1. EEI’s DG Task Force: The Challenge Ahead Louis Harris EEI Staff Representative DG Task Force June 20, 2001

2. Background n Several years ago, in response to growing interest in distributed resources, EEI formed the DR Task Force. n The DR Task Force monitored DG technology developments. n DR Task Force wrote an EEI publication on DG interconnection issues and watched over the development of the IEEE process of establishing interconnection standards.

3. Things Have Changed n The IEEE is very close to establishing standards. n There has been growing recognition that DG could be a viable option for power supply and for grid enhancement. n This recognition, combined with instability in electricity markets and the spread of competitive market initiatives, has brought DG issues to the forefront of regulatory and legislative proceedings.

4. DG Task Force Formed n To meet this new challenge, the DR Task Force has been reformulated into the DG Task Force. n DG Task Force includes member company personnel in rate regulation, DG development, strategic planning, and distribution. n This new Task Force will guide EEI in responding to legislative and regulatory proposals concerning DG. n It will also oversee EEI research.

5. A Simple Proposition n Many analysts have characterized DG as a “disruptive technology” that is destined to render the local distribution grid obsolete. n EEI respectfully disagrees. n We believe that the future for DG is bright, and that the local utility has much to gain with the rise of DG.

6. The Opposite is Also True n Developers and installers of DG also need the local grid, and have much to gain from enhancement of that grid. n We also believe the upside potential is so great, we can afford to ensure DG interconnection does not harm grid reliability or safety. n Moreover, the value of a robust grid might be so great, developers of DG could end up pleading for a stronger grid, and agreeing to a pay the full fixed costs.

7. Our Agenda n Over the next day and a half, we will examine different aspects of this proposition. n We will begin with a discussion of the political lay of the land in Washington, from both Capitol Hill and from DOE. n We will then discuss the latest developments on an IEEE interconnection standard.

8. Economics Agenda n What is the likely penetration of DG under a variety of fuel and electricity price scenarios? n How can installers of DG maximize their value? n What are the costs of providing distribution and back-up distribution? n What about transmission interconnection and RTO dispatch requirements?

9. Marketing Questions n How big are the relevant markets, that is, commercial, industrial, even residential? n What is the state of technology? n How does the current state of DG technology compare to grid-supplied power? n Where is the value that you can provide?

10. Let’s Hear From the States n Day two will focus on current developments in the states, allowing members to discuss local regulatory developments and concerns. n Are there new policy questions under debate in your states? n What unique siting regulations, air quality issues, transmission interconnection issues are there?

11. EEI’s Role n EEI is the trade association of the shareholder-owned, electric utility industry. n Like the industry we represent, EEI is in the process of unbundling some of the utility functions into separate affiliates. –The Alliance of Electricity Suppliers represents unbundled generation/power supply. –The Energy Delivery and Energy Services Groups represent the residual T&D utility. –A new membership category for RTOs has been approved.

12. EEI Is Uniquely Positioned n With its evolving structure representing all key interests in the DG debates, EEI is uniquely positioned to build consensus over DG issues. n While the task will be large and contentious, over the next two days possible elements of a vision will emerge. n At the end, we will propose a facilitated member process to build consensus regarding DG-related regulatory policies.