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The WECC 2018-2038 Scenarios: Trends Analysis and Early Indicators Report Second Quarter of 2020 Published July 7, 2020 Issue 37 FINAL The Quantum Planning Group San Francisco, California Specialists in Scenario Planning, Analysis, and Strategy Development

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Page 1: The WECC 2018-2038 Scenarios: Trends Analysis and Early ... Rpt 2Q 2020.pdf · The WECC 2018-2038 Scenarios: Trends Analysis and Early Indicator s Report . Second Quarter of 2020

The WECC 2018-2038 Scenarios:

Trends Analysis and Early Indicators Report

Second Quarter of 2020 Published July 7, 2020

Issue 37

FINAL

The Quantum Planning Group San Francisco, California

Specialists in Scenario Planning, Analysis, and Strategy Development

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EXECUTIVE SUMMARY

This report of Key Driver Trends and Scenario Early Indicators (EIs)—the Trends Report—by the Quantum Planning Group (QPG) covering the Second Quarter of 2020 is produced for WECC and the Scenario Working Group SWG) of the Studies Subcommittee (StS). This report is organized around key areas:

1. The continuing coronavirus pandemic and the public health crisis and economic downturn into recession it triggered. We focus on an assessment of the crisis’ impacts to date and potential future impacts on the Western Interconnection power industry, in particular, Customer Demand and Changes in the Power Supply, and broader impacts across the region.

2. Within the context of the current crisis, we look at how the SWG and StS can apply WECC’s scenario process to the immediacy and high uncertainty of the current crisis, within both short- and medium-term timeframes of three to ten years.

To set the overall framework for this report, we are using the set of relationships shown in Figure 1 below. In light of the uncertainty in the economy and energy markets, this allows us to focus on what we think are key factors that might impact electric reliability in the short and medium-term.

Figure 1, Large Systems View of How the Pandemic Might Affect the Electric Power System

Highlights from the Report

The Pandemic

Developments in the Covid-19 pandemic move almost too fast to keep track of, and we do not doubt that as you read this report, things will have changed, some in significant ways, adding to high levels of uncertainty. Since our last report, after four months of efforts, including stay-at-home orders, business closings, travel restrictions, and declining cases, the US has effectively lost containment of Covid-19 in at least 37 states. Governors and local officials are retreating from their reopening orders that began on May 1st. As we noted in the Trends Report of April 7, no one knows for sure how the pandemic will play out over time.

Dramatic increases in daily case counts have given rise to some unsettling questions: Is the US at the start of a second wave? Have states reopened too soon? And have the recent widespread demonstrations against racial injustice inadvertently added fuel to the fire?

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The short, unpleasant answer to the first question is NO: the US has not even gotten through the current first wave of infections. Since peaking at around 31,000 average new daily cases on April 10, new daily cases dropped to around 22,000 on average by mid-May and have spiked to just under 50,000 cases per day as of July 7. Nationwide more than 800 people continue to die every.

Economies in Recession

The US and Canada economies are in a recession along with the rest of the world, and analysts are forecasting a global depression this summer—it would seem that the new key leading economic indicator is now Covid-19. As of now, the future trajectory of the economies, whether global or local, is utterly unknowable. While there are myriad prognostications of fast turnarounds by year-end, slow recoveries over two years or more, or any other period in between, the fact is that we are not sure whether economies have bottomed out. What we can do is present the current situation and critical thinking of those who deal with financial policy at the international and national levels.

The Global Economy - The virus crisis has triggered the worst global recession in nearly a century—and the pain is not over yet even if there is no second wave of infections. Hundreds of millions of people have lost their jobs, and the crisis is hitting the poor and young people the hardest, worsening inequalities, Organization for Economic Cooperation and Development said in its latest analysis of global economic data. "It is probably the most uncertain and dramatic outlook since the creation of the OECD," Secretary-General Angel Gurria said. "We cannot make projections as we normally do."

Before the new wave of infections in late June, the fabric of the economy had been ripped apart, with damage done to millions of interconnections—between workers and employers, companies and their suppliers, borrowers, and lenders. Both the historical evidence from severe economic crises and the data available today point to enormous delayed effects. Data points to a severe but slower-moving crisis of collapsing demand, affecting many more corners of the economy than those forced to close because of the pandemic.

Climate Change

Even as the pandemic-triggered economic downturn has lowered GHG emissions worldwide, Climate Change (or Global Warming if you prefer) has not taken the year off. Drought conditions expanded and intensified in the Western Interconnection, and atmospheric CO2 concentrations continued to rise even with reduced emissions from pandemic lockdowns.

While the pandemic is causing dips in carbon emissions in some locations, they are expected to be short-lived. With the same underlying energy infrastructure, the UNEP says that "none of the fundamentals" has changed. And without a severe transformation on this front, we are unlikely to undo the cumulative effects of decade’s worth of human-generated carbon emissions entering the atmosphere.

Changes in Electricity Demand

From our last Trends Report, we stated:

The full economic, social, and political implications of this unprecedented global event is, to say the least, highly uncertain. It is hard even to contemplate how the interconnections and interrelationships that cross industries, markets, company operations, trade flows, social relationships, and politics might be affected by a global collapse of large parts of human activity. Even estimating appropriate timeframes for decision-making is difficult and subject to error.

A mere three months from that time, we cannot say that events have allowed us to be any less uncertain. It can be argued that the uncertainty may have even increased based on the complexity and evolution of the disease itself, the lack of an actual in-depth scientific and health assessment of the virus, and the inadequate management of the disease at various state levels resulting in an even more rapid spread of the disease coming into the Summer months in the United States.

In general, the demand for electric power has fallen with the decline in economic activity. It is has shifted based on new work from home and social isolation patterns, and declines in commercial and manufacturing

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activity related to the economic recession. In some areas, shifts have occurred in daily peaks, but we have not found any information to say those shifts are significant enough to impact electric reliability. However, we want to emphasize the continued high levels of uncertainty and the understanding that we are in the early phases of the pandemic and its economic effects.

Evolution in the Electric Power Supply

Developments over the past quarter have only put more emphasis on questions related to shifts in factors affecting operations and investment in power supplies with the complexity underneath them growing, including:

• The shape of the recession and eventual recovery is unclear.

• Financial markets have been volatile and as unpredictable as ever. Energy policies that might direct future supply investments have become more complicated with Federal and State policies being in alignment in some areas, while in conflict in others.

• Climate concerns continue, as impacts in nature are increasingly being observed and understood by scientists. However, the reduction in economic activity has reduced emissions and led to cleaner air quality.

We have not found any recent reporting that indicates a significant movement in the Western Interconnection at the State policy level that reverses support for clean energy investments and addressing reducing carbon emissions.

We are unable to adequately characterize the shifts in Federal policy as it impacts investment in the power sector because we can’t determine a clear, consistent policy signal. There have been policy moves that aid in clean power development, such as extending tax breaks and subsidies for clean energy. In contrast, other policies seek to extend the lives of coal plants, reduce incentives for solar panel installations (net metering), and support policies that appear to raise the cost of green energy supplies in state capacity markets.

Focused Scenarios - Ideas for Discussion

Drawing from this and the most recent Trends Reports, QPG sees the following areas as candidates for discussion that might help the Subcommittee determine candidates for the 2020- 2021 study case cycle. In light of the unknowns related to addressing the Covid-19 virus, any of these trajectories are possible.

• Over the next two to five years what will be the shape of the economic recovery coming out of the global pandemic and its related global recession?

a. A “V” shaped recovery would suggest a relatively fast recovery with a return to historical levels of electricity demand (perhaps in two years).

b. A “U” shaped recovery would suggest a longer period of recession and slower emergence back to economic growth and power demand (perhaps 3 to 5 years).

c. A “W” shaped recovery would suggest a start and stop with another period of decline (perhaps 2 to 5 years) before sustained economic growth returns with growth in electric power demand.

d. An “L” shaped forecast would suggest a long period of flat to tepid economic growth, perhaps similar to the Great Depression of the 1930s, and lasting for a decade before any sustainable growth returns.

e. Or, it could look like a reversed square root symbol, that is, an initial rebound followed by a long plateau, e.g. a situation we may be in already.

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• The five economic trajectories above, V, U, W, L, and reversed square root, could be matched with plausible State or Federal policy shifts to address climate change and carbon emissions. This could allow an assessment of possible electric power supply shifts in the short or medium term that might shape how reliability is addressed.

• One or more of the economic trajectories might also be matched with plausible ideas on the adoption of energy services and products by electricity customers, for example levels of EV adoption, storage technologies, and behind the meter investments.

REPORT CONTENTS

EXECUTIVE SUMMARY ........................................................................................................................................................................ 2

INTRODUCTION ..................................................................................................................................................................................... 6

SIGNIFICANT UNCERTAINTIES ........................................................................................................................................................ 8

The Pandemic ................................................................................................................................................................................ 8

Economies in Recession .......................................................................................................................................................... 11

Climate Change .......................................................................................................................................................................... 16

Changes in Electricity Demand ............................................................................................................................................. 18

Evolution of the Electric Power Supply ............................................................................................................................. 22

NEXT STEPS: SCENARIOS FOR THE CURRENT CRISIS .......................................................................................................... 25

Focus Scenarios versus Global Scenarios .......................................................................................................................... 25

Predetermined Factors in Scenarios ................................................................................................................................... 26

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INTRODUCTION

This report by the Quantum Planning Group (QPG) to WECC and the Scenario Working Group (SW) of the Studies Subcommittee (StS) covers significant Event-Pattern-Structure (EPS) events and developments in the ongoing pandemic and economic crisis and its impacts on the electric industry and energy markets, in the Second Quarter of 2020 (April, May, and June).

1. The continuing coronavirus pandemic and the public health crisis and economic downturn into recession it triggered. We focus on an assessment of the crisis’ impacts to date and potential future impacts on the Western Interconnection power industry, in particular, Customer Demand and Changes in the Power Supply, and broader impacts across the region.

2. Within the context of the current crisis, we look at how the SWG and StS can apply WECC’s scenario process to the immediacy and high uncertainty of the current crisis, within both short- and medium-term timeframes of three to ten years.

To set the overall framework for this report, we are using the set of relationships shown in Figure 1 below. In light of the uncertainty in the economy and energy markets, this allows us to focus on what we think are key factors that might impact electric reliability in the short and medium-term.

Figure 2, Large Systems View of How the Pandemic Might Affect the Electric Power System

The Crisis - There are people who think that a recovery from the current crisis will be quick, looking more like recovery from a natural disaster, e.g., a hurricane: a singular event that happens, is over quickly, and then recovery starts. Typical recovery from a natural disaster would start with understanding the scope of the disaster, then move to damage assessment (including assessment of what can be saved or recovered), and then a determination of the steps going forward to establish a new level of stability, moving to a new normal. Natural disasters, while extreme, are usually singular, local events within a single country.

However, we are not dealing with a singular event, nor is it local. Instead, we are in the midst of a multi-factor worldwide crisis. This crisis is one the likes of which the world has not seen before: a pandemic of a highly contagious viral disease coupled with an economic downturn into recession (or possibly depression). While we have seen a global pandemic before, the 1918-1919 Spanish flu pandemic, and the global Great Depression of 1929-1930s, we have not seen this combination before.

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And, this crisis may evolve through phases of a series of cascading crises, each building on the other “…reverberating throughout the world. And we will not be able to get back to anything resembling normal life unless the major powers can find some way to cooperate and manage these problems together…”1

• The FIRST phase has been the health-care crisis in the world’s major economies • The SECOND phase is the economic paralysis • The THIRD phase - Next comes the explosions in the developing world • The FOURTH phase - And then there are the oil states. Even as the quarrel between Saudi Arabia and

Russia is so far resolved, at this point, demand for oil has collapsed and will not soon recover

Phases mean we cannot apply the typical steps of recovery; as there is no way to understand this crisis, much less do damage assessment quickly. The crisis and its impacts is moving and changing too fast to get a handle on it, and the pandemic part, as we see below, is not the least bit under control. It is impossible to understand a crisis and assess damage when you are in the middle of the hurricane. Amid continuing damage, there is no way to even begin a damage assessment.

Consequently, the level of uncertainty within this crisis remains exceptionally high.

Based on current developments in the spread and effects of Covid-19, the deep economic downturn and the EPS submissions in the second quarter, we think the questions posed in the First Quarter Trends Report of April 7, 2020, are still valid

1. What might be the course of development in the US and the global economy in the short- to medium- term—how fast will economies return to pre-Covid-19 levels of employment and economic growth?

2. What might be the effects on US electric power markets in short to medium term in light of falling demand, excess power supplies, and the ongoing shift to renewable energy and clean power?

3. How might the course of industry activity (investment) and energy policy formation to address climate change and reduce greenhouse gas emissions change in light of the global economic decline?

4. As climate change-related natural events are already underway and unlikely to be changed by short to medium term reductions in greenhouse gas emissions, how will human efforts to address climate change evolve?

In the final section of this report, we will address the future work of the SWG and StS in planning and implementing their 2020-2021 study program in the context of the crisis. We encourage a thorough reading of the report so that readers can develop their own views on the issues at hand.

Our analysis in this report considers and builds on learnings from the Trends Reports since the beginning of the 2018-2038 WECC Scenarios, about two years ago. We refer the reader to the previous WECC Scenarios: Early Indicator, Trends, and Scenario Movement Analysis reports (Trends Reports) for additional background information found here.

Keeping a focus on reliability, we include summary remarks about possible implications for electric reliability where appropriate.

In the Second Quarter of 2020, there were 94 EPS submitted to the WECC EPS system with 81 EPS with Early Indicators (EIs) flagged (86%), for a total of 166 EIs. All EPS can be viewed and searched, and SDS members and WECC Staff can submit their EPS here. The links to the EPS referenced in this report are “hot” and, when clicked, will take the reader directly to the referenced EPS. If the reader finds a problem with a link in this report, you can contact QPG directly for help.

Events during the ongoing crisis are occurring hourly, and situational changes happen daily. We want to try and include the most recent events in this report, so we use article and report references as well as EPS already submitted. We will add these references to the EPS system soon after this report is published.

1 For more on this analysis, see EPS: This is just the first in a series of cascading crises, Washington Post, April 2, 2020

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Many times, a single EPS may affect more than one Scenario or multiple Key Drivers, and we may cite them multiple times in the report, so the full impact of the EPS is clear.

We think direct reporting of the source article is essential for the reader’s learning. Therefore, the EPS items referenced will include excerpts taken directly from the referenced EPS and article text, as well as Quantum Planning commentary—this is particularly important now as current events are moving so quickly. Because of the wide diversity and interests of the readership, and how the reader elects to read the report—printed or screen viewed—we have erred on the side of more detail rather than less in the excerpted text.

SIGNIFICANT UNCERTAINTIES

A Continuing Crisis with Higher Uncertainty

The Covid-19 crisis continues worldwide, and the US and other countries are seeing a new surge in cases and deaths. The falloff in infections in the US expected in the summer months by many observers has not happened yet. Indeed, the case can be made that the US is still in the first wave of infections. The economy, in a downturn triggered by the coronavirus as countries worldwide engaged in stay-at-home orders and lockdowns, showed signs of coming back to life, at least before the recent new cases surges. We look at these primary crisis components in our discussion below and touch on recent developments in climate change. We then look at two major issues facing the Western Interconnection, driven by the crisis—changes in electricity demand and load, and evolution of the power supply.

The Pandemic Developments in the Covid-19 pandemic move almost too fast to keep track of, and we do not doubt that as you read this report, things will have changed, some in significant ways, adding to high levels of uncertainty. Since our last report, after four months of efforts, including stay-at-home orders, business closings, travel restrictions, and declining cases, the US has effectively lost containment of Covid-19 in at least 37 states. Governors and local officials are retreating from their reopening orders that began on May 1st. As we noted in the Trends Report of April 7, no one knows for sure how the pandemic will play out over time.

On July 1, the US reported 50,700 new coronavirus cases—a record high for a single day, according to a tally by Johns Hopkins University. States that took an aggressive approach to re-opening led the country in infection spikes, along with California, the nation’s most populous state, where leaders have been more cautious. The current surge in cases is blamed in part on Americans not wearing masks or following social distancing rules and a lack of a coherent national policy to deal with the pandemic. As of July 2, at least 21 states had paused their reopening plans, or are taking new steps to limit the spread of Covid-19.

July 3, 2020 Statistics - The number of people infected with the coronavirus in the US on July 3 was 2,788,395 million — the most infections for any country across the globe, and at least 129,306 people have died from the virus in the US. In Canada, as of July 3, there have been 106,896 cases and 8,721 deaths. Mexico has reported 238,511 cases and 29,189 deaths. Worldwide, there have been 11,031,905 cases and 523,776 deaths. Source: Johns Hopkins Coronavirus Dashboard Global Map

In an interview on June 25, CDC Director Robert Redfield noted that the actual US cases could well be ten times the actual number reported—primarily due to more young asymptomatic people being infected, and the fact that testing is limited across the country.

Known Unknowns – In periods of high uncertainty, unknowns are a given. Some are known (what we know we don't know), and some are unknown (what we don't know we don't know). The novel Coronavirus and its associated disease, Covid-19, is no exception. In this pandemic, we’re swimming in statistics, trends, models, projections, infection rates, death tolls. It is still early days in this pandemic, and we still do not have a basic understanding of the virus itself. And so, we are in the beginning of trying to understand what we are dealing with, much less be able to "forecast" with any degree of probability the trajectory— much less the length—of the pandemic. Understanding the things we know we still don't know about the virus is critical to

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understanding where we are in the pandemic's course, and what to think about going forward. As we try and understand the virus, there are some things we know we don't know:

• Where is the virus spreading? • Where is it suppressed? • Where are people social distancing as they should, and where are they not? • How deadly is this virus? How contagious? • Are there different strains with different clinical outcomes? Why does SARS-CoV-2 create a

devastating disease in some people while leaving others without symptoms or even the knowledge that they were infected?

• The virus is stealthy, with a time delay of about six days on average between infection and symptoms - will that change?

These unknowns are complicating our daily lives and preventing our understanding of what we are being told. Known unknowns tell us just how hard it is for scientists, much less policy-makers, to come to grips with dealing with the virus. Knowing what we don't know also tells us where and what we should be watching for, and understanding what might be missing in any planning exercise that is based on firm data. We are only now starting to have enough experience with this virus to begin to understand these critical questions. In the meantime, best to shy away from predictions.

• EPS: Known Unknowns: Even Experts Struggle With Coronavirus Unknowns

An example - despite optimistic predictions made just two months ago that the beginning of summer would see a downturn of infections in the US, the reverse has happened. As of July 1st, Infection rates have not declined in the US, 37 states now have infection rates that are increasing after the first and second stage “reopening” that began on May 1st, 11 states are flat, and only two states are in decline. It is important to keep in mind when seeing charts showing US cases that the visualization is skewed by states where the infection rate curve was flattened and dropped, primarily in the Northeast and Midwest. The chart below provides a better understanding of US cases.

Figure 3, US Virus Cases March 7 – June 27, 2020. Source: CNBC

• Article: US coronavirus

cases surge by more than 45,000 in one day, total surpasses 2.5 million, CNBC, June 27, 2020

The effects of the lack of a coherent national plan to deal with the pandemic are evident in the changing map of where cases are spiking. New York and New Jersey—both of which were hit hard in the early stages of the pandemic and implemented some of the most stringent restrictions—have seen their cases decline since April.

On the other end of the spectrum, states that were keen to reopen commerce, like Florida and Texas, are seeing a sharp spike in cases. Those spikes have now spread to other states in the Southeast, like Georgia and

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the Carolinas. Cases are also increasing in Washington—where some of the earliest cases in the US were reported—suggesting the virus can quickly make a resurgence.

Figure 4, Changing Cases by State, April 1 – June 28. Source: Fortune • Article: 4 maps show how

coronavirus cases are changing in your state, Fortune, June 29, 2020

These dramatic increases in daily case counts have given rise to some unsettling questions: Is the US at the start of a second wave? Have states reopened too soon? And have the recent widespread demonstrations against racial injustice inadvertently added fuel to the fire?

The short, unpleasant answer to the first question is NO: the US has not even gotten through the current first wave of infections. Since peaking at around 31,000 average new daily cases on April 10, new daily cases dropped to around 22,000 on average by mid-May and have spiked to just under 50,000 cases per day as of July 7. Nationwide more than 800 people continue to die day after day.

• EPS: Coronavirus 2nd Wave? Nope, The US Is Still Stuck In The 1st One • Article: US coronavirus cases surge by more than 45,000 in one day, total surpasses 2.5 million,

CNBC, June 27, 2020

Amid all the news on the pandemic, what is happening close to home can get lost in the noise—things look much different at your local level. But there is now a way to keep updated on your local situation, at least in your county. The Harvard Global Health Institute is leading a collaboration of top scientists at institutions around the country. They have joined forces to create a unified set of metrics, including a shared definition of risk levels — and tools for communities to fight the coronavirus.

The collaboration launched these tools Wednesday, including a new, online risk-assessment map, updated daily, which allows people to check the state or the county where they live and see a COVID-19 risk rating of green, yellow, orange, or red. The risk levels are based upon the number of new daily cases per 100,000 people.

Here is a screenshot from July 2. How to read the map: • A community that has fewer than one daily new case per 100,000 is green, • One to 9 is yellow, • Between 10 and 24 is orange, and • 25 and above puts you in the red. "When you get into that orange and red zone, it means, in all

likelihood, you're seeing a lot of velocity, a kind of fast upward trend..."

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Figure 5, Covid-19 Risk Level by County, as of July 2, 2020. Source: Harvard Global Health Institute • Article: Green, Yellow,

Orange, or Red? This New Tool Shows COVID-19 Risk In Your County, NPR, July 1, 2020

Travel Bans and Quarantines – States and countries are now taking steps to try and hold the progress they have made in controlling the pandemic. These actions come even though the summer travel season is here, and the economic crunch from preventing tourist and business travel will no doubt add more pain to the economies.

On June 26, the European Council said it adopted a recommendation to allow a list of 14 countries to enter the EU's external borders beginning on July 1 but left off travelers from the US, Russia, Brazil, and other countries that have failed to control the spread of the coronavirus. While the recommendations will be reviewed every two weeks, the guidelines suggest that US residents won't be allowed to travel to the EU until the spread of the coronavirus is under control domestically.

• The bloc will now allow travelers from Algeria, Australia, Canada, Georgia, Japan, Montenegro, Morocco, New Zealand, Rwanda, Serbia, South Korea, Thailand, Tunisia, and Uruguay.

• The EU will also lift travel restrictions for Chinese residents on July 1, on the condition that Beijing reciprocates the action.

The guidelines allow people from countries where the average number of infections per 100,000 inhabitants over the last two weeks is similar or below the EU's, and that have reported a declining case trend.

In the US, New York, New Jersey, and Connecticut have announced they will require travelers from 16 states to quarantine. The tri-state area, the original hub of the coronavirus outbreak in the US, has successfully flattened its curve and is beginning to reopen. Officials’ fear, however, that the surge of cases in other states across the country will erase New York and its neighboring states' progress. States in the Western Interconnection affected are Arizona, California, Idaho, Nevada, Utah, and Texas.

• Article: European Union extends ban on US travelers as borders reopen, AXIOS, June 30, 2020 • Article: NY, NJ, and CT to require travelers from 16 states to quarantine, AXIOS, June 30, 2020

Economies in Recession The US and Canada economies are in a recession along with the rest of the world, and analysts are forecasting a global depression this summer—it would seem that the new key leading economic indicator is now Covid-19. As of now, the future trajectory of the economies, whether global or local, is utterly unknowable. While there are myriad prognostications of fast turnarounds by year-end, slow recoveries over two years or more, or any other period in between, the fact is that we are not sure whether economies have bottomed out. Many of these predictions are more to serve the interests of the forecaster than to provide any real insight. What we can do is present the current situation and critical thinking of those who deal with financial policy at the international and national levels.

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The Global Economy - The virus crisis has triggered the worst global recession in nearly a century—and the pain is not over yet even if there is no second wave of infections. Hundreds of millions of people have lost their jobs, and the crisis is hitting the poor and young people the hardest, worsening inequalities, the Organization for Economic Cooperation and Development (OECD) said in its latest analysis of global economic data. "It is probably the most uncertain and dramatic outlook since the creation of the OECD," Secretary-General Angel Gurria said. "We cannot make projections as we normally do."

In the report’s best-case scenario, if there is no second wave of infections, the agency forecast a global drop in economic output of 6% this year, and a rise of 2.8% next year. If the coronavirus re-emerges later in the year, however, the global economy could shrink 7.6%, the OECD said. With or without a second outbreak, the consequences will be severe and long-lasting. In the case of a second wave of contagions, the OECD forecast that the average unemployment rate across the 37 developed countries that it represents would double this year to 10% and see "little recovery" in 2021. In a more optimistic scenario, the figure would be 9.2%. In poorer countries, the numbers are often higher, and informal workers are especially vulnerable.

• EPS: Virus Pummels Global Economy, Jobs

The European Central Bank, The International Monetary Fund, The World Bank, and the US Federal Reserve have all adjusted their 2020-2021 economic projections down from January reports and are in line with the recent OECD analysis. None of the analyses expects a quick turnaround of the global economy by 2021, noting damage to structural components of the economy.

• EPS: EU Bank: It’s even worse than we thought

Several Crises in One - The World Economic Forum identified a number of the most likely fallouts from the pandemic and areas to watch in the coming months:

1. Prolonged recession/depression of the global economy 2. Surge in bankruptcies from both big firms and SMEs, and a wave of industry consolidation 3. Failure of industries or sectors in certain countries to properly recover 4. High levels of structural unemployment – especially youth 5. Tighter restrictions on the cross-border movement of people and goods 6. Weakening of fiscal positions in major economies 7. Protracted disruption of global supply chains

These crises within the crisis also highlight the interdependencies of the global risks triggered by the COVID-19 pandemic. The report notes, “…make no mistake; we are experiencing a historic event that will change many aspects of the world we live in, such as geopolitics, the economic impact on many industry sectors, the competitive business landscape, the long-term societal impacts such as an exacerbation of inequality, consumer behaviors, the nature of work and the role of technology both at work and at home…”

• EPS: Several Crises in One: Covid-19 Effects on Risk in the Global Economy

China’s Economy Shrinks, Ending a Nearly Half-Century of Growth - The contraction comes at a time when the rest of the world needs an economic boost. Still, stark numbers make clear how monumental the challenge of getting the global economy back on its feet will be. The world's second-largest economy shrank 6.8 percent in the first three months of the year compared with a year ago, ending a streak of untrammeled growth that survived the Tiananmen Square crackdown, the SARS epidemic, and even the global financial crisis. The data reflects China's drastic efforts to stamp out the coronavirus, which included shutting down most factories and offices in January and February.

Following a 6.8% first-quarter contraction due to the coronavirus pandemic, all eyes were on Premier Li Keqiang when he delivered the 2020 Work Report at the start of the National People's Congress (NPC)—China's rubberstamp annual parliament. The upshot: China would "not set a specific target for growth this year," said Li, the first time in three decades it failed to do so. "We must redouble our efforts to minimize the losses resulting from the virus," he added.

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It's another bleak sign for the global economy, given the world's top trading nation has weathered COVID-19 better than most. Instead of growth, employment now appears the focus of China's macroeconomic policy, with Li setting out the goal of adding 9 million urban jobs over the year.

• EPS: China Ditches a 2020 Growth Target in a Worrying Sign for the Global Economy • EPS: China’s Economy Shrinks, Ending a Nearly Half-Century of Growth

Debt Crisis Awaits in Emerging Markets - Many of the world's poor and developing countries could begin defaulting on their bonds in the coming weeks. The coronavirus outbreak has led to massive outflows from emerging market assets and real-world dollars being yanked from their coffers. Bullish investors are banking on the IMF and World Bank to deploy up to $1 trillion in relief to help stave off mass defaults and worst possible outcomes. That may not be nearly enough.

The institute's data show total debt for 30 large EM countries reached $72.5 trillion in 2019, a 168% increase over the past decade. EM countries also have around $5.5 trillion of debt coming due this year, with a sizable percentage held by investors in the industrialized world. Investors pulled a record-breaking $83.3 billion from EM securities in March, dwarfing outflows seen during previous "stress events" like the global financial crisis, the 2014 taper tantrum, and China's devaluation scare of 2015, the Institute of International Finance says.

The outflows will be particularly damaging for emerging economies that are heavily reliant on foreign capital, especially as foreign direct investment has been drying up since early 2019 as a result of the US-China trade war.

• EPS: Debt crisis awaits in emerging markets

Impacts on Global Energy Investment – As an example of the impacts on the global economy, the COVID-19 pandemic has set in motion the largest drop in global energy investment in history. Spending is expected to plunge in every major sector this year—from fossil fuels to renewables and efficiency—the International Energy Agency said in a new report. The unparalleled decline is staggering in both its scale and swiftness, with serious potential implications for energy security and clean energy transitions.

The COVID-19 crisis has highlighted how much modern societies depend on electricity and has 'squeezed' the capital flows on which a healthy electricity sector depends. Global energy investment was on track for growth of around 2%, which would have been the largest annual rise in spending in six years. But after the COVID-19 crisis brought large swathes of the world economy to a standstill in a matter of months, global investment is now expected to plummet by 20%, or almost $400 billion, compared with last year.

The historic plunge in global energy investment is deeply troubling for many reasons. It means lost jobs and economic opportunities today, as well as lost energy supply—including supply shut down due to low demand and new sources of supply not built— that we might well need tomorrow once the economy recovers. The slowdown in spending on clean energy technologies also presents risks undermining the much-needed transition to more resilient and sustainable energy systems.

Figure 6, Energy investment to fall in 2020 due to the COVID-19 pandemic. Source: International Energy Agency, World Energy Investment 2020

• EPS: IEA: COVID-19 crisis causing the biggest fall in global energy investment in history

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The Western Interconnection Economy - The case for a prolonged recession and a longer, slower recovery from this economic downturn and not a sharp return to pre-Covid-19 conditions is getting more and more support.

US real gross domestic product (GDP) decreased at an annual rate of 5.0 percent in the first quarter of 2020. The decline in the first-quarter GDP reflected the response to the spread of COVID-19, as governments issued "stay-at-home" orders in March. And not surprisingly, the US economy officially entered a recession in February, according to The National Bureau of Economic Research, which announced that a 128-month expansion officially ended then. The expansion, which had begun in June 2009 after a recession, was the longest on record.

• EPS: US GDP Fell 5% in the First Quarter 2020 • EPS: US economy officially entered a recession in February

There was some good news, albeit with qualifiers in the US June 2020 job numbers released on July 2. Employers added a record 4.8 million jobs last month, as the US economy continued to try to bounce back from a deep and painful coronavirus recession. The unemployment rate dipped to 11.1%. Job growth accelerated to 4.8 million from May when revised figures show employers added 2.7 million jobs.

Remember that official unemployment numbers are a lagging indicator, and incomplete—the number cutoff is in mid-month and in June’s case reported before the recent surge in Covid-19 cases and resulting new layoffs— here is a more accurate look at the real unemployment.

Table 1, US Real Unemployment as of June 2020, Source: National Jobs for All Coalition

¹ Not seasonally adjusted. Marginally Attached workers want work and are available, have looked for work within the last 12 months, but not during “the 4 weeks preceding the survey.”

2 20.9% of the total labor force

• Article: Hiring surged in June, National Public Radio, June 2, 2020

To help understand just where we are now, here is the updated chart we first presented at the SDS meeting on May 18, updated through June 2020.

Figure 7, Unemployment in Recessions Compared, July 2, 2020. Source: Bureau of Labor Statistics and the Washington Post

• Article: The US job market is still in very bad shape, Washington Post, July 2, 2020

Official Unemployment 11.1% 17.8 million Working Part-time, can’t find a job 9.1 million People who want jobs but are not looking so are not counted in official statistics (of which about 2.5 million¹ searched for work during the prior 12 months and were available for work during the reference week.)

8.2 million

Total 20.9% 2 35.1 million

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During the US Federal Reserve’s June 9-10 meeting, concerns were raised that the US could enter a much worse recession later this year if coronavirus cases continued to spike. And, that spike has come to pass. The Fed has repeatedly said that the path out of this recession will depend on containing the virus and giving Americans the confidence to resume normal work and spending habits (Italics ours). Notes from the two-day meeting reveal how interconnected Fed officials view a prolonged economic recession with the pandemic’s continued spread. The meeting minutes included a statement on the plausibility of additional waves of infections, judged no less plausible than their baseline forecast.

Notably, the Fed’s discussion about these concerns came before the big spike in coronavirus cases picked up in the past two weeks. The latest surge has forced California, Florida, Texas, and other states to re-impose restrictions on restaurants and bars, and nine other states have postponed or scaled back reopening plans. The reversal means that many Americans, including hourly and low-wage service employees, have been kicked out of the workplace for a second time.

• Article: Fed officials raised concerns in June that US could enter a much worse recession later this year if coronavirus cases continued to spike, Washington Post, July 1, 2020

That grim reality is colliding with what experts have dubbed a “fiscal cliff”: when the $600-per-week increase in unemployment benefits is set to expire at the end of this month. See below for details on more expiring stimulus programs.

Before the new wave of infections in late June, the fabric of the economy had been ripped apart, with damage done to millions of interconnections — between workers and employers, companies and their suppliers, borrowers, and lenders. Both the historical evidence from severe economic crises and the data available today point to enormous delayed effects. Data points to a severe but slower-moving crisis of collapsing demand, affecting many more corners of the economy than those forced to close because of the pandemic.

What started as a disruption to the supply side of the economy has metastasized into a collapse of the demand side, according to a recent working paper. The paper calls it a Keynesian supply shock: an inversion of the demand-driven crisis of the Great Depression described by the great economist of that era, John Maynard Keynes. Simply put, “demand is interrelated with supply; it's not a separate concept."

The demand shock, with lagged effects, is only beginning to hurt major segments of the economy, e.g., sellers of capital goods that are experiencing plunging sales, state and local governments that are seeing tax revenues crater, and landlords who are seeing rent payments dry up.

The Congressional Budget Office tried to put a number on the aggregate economic activity that will be lost over the next decade due to the downturn compared with projections at the start of the year. That number is $15.7 trillion, reflecting both less economic activity and deflationary forces that reduce prices.

• EPS: The Economy Is Experiencing an Epic Collapse of Demand.

More than 2,100 retail store closings were announced in a single week in early June. As the Civd-19 pandemic drags on, the number of store closings is expected to grow exponentially, and disproportionately affect malls. Coresight Research revised its estimate of total US store closings this year from an initial projection of 15,000 closings to as many as 25,000. That would far exceed last year's record 9,300 store closings. Of the closings it anticipates, about 55 to 60% of these stores will be in malls, and "apparel retail and department stores look set to feature prominently," the firm said.

• EPS: More than 2,100 store closings are announced in a single week

Counterintuitively, household income sharply increased in April as trillions in government spending replaced hundreds of billions of dollars in lost wages. The government sent out more than 159 million stimulus payments of up to $1,200 per adult (more if you have kids), and more than 20 million unemployed people became eligible for an extra $600 a week in federal unemployment benefits. The result, according to Bloomberg, was the largest monthly increase in household income ever recorded. The massive interventions that made all this possible will soon come to an end—but the unemployment won't.

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1. On July 31, the $600 federal unemployment payments going to unemployed people every week will end, so income for tens of millions of households is likely to nose-dive in August.

2. That will coincide with evictions returning after being put on hold for months. In June, about one-third of renters were unable to pay their rent in full or at all, despite all the stimulus money. A federal law that bans evictions in any properties financed by federally backed mortgages — more than a quarter of all households, expires on August 31 ( Freddie Mac and Fannie Mae will extend the moratorium on foreclosures and evictions on single-family homes until August 31). Unless they are extended, statewide orders banning all evictions in places that have been hardest hit by the unemployment crisis will also expire around then: Florida’s on July 1, California’s on July 28, and New York’s on August 20.

3. Payments on millions of paused student loans will begin again at the beginning of October. • EPS: The Real Economic Catastrophe Hasn’t Hit Yet. Just Wait For August.

Few seriously expect the US economy to recover as fast as those bills come due; the federal government's projections expect unemployment will remain frighteningly high well into next year, even as people return to work as the lockdowns are lifted. Many companies will only rehire workers as quickly as consumer demand returns. In labor-heavy industries, such as restaurants, entertainment, and travel, nobody expects things to go back to normal anytime soon. And across the economy, big employers will use this moment as a kind of workforce reset button — a chance to rethink how many workers they really want, outsource some jobs, offshore others, and eliminate some jobs. By some estimates, more than 40% of all the job losses of the last few months could be permanent, not temporary.

• EPS: Many Jobs May Vanish Forever as Layoffs Mount

Consumer debt hit a fresh record high to start 2020, compounding problems for consumers even as credit card balances declined while Americans adjusted to the coronavirus pandemic. During the last decade of low interest rates, consumers had increasingly turned to debt, especially for auto loans and mortgages. Credit card interest rates did not decline appreciably during that period. Household debt balances through March totaled $14.3 trillion, a 1.1% increase from the previous quarter and now $1.6 trillion clear of the previous nominal high of $12.7 trillion in the third quarter of 2008 during the financial crisis

• EPS: Consumer debt hits new record of $14.3 trillion

Canada’s Economy - The effects of the COVID-19 pandemic have been severe. Mandated business closures and a collapse in both business and consumer confidence will result in an 8.2% contraction for the Canadian economy this year—the worst annual contraction on record.

From the Conference Board’s June 2020 Economic Review: At its peak, roughly 3 million Canadians had lost their jobs due to the pandemic. The worst does appear to have passed, however, as nearly 300,000 jobs were regained in May. Nevertheless, the road to recovery will be long, and employment will still be nearly 1.1 million lower for 2020 as a whole than it was in 2019. The devastation in labor markets weighs heavily on spending this year. Household consumption dipped by 11.3 percent in the first quarter and is expected to fall by a staggering 57.5 percent drop in the second. The business sector will fare no better. With global demand drying up, exports are forecast to contract by 14.3 percent in 2020. Unsurprisingly in this uncertain environment, firms are reluctant to invest in new capacity, and an 11.3 percent drop in private sector investment is expected this year. Canadian unemployment data for June will be released on July 10, 2020

There are some bright signs. The economy has regained momentum, supported by a rebound in exports and strengthening business investment. Macroeconomic policies are gradually becoming less stimulatory, and budget policies are sustainable in the long term, although difficulties remain at the provincial level.

• Article: Canadian Outlook Economic Forecast, The Conference Board of Canada, June 22, 2020

Climate Change Even as the pandemic-triggered economic downturn has lowered GHG emissions worldwide, Climate Change (or Global Warming if you prefer) has not taken the year off. Drought conditions expanded and intensified in

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the Western Interconnection, and atmospheric CO2 concentrations continued to rise even with reduced emissions from pandemic lockdowns.

The Western drought has continued to expand and intensify, according to US Drought Monitor data released Thursday. Wet late-spring weather resulted in a slight decrease in the area deemed to be in extreme drought in Northern California. See also EPS: The Southwest US is in a Climate change-influenced Mega-drought. May temperatures in the West were among the warmest on record.

Severe drought receded a little in parts of northeastern Utah and southwestern Washington. Unseasonably heavy precipitation, including high-elevation snow, fell in northeastern Utah. But conditions worsened east of the Cascades, and abnormal dryness spread into southeastern Arizona. Drought developed and intensified in northern and eastern New Mexico. One factor in the expanding drought is the fact that May 2020 was the fifth-warmest May on record. This probably exacerbated the dryness and contributed to a number of wildfires. Above-average temperatures extended from the Pacific Northwest to Texas and across parts of Florida. During the same period, parts of the East were unseasonably cold. Persistent drought and warm temperatures in the West continue to fuel fears of an early fire season in Northern California and the Pacific Northwest.

• EPS: Unusually warm May contributes to expanding drought in the West

The latest data from Hawaii's Mauna Loa Observatory shows record concentrations of CO2 in the atmosphere, in line with a steady trend that defies even the widespread and stringent slowdown in global activity as a result of the coronavirus pandemic. In May last year, scientists at the Mauna Loa Observatory recorded an atmospheric carbon dioxide concentration of 415.26 ppm. This level was never reached before but has been upstaged just 12 months later with a new reading of 416.21 ppm. Scientists from the National Oceanic and Atmospheric Association (NOAA), using ice core records to measure CO2 concentrations across the planet's history, confirmed these levels have not been seen on Earth in 800,000 years.

• EPS: Earth’s carbon dioxide levels hit record high

As a very separate phenomenon, the lockdowns spurred by the global spread of the coronavirus have led to significant reductions in some types of air pollution, namely harmful nitrogen dioxide and small particulate matter. These reductions have been driven by a slowdown in air travel, road traffic, and industrial activity. However, the United Nations Environment Program (UNEP) notes that the global energy mix has remained the same, with around two-thirds generated by burning fossil fuels.

While the pandemic is causing dips in carbon emissions in some locations, the dips are expected to be short-lived. With the same underlying energy infrastructure, the UNEP says that "none of the fundamentals" have changed, and without a severe transformation on this front, we are unlikely to undo the cumulative effects of decade’s worth of human-generated carbon emissions entering the atmosphere.

• EPS: Atmospheric CO2 soars to record heights in spite of global pandemic • EPS: Global Carbon Emissions Fall with Pandemic Impact on Global Economic Activity

Amid a pandemic and economic recession, NOAA predicts Atlantic hurricane season will be unusually active, and hurricane response efforts could be hampered as the country responds to the coronavirus pandemic.

The 2020 Atlantic hurricane season is forecast to be unusually active, according to a seasonal outlook from the National Oceanic and Atmospheric Administration (NOAA). Any land-falling storms could create unprecedented challenges for government officials working to respond to the coronavirus pandemic, which scientists expect to continue, albeit possibly at a slower pace, throughout the summer. The NOAA outlook calls for a 60 percent likelihood of an above-average season, with a 70 percent chance of 13 to 19 named storms, six to 10 of which will become hurricanes. Three to six of those could become major hurricanes of Category 3 intensity or higher, and there is a chance that the season will become "extremely active," the agency said. NOAA's outlook shows only a 10 percent chance of a below-average Atlantic hurricane season. An average season produces 12 named storms and six hurricanes, three of which intensify into major hurricanes.

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• EPS: In the midst of a pandemic and economic recession, NOAA predicts Atlantic hurricane season will be unusually active

Two events at opposite ends of the globe made headlines in the past week. In the north, Russia’s state weather authority said a remote town in northeastern Siberia had registered a record high temperature of 38 degrees Celsius (100.4 Fahrenheit) during a heatwave that has alarmed climate scientists. The reading was first reported earlier this month in Verkhoyansk, north of the Arctic Circle, prompting the World Meteorological Organization to ask Moscow to confirm the data. Confirming the temperature has been reached on June 17, Roman Vilfand, head of science at Russia’s Hydrometcentre, told a news conference that hotter weather was being recorded in the region because of an increase in anticyclones. “Specialists assess that this situation will continue,” he said. Verkhoyansk had still been well-known as a Pole of Cold. It recorded a record of -67.8 degrees Celsius at the end of the 1990s. Now it’s 38 degrees. The Arctic is warming at twice the speed of the global average.

• Article: Russia confirms record high temperature in Siberian town, Reuters, July 1, 2020

In the South, researchers at the Victoria University of Wellington in New Zealand reported that Antarctica’s South Pole is warming at a rate nearly three times faster than the global average, scientists have discovered. And much of that warming is linked to climate cycles happening thousands of miles away in the tropics, showing just how interconnected climate events are around the world. The researchers found that temperatures there have been rising by about a degree Fahrenheit each decade since the start of the 1990s. That's about three times faster than the global average. Even more surprising, the trend represents a sudden reversal in conditions at the South Pole. For much of the 20th century—at least going back to the 1950s, when the weather station was first established—the South Pole was cooling down. So why the switch?

According to the new study, shifting climate patterns in the tropics probably have played a big part. The researchers used a combination of observations and model simulations to investigate. They found that changing ocean temperatures in the tropical western Pacific have a big influence on warming at the South Pole. More details can be found in the referenced article.

• Article: Why Is the South Pole Warming So Quickly? It’s Complicated, E & E News via Scientific American, June 30, 2020

For a further look at the implications of Polar warming for potential new diseases, see item three on page 28.

Changes in Electricity Demand From our First Quarter 2020 Trends Report, we stated the following in the Introduction:

As anyone who is reading this report knows, the world has entered an unprecedented period of high uncertainty. Due to the emergence of the new coronavirus (Covid-19) flu-like disease on a global scale, the World Health Organization has announced a global pandemic. Large parts of the world across many countries are now on lockdown as citizens are being asked to “socially distance” themselves from others and “self –isolate” at home. Since the middle of February 2020, the global economy has been on a steep decline. Whole industries such as airlines, tourism, many small businesses, and sports & live entertainment have been essentially shut down. This decline in human activity has also led to a decline in energy use and consumption, especially oil, and electricity demand is beginning to fall.

The full economic, social, and political implications of this unprecedented global event is, to say the least, highly uncertain. It is hard even to contemplate how the interconnections and interrelationships that cross industries, markets, company operations, trade flows, social relationships, and politics might be affected by a global collapse of large parts of human activity. Even estimating appropriate timeframes for decision-making is difficult and subject to error.

A mere three months from that time, we cannot say that events have allowed us to be any less uncertain. It can be argued that the uncertainty may have even increased based on the complexity and evolution of the disease itself, the lack of an actual in-depth scientific and health assessment of the virus, and the inadequate

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management of the disease at various state levels. These factors are resulting in an even more rapid spread of the disease coming into the summer months in the United States.

In general, the demand for electric power has fallen with the decline in economic activity. It is has shifted based on new work from home and social isolation patterns, and declines in commercial and manufacturing activity related to the economic recession. In some areas, shifts have occurred in daily peaks, but we have not found any information to say those shifts are significant enough to impact electric reliability. Below we discuss some of the significant EPS submissions that we think support and validate the points above. However, we want to emphasize the continued high levels of uncertainty and the understanding that we are in the early phases of the pandemic and its economic effects.

Electricity Consumption – The US Energy Information Administration (EIA) expects US retail electricity sales across all sectors to total 998 billion kilowatt-hours during June, July, and August 2020. This level of total electricity demand would be the lowest since 2009, which was during the most recent recession, and is 5.2% lower than last summer. Typically, summer weather is the primary factor for electricity demand in the residential sector. According to EIA’s Residential Energy Consumption Survey, 87% of homes in the United States used some form of air conditioning in 2015; however, the overall level of usage varies significantly in different regions of the country, depending on temperature and humidity patterns. The National Oceanic and Atmospheric Administration (NOAA) forecasts that US cooling degree days between June and August of 2020, a measure of summer warmth, will be 1.1% lower than during last summer, which would indicate slightly less residential electricity demand this summer, assuming normal patterns of household electricity use.

Figure 8, US retail sales of electricity by sector, summer (June–August) 1990–2020. Source US Energy Information Administration

• EPS: EIA: 2020 summer US electricity demand to be lowest since 2009

The current COVID-19-related social distancing practices have led much of the US population to spend more time at home than normal. Many people who work in offices are now working from home, which will likely result in more residential electricity consumption even with milder summer weather. Current data regarding the effects of COVID-19 mitigation efforts are limited, so EIA has implemented some assumptions about how these behavioral changes may be reflected in residential electricity demand over the coming months. Using the Annual Energy Outlook’s (AEO) residential purchased electricity projections for 2020 as a baseline, EIA assumes that during the second quarter, residential customers will use 20% more electricity for computers and electronics than the baseline. EIA assumes 10% more electricity usage than the baseline in the third quarter because some employees will have returned to their regular work locations.

In recent decades, a growing share of job growth and the gross domestic product has come from the business of getting people together — from college sports and music festivals like Coachella to ax-throwing bars and ice cream museums. Yet given the infectious nature of the coronavirus, these very events will be among the very last to return. “Any place people want to gather is a place no one wants to be right now,” said Joe Pine, a co-author of “The Experience Economy.”

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That bleak truth has profound implications for businesses large and small. And with most large-scale gatherings on hold for the foreseeable future, the dearth of live events is already taking a psychological toll, not only on those in the industry but on society at large. “Human contact is really what our business is built on,” said Roland Swenson, chief executive of South by Southwest, the music, film, and technology festival in Austin, Texas, which was canceled in March. “If that is lost, then the world will be a poorer place.”

As live sports became lucrative television properties, leagues like the WNBA and Major League Soccer were born, expensive stadiums with state-of-the-art amenities were built, and the sheer number of games grew. When the record business faltered, concerts became the profit centers for musical acts. Many media companies found that hosting conferences was more profitable than publishing magazines. Lately, escape rooms and pop-up experiences like the Color Factory and Candytopia have proliferated.

Even the boom in restaurants was about atmospherics as much as it was about food. Starbucks succeeded by creating not just a latte with a nice profit margin but a place outside the home and office where people wanted to linger. “Surround coffee with an experience, and you can charge $5 a cup,” Mr. Pine said.

The economic output associated with such diversions has ballooned. G.D.P. attributable to arts, entertainment, recreation, accommodations, and food services was nearly $1.6 trillion last year, up from $979 billion a decade ago, according to the Bureau of Economic Analysis.

• EPS: Coronavirus Closes Large Segments of the Experience-based part of US Economy

Residential consumers vary widely in levels of wealth, income, and personal preferences, affecting what consumers may feel comfortable with in terms of expenditures for energy services. Here is some of what we are seeing.

According to a recent Wood McKenzie Study, “…there seem to be a couple of reasons why EV sales were particularly weak…” according to Ram Chandrasekaran, Wood Mackenzie’s global lead for transportation. The higher sticker prices of EVs compared to internal combustion engine vehicles make them a classic discretionary purchase. And as the sharpest recession since the 1930s hit employment and incomes, buyers appear to have decided that they don’t want to pay the additional up-front cost. In turbulent and uncertain times, fewer customers may also have been prepared to take a chance on unfamiliar technology.

One factor that was probably not particularly significant was low fuel prices, even though average retail gasoline prices dipped below $1.80 a [US] gallon in April to their lowest level in four years. At the moment, with fuel prices relatively subdued in the US for years, and electric cars still only a niche market, fluctuations in gasoline do not make much of a difference to customers’ decisions on whether or not to buy an EV, Chandrasekaran says. Probably only when EVs are priced at parity with their ICE counterparts, and become more of a mass-market product, that gasoline prices are likely to have a significant impact on sales of electric cars.

• EPS: A rough road for electric cars in the US

Although the weakness of EV sales in May was, in part, a result of factors that will pass, it was a warning sign of the challenge the industry still faces in the US. The crucial policy driving manufacturers to increase EV sales was the Corporate Average Fuel Economy (CAFEÉ ) standards agreed with the industry under the Obama administration, and President Donald Trump has been working to make those requirements less demanding.

The administration’s plans are the subject of a legal battle, and the US auto industry is divided over whether to support or oppose them. But whatever the outcome, the clear direction provided by the previous set of CAFE standards has gone. Nor is there any support from the federal government for charging infrastructure, meaning that efforts to build out charging networks are piecemeal and fall short of demand in some areas.

We do not take from this that EVs will not have a role in the future. Investments in EV charging infrastructure and State level support for expanded use of EVs continues, and will likely make EV use more beneficial. In support of the expanded use of EVs, we see growing support of EV charging infrastructure.

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• EPS: Startup company moves into fast EV charging with batteries to cut distribution system costs

We also see continued innovation in terms of powering EVs with Tesla’s potential battery improvements, which might allow million-mile durability for an EV and further innovation in fuel cell technology for auto fuel systems.

• EPS: Tesla suggests a million mile battery and innovation in battery storage • EPS: New technology for hydrogen storage in vehicles announced

We think it is too early to say whether consumer investment in home solar panel systems, behind the meter power supplies, and battery storage have entered a new phase that has longer-term implications for demand. Arguably, if the economic recession is of short or moderate duration and employment levels rise to previous levels of low unemployment, it is feasible that demand for those kinds of investment can return. Innovation in this space continues, especially innovations related to integrating the use of residential systems with utility-scale demand-side management programs.

• EPS: Rooftop Solar Installer Turns Home Batteries Into Grid Resources for 2 Major Utilities

As we mentioned above, the economic downturn has led to a widespread reduction in electric power demand from the commercial and industrial sectors. However, a key driver in new investments in this area has been the move to cleaner/greener sources of supply. It appears that this underlying desire for cleaner power will not evaporate, but likely lead to some delays in investment—this seems to be the case in the information technology sector in particular.

• EPS: Data Center's Long-term demand propels renewable procurement during pandemic

The commercial and industrial (C&I) sector started announcing a new round of clean energy procurements at the start of 2020 after a banner 2019 of renewable energy buying. That initial momentum has been slowed by the events of the past few months. But while some deals are getting delayed due to the economic downturn caused by the novel coronavirus, industry stakeholders anticipate continued C&I activity in renewable energy this year due to long-term demand.

The Renewable Energy Buyers Alliance (REBA) sees a shift in the short term, as new projects announced in 2020 dip below the quarterly results of 2019.

Table 2, Corporate renewable deals announced in the US. Source, REBA's State of the Market

Despite these changes, 70% of REBA's members said they are not changing their clean energy goals and strategies due to COVID-19. Some 6% of REBA members are accelerating their clean energy goals and strategies, seeing "opportunities against the crisis," Bryn Baker, REBA director of policy innovation, told Utility Dive. The remaining 24% are slowing down activity to pause and assess, although their long-term sustainability goals remain in place

Large industrial and commercial customers continue to have incentives to invest in their cleaner and possibly lower-cost electric power supplies, even if the recession may slow some of this down. Utility companies are trying to address this with innovative investments such as that by NV Energy.

NV Energy wants to provide new solar and battery storage energy for large customers without raising costs for others, the utility proposed in a tariff filed on May 4 with the Public Utilities Commission of Nevada (PUCN). The "Customer Price Stability Tariff" (CPST) is a fixed-price energy rate for customers to support the addition of renewable energy to the grid without impacting other ratepayers. The program is

Year Q1 Q2

2018 1.58 GW 1.23 GW

2019 0.99 GW 2.8 GW 2020 0.53 GW 1.24 GW

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crafted to meet the needs of large customers that would otherwise seek to leave the utility's service and purchase power on the open market.

• EPS: Solar + Storage Option to Keep Large Customers

Evolution of the Electric Power Supply In our First Quarter 2020 Trends Report, we noted that based on current developments in the spread and effects of Covid-19 and the EPS submissions in the first quarter, we see these important questions:

1. What might be the course of development in the US and the global economy in the short- to medium- term—how fast will economies return to pre-Covid-19 levels of employment and economic growth?

2. What development might influence the course of oil and natural gas markets (which are important both domestically and globally due to how shifts here can affect the global economy?

3. What might be the effects on US electric power markets in short to medium term in light of falling demand, excess power supplies, and the ongoing shift to renewable energy and clean power?

4. How might the course of industry activity (investment) and energy policy formation to address climate change and reduce greenhouse gas emissions change in light of the global economic decline?

5. As climate change-related natural events are already underway and unlikely to be changed by short to medium term reductions in greenhouse gas emissions, how will human efforts to address climate change evolve?

The uncertainty in addressing those questions remains. Developments over the past quarter have only put more emphasis on those questions, with the complexity underneath them only growing.

• The shape of the recession and eventual recovery is not clear in terms of the trajectories of future economic growth, e.g., V-shaped, U-shaped, W-shaped, L-shaped, or reversed square root.

• Financial markets have been volatile and as unpredictable as ever. Any energy policies that might direct future supply investments have become more complicated with Federal and State policies being in alignment in some areas, but in conflict in others.

• Climate concerns continue, as impacts in nature are increasingly being observed and understood by scientists. However, reductions in economic activity have reduced emissions and led to cleaner air quality.

Despite the high uncertainty in this crisis, reports from our research we think are worth noting follow.

Support continues for the development of wind, solar, and battery systems that can lead to a cleaner power generation system and address carbon emissions. Wind energy with its continual innovations and cost reductions continues to play a role in utility-scale capacity additions, and now offshore wind plants are coming to the fore as another cost-competitive option. Expanded use of offshore plants is dominating new wind additions in Europe, and with that will likely open doors for more growth in the US

• EPS: Offshore wind turbines continue to advance

Battery technology innovation is continuing, and the installation of large scale battery systems is demonstrating the usefulness of this option. Southern California Edison (SCE) is procuring a 770 MW/3,080 MWh package of battery resources to bolster grid reliability, the utility announced on May 1, in what would be one of the largest storage procurements made in the United States to date.

• EPS: SCE procures 770 MW of battery storage to bolster California's grid as gas plants approach retirement

Innovation in the use of solar power continues, especially related to integrating the use of residential systems with utility demand-side management programs.

Sunrun, the leading US rooftop solar installer, finalized two utility partnerships to turn home batteries into miniature power plants. The company is signing up existing customers in Southern California Edison territory for a year-long demonstration, expected to launch by the end of the month. Participants will receive $250 for letting Sunrun control their batteries based on signals from SCE. The two companies will study which

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dispatch strategies generate the most benefit for the grid to inform future efforts of this kind. “We’re going to have this wealth of knowledge to really look through the opportunities and identify the challenges,” Jill Anderson, senior vice president of customer service at SCE, said in an interview.

Sunrun is also assembling a 300-home fleet for New York State utility Orange & Rockland (O&R), a subsidiary of Con Edison. Customers will get Sunrun’s solar-battery Brightbox service at a discount; O&R will compensate Sunrun for easing stress on the distribution wires by discharging the distributed batteries. Regulators approved that program as a demonstration project for New York's Reforming the Energy Vision grid modernization effort.

Both deals test the concept of a virtual power plant, the industry term for digitally harnessing physical energy assets distributed across a region to approximate the effects of conventional power plants. That’s a central proposition of visions for a decentralized, digital electric grid.

• EPS: Rooftop Solar Installer Turns Home Batteries Into Grid Resources for 2 Major Utilities

We are unable to adequately characterize the shifts in Federal policy as it impacts investment in the power sector because we can’t determine a clear, consistent policy signal. There have been policy moves that aid in clean power development, such as extending tax breaks and subsidies for clean energy. In contrast, other policies seek to extend the lives of coal plants, reduce incentives for solar panel installations (net metering), and support policies that appear to raise the cost of green energy supplies in state capacity markets (see our previous Trends Report in these areas). US trade policy moves also appear to be making it more difficult to invest in new information and communications technology, which might enhance distribution and transmission grid operations. In light of this, we note the following events.

New Jersey regulators in March 2019 opened an investigation into how the state could meet its 100% carbon-free electricity by 2050 goals under the federally-approved minimum offer price rule (MOPR). Experts say the rule, which effectively raises the bidding price floor for all new state-subsidized resources. The rule will prevent nascent industries, such as offshore wind, from bidding into the market. States have been threatening a capacity market exit since the MOPR was first approved by the Federal Energy Regulatory Commission (FERC) in December 2019. But the commission's April decision to uphold the order put greater urgency on regulatory action, particularly as the COVID-19 crisis quickly took over legislative and gubernatorial priorities.

Regulators have not held back — Maryland and New Jersey have both indicated they are serious about developing a fixed resource requirement (FRR) alternative. Two of New Jersey's utilities now say the idea is not only feasible but may be the best option the state has to reach its renewable energy goals. "An Integrated FRR Procurement will allow New Jersey to fully and timely achieve its electromagnetic pulse (EMP) goals at a lower cost for consumers than they would otherwise pay, by avoiding the inefficiencies that will result from FERC's new bidding rules in the PJM capacity auction," Exelon and PSEG wrote in their comments.

The limited FRR zone would require state regulators to identify a capacity zone with the most renewable energy potential, and create a capacity plan to meet its load. The idea is to go zone-by-zone as the state moves further toward its energy goals, slowly phasing additional zones out of the PJM capacity market and into the FRR alternative.

• EPS: FERC continues rulings on PJM Capacity Market Issues • EPS: PJM Capacity Market Debate Continues

Federal policy also appears to be on the side of restricting support for solar panels by limiting net metering policies. Dozens of energy groups, state regulators and other officials urged FERC in mid -May to reject a petition from a shadowy New England group to end the widespread practice of solar net metering. In most states, rooftop solar owners are paid the retail rate of electricity for the power they ship to the grid—the same rate they pay for power consumed. The petition from a group called the New England Ratepayers Association

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asks FERC to upend those net metering policies nationwide, taking the issue out of the hands of state regulators and placing it under federal jurisdiction.

If FERC agrees to halt net metering, it would sharply reduce the payments utilities make to rooftop solar owners. In its petition, NERA proposes that most small solar arrays be subject to the federal Public Utilities Regulatory Policy Act, which could lower the rates paid to solar owners by half or more.

The petition attracted criticism from a diverse group of energy trade organizations, free market, and environmental groups, as well as state regulators and officials. Iowa's Republican Gov. Kim Reynolds sent a letter in opposition, as did former Democratic FERC Chair Jon Wellinghoff. The head of a group representing state utility regulators called the petition a "full-frontal assault on state authority." Solar companies said it risks decimating the residential solar sector — and the vast number of existing rooftop solar contracts that are built on the arrangements.

• EPS: Groups argue on future of FERC intervention on solar net metering

We can only suggest that we continue to monitor the Federal government’s moves in the trade area, as they seem to be shifting on a weekly basis and jump from area to area (solar panels to IT equipment to steel tariffs, etc.). There is a somewhat confused environment for investment at this time.

• EPS: Trump's grid security order sows confusion in power sector — but don't expect a quick fix • EPS: Trump's grid security executive order will create vendor 'black list,' complicate equipment

sourcing

State policies driving electric energy supply investment - We have not found any recent reporting that indicates a significant movement in the Western Interconnection at the State policy level that reverses support for clean energy investments and addressing reducing carbon emissions. It appears to be full steam ahead in California, as it sticks to its previous support. Taking advantage of clean power production regionally through the CAISO energy imbalance market is proceeding. In May, California adopted a new emissions target for its electric sector that would double the state's clean energy capacity over the next decade and close the door to the development of new natural gas plants. Still, green groups said the goal was not aggressive enough. California electricity providers will need to develop nearly 25 gigawatts of renewable energy and battery storage to achieve the goal, nearly double the amount the state has currently, CPUC Commissioner Liane Randolph said in a statement.

The agency anticipates 8,900 MW of energy storage will be included in that total or about eight times more than existed in the entire United States at the end of 2018. The state's Public Utilities Commission set a target of reducing greenhouse gas emissions to 46 million metric tons by 2030, 56% below 1990 levels. The goal outpaces the state's overall goal of slashing emissions to 40% below 1990 levels by 2030.

• EPS: California sets goal to double clean energy by 2030

The California Independent System Operator (ISO) has signed an implementation agreement with Xcel Energy - Colorado, paving the way for its participation in the Western Energy Imbalance Market (EIM) in 2022. The agreement also provides for the participation of the other Joint Dispatch Agreement (JDA) members: Black Hills Energy Colorado Electric, Colorado Springs Utilities, and Platte River Power Authority. “The addition of these Colorado utilities to a growing west wide market will benefit all of the participants and their customers,” said ISO President and CEO Steve Berberich. “We are pleased the Xcel Energy - Colorado and its other JDA partners have confidence in the market which shares carbon-free energy resources, market efficiency, and enhanced reliability.”

• EPS: Four Colorado Utilities Join the CAISO Imbalance Market

Utilities and stakeholders in Western states, seeing important benefits in their real-time energy market, are working toward expanding to a regional day-ahead collaboration that could hold much more significant benefits.

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While there are few apparently declared opponents to the plan, stakeholders must address the three key challenges of the proposed market — its governance, transmission charges across jurisdictions, and guarantees among participants that they will meet their obligations. A first straw proposal is due June 15 from CAISO working groups that will suggest the first possible solutions for the West's diverse stakeholders.

• EPS: West-Wide Extended Day Ahead Market Gaining Traction

Readers may also want to review these EPS for additional insights into emerging longer-term power supply technologies.

• EPS: New study finds increase in expected useful life of utility-scale solar • EPS: Cold storage: Organic proton batteries show disposal, solar pairing advantages in advance to

market • Power-to-gas could be key to California's long-duration storage needs

NEXT STEPS: SCENARIOS FOR THE CURRENT CRISIS

Thinking Forward in the Face of High Uncertainty

With the finalizing of the recent WECC Reliability Assessment Study and the launching of the new Anchor Data Set, over the next several months, the Scenario Working Group (SWG) will engage in determining what key issues might drive study case requests for the upcoming 2020-2021 study cycle. With such deep uncertainty driven by the pandemic and the related economic recession, many issues might be important to study. Additionally, the time frame to look at future uncertainty might vary from the longer-term 20-year look to shorter time frames; the SWG can thus consider a wide range of options.

Focus Scenarios versus Global Scenarios

The two cycles of scenario planning done by WECC over the past five years can be classified as “global scenarios” because they attempt to look at the broader electricity market, larger systems (the Western grid), the world stage (including economic growth, technology innovation, and financial markets), and a wide range of key drivers (11 in the most recent 2038 WECC Scenarios). QPG has worked with “focused scenarios” which are more targeted, look at a narrower range of drivers, and often a shorter time frame. Focused scenarios are just as useful for planning as global scenarios in that they both allow decision-makers to think and learn more about the key issues at hand that might drive strategy and planning decisions.

Focus scenarios also start with a key question, similar to global scenarios. The anchoring question serves a similar purpose in being specific about what is at stake and guiding what is useful and relevant to discuss. Focus scenario questions are just that: focused. The focus may be on a particular area of uncertainty or risk that can play out in the short or medium term. The underlying driving factors are generally more narrowly selected (for example, economic forecasts, or commodity price forecasts, or cost reductions from innovation in a specific area).

Figure 1 earlier in this report can provide a way of targeting the current key uncertainties within a narrower range than the larger set of drivers used in the 20308 WECC Scenarios. The template in Table 3 below can be used as a guide for SWG and StS members as they develop ideas for focused scenarios

We look forward to discussing the ideas presented here with Subcommittee members.

Table 3, Focused Scenario Template

Focus Question Format Time Frame Key Drivers (3 or less)

In an environment/market in which_______ happens, what is__________________________

2 years to 10 years Select three or less key factors that drive the issue of concern

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Focused Scenarios - Ideas for Discussion

Drawing from this and the most recent Trends Reports, QPG sees the following areas as candidates for discussion that might help the Subcommittee determine candidates for the 2020- 2021 study case cycle. In light of the unknowns related to addressing the Covid-19 virus, any of these are possible.

• Over the next two to five years, what will be the shape of the economic recovery coming out of the global pandemic and its related global recession.

1. A “V” shaped recovery would suggest a relatively fast recovery with a return to historical levels of electricity demand (perhaps in two years).

2. A “U” shaped recovery would suggest a longer period of recession and slower emergence back to economic growth and power demand (perhaps 3 to 5 years).

3. A “W” shaped recovery would suggest a start and stop with another period of decline (perhaps 2 to 5 years) before sustained economic growth returns with growth in electric power demand.

4. An “L” shaped forecast would suggest a long period of flat to tepid economic growth, perhaps similar to the Great Depression of the 1930s, and lasting for a decade before any sustainable growth returns.

5. Or, it could look like a reversed square root symbol, that is, an initial rebound followed by a long plateau, e.g., , a situation we may be in already.

• The five economic trajectories above, V, U, W, L, and reversed square root, could be matched with plausible State or Federal policy shifts to address climate change and carbon emissions. Considering these trajectories could allow an assessment of possible electric power supply shifts in the short or medium-term that might shape how reliability is addressed.

• One or more of the economic trajectories might also be matched with plausible ideas on the adoption of energy services and products by electricity customers; for example, levels of EV adoption, storage technologies, and behind the meter investments.

Those are starting points for discussion, and our intention is also to stimulate ideas for members of the committee. In addition to being relevant to the current issues facing the industry, they can help address WECC’s four Reliability Risk Priorities: Resource Adequacy & Performance, Changing Resource Mix, Distribution System & Customer Impacts on the BPS, and Extreme Natural Events. Questions of modeling and key variables can also be addressed as a study case agenda develops.

We look forward to the ideas that emerge from the members.

Predetermined Factors in Scenarios Predetermined Factors (or elements) are facts that must be taken into account in all scenarios and play out over the long term. A way to think about a predetermined factor is to understand that “if it snows in the mountain during the winter, the streams will flow during the spring.” A predetermined factor points to what is a natural and unavoidable connection between two events. It is not predicting the future because the impacts of the events on society, markets, or policy may still be unclear, but food for thought clearly exists. QPG has no crystal ball. However, in pondering this question, here are six issues we suggest might fit in the predetermined box and might help the SWG consider study case options:

1. The US and world economies will be reshaped based on widespread reductions in demand for historically produced products and services, e.g., air travel, hotels, in-person shopping, public transportation, and dining out, movie theaters, etc. The personal risk of these activities and the new technological options for meeting the underlying demand will cause shifts in how those parts of the economy will work going forward. How long this will extend, and how deep into some markets is unclear. This report provides ample information on this point.

2. Due to climate change and man’s increasing encroachment into nature, humans will encounter more viruses and the possible emergence of new diseases. Many will cause death before treatments and

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cures can be found because they will be new to our scientific and medical establishment. Continual encroachment could lead to a slowing of human population growth. See this article in the New York Times Magazine, How Humanity Unleashed a Flood of New Diseases, June 17, 2020.

3. As the Arctic warms and permafrost thaws, bacteria, and viruses, some of which the world has not seen for thousands of years will reappear. Humanity will not have built up any immunity for many of the “new” diseases that result. Compounding the problem are human bodies that have been buried for centuries in the Arctic permafrost—including those who died of diseases and in epidemics. An example: Ten years ago, scientists managed to resurrect genetic information about the Spanish flu, the epidemic that killed millions worldwide, thanks to particles in the body of an Alaska Native woman buried near the town of Brevig Mission 75 years ago. The woman was buried in a mass grave beneath 2 meters of ice and dirt, where permafrost and her fat reserves combined to preserve the virus in her lungs. For more information, see: Will the next great pandemic come from the permafrost?

4. At some point, the US power industry will have to make a market adjustment to the growing over-supply of electricity production capacity. Negative pricing—selling of power at below costs—and fights over what coal capacity can be removed and replaced with clean energy sources when that coal power is still cheap, and has years of useful life remaining, will have to be resolved. Whether this happens at the national level or within the states, it appears that too much supply has to be corrected in a market-based economy. Falling power demand driven by the pandemic caused recession is adding pressure in power markets. Our three previous Trends Reports have discussed this issue.

5. EVs will become cheaper to produce than internal combustion engine power vehicles. A modern internal combustion engine can have 1200 individual parts, while an auto’s electric power system can be built with 200. The automobile companies have recognized this, and the major producers are moving toward expanding their EV offerings. Over the next decade or so, the global auto industry will have to find a way to bring consumers over to broader acceptance of EVs. The pressure to reduce carbon emissions and this fundamental economic cost reality must lead to some shift in the market. How this impacts electric supply and distribution system development is unclear, but something must happen there as well. This current Trends report and our previous two reports provide background on this issue.

6. The investments made in the growth and expansion of the fossil fuel fracking industry in the United States, which drove increased production of both oil and natural gas, have performed poorly from a financial standpoint. The debt used to finance this industry cannot be repaid from the operation and revenues generated by the industry, and the fall in prices and demand from the pandemic related recession is making this issue even worse. Bankruptcies are occurring, and the Federal Reserve Bank of the United States, through its intervention into credit markets to forestall a deep recession has put short term support in place for the low rated junk bonds in the oil and gas sector. In the long run, this financial crisis has to be resolved and will likely lead to a restructuring of this sector with potentially large losses for investors and taxpayers. Bankrupt companies may also saddle taxpayers with considerable environmental cleanup costs left by the industry. The economic, social, and political impacts of such a development and their timing are unclear. See these articles from Bloomberg: Lost in Oil’s Rally: $2 Trillion-a-Year Refining Industry Crisis, and Fracking: From Revolution to Money Pit

These factors are starting points for discussion and intended to stimulate ideas from members of the committee. In addition to being relevant to the current issues facing the industry, they can help address the key issues in the WECC Reliability Risk Priorities: Resource Adequacy and Performance, Changing Resource Mix, Distribution and Customer Load Impacts on the BPS, and Extreme Natural Events.