits of Liability 2003, Marsh, Inc.
7
Terrorism Coverage Take-Up Rates by Industry
(2003)
Source Marsh, Inc.
8
Liability and End-Users

• Traditionally left holding the bag
• Could be liable for injuries to customers, people
  on premises, etc.
• Insurance already a big concern
• Few have continuity plans in place
• Most find it beyond their ability to take ALL
  risk management actions.

9
Council of Insurance Agents Brokers rate survey
2nd Qtr 2002
Rate Increases By Line of Business
No Change
Up 1-10 10-20 20-30 30-50
50-100 gt100 Comm. Auto 2
6 28 39
21 1 1 Workers Comp
5 13 19
32 15 5
2 General Liability 2 9
24 45 15
2 1 Comm. Umbrella 2
4 10 20
27 17 16 Comm.
Property 3 4 16
30 31 13
1 Business Interr. 3
8 32 33
10 1 0
First quarter after 9/11! No terrorism backup yet.
Source Council of Insurance Agents Brokers.
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Council of Insurance Agents Brokers rate
survey, 3rd qtr 2003
Rate increases by line of business
Down 1-10
No Change Up 1-10 10-20 20-30 30-50
50-100 Comm. Auto 12
14 42 30
0 0 0 Workers Comp
10 17 31
21 8 2
2 General Liability 9 21
39 24 4
1 1 Comm. Umbrella 6
17 27 33
11 4 0 Comm. Property
24 26 28
9 2 1
0 Terrorism 6 48
15 5 1
1 0 Business Interr. 11
33 34 8
2 0 0
Terrorism insurance rates returned to previous
levels 2nd Quarter 2004
Terrorism Risk Insurance Act will expire end of
2005.
Source Council of Insurance Agents Brokers.
11
Insurance is Biggest Concern of Small Business
Owners
Source National Federation of Independent
Business (June 2003) Insurance Information
Institute
12
Business Continuity

• BUSINESS INTERRUPTION INSURANCE Commercial
  coverage that reimburses a business owner for
  lost profits and continuing fixed expenses during
  the time that a business must stay closed while
  the premises are being restored because of
  physical damage from a covered peril, such as a
  fire.
• Costs increasing
• Financial
• Legal
• Insurance

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Example 1 You own a food warehouse located in
NYC on August 14, 2003. Power goes down. You have
insurance. Are your losses covered?

• Yes if you have business interruption
  insurance, AND you can prove actual damages
• No if you have general liability only
• Yes if you have utility interruption insurance
  and IF the event lasted longer than 24 hours.
• Many insurance companies do not consider data
  damage as physical damage!
• Utility not held liable unless gross
  negligence is proven!
• Very few such policies exist today.

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Example 2 You own a business and power demand
skyrockets, and a rolling blackout is called. You
have insurance, including utility disruption
insurance. Are your losses covered?

• NO!

Rolling blackouts are considered a Planned
Event and utility disruption insurance
specifically states that the event must be
unplanned. Utility will not be held liable either.
Result Holes in coverage. No alternatives
liability falls completely upon end-users. Few
are prepared!
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Aggregated DG/DR

• Distributed energy (DE) strategies can be means
  by which the insurance and risk management
  community (including utilities) reduce loss in
  several categories. They include but are not
  limited to
•        Business Interruption Insurance
•        Liability Insurance
•        Boiler and Machinery Insurance
•        Property Insurance
•       Life/Health Insurance
•        Service Interruption Coverage
• The relationship between insurance to electric
  service reliability is becoming increasing
  relevant as customers real and perceived
  vulnerability to disruptions in service are
  growing, dependency on information technology and
  access data is critical, and the complexities and
  interdependencies of supply chain management
  increases the criticality of key suppliers
  continued operation.

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On-site Generation A New Model?
Business Continuity/grid support
Whole System Approach
Risk Management/DR Role
Traditional Approach
DER
Traditional DG
Backup Generation/Emergency
Time
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DFW-related Congestion Costs

• The DFW area (eight counties) identified as the
  number one congested area
• Annual Congestion costs gt 82 million/yr
• Load continues to grow about 5 per year
• Current Load in 4-county metro area 15,068 MW
  (02)
• Current Generation in 4-county metro area 5,800
  MW (02)
• Shortfall 9,268 MW (made up by importing power)
• Additional generation plants built planned in
  8-county area 5,700 MW (all located outside
  congestion area)
• Additional transmission lines planned
• ERCOT planners considering a NODAL (or locational
  pricing) plan that many believe will
  significantly increase power prices in the
  region.
• 4-county Metro area includes Collin,
  Dallas, Denton and Tarrant Counties

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DFW Environmental Issues

• The four-county Metro area is a non-attainment
  area for ground-level ozone.
• The EPA State Implementation Plan (SIP) and
  Senate Bill 7 mandated specific actions to reduce
  NOx emissions from various sources by 2003, with
  additional reductions required by 2005.
• This requires generation plants in the metro area
  to either retrofit with new NOx reduction
  devices, OR to limit operation.
• . . The metro region could experience
  significant problems of peak period transmission
  adequacy and voltage stability if a significant
  amount of in-region generation becomes
  unavailable and no new in-region plants or
  transmission system improvements are built.

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DFW Electric Congestion
Electric Transmission Line
Natural Gas Line
Electric Distribution Lines
Install gas dg/chp unit at prison and export
power or use on site for grid relief.
Prison
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Contact information

• Ritchie Priddy
• Business Development Director
• Attainment Technologies, LLC
• Phone [phone]
• Rpriddy_at_attainmenttech.com
• www.attainmenttech.com