LAMPAC Spring ConferencePhoenix, Arizona

May 9, 2017

Jonathan M. WeisgallVice President, Government Relations

• Energy trends

• Political landscape

• 2017 legislation?– American Health Care Act

– Comprehensive tax reform

– Infrastructure

• Impact of 2018 midterm elections

• “Let’s go off the grid”

Topics

2

Energy trends

3

Energy jobs 2016

4

U.S. Department of Energy “2017 U.S. Energy and Employment Report” (January 2017)

Generation additions and retirements

5

Wind and solar installations 2000-2016

6

Corporate renewable energy deals 2010-2016

7

Gas and coal plant capacity factors

8

Coal jobs are being replaced by machines

9

Future of nuclear – closed, closing, saved

10

Future of nuclear – closed, closing, saved

11

Cumulative change in generation 2007-2016

12

CO2 emissions by sector

13

Emissions reductions and Paris goal

14

Levelized cost of energy 2016 (unsubsidized)

15

Battery prices

16

Political landscape

17

2016 elections – the trifecta

18

2016 electoral college results (270 required to win):

Trump Clinton

306 232

• Republicans control 68 of 99 state legislative

chambers

• Republicans control both chambers in 32 states;

Democrats control just 13

• 33 Republican governors; 16 Democratic (Alaska)

• 25 “trifecta” Republican states; 6 Democratic

• 12 fewer Democratic senators than there were when

Obama was sworn in; 63 fewer House members; 16

fewer Democratic governors

• Fewer Democratic state legislators today than there

have been at any time in last 100 years

Tough times for Democrats

19

• Only certainty is no certainty

• Trump governing as he campaigned: unorthodox

• No honeymoon – but no marriage either; declared war

against the Washington establishment

• 556 positions require Senate confirmation; Trump has

nominated 41 (and says many are “not necessary”)– Demands loyalty; hand-on approach; prevented #2 at State

– Run government with traditional small team at White House?

• No ideology – and not a traditional Republican – Don’t’ change entitlements (Social Security, Medicare)

– Oppose free trade (Trans-Pacific Partnership; NAFTA)

– Raise deficit with infrastructure spending

– Many advisors (e.g. Gary Cohn) were Democrats until 1/20/17

Trump: What’s happening?

20

• Shift power back to states; deference on environmental issues

(SIPs to FIPs 1988-2008: 5; Obama: 56)

• But different approach on markets – federal intervention?

– DOE study on whether markets are adequately compensating

baseload power and potentially threatening reliability

– We don’t have blackouts, we have supply, markets are economic,

no reliability issues. What’s the complaint? Security – really?

– Not in best interests of U.S. to have baseload (coal and nuclear)

shuttered; energy independence; drive increase in manufacturing

– Should organized markets give benefits to resources that aren’t

otherwise competitive?

– FERC concerns: If states want grid operators to reward the

environmental attributes of their own in-state generation, will that

end organized markets?

What’s happening? Energy trends?

21

• Technology advances and scaling of production

have led to lower prices

• Customers have spoken; they want renewable

energy– 71 of the Fortune 100 companies have renewable energy

or GHG targets

– 87 major companies committed to 100% renewable

energy

– States adopting policies and regulations that help enable

corporations to procure renewable energy (green tariffs)

Markets and renewable energy – change?

22

• Aggressive state policies aren’t changing (RPS,

restrictions on carbon emissions)– Even cities pursuing renewable energy – Las Vegas, Salt

Lake, Portland

– But some pushback (Oklahoma wind)

• Federal tax credits (PTC/ITC) still in place

• Transformation happening – moving from a

mandate-driven push market to a customer-driven

pull market that is overtaking government policy as

the real driver?

Markets and renewable energy – change?

23

2017 legislation?

24

President Trump’s policy priorities

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Strengthen trade agreements

Reform US tax system

Secure the border

Repeal and replace Obamacare

Overhaul financial regulations / Dodd-Frank

Environmental De-Regulation

Rebuild infrastructure

Drain the swamp

• Republicans are planning to use budget reconciliation to pass

both Obamacare repeal and comprehensive tax reform

• Regular legislative process benefits• Legislation can be enacted permanently

• No artificial restrictions on which measures can be included

• Regular legislative process limitation: 60 votes needed at every

step in the Senate

• Budget reconciliation benefits• Requires only 51 votes in Senate; no filibuster allowed

• Expedited process (time limits for amendments and debate)

• Budget reconciliation limitations• Legislation that increases deficit must sunset after 10 years or be

subject to other measures to avoid long-term deficit effect

• Used only for measures that have a fiscal effect on the federal budget

Budget reconciliation

26

Affordable Care Act –

Repeal and Replace

27

• May 4, 2017: 217-213 House vote for American

Health Care Act

• Need to show Republicans can govern and

meet promise after inability to pass bill in late

March

• Affordable Care Act: 0 Republican votes

• American Health Care Act: 0 Democratic votes;

20 Republican “no” votes

• “Let the Senate fix it”

• Senate showdown more difficult

Repeal and replace Obamacare

28

Comprehensive tax reform

29

Start with 6/24/2016 House “blueprint”

30

• Reduce top U.S. corporate income tax rate from 35%

to 20% (Trump proposal down to 15%)

• 100% depreciation: full expensing of both tangible and

intangible property

• Eliminate deductibility of net interest (huge for energy)

• Border tax adjustment – no deduction or depreciation

for cost of imported goods and services; no tax on

receipts from exported goods and services

• Major reform of international taxation and focus on

repatriation of foreign earnings

• Retain mortgage interest and charitable deduction

• Congress has already repealed the PTCo Scheduled to sunset 1/1 2020 under legislation passed in December 2015

o 2015 deal was in return for lifting oil export ban; no reason to re-litigate

• Jobso >100,000 wind industry jobs

o Veterans: National workforce: 7% veterans. Wind industry: 11.5%.

o Wind turbine technician is fastest growing job in U.S.; will double over next

decade

• U.S. infrastructureo Over 1,000 U.S. businesses in the wind industry; have invested over $100 billion

since 2008

o More than 500 U.S. factories build wind turbines and parts

o 20 years ago: 90% of components were imported. Today: about 60% produced

domestically

• Property taxes – billions of dollars

• Climate change or making America great again?

Preserve/protect PTC/ITC

31

Infrastructure

32

• Trump on campaign trail: $1 trillion for infrastructure – Possible bipartisan deal? Everyone loves infrastructure, but no

agreement on how to get there

– Ds: direct spend; don’t ease permitting/environmental rules

– Rs: exact opposite

– Pay for it; must be revenue-neutral (cuts elsewhere?)

– Public-private partnerships? Tax incentives? Tolls?

– Trump budget inconsistent? Cut mass transit/trains

• 2009 stimulus bill; “shovel-ready;” two GOP votes

• Include transmission? Yes

• Stand-alone infrastructure bill or part of tax bill?

How to do it?

33

• 3/14/17: Senate Energy/Natural Resources Committee

• “New transmission infrastructure is required to access

vast American renewable energy resources and

deliver this clean energy to customers”

• 10-year process to get Gateway West record of

decision; a 3-5 year project shouldn’t take 10 years of

federal regulatory review

• Suggestions for permitting reforms – Lead agency as a single point of accountability

– Clear and permanent deadlines for agencies to act

– Grandfather prior agency actions to avoid unnecessary

reviews every time a government policy changes

Berkshire Hathaway Energy testimony

34

Will 2018 midterm

elections pressure the

Democrats to cooperate?

35

Key Senate races in 2018

36

R-Incumbent –Trump won

D-Incumbent –Trump /

Romney won

D-Incumbent –Trump won

D-Incumbent –Clinton won

R-Incumbent –Clinton won

No election

Sen. Claire McCaskill (D-MO)

Sen. Debbie Stabenow (D-MI)

Sen. Joe Donnelly(D-IN)

Sen. Bill Nelson (D-FL)

Sen. Jon Tester (D-MT)

Sen. Heidi Heitkamp(D-ND)

Sen. Sherrod Brown (D-OH)

Sen. Bob Casey, Jr. (D-PA)

Sen. Joe Manchin(D-WV)

Sen. Tammy Baldwin(D-WI)

Sen. Dean Heller (R-NV)

Midterm election trends

37

Voter turnout in midterm elections

38

“Fifty or sixty million American homeowners will

essentially be able to generate all their energy using

solar; they will be able to store what they don’t use at

the moment of generation for the rest of the day and

night. For just $18.30 per month they will store

enough energy to essentially get off the grid.”– Tony Seba, author of Clean Disruption

“What has popularly become known in the

industry as the utilities’ death spiral is

extremely unlikely to occur.”– Jean-Marc Ollagnier, Group Chief Executive, Accenture

Let’s Go Off-Grid …

Is That Really Feasible?

39

• Not a pro-solar versus anti-solar discussion

• Customers want solar power, and energy companies are going

to give it to them

• Real issue: What’s the most cost-effective way to provide that

solar power to our customers?

• Private (rooftop) solar not the same as going off the grid; private

solar customers still need the grid 23.99 hours a day

• Grid support necessary to start large equipment (such as air

conditioners

• Going completely off the grid requires a prohibitively expensive

energy storage system

• Local utilities are here for the long term and are providing

renewable energy for customers in more cost-effective ways

Let’s Look at the Facts

40

Private Solar Generators Need the

Power Grid 23.99 Hours a Day

41

0.00

0.50

1.00

1.50

2.00

2.50

Kil

ow

att

/Us

ag

e

Customer Power Demand

Energy Company-Provided Power Grid Services

23.99 hours/day energy company provides all power grid services

Energy Company-Provided Power

10 hours/day energy company provides 100% of power needed

Private Generation System-Provided Power

6.5 hours/day private generation system provides 100% of power needed

Private Generation

Energy Company and Private Generation System-Provided Power

7.5 hours/day both energy company and private generation system provides power

100%Energy Company-

Provided Power

Private generation peak 12-2 PM Customer power

demand peak 6-8 PM

Private generation customer

uses power grid to

export excess power

4am 8am 12pm 4pm 8pm 12am

100%Energy Company-

Provided Power

En

erg

yD

eli

ve

ryC

ha

rge

The Power Grid Provides the

Support to Start Up Large Appliances

• Even when the private solar system is producing more power

than the home needs, the homeowner is still not self-sufficient

• The power grid provides in-rush current – the necessary support

for starting large household appliances (compressor for A/C)

Source: The Integrated Grid report published by EPRI, 201442

13.5 kWh Tesla Powerwall 2

Technology

Wall or floor-mounted,

rechargeable lithium ion

battery with liquid thermal

control

Model13.5 kWh

For daily cycle applications

Weight 264.4 lbs

Dimensions

Height: 44”

Width: 29”

Depth: 5.5”

43

5

10

15

20

25

30

1/1 1/31 3/1 3/31 4/30 5/30 6/29 7/29 8/28 9/27 10/27 11/26 12/26

kW

h

Average Daily Residential Demand PV System 10-Day Rolling Average Generation

Supply-Demand Imbalances Require

Excess Battery Storage To Go Off the Grid

4.1 kWdc Solar PV Daily Generation – Santa Maria, CA

Battery system must store excess

energy to cover the demand for

the balance of the year

44

0

100

200

300

400

500

600

700

800

January February March April May June July August September October November December

Battery Storage Requirements

to Never Rely on the Grid

4.1 kWdc Solar PV Monthly Generation Average Residential Off-Grid Battery System Requirements

• The battery system must store 38 days of average use by August, annually, in order to provide

the necessary energy throughout the balance of the year due to the variability of private solar

Private Solar Generation vs. Battery System Requirements in Santa Maria, CA

45

Battery drains

to one day’s

average

energy use

kW

h

Battery

system is at

full capacity

Not as Easy as It Sounds …

True Cost of Going Off the Grid in Iowa

46

Annual Energy Usage

(residential) 11,026 kWh Varies between 19-46 kWh/day during the year

Private Solar Supply1

8 kWdc private solar system needed

525 sq. feet rooftop space needed for panels

Average Private Solar Cost2 $25,680 installed

Battery System Requirement1,650 kWh battery system (55 days of storage) –

would require a large 1,200 sq. foot garage

Number of Powerwalls3 123 Powerwalls

Installed Battery System Cost4 $861,000

Total Cost To Go Off The Grid $886,680

Payback5 577 years; after 30% investment tax credit

1 Assumes optimal conditions: rooftop faces due south, panels have a 20-degree tilt and no shading2

Uses average cost of $3.21/watt; source: SEIA 3

One Tesla Powerwall is 13.5 kWh; need 1,650 kWh, or 123 Powerwalls4

Uses average cost of $7,000 for each Powerwall battery; includes Powerwall, inverter and installation5

Assumes no system maintenance or performance degradation; calculated using $0.0975/kWh retail rate

Not as Easy as It Sounds …True Cost of

Going Off the Grid in Santa Maria, CA

Annual Energy Usage

(residential) 6,811 kWh Varies between 15-23 kWh/day during the year

Private Solar Supply1

4.1 kWdc private solar system needed

400 sq. feet rooftop space needed for panels

Average Private Solar Cost2 $13,160 installed

Battery System Requirement712 kWh battery system (38 days of storage) –

would require a 500 sq. foot area

Number of Powerwalls3 52 Powerwall 2 Units

Installed Battery System Cost4 $371,000

Total Cost To Go Off The Grid $384,160

Payback5 232 years; after 30% investment tax credit

1 Assumes optimal conditions: rooftop faces due south, panels have a 20-degree tilt and no shading2

Uses average cost of $3.21/watt; source: SEIA 3

One Tesla Powerwall is 13.5 kWh; need 712 kWh, or 53 Powerwall 2 Units4

Uses average cost of $7,000 for each Powerwall battery; includes Powerwall, inverter and installation5

Assumes no system maintenance or performance degradation; calculated using $0.1699/kWh retail rate47