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The WECC 2018-2038 Scenarios: Trends Analysis and Early Indicators Report Second Quarter of 2019 Published July 7, 2019 Issue 33 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 2QTR 2019 FINAL V2 7Jul19.pdfThe WECC 2018-2038 Scenarios: Trends Analysis and Early Indicator s Report . Second Quarter

The WECC 2018-2038 Scenarios:

Trends Analysis and Early Indicators Report

Second Quarter of 2019

Published July 7, 2019

Issue 33

FINAL

The Quantum Planning Group San Francisco, California

Specialists in Scenario Planning, Analysis, and Strategy Development

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CONTENTS INTRODUCTION ..................................................................................................................................................................................... 4

EXECUTIVE SUMMARY ........................................................................................................................................................................ 5

Uncertainties, Wild Cards, and Outliers .................................................................................................................................... 5

Wild Cards ...................................................................................................................................................................................... 5

Key Driver Trends ............................................................................................................................................................................. 5

Key Driver Summary ................................................................................................................................................................... 6

Implications for Reliability: ...................................................................................................................................................... 8

Scenario Trends................................................................................................................................................................................. 8

SIGNIFICANT UNCERTAINTIES, WILD CARDS, AND OUTLIERS ......................................................................................... 10

Significant Uncertainty ................................................................................................................................................................ 10

Wild Cards ........................................................................................................................................................................................ 10

RECENT KEY DRIVER TRENDS ...................................................................................................................................................... 12

Scenario Primary Driver Trends ............................................................................................................................................... 12

The WECC Scenario Matrix .................................................................................................................................................... 12

Changes in State and Provincial Energy Market Policy ..................................................................................................... 13

Implications for Reliability: ................................................................................................................................................... 14

Customer Adoption of Energy Service Options ................................................................................................................... 15

Evolution of Customer-side Energy Technology and Supply Options .......................................................................... 15

Implications for Reliability: ................................................................................................................................................... 17

Changes in the Character and Shape of Customer Demand for Electric Power ........................................................ 18

Implications for Reliability: ................................................................................................................................................... 18

Changes in Federal Electric Energy Market Policies .......................................................................................................... 19

Implications for Reliability: ................................................................................................................................................... 20

Changes in Utility-Scale Power Supply Options .................................................................................................................. 21

Implications for Reliability: ................................................................................................................................................... 23

Changes in State and Federal Electric System Reliability Standards and Regulations ........................................... 24

Implications for Reliability: ................................................................................................................................................... 25

Evolution of the Impacts of Climate Change and Environmental Issues on Electric Power Service.................. 26

Implications for Reliability: ................................................................................................................................................... 30

Evolution of Fuel Markets in the Electric Power Sector.................................................................................................... 31

Implications for Reliability: ................................................................................................................................................... 32

Shifts in the Cost of Capital and Financial Markets ............................................................................................................ 33

Implications for Reliability: ................................................................................................................................................... 34

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Economic growth within the Western Interconnection ................................................................................................... 35

Implications for Reliability: ................................................................................................................................................... 39

Worldwide developments in the electric power industry ............................................................................................... 40

Implications for Reliability: ................................................................................................................................................... 42

SCENARIO TRENDS AND EARLY INDICATORS ......................................................................................................................... 43

Scenario 1: Open Markets Yet Restricted Customer Choice ............................................................................................ 43

Scenario 2: Open Markets with High Levels of Customer Choice .................................................................................. 44

Scenario 3: Reliability and Cost Policy Driven with Restricted Customer Choice .................................................... 45

Scenario 4: Reliability and Cost Policy Driven with High Levels of Customer Choice ............................................ 46

Scenario 5: Energy-Water-Climate Change ........................................................................................................................... 47

SCENARIO MOVEMENT .................................................................................................................................................................... 48

FROM THE ARCHIVES: EPS OF CONTINUING SIGNIFICANCE ............................................................................................. 49

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INTRODUCTION

This report by the Quantum Planning Group (QPG) to WECC and the Scenario Development Subcommittee (SDS) covers significant Event-Pattern-Structure (EPS) events and developments in the electric industry and energy markets in the Second Quarter of 2019 (April, May, and June). This report focuses on:

1. Significant Uncertainties, Major Trends, and Wild Cards 2. Significant Key Driver Events for the 2018-2038 WECC Scenarios and their implications, 3. Trend developments and Early Indicators (EIs) for each Scenario, and 4. Movement and progress indicated by the trends towards one or more of the WECC Scenarios.

This report also includes coverage of Scenario 5: Energy, Water, and Climate Change since EPSs can be related to this Scenario, even though there are no specific Early Indicators for this Scenario other than a 3-degree F temperature rise by 2034.

While this report details selected events scanned, reviewed, and submitted as EPS for this report in April through June 2019, our analysis considers and builds on learnings from the trends reports since 2011. We refer the reader to the previous WECC Scenarios: Early Indicator, Trends and Scenario Movement Analysis reports (Trends Reports) of October 2015 - Spring 2019 for additional background information found here.

We have been asked to keep a focus on the implications for electric reliability in our trends analyses. To address this, we include summary remarks about what we see as possible implications for electric reliability after each of the Key Driver sections below.

In the Second Quarter of 2019, there were 102 EPS submitted to the WECC EPS system with 94 EPS with EIs flagged (92 %), for a total of 244 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.

This report includes the following sections: 1. Executive Summary…………………………………………………... Page 4 2. Significant Uncertainties, Wild Cards, and Outliers…...... Page 10 3. Key Driver Trends…………………………………………………….. Page 12 4. Scenarios and Early Indicators………………………………….. Page 43 5. From the Archives – Past EPS of Note………………………… Page 49

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, and therefore, the EPS items referenced may include excerpts taken directly from the referenced article text as well as Quantum Planning commentary. 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.

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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) is produced for WECC and the Scenario Development Subcommittee (SDS). The report covers the Second Quarter of 2019. EIs and Trend identification and analysis in these reports utilize reviews of media and industry reports by WECC members, WECC staff, and QPG consultants.

Uncertainties, Wild Cards, and Outliers Trade Wars- A Significant Uncertainty: We believe the continuing trade war and tariffs constitute a significant uncertainty for the economies of the states and provinces within Western Interconnection, the broader US and Canada, and worldwide.

The Trump Administration's trade policies and tariffs reduced US income at a rate of $1.4 billion per month by the end of last November (2018). If not offset by assumed tariff tax revenues, the total estimate for that period could be over $12.3 billion. Any hope of a quick resolution has faded. The US and China have both hardened their positions after a trade deal collapsed in May. The news from the G20 summit in Japan brought little real relief, as the US and China agreed to resume talks, but no real trade deal appears imminent.

Wild Cards Cyber-Security: We continue to track developments around cyber-security as a Wild Card. In the second quarter, we saw two significant events. First, in a new troubling escalation, hackers behind at least two intrusions—both with the potential of causing fatalities— on industrial facilities have expanded their activities to probing dozens of power grids in the US and elsewhere. The most alarming thing about this attack was its use of never-before-seen malware that targeted the facility's safety processes.

In a second development, in a report in which Trump Administration official declined to comment, the New York Times reported that the United States is stepping up digital incursions into Russia's electric power grid in a warning to President Vladimir V. Putin.

BREXIT: As of this writing, Great Britain is facing an October 31, 2019 deadline from the EU for the exit, and is in the throes of trying to replace Prime Minister Theresa May, who was to resign effective June 7 after not delivering the exit from the EU she and her party promised. While giving Britain some breathing space, the delay will do nothing in the short term to alleviate concerns about the effects of BREXIT, and the dysfunction of the exit process within Britain's government on the economies of Britain, the Eurozone, and the global economy.

Key Driver Trends There were events of significant impact for each of the Key Drivers chosen by the SDS for the 2018-2038 Scenarios:

1. Changes in State and Provincial Electric Energy Market Policies 2. Changes in Federal Electric Energy Market Policies 3. Evolution of Customer-side Energy Supply Technology and Service Options 4. Changes in the Character and Shape of Customer Demand for Electric Power 5. Changes in Utility-scale Power Supply Options 6. Changes in State and Federal Electric System Regulations for Reliability 7. Evolution of Climate Change and Environmental Issues on Electric Power Service 8. Evolution of Fuel Markets in the Electric Power Sector 9. Shifts in the Cost of Capital and Financial Markets 10. Economic Growth Within the Western Interconnection 11. Worldwide Developments in the Electric Power Industry

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Key Driver Summary Changes in State and Provincial Electric Energy Market Policies: Second quarter events for this driver saw a new Energy Imbalance Market (EIM) proposal by the Southwest Power Pool as the group continues to offer alternative services to the California ISO to increase their footprint in the Western Interconnection. The idea of “balkanized” energy policies (as discussed in Scenario 1), in particular, those addressing carbon reductions, and how to manage them across state lines is now being discussed and studied by industry groups, operators, and interconnection entities. Barriers to markets for technology suppliers, e.g., batteries and microgrids, are a significant hindrance to grid modernization and integration of renewable energy across the industry. The Western Interconnection continues to see additional states increasing their RPS standards and setting 100% carbon-free energy goals within the year 2030-2050 timeframe. The events reported below continue trends discussed in previous reports, and we did not see any new significant uncertainties

Evolution of Customer-side Energy Supply Technology and Service Options: Events in the second quarter related to this driver saw new developments for electric vehicles (EVs), in particular, component cost reductions, and a recent analysis forecasted that the underlying cost of an electric car would drop below traditional cars in three years, in 2022. EVs moved front and center in Colorado and Montana as lawmakers in those states passed legislation designed to promote additional EV sales and usage, while California’s SDG&E rolled out a program to enhance charging infrastructure for commercial EVs. One of the more interesting items reported below is a possible new trend illustrated by a 600-unit multi-family development in Utah—quite possibly the first of its type in the US—in what could be considered a pilot project for multi-family, high-density residential dwelling storage use. US solar installations reached a milestone of over two million installations, and new rooftop installation financing is evolving towards more conventional loans. We saw no new significant uncertainties during the quarter.

Changes in the Character and Shape of Customer Demand for Electric Power: Large companies from across a variety of industries formed a new renewable energy purchasing alliance, designed to remove barriers that make it complicated to shift away from carbon. We expect this significant new trend to continue across multiple industry sectors. Data analytics, while providing connections between users and utilities, is now allowing utilities to use archived data to make systems more reliable, affordable, and clean. We did not see any new significant uncertainties arise during the quarter.

Changes in Federal Electric Energy Market Policies: The second quarter of 2019 saw two unsurprising events related to this driver. The US Supreme Court upheld lower court decisions upholding the states’ rights to subsidize power plants. And in a long-anticipated move, the Environmental Protection Agency (EPA) rolled out a plan to lessen restrictions on coal-fired power plant emissions, a rule designed to replace the Obama-era Clean Power Plan. As expected, the rule was immediately challenged in court. We did not see any new significant uncertainties arise during the quarter.

Changes in Utility-scale Power Supply Options: Technological innovation, improved sales and marketing programs, and improvements in customer services will continue to occur at the wholesale and traditional utility-scale level of the electric business. Some customers may even prefer to maintain the traditional utility service and its levels of reliability. Some states and provinces may also prefer this form of service for regulatory reasons or local economic and social factors. At this time, we see a continuation of the basic trends we reported on in our last First Quarter Trends Report, which is that the Western Interconnection is seeing a continuation of the movement towards more use of integrated storage technologies, and nationally, renewable forms of energy are continuing to make inroads into the generation mix. At the same time, utilities are trying to come to grips with the need to change their business models—with differing strategies and results— as the transition away from coal continues, and Customer Choice Aggregators (CCAs) begin to affect their revenue streams. The integration of digital technologies into many aspects of the power system (distribution grid, power system operations, communications, and dispatch, among others) is also continuing to evolve. Based on the events observed in the last quarter related to developments in energy storage and further declines in

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coal power, we see no new significant risks to the reliability of the bulk power system in the Western Interconnection.

Changes in State and Federal Electric System Regulations for Reliability: Federal, State, and Provincial agencies directly set rules and standards that the power industry must follow to meet electric system reliability. Issues like climate change, cyber-security risks, and improved system resilience (in response to damaging climate events or physical attacks) are becoming increasingly important as they impact electric system reliability, and will likely lead to increased costs for electric power infrastructure. There were several events during this quarter, especially in California, that we think we were directed at reliability at the state, provincial levels. We did not see any new notable actions at the federal level, especially since as reported in the first quarter, the FERC rulings on capacity markets (in particular in the PJM) has still not been fully resolved. In general, the thrust of recent developments in Federal and State Regulations of electric systems reliability is intended to improve conditions in which reliability risks can be addressed and reduced.

Evolution of Climate Change and Environmental Issues on Electric Power Service: There were a number of significant events related to both this driver. The most significant of those events include:

• Global carbon dioxide emissions from energy generation rose to a record high in 2018, and the highest levels of carbon dioxide in human history were recorded on May 12, 2019.

• Nuclear plant retirements are projected to increase carbon dioxide emissions significantly. • New data research by NASA has confirmed that satellite and ground-based temperature data are

highly consistent, providing high confidence that estimates of global and regional temperatures are accurate.

• Diverse carbon policies are increasing across the country (as well as globally), and are becoming increasingly hard to manage within entities charged with operating the nation’s electricity grid.

• Canada is warming at a rate twice as fast as the rest of the world, and scientists have linked climate change to the intensity of wildfires in Alberta.

• Clean energy installations stalled in 2018, and new fossil fuel and pipeline development will lock in additional emissions increases for decades.

Evolution of Fuel Markets in the Electric Power Sector: All electric power generation requires a fuel source. Historically coal, natural gas, oil, and nuclear fuel have been dominant (sunlight, wind, and water are not traditionally thought of as “fuel” though they serve similar purposes). During the second quarter, we were able to take note of some longer-term developments that are notable in the sense that they give indications of fossil fuels longevity as a source of energy, but at the same time indicate efforts within the energy industry to reduce their use. In particular, some movements at the State level might grow into a cross-industry approach to pricing carbon offsets (starting in California, but being considered by other states as well). We note the continued decline in coal use; however, there are long term infrastructure investments (e.g., the Dakota Access pipeline, and new pipelines needed for new production from the Permian Basin) that position the US for long-term use of fossil fuel. The recent movement in the evolution of fuel markets in the power sector does not present any new emerging risks for any of the categories of electric reliability. In particular, domestic natural gas resources serving the power sector continue to be abundant, thus enhancing the ability to add resources to address reliability concerns.

Shifts in the Cost of Capital and Financial Markets: Power industry assets are capital intensive investments and cost a lot of money, and often necessitate long-term borrowing and debt. Thus, the cost of capital is an essential component in the cost of the electric power supply generation, transmission, and distribution, and can influence the choice and use of supply options. In this quarter we noticed developments in how investors might see the risks of providing capital based on rulings related to power purchase contracts being exposed in bankruptcy proceedings, and in investor concern about accounting for emerging climate change risks. However, we did not see any extraordinary development in capital markets during the second quarter that would reduce the availability or increase the cost of capital to the energy industry beyond normal market and systemic fluctuations.

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Economic Growth Within the Western Interconnection: The main themes in this driver is that by all indications, the US and Canadian economies are stable, but are showing increasing signs of slowing as the trade war continues and the continued global economic slowdown affects both countries. Issues of global trade, credit risk, and the increasing amount of global debt continue to point toward a possible global recession in the next eighteen months. With no resolution in sight, we think the continuing trade war should be seen as a significant uncertainty in both the near and long-term.

Worldwide Developments in the Electric Power Industry: There are forces of change impacting the electric power industry worldwide (e.g., more aggressive clean energy standards and reduced costs for renewable energy) and we see an acceleration of these changes driven by technology, policy choices, (e.g., addressing climate change), economics, and public demand. Many of those changes may influence or directly impact policy choices and changes in the US and, specifically, in the Western Interconnection power systems. In line with the first quarter’s Trend Report, in which we noted some activity with Artificial Intelligence (AI) in the energy sector, we continue to monitor what is pitched as new innovation from information and communications technology as they more fully enter the power sector. We noted in this quarter that there were several studies supported by consultants and suppliers to the power industry, promoting the benefits of new information and communications technology. We remain agnostic on the longer term cost effectiveness or the level of service related risks and rewards involved in using these technologies in the electric power system and believe it calls for continued monitoring. In particular, proven industry-wide standards are, at best, possibly emerging. But within our twenty year scenario time frame, these initial actions should be watched

Implications for Reliability: At this time, we see no extraordinary challenges emerging that would lead to a decline in the ability of the industry to meet historical levels of reliability with two exceptions.

1. Developments related to the evolution of climate change and environmental issues that could impact the power sector. Actions by humans and policy developments to address climate change nationally and globally are not sufficient to slow the forecasted increasing destructive effects (e.g., drought, wildfires, flooding, extreme storm events, etc.).1

2. Cyber-security: Will the power industry successfully adopt the necessary tools and operating processes that can prevent or mitigate large-scale or cascading power system failures due to cyberattacks?

We are also concerned about a potential economic disruption due to recent events impacting the US and global economy (e.g., tariffs, high debt levels). In the past, these kinds of events have slowed energy demand growth but have directly reduced reliability. On a more positive note, we see enhanced opportunities to improve reliability driven by the falling cost of storage based technologies and their growing use in utility-scale applications.

Scenario Trends Past Trends Reports, based on the WECC Legacy Scenarios, focused on an analysis of the movement from one scenario to another scenario of the Western Interconnection as a whole. As we noted in past SDS meetings, we believe that in the 2038 Scenarios, given the choices by the SDS for the Primary Scenario Drivers and other Key Drivers, states, and provinces within the region will not move in lockstep towards any particular scenario. Considering the new Scenario Matrix, this would imply that there would not be a region-wide “movement” that could be plotted against the new scenario matrix as in the Legacy Scenarios.

We think that developments and trends within each scenario, noting specific events at the state and local levels that fit that scenario are—at least at the beginning of the 20 years— more useful to WECC and the SDS. Please see Figure 2 below, in which we offer a starting point for discussion and further enhancement with SDS members.

1 EPS: US energy, transportation sectors not prepared for climate change, 2018 Climate Assessment, November 2018

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However, we can say that, based on the Key Driver events we have seen in the past three months with differing state and provincial policy actions, from a high level these events tend to support movement in the Western Interconnection as a whole towards both Scenario 1 and Scenario 4. We can also see developments that argue for Scenario 3 in many states in the Western Interconnection. A key element of this assessment is the lack of any significant technological developments or other market-related issues that would lead to a quickened uptake of the kinds of energy-related services and products advocated most strongly in Scenario 2.

A detailed look at the Scenario Trends and state and provincial scenario movement starts on page 40.

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SIGNIFICANT UNCERTAINTIES, WILD CARDS, AND OUTLIERS

Significant Uncertainty

Trade Wars: As we detail below, and with no end in sight, we believe the continuing trade war and tariffs constitute a significant uncertainty for the economies of the states and provinces within Western Interconnection, the broader US and Canada, and worldwide.

The Trump Administration's trade policies and tariffs reduced US income at a rate of $1.4 billion per month by the end of last November (2018). If not offset by assumed tariff tax revenues, the total estimate for that period could be over &12.3 billion.2 On May 23, President Trump unveiled a $16 billion bailout for farmers hurt by his trade war with Beijing.3 That signals a protracted fight lies ahead.

Any hope of a quick resolution has faded. The US and China have both hardened their positions after a trade deal collapsed in May. The news from the G20 summit in Japan brought little real relief, as the US and China agreed to resume talks, but no real trade deal appears imminent. At the time of this writing, the threat of US tariffs has not been withdrawn from China and other countries, including those in the EU, Canada, and Mexico. Also, the new trade treaty between the US, Canada, and Mexico has not been completed and is effectively stalled. Additional detail and their implications for reliability on these two events can be found starting on page 35.

Wild Cards Cyber-Security: We continue to track developments around cyber-security as a Wild Card. In the second quarter, we saw two significant events. First, in a new troubling escalation, hackers behind at least two potentially fatal intrusions on industrial facilities have expanded their activities to probing dozens of power grids in the US and elsewhere. The group, known as Xenotime4 has been performing network scans and reconnaissance on multiple components across the electric grids in the US and other regions. Dozens of utilities—about 20 of them located in the US—have been subjected to Xenotime probes since late 2018. Activities indicate only an initial exploration, and there's no evidence the utilities were compromised. The most alarming thing about this attack was its use of never-before-seen malware that targeted the facility's safety processes. Xenotime’s expansion to another industry vertical is indicative of an increasingly hostile industrial threat landscape.

In a second development, in a report on which Trump Administration official declined to comment, the New York Times reported that the United States is stepping up digital incursions into Russia's electric power grid5 in a warning to President Vladimir V. Putin. The move is a demonstration of how the Trump administration is using new authorities to deploy cyber-tools more aggressively, current and former government officials said. Operations against the Russian electric grid appear to have been conducted under little-noticed new legal authorities, slipped into the military authorization bill passed by Congress last summer. Under the law, those actions can now be authorized by the Defense Secretary without special presidential approval.

Additional detail and their implications for reliability on these two events can be found starting on page 39.

BREXIT Update: As of this writing, Great Britain is facing an October 31, 2019 exit deadline from the European Union (EU)—known as BREXIT—and is currently in the throes of trying to replace Prime Minister Theresa May, who was due to resign effective June 7 after not delivering the exit from the EU she and her party promised. While giving Britain some breathing space, the delay will do nothing in the short term to alleviate

2 EPS: Tariffs are costing Americans $1.4 billion each month, NBC News, March 26 2019 3 EPS: $16 Billion in Bailouts Says the Trade War Is Here to Stay, The New York Times, May 24 2019 4 EPS: Hackers behind dangerous oil and gas intrusions are probing US power grids, Ars Technica and Digital Trends,

June 15 2019 5 EPS: U.S. Escalates Online Attacks on Russia’s Power Grid, The New York Times, The BBC, and Rolling Stone, June 15-19

2019

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concerns about the effects of BREXIT, and the dysfunction of the exit process within Britain's government on the economies of Britain, the Eurozone, and the global economy.6

Why BREXIT Matters - We noted in past reports that BREXIT could have significant economic implications not just for Britain, but also for the global economy and the US. At this point, indicators point to a so-called “hard” exit, which means that Britain will leave not only the EU but also the single market and the customs union. In this scenario, the UK would instead aim to secure free-trade deals with the EU, ideally covering both goods and services. Direr would be a “no deal” exit, where Britain would no longer be a member of the EU, and it would have no trade agreement. It would have all of the disadvantages of a hard Brexit, and there would be no trade agreement.

The US would not be immune from the global economic impacts7, and more directly, many US businesses use Britain as their doorway into the EU, and under a hard BREXIT, that entry point goes away. That's going to cause a lot of complications for US businesses, as companies will find it harder and more expensive to move goods between the U.K. and rest of Europe, with delays, tariffs, and more paperwork. The net result could easily be a push accelerating the already slowing US economy and slowing electricity demand.

6 EPS: EU extends Britain's deadline to leave the bloc to Oct. 31 2019, The New York Times, April 10 2019 7 EPS: Storm Clouds Are Brewing for the Global Economy, The World Bank, Global Economic Prospects, January 8 2019

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RECENT KEY DRIVER TRENDS

Scenario Primary Driver Trends

The WECC Scenario Matrix Each of the four WECC 2018-2038 Scenarios fits into one of four quadrants within a 2 x 2 matrix, using the two primary scenario drivers chosen by the SDS of 1), Direction of State and Provincial Energy Policy, and 2), Customer Adoption of Energy Service Options.

Each Scenario can thus be described – at a high level – by the combination of the matrix axes.

Figure 2, WECC Scenario Matrix

The matrix provides both a quick visual model for the Scenarios and a reference for the discussions that follow. However, for a complete understanding of the Scenarios, we encourage readers to read the WECC 2018-2038 Scenarios Narratives.8

We begin our discussion of Key Drivers with the primary scenario drivers illustrated above.

8 WECC 2018-2019 Draft Scenarios for Horizon Year 2038 V 0.1, July 25 2018

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Changes in State and Provincial Energy Market Policy From the 2038 Scenario Report: “Fourteen Western states, two Canadian provinces, and Northern Baja California make up the geographical footprint of the Western Interconnection supported by WECC. They set policies and rates which directly impact how electricity markets function within their areas of jurisdiction and influence regional patterns as well. How electricity supply and demand is met is governed in large part by the policies set by individual states and provinces, including rules that govern markets—in conjunction with federal regulations—in places like California and Alberta where formal markets are in place to procure services such as imbalance energy and ancillary services. States and Provinces also set policies on cost recovery for plant investment in utility rates, renewable portfolio standards, climate change policies, rules governing the use of local distribution systems, and much more.”9

Second quarter events for this driver saw a new Energy Imbalance Market (EIM) proposal by the Southwest Power Pool to increase their footprint in the Western Interconnection as the group continues to offer alternative services to the California ISO. The idea of “balkanized” energy policies (as discussed in Scenario 1), in particular, those addressing carbon reductions, and how to manage them across state lines is now being discussed and studied by both industry groups, operators, and interconnection entities. Barriers to markets for technology suppliers, e.g., batteries and microgrids, continue to be a hindrance to grid modernization and integration of renewable energy across the industry. The Western Interconnection continues to see additional states increasing their RPS standards and setting 100% carbon-free energy goals within the year 2030-2050 timeframe. The events reported below continue trends discussed in previous reports, and we did not see any new significant uncertainties.

Energy Imbalance Markets: Southwest Power Pool (SPP) has announced to western utilities its proposal for the Western Energy Imbalance Service market (WEIS) it intends to launch in December 2020. 10 The wholesale electricity market will balance generation and load regionally and in real time. SPP’s previous energy imbalance market went live in 2007 and provided participants with $103 million in benefits in its first year of operation. Like SPP’s previous markets, the WEIS will provide price transparency of wholesale energy, allow parties to trade bilaterally, and hedge against costly transmission congestion. SPP will administer the WEIS on a contract basis, meaning utilities do not have to be a member of the SPP regional transmission organization (RTO) to participate.

Balkanized Energy Policies: The Gulf Coast Power Association's annual Spring Conference began the day after the US Supreme Court declined to hear challenges to Illinois’ and New York's zero-emission credit programs. The court's decision was a stark reminder that in the absence of a federal carbon-reduction system, individual states are driving changes to the country's electric generation mix, often to the frustration of the grid operators charged with operating competitive, economically efficient markets. The lack of national carbon policy also complicates interstate transmission, which many have said is needed to alleviate the oversupply of renewables in certain regions.

The group noted, “…there is a need for dialogue nationally about a coherent way to deal with all of the different measures that states want to take in the absence of any federal policy.”

Clean Energy: Several states in the Western Interconnection passed new legislation supporting clean energy, as the November 2018 election of legislators and governors who ran on promoting clean energy and addressing climate change begin to follow through with their campaign promises. The actions will no doubt affect WECC’s 10 and 20-year planning data and assumptions as the laws come into effect, and utilities and balancing authorities adapt to them and provide revised data to WECC.

1. Nevada11 - Lawmakers passed a bill to increase Nevada's renewable portfolio; at least half the energy used in the state will have to come from clean energy sources by the year 2030, raising the state's

9 WECC 2018-2019 Draft Scenarios for Horizon Year 2038, July 24 2018 10 EPS: Southwest Power Pool Moves to Form Energy Imbalance Market, SPP Press Release, June 17 2019 11 EPS: New Clean Energy Laws for Nevada, KTVN TV Reno, NV, June 4 2019

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renewable portfolio standard (RPS), and require 100% carbon-free electricity by 2050. The bill was signed into law by Nevada’s governor on April 22, 2019. Other bills included one designed to promote the use of electric vehicles, one calls for an interim study of renewable and clean energy resources. Sponsors hope to take advantage of more of the state's geothermal resources. Legislation to track carbon emissions is expected to influence bills introduced for the next session.

2. Colorado12 - Democratic Colorado Gov. Jared Polis last week signed seven climate and energy bills along with four electric vehicle (EV) bills and unveiled a roadmap of the state's path to 100% carbon-free electricity by 2040. The newly signed legislation will decarbonize the state's economy 90% below 2005 levels by 2050, codify Xcel Energy's 100% carbon-free electricity by 2050 goal, and expand energy efficiency and EV programs in the state. The governor also signed into effect new laws13 that bring cooperatives (Co-ops) and public power companies under state PUC oversight, signaling signals the state wants oversight to assure reliability and costs oversight during the transition to clean energy.

3. Washington14 - Washington is now committed to making the state’s electricity supply carbon neutral by 2030 and 100 percent carbon-free by 2045. The bill makes Washington the fourth state to commit to 100 percent clean energy. The bill shuts the door on coal, saying it "is the policy of the state to eliminate coal-fired electricity." Governor Jay Inslee (D) signed the bill on May 7, 2019.

Integrating Clean Energy Resources: In support of California’s movement to a 100% clean energy future, on March 25, 2019, the California Public Utilities Commission15 put forth a plan and guidance for future clean electric energy resource development for the state looking out ten years. The plan suggests the expansion of wind, solar battery storage, and geothermal sources of energy to be followed by load-serving entities that wish to add energy resources to the state's system. Regulatory policy needs to be in place to guide the investment actions of load-serving entities to assure a higher likelihood of cost recovery in rates regulated by the state. California also wants to assure long term building of assets to ensure electric reliability.

Energy Market Barriers: The Smart Electric Power Alliance (SEPA) recently surveyed more than 1,500 industry professionals to publish the first power technology market gap analysis, 2019 Grid Integration Insights.16 The analysis covers solar, EV infrastructure, microgrids, DERMS, advanced inverters, and battery storage technologies, and identifies the most significant pain points with grid integration processes in 2019. Highlights of the survey include:

• There is a 16.8% gap in utilities using or evaluating EV infrastructure and solution provider focus. • 72.9% of battery storage providers face regulatory and other barriers to markets. • The number one challenge for increasing customer engagement is recruiting participants to

programs, which is 40% more likely for municipal utilities than IOUs.

The survey confirms that one of the greatest challenges facing the utility industry is the integration of increasing amounts of large scale renewables and distributed energy resources into existing grid infrastructure and operating practices and that the enabling regulations needed are not progressing at the same rate as the technology.

Implications for Reliability: Based on recent events relative to State and Provincial Energy Market Policy actions, we see no new significant challenge to electric reliability in any of the four key categories of resource adequacy, operational integrity, infrastructure integrity, and system stability risks.

12 EPS: Colorado Gov. Polis unveils roadmap to 100% carbon free by 2040, Utility Dive, June 3 2019 13 EPS: Colorado Passes New Energy Laws for Tri State Energy and Xcel Energy, Utility Dive, May 7 2019 14 EPS: Washington State Commits to Running Entirely on Clean Energy by 2045, Gizmodo and others, April 12 2019 15 EPS: California PUC Adopts Preferred Resource Portfolio, Utility Dive and CPUC Press Release, April 25 2019 16 EPS: Nearly 75 percent of battery providers report regulatory barriers to market, Solar Builder Magazine, April 1 2019

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Customer Adoption of Energy Service Options The scenario matrix east-west horizontal axis descriptor of Customer Adoption of Energy Service Options was created by combining two of the Key Drivers: 3) Evolution of Customer-side Energy Supply Technology Service Options, and 4) Changes in the Character and Shape of Customer Demand for Electric Power.

Evolution of Customer-side Energy Technology and Supply Options From The 2038 Scenario Report: “Distributed and smaller scale energy supply options are evolving and expanding rapidly, especially solar power (both rooftop and ground-based), energy storage, fuel cells, demand response, energy efficiency, and small-scale natural gas-fired generators. Commercial and industrial customers have distributed energy resource options as well as residential consumers. Technological innovation appears to be expanding those options by making them less costly, easier to install, and by adding more features for customer management and engagement. As electric distribution systems evolve, more of those distributed energy supply options may become a part of the electric power infrastructure and change how assuring electric power reliability is managed.”17

Events in the second quarter related to this driver saw new developments for electric vehicles (EVS), in particular, component cost reductions, and a recent analysis forecasted that the underlying cost of an electric car would drop below traditional cars in three years, in 2022. EVs moved front and center in Colorado and Montana as lawmakers in those states passed legislation designed to promote additional EV sales and usage, while California’s SDG&E rolled out a program to enhance charging infrastructure for commercial EVs. One of the more interesting items reported below is a possible new trend illustrated by a 600-unit multi-family development in Utah—quite possibly the first of its type in the US—in what could be considered a pilot project for multi-family, high-density residential dwelling storage use. US solar installations reached a milestone of over two million installations, and new rooftop installation financing is evolving towards more conventional loans. We saw no new significant uncertainties during the quarter.

Electric Vehicles (EVs): We elected to place developments in EVs in this driver since there are many reports and studies that predict that EVs will, sooner or later, become a source of energy supply as customer-side DERs, and to the bulk power system.

EV Cost Declines – One of the biggest reasons car buyers choose a gas car over an electric one is simple economics. Electric cars cost considerably more to buy (or lease) than gas ones. Consider the 2018 Ford Focus. The manufacturer's suggested retail price starts at $17,950. The 2018 Ford Focus Electric MSRP starts at $29,120. Even if you count the $7,500 federal tax credit for buying an EV, the electric model costs substantially more. And if you pay less than $7,500 in federal income tax, your tax credit will be lower as well.

Now, a Bloomberg analyst reported that the "crossover point" at which electric vehicles will become less expensive to buy than gas ones will come in three years, in 202218. A couple of years ago, analysts thought that day wouldn't come until 2026. What's changed since then is battery technology – batteries are getting smaller and less expensive all the time. If that trend continues, the crossover point could come even sooner. Analysts have for several years been using a sort of shorthand for describing an electric vehicle battery: half the car’s total cost. That figure has changed in just a few years. For a midsize US car in 2015, the battery made up more than 57 percent of the total cost. This year, it’s 33 percent. By 2025, the battery will be only 20 percent of total vehicle cost. By 2030, costs for motors, inverters, and power electronics could be 25 to 30 percent lower than they are today.

If a gas car and electric car cost about the same to buy, then the EV is the obvious choice if you're looking to manage expenses. That's because electric car costs dramatically less to own and operate than a gas one. First,

17 WECC 2018-2019 Draft Scenarios for Horizon Year 2038 V 0.1, July 25 2018 18 EPS: Electric Cars Will Cost Less Than Gas Cars Within 3 Years, Inc. Magazine, April 19 2019, and Bloomberg, April 12

2019

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there's fuel. If you charge at home, as most EV owners do, the cost of driving 15,000 miles a year (slightly more than the US average) is an average of $540 a year or $45 a month, according to one estimate.

Promoting EVs in the Western Interconnection - Colorado lawmakers approved legislation this month to grow the state's electric vehicle (EV) charging infrastructure, particularly in rural areas, by expanding the ways an electrification grant program can be utilized. Colorado wants to get almost a million EVs on its roads in the next two decades, and the state is tackling that on several fronts.

Lawmakers in Montana passed a bill aimed at expanding electric vehicle (EV) charging infrastructure in the state by authorizing utilities to sell electricity to third-party charging station operators. Montana lawmakers have approved a pair of energy bills this month designed to grow the state's clean energy resources, with the most recent bill aimed at developing more charging infrastructure for electrified transport. Both Colorado and Montana are lagging in EV adoption and have large rural areas with little or no EV charging infrastructure.19

EV Charging Infrastructure - Utilities are striving to be the leaders in EV charging stations across the transportation spectrum to ensure third parties do not supplant them. For example, Southern California Edison (SCE) rolled out a program designed to advance the electrification of medium and heavy-duty vehicles,20 including buses and tractor trailers, by offering to install infrastructure to support charging stations at no charge. Rebates for charging station equipment will also be available to some customers as well, including transit agencies and school bus operators. The Charge Ready Transport program, an indicator of more focus on commercial vehicles changing to electric, will fund installations at 870 commercial customer sites over a five-year period, which the utility anticipates will support at least 8,490 fleet vehicles.

Solar Installations: The number of solar installations in the United States has officially surpassed 2 million, according to the latest data from Wood Mackenzie Power & Renewables and the Solar Energy Industries Association (SEIA).21 Of note, and showing the accelerating rate of acceptance of rooftop solar, the milestone comes just three years after the industry completed its millionth installation, a feat that took 40 years to achieve (see the EPS on Technology Adoption here). Wood Mackenzie analysts expect the US to crack the 3 million mark in 2021 and 4 million in 2023.

Residential installations dropped 15 percent between 2016 and 2017, with Tesla's share showing the most extreme decline during that period, dropping from 650 megawatts to 352 megawatts. This slowdown was a significant drag on hitting the 2-million-system mark since residential systems make up 96 percent of a tally that counts the smallest rooftop PV array on equal weight with the biggest solar farm.

Rooftop Solar Loans - As a result of the Investment Tax Credit stepdown, solar loans will increasingly start to look like regular consumer loans. Solar loans emerged as the dominant consumer finance product in 2018, according to new data.22 Solar loans now claim a 45 percent share of the residential market, while third-party ownership (TPO) has fallen to its lowest point since 2011 at a 33 percent market share. Last year’s stagnation in the TPO market can be mainly attributed to Tesla’s changing customer-acquisition tactics, which led to a decline of overall installation volumes in 2018. (See the Wood Mackenzie report summary.)

The growing solar loan industry has very thin margins, and lenders felt pressure to raise prices incrementally last year, with some eliminating low-interest products or raising dealer fees. Some solar loan providers are also expanding into verticals such as storage and home improvement where margins may be higher. The rise of smaller solar installers worked in favor of loan providers in 2018 as those local installers turned to loan providers for consumer financing. Other sources of consumer finance are usually unavailable to those

19 EPS: Colorado and Montana Pass bills to help electric vehicles, Utility Dive, April 11 and 12 2019 20 EPS: SCE rolls out $356M charging program to spur electric trucks, buses and other large vehicles, Utility Dive, May 21

2019 21 EPS: US Surpasses 2 Million Solar Installations, Green Tech Media and Wood Mackenzie, May 9 2019 22 EPS: As Solar Loans Start to Dominate, Loan Providers See Increasing Value in Installer Networks ,Wood Mackenzie via

Green Tech Media, May 10 2019

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installers. Strong residential solar growth in Texas and Florida last year also played a part in the relative ascent of solar loans, as third-party ownership is currently limited in those states.

High-Density Residential Storage: PacifiCorp subsidiary Rocky Mountain Power (RMP) has asked the Public Service Commission of Utah for authorization to implement three "innovative utility programs" it says was authorized by the Sustainable Transportation and Energy Plan (STEP) Act of 2016, focusing on transportation, storage, and grid management. Of the three programs, the most intriguing is a battery demand response project in a 600-unit multi-family development—quite possibly the first of its type in the US—and is what could be considered a pilot project for multi-family, high-density residential dwelling storage use.23

The second project is an intermodal transportation charging and power balancing system to be developed with the Utah State University’s Sustainable Electrified Transportation Center and the state's transit authority. The third project includes the installation of automated meter reading facilities, communication radios on distribution line equipment and deployment of additional line sensor technology, which RMP said will allow its control center operators real-time access to information during major outages.

Residential Demand Response (RDR): Navigant is one of the leading consulting and research firms in the power industry and occasionally issues report on key topics.24 This recent article and follow up report points to both opportunity for RDR technology, but also issues realistic caution about adoption and the many challenges involved. In the report, analysts predict global residential demand response (RDR) capacity will more than triple in the next decade as utilities look to manage demand and reduce peak loads, with a global capacity of 47 GW.25

Utility Business Models: Utilities are finding it necessary to change their business models. Rather than being the almost exclusive "go-to" organizations that can generate, transmit and distribute large amounts of power, they will need to see their businesses as more collaborative with other service providers, seek ways to offer new energy services and share data effectively and securely. The business structure of providing consumers with electrons is changing from centralized to distributed, and the data involved in such transactions is changing from concentrated in a few players to being distributed among many producers, consumers, and managers.

Writer Rainer Sternfeld has suggested that utilities may need to "...emulate the iTunes business model, leveraging their customer base to become a trusted provider of third-party products and services.26 Further, "The value of data increases when companies use it to collaborate with partners and even competitors. When electrons become the indirect proxy for the value of data, they enable multi-party marketplaces to emerge, and entirely new services and business models are possible. ISPs and telecommunications companies (Telco’s) know this first hand.

Implications for Reliability: We see no significant development in the changing character of customer demand for electric power that presents challenges to electric reliability at this time. However, as customers adopt new energy options, operational integrity, and system stability risk could arise as the power system managers adapt to those new options.

23 EPS: 600-battery apartment building coming to Utah, Utility Dive march 20 2019, and RMP Press Release, March 10

2019 24 EPS: Navigant Analyst gives cautious assessment of Residential Demand Response, Navigant in Utility Dive, April 3

2019 25 EPS: Residential DR to Triple by 2028, Utility Dive, April 17 2019 26 EPS: Utilities May Need an iTunes-Like Business Model, Intertrust Corporation in Utility Dive, March 22 2019

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Changes in the Character and Shape of Customer Demand for Electric Power From The 2038 Scenario Report: “Customer demand for electric power can shift for a wide range of reasons, including economic growth, response to cost changes, customer desires for new features and benefits (like carbon reduction). The many segments of customers include large and small industrials, large and small commercial, both large and small agriculture, high income to low-income residential consumers, and other marketing defined segments. Customers within all of the segments may change the features they desire for electric power service as market conditions change. Economic factors may influence costs and features offered. Social values may shift and change how customers value different aspects of their electric power consumption, e.g., how clean or how exposed to cyber-security risk. The basis upon which customers are segmented or put into categories may shift as customers adopt new service options (especially those customers who have some level of onsite self-generation or use new information services). Customers’ adjustments will affect how power is supplied and thus have implications for sustaining electric reliability.”27

In the second quarter of 2019, we note two events which directly relate to changes in the character of customer demand. Large companies from across a variety of industries formed a new renewable energy purchasing alliance, designed to remove barriers that make it complicated to shift away from carbon. We expect this significant new trend to continue across multiple industry sectors. Data analytics, while providing connections between users and utilities, is now allowing utilities to use archived data to make systems more reliable, affordable, and clean. We did not see any new significant uncertainties arise during the quarter.

Large Company Green Power Purchasing Alliances: Going green is often easier said than done, but a new business organization is hoping to change that.28 While focusing on large-scale energy buyers, the group plans to push for changes that could make renewable power more accessible for all Americans. Companies from a variety of industries – including Walmart, General Motors, Google, and Johnson & Johnson – are forming a trade association to represent firms that purchase renewable energy and remove barriers that make it complicated to shift away from carbon. The new organization, the Renewable Energy Buyers Alliance, is building on years of work between corporations and climate advocacy nonprofits. Currently, about 200 companies, cities, and universities are involved.

We expect this significant new trend to continue across multiple industry sectors and well into the future, exerting more and more pressure on power providers than individual consumers can and could drive the potential for more captive customer solar and wind generation if current suppliers do not respond, causing demand changes (reduced demand). If more large-scale buyers do begin to increase their captive generation, this could mean more electricity that could be sold back into the grid/market (DER), driving faster grid changes to accommodate the potential two-way flow.

Data Analytics: Software and data are transforming the utility industry and connecting energy users, especially the ability for utilities to use archived and real-time data to make systems more reliable, affordable, and clean.29 The developing clean energy economy is dependent on a burgeoning and complex power system, and Automated Data Analytics can provide the granular, real-time situational awareness necessary to manage it effectively. A more detailed discussion of this trend is on page 38.

Implications for Reliability: We see no new developments in customer demand that alone present significant challenges to electric reliability by raising the risk to resource adequacy, operational issues, infrastructure needs, or system operations. However, how energy services companies manage those shifts in demand by integrating new service options, if not done well, could raise such risks. Monitoring developments in this area are warranted.

Following our discussion of the primary scenario drivers, we begin our discussion of the other Key Drivers below. 27 WECC 2018-2019 Draft Scenarios for Horizon Year 2038 V 0.1, July 25 2018 28 EPS: Companies Teaming Up To Buy More Solar And Wind Power, National Public Radio, March 28 2019 29 EPS: Data analytics and the utility community of the future , Utility Dive, march 25 2019

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Changes in Federal Electric Energy Market Policies From The 2038 Scenario Report: “The US, Canadian, and Mexican national governments set policies that have national impacts on electric energy markets. In terms of electric service reliability, the very foundation of WECC itself is an example of this. Entities such as the FERC, NERC, the DOE, and other federal agencies that oversee nuclear power, oil and gas development, coal development, and environmental standards are among those which can have a great influence on the evolution of electricity markets and on how electricity services are delivered aside from market rules. Federal laws on consumer protection, taxes, and other areas can also influence the evolution and nature of electric customer demand.”30

The second quarter of 2019 saw two unsurprising events related to this driver. The US Supreme Court upheld lower court decisions upholding the states’ rights to subsidize power plants. And in a long-anticipated move, the Environmental Protection Agency (EPA) rolled out a plan to lessen restrictions on coal-fired power plant emissions, a rule designed to replace the Obama-era Clean Power Plan. As expected, the rule was immediately challenged in court. We did not see any new significant uncertainties arise during the quarter.

State Power Plant Subsidies: The US Supreme court decided against reviewing, and thus let stand, lower court’s rulings that allow the States of Illinois and Ohio to subsidize existing nuclear power plants using taxes and utility rates.31 Fossil fuel generators had challenged the legality of the subsidies, which were respectively upheld by federal district and appeals courts last year. The Supreme Court announced it would not hear the cases without explanation. The decision helps define the extent of state jurisdiction in setting power generation policy. The High Court previously said it was illegal to link receipt of a state subsidy to participation in interstate power markets, but the nuclear subsidy programs do not make participation mandatory.

The Supreme Court's decision not to hear challenges to the nuclear subsidies is the final ruling on the legality of the programs, whose structure is now replicated in other states. Since New York and Illinois approved their nuclear supports in 2016 and 2017, respectively, Connecticut and New Jersey have enacted programs to preserve the generators threatened with early retirement because of competition from natural gas and renewables. With each program, policymakers designed the subsidies to skirt an earlier Supreme Court ruling, 2016's Hughes v. Talen Energy. In that case, the Supreme Court invalidated a gas generation program in Maryland because the state made receipt of a subsidy contingent on the plant participating in the PJM wholesale market, which operates across more than a dozen mid-Atlantic states.

EPA Replaces Clean Power Plan: On June 19, 2019, The Trump administration replaced former President Barack Obama’s effort to reduce planet-warming pollution from coal plants with a new rule that would keep plants open longer and undercut progress on reducing carbon emissions.32 The rule represents the Trump administration’s most direct effort to protect the coal industry. It is also another significant step in dismantling measures aimed at combating global warming, including the rollback of tailpipe emissions standards and the planned withdrawal from the Paris climate agreement.

The new rule, known as the Affordable Clean Energy Rule, is supported by the coal industry, but it is not clear that it will be enough to stop more coal-fired power plants from closing. Barring any delays from the outcome of initial court challenges, it is scheduled to come into effect on July 19, 2019.

The new plan largely gives states the authority to decide how far to scale back emissions, or not to do it all, and significantly reduces the federal government’s role in setting standards. The Obama plan would have set national emissions limits and required the reconstruction of power grids to move utilities away from coal. The new regulation, known as the Affordable Clean Energy rule, immediately drew a flurry of challenges, with

30 WECC 2018-2019 Draft Scenarios for Horizon Year 2038 V 0.1, July 25 2018 31 EPS: Supreme Court of U.S. passes on review of lower court ruling on power plant subsidies by States, Utility Dive,

April 15 2019 32 EPS: EPA Replaces Clean Power Plan, The New York Times and NPR, June 19 2019

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attorneys general in California, Oregon, Washington State, Iowa, Colorado, and New York saying they intend to sue to block the measure.

Those cases could have far-reaching implications for global warming. If the Supreme Court ultimately upholds the administration’s approach to pollution regulation, it would shut down a key avenue that future presidents could use to address climate change. At issue is whether the Environmental Protection Agency has authority to set national restrictions on carbon emissions and force states to move away from coal, as assumed under Mr. Obama’s rule. Under the Trump administration’s interpretation, the agency only has authority over environmental infractions at individual plants, like chemical spills and improper handling of hazardous materials.

Implications for Reliability: We see no major reliability related risks from recent developments in Federal Electric Market Policies. Recent trends in Federal policies are continuing to generally lean toward further reductions in reliability risk.

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Changes in Utility-Scale Power Supply Options From The 2038 Scenario Report: “Technological innovation, improved sales and marketing programs, and improvements in customer services will continue to occur at the wholesale and traditional utility-scale level of the electric business. Some customers may even prefer to maintain the historically traditional utility service and its levels of reliability. Some states and provinces may also prefer this form of service for regulatory reasons or local economic and social factors. Additionally, technological innovation may continue to lower the cost of utility-scale clean energy supply options such as wind energy, solar power, and new forms of energy storage, as well as innovation and cost reductions in conventional technologies such as carbon capture and sequestration (CCS) and modular nuclear power generation, allowing them to compete effectively with distributed energy resource options. Technological innovation is also likely to enable utility-scale renewable resources to provide more capabilities in meeting reliability services, and therefore, additional flexible resource adequacy.”33

At this time, we see a continuation of the basic trends we reported on in our last First Quarter Trends Report, which is that the Western Interconnection is seeing a continuation of the movement towards more use of integrated storage technologies, and nationally, renewable forms of energy are continuing to make inroads into the generation mix. At the same time, utilities are trying to come to grips with the need to change their business models—with differing strategies and results— as the transition away from coal continues, and Customer Choice Aggregators (CCAs) begin to affect their revenue streams. The integration of digital technologies into many aspects of the power system (distribution grid, power system operations, communications, and dispatch, among others) is also continuing to evolve.

Developments in Storage: There is now a debate from well-qualified energy analysts about whether the electric power industry is about to enter a phase in which storage technologies are a disruptive force, and in particular, will greatly reduce of use of natural gas driven power systems (combustion turbines) in their role as reserve capacity to support system reliability. A report from the Institute for Energy Economics and Financial Analysis34 (IEEFA) suggests that the continuing falling cost of energy storage for utility-scale applications, along with other features such as easy scalability, will lead to a fundamental shift on how reliability needs are met across the power industry. Projections for longer-term growth of storage from the EIA are shown below.

Figure 3, US Utility Scale Battery Storage Capacity 2003 – 2023 Source: Energy Information Administration (EIA)

33 WECC 2018-2019 Draft Scenarios for Horizon Year 2038 V 0.1, July 25 2018 34 EPS: Financial Analysis Suggest Power Storage Technologies Positioned for Industry Disruption, The Institute for

Energy Economics and Financial Analysis (IEEFA), June 14 2019

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Even though at this early stage, battery storage is a small component of energy storage in the power industry, this report suggests the following key things to consider as driving future growth:

1. Battery storage in combination with solar can be used to facilitate closure of coal and natural gas plants currently being used largely for peaking or seasonal needs, as shown by the NV Energy decision to close the North Valmy coal plant in Nevada and FPL’s plan to shut two aging natural gas units in Florida.

2. Battery storage can be used to meet system peak needs, as SCE is doing in California in replacing the two-unit Mandalay natural gas peaker plant.

3. Battery storage can be used to provide firm renewable power, as both Arizona Public Service and Hawaiian Electric are demonstrating with projects they have named, respectively, “Solar after Sunset” and “Renewable Dispatchable Generation.”

4. Battery storage offers utilities significant opportunities to boost system resilience and cut costs at the same time, as is being demonstrated in a number of other projects highlighted in this report.

5. Battery storage can be used to enable more residential solar systems to be installed on local distribution lines, without requiring potentially costly and time-consuming system upgrades. An example is an existing program in Vermont and as is suggested by a proposed one in New Hampshire.

6. Battery storage can be used to improve the economics of existing utility-scale solar generation, as can be seen in the discussion about Vistra’s battery storage retrofit at a Texas PV plant.

Energy storage developers in May, along with Republican Utah Gov. Gary Herbert, announced what they say will be the world's largest clean energy storage project at 1 GW.

The Advanced Clean Energy Storage (ACES) project in central Utah will utilize four storage technologies: renewable hydrogen, compressed air energy storage, large-scale flow batteries, and solid oxide fuel cells. The project will be developed by Mitsubishi Hitachi Power Systems (MHPS) and Magnum Development.35 The companies say MHPS has pioneered gas turbine technology enabling a mixture of renewable hydrogen and natural gas low-emissions power. Magnum will utilize a salt dome storage facility with five caverns already in operation, for liquid fuels storage. The company is continuing to develop compressed air energy storage, as well as renewable hydrogen storage options. The Magnum site is located next to the Intermountain Power Project, and "is positioned to integrate seamlessly with the western US power grid utilizing existing infrastructure," the company said. The companies say their ACES facility will be able to serve 150,000 households for an entire year.36

California continues to play a leading role in encouraging expanded use of energy storage. The California Independent System Operator (ISO) has become one of the nation's first wholesale power markets to connect a groundbreaking type of flow technology batteries to its grid, which could give rise to promising storage capability on large-scale electric systems.37 San Diego Gas & Electric (SDG&E) has unveiled a vanadium redox battery storage pilot project in coordination with Sumitomo Electric, stemming from a partnership between Japan's New Energy and Industrial Technology Development Organization (NEDO) and the California Governor's Office of Business and Economic Development.

What started as a routine gas plant procurement ended as a testament to the changing electrical grid as utility Southern California Edison selected a roster of energy storage projects to supply local capacity needs around the coastal city of Oxnard, instead of the 262-megawatt natural-gas peaker plant it had chosen previously. 35 EPS: 1000 MW Storage Planned for Utah, Green Tech Media, May 30 2019 36 EPS: Utah Claims World's Largest Energy Storage Project, Utility Dive, May 31 2019 37 EPS: Innovative battery technology connected to California ISO power grid, CAISO via Orange County Breeze, April 30

2019

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This change was largely due to pressure from the local community to provide reliability from storage as opposed to a gas peaker plant.38 If regulators give their approval, Strata Solar will build and own a 100-megawatt/400-megawatt-hour system in Oxnard, and dispatch it on behalf of SCE. This system will tie for the largest lithium-ion battery in the world when it comes online in December 2020; the AES Alamitos plant of the same size is due around the same time. SCE wants to complement the massive battery with a portfolio of smaller units, ranging from 10 to 40 megawatts, scattered around the area.

More Coal Generation Replaced by Renewable Power: As we have covered in the past, we are continuing to see coal generation retirements in the US power sector with replacement power coming from renewable energy. This fits with the growing expansion of renewable portfolio standards to reduce carbon emissions mentioned in other parts of this report.

Within the Western Interconnection—and captured in EPS submissions in this report—we reported new storage-related investments in Utah and California. To show the trend has some national presence, we also note the investment planned by Florida Power & Light as it is replacing two gas plants with the world’s largest storage system (409 MW).39

While this is happening, coal-fired power continues its decline with the early closure of two of Montana’s Colstrip Plants, reportedly due to high fuel costs40 and PacifiCorp’s announcement of its plan for the early closure several of its coal plants.

For the first time, PacifiCorp41 has outlined a plan that could save customers money by retiring coal plants early. But it faces a challenge in Wyoming's new coal protection law. After years of shielding the economic status of its coal-fired power fleet from public view, utility PacifiCorp is taking the first step toward considering early closure of some of its poorest-performing coal-fired power plants, and replacing them with hundreds of megawatts of less costly wind, solar and energy storage resources. The utility revealed that its customers could save up to $248 million over the next 20 years, under a plan to retire four of its least economically competitive coal units in Wyoming by 2022, several years ahead of schedule. The analysis also showed that PacifiCorp could close up to nine of its coal units in Wyoming and Colorado and still achieve long-term savings of $12 million over 20 years.

The Federal Energy Regulatory Commission’s (FERC) late April Monthly Electric Power Infrastructure report42 notes the steady growth of renewable energy, which makes up a majority of anticipated capacity additions. If FERC's projections prove accurate, in three years, renewable energy sources will provide nearly one-quarter (24.15%) of the nation's total available installed generating capacity. Of that, wind would represent just over 10%, hydro 8.16%, solar 4.3%, biomass 1.33%, and geothermal 0.33%. FERC's data also reveals that the nation's renewable energy capacity has been adding, on average, a percentage point each year.

Idaho Power has released plans to implement 100% clean energy by 2045. They have also signed a PPA for $21.75 per MWh for a 120 MW solar plant, one of the lowest PPAs for renewable energy.43

Implications for Reliability: We continue to see enhanced opportunities in recent developments in the area of utility-scale power developments, especially in hybrid renewable + storage systems, to improve electric system reliability by providing more flexibility in managing power generation. New technological options and approaches to service are increasing power supply and electric service company choices.

38 EPS: Southern California Edison Picks 195 MW Battery Portfolio in Place of Puente Gas Plant, Green Tech Media, April

25 2019 39 EPS: FPL To Replace Aging Gas Power Plants With World's Largest Battery, Forbes and Ars Technica, March 31 2019 40 EPS: Montana's Colstrip coal units to close early as operator blames fuel supplier, Utility Dive, June 12 2019 41 EPS: PacifiCorp Proposes Replacing Wyoming Coal Plants With Renewables and Storage, Green Tech Media, April 30

2019 42 EPS: FERC infrastructure inventory report reveals renewables surpassing coal, Utility Dive and FERC, June 11 2019 43 EPS: Idaho Power sets goal for 100-percent clean energy by 2045; signs record-low solar PPA, Renewable Energy

World, March 29 2019

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Changes in State and Federal Electric System Reliability Standards and Regulations From The 2038 Scenario Report: “Federal, State, and Provincial agencies directly set rules and standards that the power industry must follow to meet electric system reliability. Issues like climate change, cyber-security risks, and improved system resilience (in response to damaging climate events or physical attacks) are becoming increasingly important as they impact electric system reliability, and will likely lead to increased costs for electric power infrastructure. A clear understanding of these developments, and how they may play out in the longer term, is important for understanding the evolution of electric reliability. Additionally, as increasing amounts of variable generation resources are integrated into the system and relied upon in maintaining and assuring bulk electric system reliability, the dynamics of assuring system reliability may change in comparison to what is required in traditional utility systems.”44

There were several events during the quarter of 2019 we think were directed at reliability at the state level. We did not see any new notable actions at the federal level, especially since as reported in the first quarter, the FERC rulings on capacity markets (in particular in the PJM) has still not been fully resolved. California was particularly active this quarter.

California Actions: The North American Electric Reliability Corp. (NERC) has certified California ISO's reliability coordinator operation, known as RC West, clearing the way for it to begin operating in July 2019.45 The California ISO announced in January 2018 that it would begin acting as its own reliability coordinator (RC), taking over that responsibility from Peak Reliability (a spin-off from the WECC bi-furcation). RC West will become the reliability coordinator of record for 16 balancing authorities and transmission operators in California, including one in northern Mexico, starting July 1, and this number could quickly expand.

Following additional review by NERC and the Western Electricity Coordinating Council (WECC), RC West expects to take on additional customers and ultimately have reliability oversight for 87% of the electricity load in the Western Interconnection. The ISO said it expects in November that RC West will become the RC to an additional 24 entities in the Western Interconnection. The list of balancing authorities and transmission operators expected to receive services from RC West includes eight utilities in the California ISO, Arizona Public Service, Puget Sound Energy, Seattle City Light, Salt River Project, Idaho Power, Los Angeles Department of Water and Power, NV Energy and others.

In late March 2019, a California Administrative Law Judge (ALJ) proposed statewide procurement for renewable resources, finding that proposed resource plans from utilities and other power providers will not reduce greenhouse gases enough to meet state goals.46 The proposed decision from ALJ Julie Fitch would refuse to adopt the combined integrated resource plan (IRP) from the state's utilities and community choice aggregators (CCA) because it "does not meet the GHG emissions goals" and could challenge reliability. Instead, Fitch proposed a new statewide Preferred System Portfolio that would guide generation decisions out to 2030. If adopted by the California Public Utilities Commission (CPUC), regulators at that agency would decide how power providers would comply with the new statewide portfolio. California regulators routinely adopt ALJ findings with minimal or no changes.

On March 25, 2019, the California Public Utilities Commission put forth a plan and guidance for future clean electric energy resource development for the state looking out ten years.47 The plan suggests the expansion of wind, solar battery storage, and geothermal sources of energy to be followed by load-serving entities that wish to add energy resources to the state's system. In the announcement by Commissioner Liane Randolph, she stated that the portfolio contains approximately 12,000 megawatts of new solar, wind, battery storage, and geothermal resources that California will need by 2030. These are not hard procurement targets for the

44 WECC 2018-2019 Draft Scenarios for Horizon Year 2038 V 0.1, July 25 2018 45 EPS: California ISO to launch Reliability Coordinator service in July, Utility Dive, June 4 2019 46 EPS: CA Administrative Law Judge Proposes Statewide Renewables Procurement, Utility Dive, March 20 2019 47 EPS: California PUC Adopts Preferred Resource Portfolio, California Public Utilities Commission and Utility Dive, April

29 2019

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load-serving entities, but they do point to the scale of what we need to procure, and they indicate the attributes of resources that we need to achieve the emissions, reliability, and cost goals.

Colorado Actions: Colorado also made some policy moves that we think were aimed at assuring long term reliable power. In early May, Colorado legislators passed a comprehensive utility bill that subjects Tri-State Generation and Transmission (G&T) to the Public Utilities Commission's rulemaking and codifies Xcel Energy's clean energy plans, among other things.48 Tri-State has faced scrutiny for its generation portfolio in the past year —the company supplies power to 43 rural electric cooperatives, and some of those members have asked regulators to exit their supplier, seeking cheaper and cleaner power. SB 19-236 would increase oversight of the company's integrated resource plan, which was not previously subject to PUC rulemaking. Approximately half of Tri-State's generation comes from coal, and an August report from the Rocky Mountain Institute found the utility's 1 million customers could save $600 million through 2030 by shifting toward renewables. "As Tri-State transitions to our vision of a 21st century G&T, reliability, and affordability remain our focus, and we will be member-driven, increasingly flexible, and increasingly clean," Duane Highley, Tri-State CEO, said in a statement responding to the bill.

Xcel Energy, the largest power provider in the state, committed to 100% clean energy by 2050 in December. The Xcel portion of the bill now codifies those goals and allows the utility to own 50% of its future renewable energy assets as it builds out cleaner power. Along with the PUC directive on Tri-State, SB 19-236 directs the commission to develop rules to evaluate how distributed energy resources, such as energy efficiency, battery storage, and rooftop solar, can better serve the grid in its transition.

Implications for Reliability: In general, we see that the thrust of recent developments in Federal and State Regulations of electric systems reliability are intended to improve conditions in which reliability risks can be addressed and reduced.

48 EPS: Colorado Passes New Energy Laws for Tri State Energy and Xcel Energy, Utility Dive, May 7 2019

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Evolution of the Impacts of Climate Change and Environmental Issues on Electric Power Service From The 2038 Scenario Report: “Addressing climate change is a central issue in the evolution of electric power supply systems in the US, Canada, and the world. Other environmental issues like air and water quality and land use are also important. Policies set by governmental agencies will influence electric supply and demand choices for all customers, and those policies will impact the cost of power. How customers see, and value climate and environmental issues will impact future legislation placed on the power industry.”49

There were a number of significant events related to both this driver and Scenario 5: Energy, Water, and Climate Change. Among the most significant:

• Global carbon dioxide emissions from energy generation rose to a record high in 2018, and the highest levels of carbon dioxide in human history were recorded on May 12, 2019.

• Nuclear plant retirements are projected to increase carbon dioxide emissions significantly. New data research by NASA has confirmed that satellite and ground-based temperature data are highly consistent, providing high confidence that estimates of global and regional temperatures are accurate.

• Diverse carbon policies are proliferating across the country (as well as globally) and are becoming increasingly hard to manage within entities charged with operating the nation’s electricity grid.

• Canada is warming at a rate twice as fast as the rest of the world, and scientists have linked climate change to the intensity of wildfires in Alberta.

• Clean energy installations stalled in 2018, and new fossil fuel and pipeline development will lock in additional emissions increases for decades.

Global Warming Measurements: New research has confirmed other model’s results on global warming, and the consensus gives confidence to satellite estimates of temperature rise in remote areas with few weather stations.50 The findings, published April 18, 2019, in the journal Environmental Research Letters, demonstrate that temperature data collected by a satellite-based infrared measurement system are highly consistent with information gathered by sensors on the Earth's surface (there has been a recurring theme about how these systems may be overstating temperature rise). The bad news: Global warming is still steadily proceeding. But the good news is that all of these methods broadly agree with one another, despite being collected in very different ways. That means there’s high confidence that the estimates are accurate.

Diverse Carbon Policies: California’s Low Carbon Fuel Standard is one of a group of programs designed to reduce greenhouse gas (GHG) emissions enacted through AB 32, the 2006 Global Warming Solutions Act, signed in to law by Governor Arnold Schwarzenegger.51 The LCFS applies to fuels used for transportation, including gasoline, diesel, and their alternatives. The goal of the LCFS is to reduce the carbon intensity (CI) of the transportation fuel pool by 10% by 2020. The LCFS is administered by the California Air Resources Board (CARB). The LCFS, adopted initially in 2009, became effective in 2011 to reduce CI by 10% in 2010. Recent prices for carbon offsets have been in the $190.00 per ton range; however, it is unclear if actual trades occurred at that price.

A key factor here is that this regulation allows emitters to buy offsets from a wide range of industries, though focused on fuel primarily. An offset can be gained from the electric power industry, and this allows some cross-industry activity which can have economic impacts over time. The State does monitor prices to assure they do not rise to very high levels and can add carbon credits, as it deems necessary.

49 WECC 2018-2019 Draft Scenarios for Horizon Year 2038 V 0.1, July 25 2018 50 EPS: It’s A Match: Satellite and Ground Measurements Agree on Warming, Scientific American, Ars Technica, NASA,

April 18 2019 51 EPS: Low Carbon Fuel Standard in California Sets Carbon Prices Across Energy Sectors, Stillwater Associates, April

2019

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Carbon Pricing initiatives - Fifty-seven (57) carbon pricing initiatives are implemented or scheduled for implementation globally, up from 51 in April 2018.52 According to the annual State and Trends of Carbon Pricing report published by the World Bank, the report concludes that both the amount of emissions covered by carbon pricing and the prices levels are still too low to meet the objectives of the Paris Agreement. About 20 percent of global greenhouse gas emissions are covered by regional, national, and sub-national carbon pricing initiatives and, of these, less than 5 percent are currently priced at a level consistent with achieving the temperature goals of the Paris Agreement (estimated to be between US $40–80/tCO2 by 2020 and US $50–100/tCO2 by 2030). At this time, about 1/2 of emissions covered are still priced below US $10/tCO2e (Tons CO2 emitted).

In the Western Interconnection, forms of carbon pricing are established or pending in Mexico, California, Canada, British Columbia, and Washington. Oregon currently has a bill moving through the state legislature53 that is designed to work in conjunction with the California law and link to the Western Climate Initiative, a regional carbon trading system that currently contains California and the Canadian provinces of British Columbia, Nova Scotia, and Quebec. Alberta is in the process of reconsidering its existing carbon pricing regimes (Canada, however, continues its efforts to establish a national level carbon tax). The report’s analysis concludes by saying “…action on carbon pricing is nowhere near where it should be: it still covers only a small part of global emissions at prices too low to significantly reduce emissions."

Managing Diverse Carbon Policies - A patchwork of state policies has emerged across its territory in recent years to curb generation from carbon-emitting power plants, from the Regional Greenhouse Gas Initiative to zero-emission credits for nuclear power plants. Now, there's growing concern these varying state approaches to carbon pricing are causing "leakage" — increasing use of more expensive and polluting plants in states that don't have regulations that penalize emissions.54

PJM Interconnection is the regional transmission organization for an area that spans all or parts of 13 states from Illinois to the Atlantic Coast. The nation's largest electric grid operator is grappling with how to prevent state climate policies from merely pushing emissions– and costs– across state lines.

In April, PJM announced a task force would spend the next 18 months figuring out how to integrate state carbon policies into its markets, which are supposed to provide a level playing field for buyers and sellers of wholesale electricity in the region. If left unchecked, leakage can "affect generator investment decisions, the goal of reducing emissions and consumer costs in all areas," according to a statement endorsed by PJM's Markets and Reliability Committee.

Greenhouse Gas Emissions and Accumulations: Global carbon dioxide emissions from energy generation climbed for the second straight year in 2018 and reached a record high as global energy demand surged, a new International Energy Agency (IEA) report shows.55 The IEA said energy-related CO2 — which accounts for the vast majority of all CO2 emissions— climbed by 1.7% last year following a slightly smaller increase in 2017. China, India, and the US jointly accounted for 85% of the net emissions growth.

This report is at least the second significant analysis to show renewed emissions growth over the last two years, following a plateau in 2014-2016. Researchers under the banner of the Global Carbon Project have separately concluded that that emissions rose in 2017 and 2018.

52 EPS: 57 Carbon Pricing Initiatives Now in Place Globally, The World Bank, June 6 2019 53 In a move too late for an EPS, the GOP members of the Oregon Senate effectively stalled this bill by leaving the state,

denying the Democrat majority the quorum needed for a vote. Whether the bill will be reintroduced is unknown at this time.

54 EPS: PJM looks to plug ‘leaks’ sprouting from patchwork of state carbon policies, Energy News Network, June 3 2019 55 EPS: Global carbon dioxide emissions reached record high in 2018, Axios and the International Energy Agency, March

26 2019

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Figure 4, Global Energy-related Carbon Dioxide Emissions by Source 1990-2018, Source: International Energy Agency

Carbon Dioxide Accumulations - Scientists in the United States have detected the highest levels of planet-warming carbon dioxide in Earth's atmosphere since records began, sounding an alarm over the relentless rise of man-made greenhouse gas emissions. The Mauna Loa Observatory in Hawaii, which has tracked atmospheric CO2 levels since the late 1950s, on May 13, 2019, detected 415.26 parts per million (ppm).56 It was also the first time on record that the observatory measured a daily baseline above 415 ppm. The last time Earth's atmosphere contained this much CO2 was more than three million years ago when global sea levels were several meters higher, and parts of Antarctica were blanketed in forests.

Ralph Keeling, director of Scripps Institution of Oceanography's CO2 Program, said the trend would probably continue throughout 2019—likely to be an El Nino year in which temperatures rise due to warmer ocean currents. "The average growth rate is remaining on the high end. The increase from last year will probably be around three parts per million whereas the recent average has been 2.5 ppm," he said. "The average growth rate is remaining on the high end. The increase from last year will probably be around three parts per million whereas the recent average has been 2.5 ppm," he said.

Figure 5, Carbon Dioxide Levels Over Time Source: Popular Science. Data from Scripps Howard Institute of Oceanography, UC San Diego

56 EPS: 415.26 parts per million: CO2 levels hit historic high, Phys Org and Popular Science, May 13 2019

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Nuclear Power Plant Retirements Effects - In its first report on nuclear energy in 20 years, the International Energy Agency (IEA) warns world leaders that without support for new nuclear power or lifetime extensions for existing nuclear power plants, the world's climate goals are at risk.57 The report paints a picture of low-carbon power being lost through attrition due to the retirement of aging plants, or due to economics (extremely cheap natural gas as well as wind and solar undercutting more expensive nuclear power for years in some regions).

New builds are unlikely to pick up the slack, but plant lifetime extensions could. "The lack of further lifetime extensions of existing nuclear plants and new projects could result in an additional four billion tonnes of CO2 emissions," a press release from the IEA noted. Around the world, 452 nuclear reactors provided 2,700 terawatt-hours (TWh) of electricity in 2018, a significant source of low-carbon energy on a global level. While 11.2 gigawatts (GW) of nuclear power was connected to the grid last year, all of the new capacity was located in China or Russia. But in advanced economies (e.g., US, EU, and Japan), the nuclear fleet is much older. Reactors are 35 years old on average, and they are at risk of retirement. "Given their age, plants are beginning to close, with 25 percent of existing nuclear capacity in advanced economies expected to be shut down by 2025."

Fossil Fuel Transportation - A new report suggests that fossil fuel and pipeline development will lock in carbon emission for decades. Global Energy Monitoring’s report58 looks at EIA data and other public sources to assess the impact of current development in the US and Canadian fossil fuel and natural gas transportation markets. Of a total 302 pipelines in some stage of development around the world, 51% are in North America, according to the Global Energy Monitor. A total of $232.5 billion in capital spending has been funneled into these North American pipeline projects, with more than $1 trillion committed towards all oil and gas infrastructure. If built, these projects would increase the global number of pipelines by nearly a third and mark out a path of several decades of substantial oil and gas use.

In the US alone, the natural-gas output enabled by the pipelines would result in an additional 559M tons of planet-warming carbon dioxide each year by 2040, above 2017 levels, according to Global Energy Monitor, citing International Energy Agency figures. See a more detailed review of this is on page 30.

Clean Energy Installations Stall - According to a report released on May 6, 2019, by the International Energy Agency (IEA), installations of renewable energy plateaued in 2018 for the first time in nearly two decades of record keeping.59 Even if it's just a temporary hiccup, a pause in installations is an extremely worrisome sign about the world's ambition to address climate change. The world added 177 gigawatts of renewable energy to the grid last year, matching 2017's total. The last time the world didn't see year over year growth in renewable capacity additions was 2001. The plateau is troubling – According to the IEA, renewable capacity has to grow by 300 gigawatts per year until 2030 for the world to have any hope of reaching the Paris Agreement goals. The stall was primarily driven by China, due to its implementation of new regulations and removing some subsidies for utility-scale solar. (Green Tech Media has an excellent overview of all the details).

Effects of Climate Change – Linkages: Canada is warming twice as fast as the rest of the world, a landmark government report has found, warning that drastic action is the only way to avoid catastrophic outcomes.60 “The science is clear – Canada’s climate is warming more rapidly than the global average, and this level of warming effectively cannot be changed,” Nancy Hamzawi, assistant deputy minister for science and technology at Environment and Climate Change Canada. And in the Arctic, the warming is happening at a much faster rate of 2.3 C, the report says. The report by Environment and Climate Change Canada suggests the majority of warming is the result of burning fossil fuels.

57 EPS: IEA: Nuke retirements could lead to 4 billion metric tons of extra CO2 emissions, Ars Technica, May 28 2019 58 EPS: New report suggest that fossil fuel and pipeline development will lock in carbon emission for decades, The

Guardian (UK), April 25 2019 59 EPS: Clean Energy Growth Stalls for First Time in Nearly Two Decades, IEA, Gizmodo and GreenTech Media, May 6

2019 60 EPS: Canada warming at twice the global rate, climate report finds, The Guardian (UK), April 2 2019

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Canada has already pledged to cut emissions by 200 million tonnes by 2030—a cornerstone of Prime Minister Justin Trudeau's national climate strategy—mainly through a federally mandated carbon tax and shuttering coal-fired plants. Despite the urgency of the report, Canada remains mired in a political battle over climate policy.

Canadian Wildfires Linked to Climate Change - In June, Canadian scientists said there are definite links between climate change and increasing numbers of severe forest fires in Alberta and British Columbia.61 In May 2016, a wildfire near Fort McMurray forced more than 80,000 people to flee the northern Alberta city, destroyed 2,400 buildings, and burned nearly 6,000 square kilometers of forest. A year later, the fire season in British Columbia broke records as 2,117 blazes consumed more than 12,000 square kilometers of brush. Both have been connected to climate change in two separate research papers published earlier this year by scientists with Environment and Climate Change Canada. "The Fort McMurray fire was 1.5 to six times more likely because of climate change. The 2017 record-breaking B.C. fire season was seven to 11 times more likely because of climate change. The scientists noted, “We burn about 2.5 million hectares a year on average — that's using about a 10-year average. It's more than doubled since the late '60s and early '70s."

Prepare for Catastrophes: The Environmental Protection Agency (EPA) published a 150-page document62 in April 2019 with a straightforward message for coping with the fallout from natural disasters across the country: Start planning for the fact that climate change is going to make these catastrophes worse. The language, included in guidance on how to address the debris left in the wake of floods, hurricanes, and wildfires.

Multiple recent studies have identified how climate change is already affecting the United States and the globe. In the western United States, for example, regional temperatures have increased by almost 2 degrees Fahrenheit since the 1970s, and snowmelt is occurring a month earlier in areas, extending the fire season by three months and quintupling the number of large fires. Another scientific paper, co-authored by EPA researchers, found that unless the United States slashes carbon emissions, climate change will probably cost the United States hundreds of billions of dollars annually by 2100.

The report is at odds with statements by EPA head Andrew Wheeler. The divergence between Wheeler and his agency offers the latest example of the often contradictory way that federal climate policy has evolved under President Trump. As the White House has sought to minimize or ignore climate science, government experts have continued to sound the alarm.

New Report on Flood Risks for US Nuclear Plants – A 2011 report prepared by the US Nuclear Regulatory Commission following the Fukushima Nuclear power plant disaster reviewed nuclear plants in the US for among other things, risks from flooding. The report stated that previous estimates of risks were understated, was based on outdated information, and risk levels would need to be revised upward. The NRC was apparently aware of the increased risk for years before addressing it—and passages indicating this awareness were blacked out in the 2011 report on its original release. In the US, 34 nuclear plants lie downstream from more than 50 dams. The Union of Concerned Scientists is asking in a new report that the NRC update their review of nuclear power plants and adequately assess and address the threat of flood risk at those facilities.

Implications for Reliability: Due to widespread and varied impacts of potential climate change events, we continue to see recent developments in this area presenting significant risks to electric reliability in all four of the areas of concern. Climate-related events can destroy and disable power systems, such as the recent California wildfires63, so that resource adequacy, operational, infrastructure, and system stability risks can emerge. 61 EPS: Scientists say definite link between climate change and increased, severe forest fires in Alberta and B.C., The

Globe & Mail and the National Post, June 9 2019 62 EPS: Start planning for catastrophes, new EPA document says, Environmental Protection Agency, the Manchester Press

Herald, April 27 2019 63 EPS: PG&E Bankruptcy Raises Big Questions for Utilities, GreenTech Media, January 16 2019

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Evolution of Fuel Markets in the Electric Power Sector From The 2038 Scenario Report: “All electric power generation requires a fuel source Historically coal, natural gas, oil, and nuclear fuel have been dominant (sunlight, wind, and water are not traditionally thought of as “fuel” though they serve similar purposes). It is therefore critical to understand the role of fuels in the power sector, particularly natural gas, including the transportation infrastructure (including pipelines and storage). How and at what levels these fuels will be used as the power system evolves will be central to how electric reliability will be met.”64

During the second quarter, we report some longer-term developments that are notable in the sense that they give indications of fossil fuels longevity as a source of energy, but at the same time indicate efforts within the energy industry to reduce their use.

Reducing Carbon across Energy Markets: California’s Low Carbon Fuel Standard is one of a group of programs designed to reduce greenhouse gas (GHG) emissions enacted through AB 32, the 2006 Global Warming Solutions Act, signed in to law by Governor Arnold Schwarzenegger.65 The LCFS applies to fuels used for transportation, including gasoline, diesel, and their alternatives. The goal of the LCFS is to reduce the carbon intensity (CI) of the transportation fuel pool by 10% by 2020. The LCFS is administered by the California Air Resources Board (CARB). The LCFS, initially adopted in 2009, became effective in 2011—intending to reduce CI by 10% in 2010.

Recent prices for carbon offsets have been in the $190.00 per ton range; however, it is unclear if actual trades occurred at that price. A key factor here is that this regulation allows emitters to buy offsets from a wide range of industries, though focused on fuel primarily. Offsets can be gained from the electric power industry, and this allows for some cross-industry activity, which can have economic impacts over time. The State does monitor prices to assure they do not rise to very high levels and can add carbon credits as it deems necessary. Other states in the Western Interconnection, in particular, Oregon, are looking to pass similar legislation.

Natural Gas Surpasses Coal-Fired Power in the US: In a second-quarter report, the US Energy Information Administration (EIA) announced that the amount of generating capacity from natural gas-fired combined-cycle (NGCC) plants had grown steadily over time, and in 2018, surpassed coal-fired plants as the technology with the most electricity generating capacity in the United States.66 As of January 2019, US generating capacity at NGCC power plants totaled 264 gigawatts (GW), compared with 243 GW at coal-fired power plants. Since the beginning of 2015, about 40 GW of coal-fired capacity has retired, and no new coal capacity has come online in the United States. During that same period, NGCC net capacity has grown by about 30 GW. The electricity generation from these NGCC capacity additions, as well as output from new wind and solar generators, has largely offset the lost generation from coal retirements. (#179) Figure 6, Annual & Monthly US Electricity Generating Capacity 2002-2018, Source: EIA

64 WECC 2018-2019 Draft Scenarios for Horizon Year 2038 V 0.1, July 25 2018 65 EPS: Low Carbon Fuel Standard in California Sets Carbon Prices Across Energy Sectors, Stillwater Associates, April

2019 66 EPS: U.S. natural gas-fired combined-cycle capacity surpasses coal-fired capacity, EIA: Today in Energy, April 10 2019

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Long Term Fossil Fuel Use: Of a total 302 pipelines in some stage of development around the world, 51% are in North America, according to Global Energy Monitor, which tracks fossil fuel activity. 67 A total of $232.5bn in capital spending has been funneled into these North American pipeline projects, with more than $1tn committed towards all oil and gas infrastructure. If built, these projects would increase the global number of pipelines by nearly a third and mark out a path of several decades of substantial oil and gas use. In the US alone, the natural-gas output enabled by the pipelines would result in an additional 559 m tons of planet-warming carbon dioxide each year by 2040, above 2017 levels (citing International Energy Agency figures).

“This is a whole energy system not compatible with global climate survival,” said Ted Nace, co-author of the Global Energy Monitor report. “These pipelines are locking in huge emissions for 40 to 50 years at a time, with the scientists saying we have to move in 10 years. These pipelines are a bet that the world won’t get serious about climate change, allowing the incumbency of oil and gas to strengthen.” New gas pipelines outnumber oil pipelines by about four to one, bolstered by a glut of abundant natural gas that is swiftly replacing coal as the leading electricity source for US homes and businesses.

The most active area for pipelines is the Permian Basin in west Texas, a sprawling formation that contains enormous deposits of oil and gas. Other active zones include the shale formations in Pennsylvania, Ohio, and West Virginia, and the Canadian tar sands of Alberta.

Implications for Reliability: Recent and short-term movement in the evolution of fuel markets in the power sector do not present any new emerging risks for any of the categories of electric reliability. In particular, domestic natural gas resources serving the power sector continue to be abundant, thus enhancing the ability to add resources to address reliability concerns.

67 EPS: New report suggest that fossil fuel and pipeline development will lock in carbon emission for decades, The

Guardian (UK), April 25 2019

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Shifts in the Cost of Capital and Financial Markets From The 2038 Scenario Report: “Power industry assets are capital intensive investments and cost a lot of money, and often necessitate long-term borrowing and debt. Thus, the cost of capital is an essential component in the cost of the electric power supply generation, transmission, and distribution, and can influence the choice and use of supply options. Tax incentives and financial structuring of securities can also have significant influences on option choices. As supply options are determined based on costs, there will be implications for meeting electric reliability standards based on the energy supply assets financed and built.”68

We did not see any extraordinary development in capital markets during the second quarter that would reduce the availability or increase the cost of capital to the energy industry beyond normal market and systemic fluctuations impacting interest rates. More comments on the evolving state of the US economy are captured in other parts of this report. However, we did see two developments might signal changes in how investors view risk in the power sector.

Power purchase contracts exposed: In May, Pacific Gas & Electric has won a huge legal decision from the bankruptcy court agreeing with its position that it can proceed to renegotiate $42 billion in costly energy power purchase contract commitments, including many renewable energy contracts.69 This decision will likely be appealed but for the time being the $42 billion in power purchase energy contracts with suppliers including renewable energy projects with NextEra Energy Inc., Consolidated Edison Inc., and Berkshire Hathaway Inc. These contracts are under challenge and could be subject to complex and lengthy renegotiations as a part of PG&E’s bankruptcy proceedings which not only might delay these planned renewable contracts but could also significantly jeopardize California’s future renewable energy use time table. The power purchase contracts are a major component of how debt financing is supported and secured for energy projects.

The Wall Street Journal noted the following regarding how this ruling came about and its significance concerning PG&E’s future renewable energy contracts. “The ruling by Judge Dennis Montali, who is presiding over PG&E’s Chapter 11 proceeding, may allow the company to get out of $42 billion in power-purchase agreements, including many pioneering wind and solar deals that are now well above current market prices”. PG&E said it was pleased with the ruling, but appreciates the concern that its bankruptcy will slow progress toward promoting clean energy. The company said it has yet to decide which contracts it will keep and which it will reject. Bankruptcy gives PG&E the freedom to get out of power deals that it considers unfavorable, as long as a judge agrees. But the Federal Energy Regulatory Commission, which regulates interstate power markets, has asserted it also has authority over PG&E’s contract decisions.

In his ruling, Judge Montali disagreed, finding that FERC overstepped its authority in threatening to overrule his decisions on PG&E’s power-purchase agreements. FERC had sought to have the bankruptcy judge agree to side-by-side jurisdiction, which would have made it tougher for PG&E to get out of deals

Evolving Investor Concerns for Climate Risk: Climate Action 100+ is an investor initiative to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change. The companies include 100 ‘systemically important emitters,’ accounting for two-thirds of annual global industrial emissions, alongside more than 60 others with significant opportunity to drive the clean energy transition.70 Launched in December 2017 at the One Planet Summit, Climate Action 100+ garnered worldwide attention as it was highlighted as one of 12 key global initiatives to tackle climate change.

Investor representatives from AustralianSuper, California Public Employees’ Retirement System (CalPERS), HSBC Global Asset Management, Ircantec, and Manulife Asset Management have helped to lead the design and development of Climate Action 100+.

68 WECC 2018-2019 Draft Scenarios for Horizon Year 2038 V 0.1, July 25 2018 69 EPS: Judge Exposes Renewable Energy Power Purchase Contracts in PG&E Bankruptcy, WUWT.Com, June 11 2019 70 EPS: Climate Action 100 Plus group pushes large companies to address climate risk,, Shell & Institutional Investors Joint Press

Release, December 3 2018

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The initiative is designed to implement the investor commitment first set out in the Global Investor Statement on Climate Change in the months leading up to the adoption of the historic Paris Agreement in 2015. Climate Action 100 recently negotiated an agreement with Royal Dutch Shell to reduce the Net Carbon Footprint of the energy products it sells, expressed as a carbon intensity measure, taking into account their full lifecycle emissions. These include emissions from its own operations, from the use of the energy products by its customers, as well as those generated by third parties in its supply chain. In developing its Net Carbon Footprint ambition, Climate Action stated that “We believe Shell has taken a significant leadership position within the oil and gas sector. As investors, we are strongly supportive of this approach.”

Implications for Reliability: We see no new emerging issue in capital markets that raises a significant risk to electric reliability in any of the key categories. Continued low cost and abundant sources of capital exist for the power industry for development with sound credit quality.

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Economic growth within the Western Interconnection From The 2038 Scenario Report: “Economic growth is a prime driver in electricity demand growth and thus the need for additional power supplies. Economic growth is determined by a wide range of local, regional, and national factors that play out differently in the states and provinces in the Western Interconnection. The different forms and levels of economic growth, which vary across the Western Interconnection, contribute to varied energy policy responses (prime examples being different policies in support of renewable energy portfolio standards and addressing climate change). In this way, variations in economic growth can impact what actions and investments are made to assure and sustain electric reliability in the Western Interconnection.”71

The main themes in this driver are that by all indications, the US and Canadian economies are stable, but are showing increasing signs of slowing as the Trump administration’s tariff war continues and the continued global economic slowdown affects both countries. Issues of global trade, credit risk, and the increasing amount of global debt continue to point toward a possible global recession in the next eighteen months. With no resolution in sight, we think the continuing trade war should be seen as a significant uncertainty in both the near and long-term.

US Economic Indicators: By some indicators, the US economy is slowing relative to the recent past as issues of trade and a slowing global economy continue to affect the US, although economic growth is still averaging above the 2008-2009 recession. The US Bureau of Economic Analysis released its first estimates for First Quarter 2019 Gross Domestic Product (GDP) growth in February.72 Real gross domestic product (GDP) increased at an annual rate of 3.1 percent in the first quarter of 2019 (table 1), according to the "third" estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2018, real GDP increased by 2.2 percent.

Figure 7, US Real GDP Growth 2Q15 - 1Q19 Source: US Bureau of Economic Analysis

Real Gross Domestic Income (GDI) increased by 1.0 percent in the first quarter, compared with an increase of 0.5 percent in the fourth quarter. The average of real GDP and real GDI, a supplemental measure of US economic activity that equally weights GDP and GDI, increased 2.1 percent in the first quarter, compared with an increase of 1.3 percent in the fourth quarter.

The increase in real GDP in the first quarter73 reflected positive contributions from exports, personal consumption expenditures (PCE), nonresidential fixed investment, private inventory investment, and state and local government spending that were slightly offset by a negative contribution from residential fixed investment. Imports, which are a subtraction in the calculation of GDP, decrease. The acceleration in real GDP in the first quarter reflected an upturn in state and local government spending and accelerations in private 71 WECC 2018-2019 Draft Scenarios for Horizon Year 2038 V 0.1, July 25 2018 72 US Bureau of Economic Analysis, GDP First Quarter 2019, June 27 2019 73 New GDP numbers for the Western Interconnection states and Provinces will not be released until mid-July, and we will

update those in the Third Quarter Trends Report.

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inventory investment and exports. A deceleration in PCE partly offset these movements in PCE. Imports decreased in the first quarter after increasing in the fourth quarter.

Analysis: US Economy Slowing - While the US economy grew at an annual rate of 3.2% in the first quarter of 2019 – much faster than many analysts had expected – a deeper dive into the numbers paints a more complex picture: The strong headline figure was attributable to massive inventory accumulation by businesses and sharp cuts in spending on imports. The economy grew at just an annual rate of 1.5% when the effects of inventories and net trade are excluded.74 Using GDP as the primary measure of growth has to be considered in light of the underlying components, and with the change in the US economy to a more service-dominated economy, the basic structure of GDP measures have not been changed from the industrial driven basis.

Since December, overall industrial output has dropped 1.2%. That figure, however, is flattened by the increase in oil prices since the end of last year. Exclude energy, and industrial production is down 1.7%. Production of durable goods, which tend to be more valuable than nondurable goods such as packaged foods or textiles, is down 2.3%. For motor vehicles, machinery, and electrical equipment, output is down about 5%. Semiconductor and aerospace output has held up the best by staying flat. So far, the situation is about half as bad as during the manufacturing recession of 2014-16.

US Unemployment - A sharp decline in the pace of hiring in May, especially in sectors dependent on trade, suggests that the president’s tariffs are starting to bite, and the US economy continues to show signs of slowing.75 On June 7, the government reported that employers added just 75,000 jobs in May. The increase was a far cry from what economists had expected and a fraction of the number of jobs created in April. The weakness was most evident in sectors that depend on exports, and analysts were quick to blame tariffs on China and other countries. The new data from the Labor Department also increases the likelihood that the Federal Reserve will cut interest rates, and is the latest sign that the economy is slowing.

Unemployment was unchanged at 3.6 percent; the lowest that number has been in about 50 years. And average hourly earnings increased by 0.2 percent, which was less than expected but better than earlier in the recovery. Perhaps more ominous is the Full Unemployment rate (aka, the "hidden unemployment" rate), comprised of the official unemployment rate, and including those working part time and wanting full-time jobs, and people who want jobs but are not currently looking are not counted in official statistics. The hidden unemployment rate for May was 5.5%; bringing the total unemployed to 9.1% of the labor force.

Wages gains also slowed a bit. Average hourly earnings year over year were up 3.1%, one-tenth of a point lower than expectations—after adjusting for inflation, real wages gains were 1.8% from May 2018 to May 2019. The average workweek held steady at 34.4 hours.

Job growth came primarily from professional and business services, which saw 33,000 new hires. Health care expanded by 16,000 while construction added 4,000 and manufacturing contributed 3,000. Retail lost 7,600 jobs. Most other industries showed little change in the month. Monthly jobs data can be volatile, with big swings already in January, February, and March of this year. But the slow pace of hiring in May followed other disappointing indicators.

Oil prices and yields on Treasury bonds have both plunged, which suggests traders expect slower growth. The massive corporate tax cut enacted in late 2017 served as a tailwind for the economy in 2018 and early 2019, but the impact is beginning to fade.

In the first five months of 2019, the economy added an average of 164,000 jobs, down from an average gain of 223,000 for all of 2018. What's more, retail sales and factory orders declined in April, an indication that consumers and businesses are becoming more cautious. The jobs report also revised down hiring data in March and April by 75,000. 74 EPS: The U.S. Economy Looks Like It’s Slowing Down, After All, Barron’s, May 16 2019 75 EPS: US May 2019 Unemployment, US Bureau of Labor Statistics, New York Times, CNBC, and NIFAC.Org, June 7 2019

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Figure 8, US Unemployment Rates May and Jobs 2017– May 2019 Source: US Bureau of Labor Statistics

The Trade War Continues - The Trump Administration's trade policies and tariffs reduced US income at a rate of $1.4 billion per month by the end of last November(2018), according to new research from the Federal Reserve Bank of New York, Princeton University, and Columbia University.76 Total losses from January 2018 through November 2018 ballooned to a conservative estimate of $6.9 billion. That number may be too low, the economists said, because their model assumes that the US government uses tariff tax revenues to offset the welfare burden. If the US government did not offset the cost of the tariffs to the American consumer with the new tax revenues, the full value of the tariff payments would be $12.3 billion.

The collaborative study found that businesses and consumers saw “substantial increases” in the price of goods throughout last year, including a “complete pass-through” of US-imposed tariffs onto imported items. The study concluded, "The entire incidence of the tariffs fell on domestic consumers and importers," with "no impact" on the prices received by foreign exporters. The effects of the existing tariffs and proposed additional tariffs (especially tariffs on imported automobiles) continue to strain economic growth and consumer spending power in the US. On May 23, President Trump unveiled a $16 billion bailout for farmers hurt by his trade war with Beijing.77 That signals a protracted fight lies ahead, Ana Swanson of the NYT writes:

• "The new program will make $14.5 billion in direct payments to producers, for a range of products — from soybeans and cotton to chickpeas and cherries — in up to three tranches, beginning in late July or early August."

• "The government will also put in place a $1.4 billion program to purchase surplus commodities affected by the trade war."

Any hope of a quick resolution has faded. The US and China have both hardened their positions after a trade deal collapsed in May. The news from the G20 summit in Japan brought little real relief, as the US and China agreed to resume talks, but no real trade deal appears imminent. At the time of this writing, the threat of US tariffs has not been withdrawn from China and other countries, including those in the EU, Canada, and Mexico. Also, the new trade treaty between the US, Canada, and Mexico has not been completed. We will have more on the trade war between the US and other countries as soon as developments post-G20 summit are clear.

Canadian Economic Indicators: The Canadian economy showed signs of strength in May as it added 27,700 jobs, and the unemployment rate fell to its lowest level since comparable data became available in 1976.78 The unemployment rate was down 0.3 percentage points to 5.4%. The number of people looking for work decreased sharply following little change over the previous three months. Compared with May 2018, employment grew by 453,000 or 2.4%, reflecting gains in both full-time (+299,000) and part-time (+154,000) work. Over the same period, total hours worked were up 1.0%.

76 EPS: Tariffs are costing Americans $1.4 billion each month, NBC News, March 26 2019 77 EPS: $16 Billion in Bailouts Says the Trade War Is Here to Stay, The New York Times, May 24 2019 78 EPS: Canada Unemployment for May 2019, Statistics Canada, June 7 2019

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Figure 9, Canada Jobs July 2018 – May 2019, Source: Statistics Canada

Figure 10, Canada’s Unemployment Rate, Source: Statistics Canada

In the Western Interconnection, following little change in the previous five months, employment in British Columbia rose by 17,000 in May. Employment growth was primarily due to an increase in part-time work among core-aged people. The unemployment rate in the province declined by 0.3 percentage points to 4.3%, as more people participated in the labor market. Compared with May 2018, employment in the province grew by 107,000 (+4.3%).

Following a notable increase in April, employment in Alberta was little changed in May, as the unemployment rate held steady at 6.7%. On a year-over-year basis, employment rose by 20,000 (+0.9%).

We will update Canada’s GDP growth in the Third Quarter Trends Report.

Global Economic Indicators: The global economy continues to show signs of weakness amid slowing growth. The World Bank has dropped its growth forecasts, and major indicators such as global freight activity and factory slowdowns all indicate a slowing global economy.

Global Slowdown Continues - The global economy has entered a “synchronized slowdown” which may be difficult to reverse in 2019, according to the latest update of a tracking index compiled by the Brookings Institution think-tank and the Financial Times.79 The disappointing indicators show a similar picture in the US, China, and Europe. The worsening outlook has sparked warnings from Christine Lagarde, managing director of the International Monetary Fund (IMF), who said the fund would cut its growth forecasts in April, and the World Trade Organization which has said the continued threats of trade skirmishes had weakened forecasts. The findings follow generally disappointing economic indicators over the past six months that have shown a similar picture in the US, China, and Europe. Professor Eswar Prasad of the Brookings Institution said the slowdown did not yet appear to be heading for a global recession, but all parts of the world economy were losing momentum. Sentiment indicators and economic data across advanced and emerging economies have

79 EPS: Global economy enters ‘synchronised slowdown’, The Financial Times (UK), April 6 2019

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been deteriorating since last autumn, suggesting fading momentum in global growth and the need to resort to new forms of economic stimulus. Following in June, the World Bank lowered its expectations of global economic growth for this year in a new report.80 It says that, although the picture for poorer countries is expected to stabilize in 2020, economic momentum remains weak. The warnings come just days after the UN Department of Economic and Social Affairs published its mid-year World Economic Situation and Prospects (WESP) report, which finds that all major developed economies, and most developing regions, have weakened prospects for growth.

Amongst the developed economies, the Euro Area will see the biggest slowdown, due to weaker exports and investment, with growth at around 1.4% in 2020-2021. As for the United States, a growth figure of 2.5% in 2019 will drop to 1.7% next year. In emerging markets, the projected growth rate of 4% for 2019 represents a four-year low, and several economies are coping with financial stress and political uncertainty. However, A recovery in this sector is expected next year, with a forecasted rate of 4.6% for 2020. The World Bank recommends in the report that these countries need to strike a careful balance between borrowing to promote growth and avoiding risks associated with excessive borrowing.

Global Freight Indicators - As we have noted before, worldwide freight activity is a very good early indicator of how the global economy is faring, and global manufacturers report new export orders have been falling for nine months and are now declining at the fastest rate since 2015-16, according to the JPMorgan global purchasing managers' index. A recent report from Reuter’s81 research agrees with other indicator analyses that the global economy is slowing. Global trade flows are flat or falling in all major regions as the world economy flirts with recession for the first time since 2008-09—which will cut growth in oil consumption—especially for mid-distillates such as diesel. Freight volumes handled through major ports such as Long Beach and Singapore as well as air cargo handled through hubs such as Hong Kong, Memphis, London, and Frankfurt are either flat or down compared with 2018. Forward-looking freight indicators suggest the slowdown is likely to continue for the rest of the year and could turn into an outright recession. At the moment, the global economy appears to be on the leading edge of a recession, and it seems more likely than not the downturn will deepen in the next six months unless action is taken to turn it around.

Factory Slowdowns - Factory activity slowed in the United States, Europe, and Asia last month as the escalating trade war between Washington and Beijing raised fears of a global economic downturn and heaped pressure on policymakers to step up support.82 Such growth indicators are likely to deteriorate further in coming months as higher trade tariffs take their toll on commerce and dent business and consumer sentiment, leading to job losses and delaying investment decisions. The US-China trade war, slumping car sales, and Britain's stumbling European Union exit took their toll on manufacturing activity last month.

US manufacturing activity growth declined in May, as separate surveys by the Institute for Supply Management (ISM) and IHS Markit Ltd showed. The ISM reading of 52.1 was a surprise decline and the worst showing since October 2016, while the Markit Purchasing Managers' Index (PMI) was at its lowest level since the 2009 global financial crisis. Some economists predict a world recession and a renewed race to the bottom on interest rates if trade tensions fail to ease at a Group of 20 (G20) summit in Osaka, Japan, at the end of June. Presidents Donald Trump and Xi Jinping will meet there (and we’re waiting to hear if there will be any real resolution from talks after the summit).

Implications for Reliability: At this time, economic indicators in the Western Interconnection are showing a stable, though slowing economy, even within an environment of increasing uncertainty, and do not indicate an emerging threat to power system reliability. Likewise, global economic indicators do indicate a slowing of the global economy; however, they do not indicate an emerging risk to reliability in the Western Interconnection.

80 EPS: World Bank downgrades global growth forecasts, The World bank and the United Nations, June 5 2019 81 EPS: Freight Indicators say Global Economy is on Edge of Recession, Reuters via Hellenic Shipping News, June 13 1029 82 EPS: Global recession fears grow as factory activity shrinks, Reuters, June 2 2019

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Worldwide developments in the electric power industry From The 2038 Scenario Report: “There are tremendous forces of change impacting the electric power industry worldwide, and we see an acceleration of these changes driven by technology, policy choices, (e.g., addressing climate change), economics, and public demand. Many of those changes may influence or directly impact choices and changes in the US and, specifically, in the Western Interconnection power systems.”83

In line with the first quarter’s Trend Report, in which we noted some activity with Artificial Intelligence (AI) in the energy sector, we continue to monitor what is pitched as new innovations from information and communications technology as they more fully enter the power sector. We remain agnostic on the longer term cost effectiveness or the level of service related risks and rewards involved in using these technologies in the electric power system and believe it calls for continued monitoring. In particular, proven industry-wide standards are, at best, possibly emerging. But within our twenty year scenario time frame, these initial actions should be watched. We note some further developments below.

Consultants and Equipment Suppliers Push Data Analytics: According to some people in the industry, one of this century's most important innovations are the emerging data analytics capabilities that are allowing utilities to use archived and real-time data to make systems more reliable, affordable and clean.84 Cost-effective electricity generation from variable renewables is allowing new clean transportation and other electrification initiatives. But they will make the resulting clean energy economy dependent on a burgeoning and complex power system. Automated data analytics can provide the granular, real-time situational awareness to manage it effectively. The use cases for data analytics are wide-ranging and proliferating. Data analytics-based weather forecasting is prompting pre-hardening of systems against extreme weather events. Data analytics are delivering new services and savings to customers through utility-led energy efficiency programs that cut customer bills and lower utilities' system costs. Also, digital simulations are perfecting new hardware before it is installed. Data analytics are also creating significant savings from predictive maintenance. OSIsoft-processed data saved Duke Energy over $130 million by predicting transformer failures before they occurred; former Duke VP and CIO Chris Heck told an April 2018 conference.

Technology Reports of Note: There were several studies supported by consultants and suppliers to the power industry promoting the benefits of new information and communications technology, Artificial Intelligence AI), and Nanotechnology. Perhaps the most intriguing is the “Nanotechnology in Energy Applications” report released by ResearchandMarkets.com.85 This study has to be purchased but promises to describe a wide range of technology applications covering areas in energy such as fuel cells, solar photovoltaics, energy storage, and synthetic hydrocarbon fuel cells. The study also provides a review of key companies in this space. If nothing else, this study signals that there are small and large firms broadly targeting nanotechnology applications in the power industry. When and how such innovations will occur, and their cost and benefits are as yet unclear, but attention is order in light of the recent fast development of new technologies throughout the global economy. The outline in the article referenced in the EPS footnoted below gives a good overview of the energy applications being targeted.

Industry Investment in New Technologies: Avista Utilities Inc. and Duke Energy Corp. collaborated financially to create an energy operating system called the Open-Source Distributed System Platform (OpenDSP), which intends to provide a fundamental package of services in an energy operating system that supports standards, yet is code and not just another standard.86 Open source and utility industry-driven, OpenDSP can be distributed, centralized, or both (hybrid). It will support grid-edge computing; will be scalable, easy to extend, and flexible; and hopes to provide the opportunity to achieve true interoperability and interchangeability. Additionally, OpenDSP is intended to be affordable and deployable for utilities of any size.

83 WECC 2018-2019 Draft Scenarios for Horizon Year 2038 V 0.1, July 25 2018 84 EPS: Data analytics and the utility community of the future , , Utility Dive, March 25 2019 85 EPS: Reports of Note: AI, Nanotechnology, Transactive Energy, and Grid Integration, Utility Dive and Smart Electric

Power Alliance, April 2019 86 EPS: Utilities Collaborate on Open-Source Software, Transmission & Distribution World, June 5 2019

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The operating system is intended to enable traditional grid-edge operational assets and DERs—such as solar photovoltaics, energy storage systems and microgrids — to communicate quickly and securely with each other in the field regardless of each device's local communications protocols. This interoperability framework, if successful, will help the energy grid to operate more efficiently, delivering better performance to customers and grid operators.

The Duke Power led effort is not the only work going on in this space as the New York Power Authority (NYPA) has for years said that it wants to become "the world's first fully-digital utility.87 In June 2019 NYPA will start testing hardware and physically connecting relays to its new Advanced Grid Innovation Laboratory for Energy (AGILe). The public power utility wants to find new ways of leveraging upstate wind and hydroelectric generation and is installing a distributed flexible alternating current transmission system capable of moving power from congested lines to underutilized ones along NYPA's north-south corridor. "The perception is that [digitalization] revolves around data analytics," NYPA Vice President of Strategic Operations Ricardo da Silva told Utility Dive. "But in addition to that, there are other digital technologies coming to light that we can use to better manage the grid."

Da Silva said NYPA is working to quickly roll out sensors and monitoring equipment that will give it increasing visibility into grid operations, while at the same time focusing on equipping its employees with new access and digital tools. NYPA's AGILe lab's digital strategy serves to bring more renewables onto the grid while also helping to reduce costs for the state and ratepayers. Advanced power flows are just one of the new technologies utilities are embracing. "In a distributed fashion, we will be able to deploy devices that will be able to better control the flow of power through existing lines," da Silva said.

Cyber-Security Issues: We normally detail current grid-focused cyber warfare and cyber-attacks in the Wild Card section above, and we are aware that WECC—along with many WECC members and stakeholder organizations—has a cyber-security workgroup. We decided to note two recent events in the cyber-sphere in this section as they have global implications.

Hackers Expand Efforts into World Grids - In a new troubling escalation, hackers behind at least two potentially fatal intrusions on industrial oil and gas facilities have expanded their activities to probing dozens of power grids in the US and elsewhere, researchers with security firm Dragos reported on June 14, 2019.88 The group, now dubbed Xenotime by Dragos, quickly gained international attention in 2017 when researchers from Dragos and the Mandiant division of security firm FireEye independently reported Xenotime had recently triggered a dangerous operational outage at a critical infrastructure site in the Middle East. Researchers from Dragos have labeled the group the world's most dangerous cyber threat ever since.

The most alarming thing about this attack was its use of never-before-seen malware that targeted the facility's safety processes. Such safety instrumented systems are a combination of hardware and software that many critical infrastructure sites use to prevent unsafe conditions from arising. When gas fuel pressures or reactor temperatures rise to potentially unsafe thresholds, for instance, an SIS will automatically close valves or initiate cooling processes to prevent health or life-threatening accidents.

The threat is now targeting the US and Asia Pacific electric utilities, which means that we are no longer safe thinking that the threat to our electric utilities is understood or stable. According to Dragos: "This is the first signal that threats are proliferating across sectors, which means that now we can't be certain that a threat to one sector will stay in that sector and won't cross over." Dragos also reports that Xenotime has been performing network scans and reconnaissance on multiple components across the electric grids in the US and other regions. Dragos has detected dozens of utilities—about 20 of them located in the US—subjected to Xenotime probes since late 2018. While the activities indicate only an initial exploration and there's no evidence the utilities were compromised, the expansion was nonetheless concerning.

87 EPS: Digitalization beyond data aggregation: NYPA's progress, Utility Dive, March 25 2019 88 EPS: Hackers behind dangerous oil and gas intrusions are probing US power grids, Ars Technica and Digital Trends,

June 15 2019

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The US Steps up Cyber Incursions into Russian Grid - In a report in which Trump Administration official declined to comment on; the New York Times reported that the United States is stepping up digital incursions into Russia's electric power grid89 in a warning to President Vladimir V. Putin. The move is a demonstration of how the Trump administration is using new authorities to deploy cyber-tools more aggressively, current and former government officials said. In interviews over the past three months, the officials described the previously unreported deployment of American computer code inside Russia's grid and other targets as a classified companion to more publicly discussed action directed at Moscow's disinformation and hacking units around the 2018 midterm elections. If this report is valid, it indicates a high level of capability to influence the operations of power systems and could set off an escalation in investments to contain any related risks. The three articles referenced in the EPS footnoted below have more detail.

Mr. Trump issued new authorities to Cyber Command last summer, in a still-classified document known as National Security Presidential Memoranda 13, giving US Cyber Command’s Chief (at the time of writing General Paul Nakasone) far more leeway to conduct offensive online operations without receiving presidential approval. But the action inside the Russian electric grid appears to have been conducted under little-noticed new legal authorities, slipped into the military authorization bill passed by Congress last summer. The measure approved the routine conduct of "clandestine military activity" in cyberspace, to "deter, safeguard, or defend against attacks or malicious cyber-activities against the United States." Under the law, those actions can now be authorized by the defense secretary without special presidential approval.

Implications for Reliability: Worldwide developments in the power sector continue to suggest that the wide range of options for meeting electric reliability will continue to expand. Resource options are abundant. Continued technological innovation suggests that operational, infrastructure, and system stability risks will be manageable at current or improved levels. However, we believe that cyber-security risks have expanded to become a more significant risk to electric systems operations worldwide, we expect more intensive scrutiny of those risks and investment to address them will likely be a central issue in the power industry.

89 EPS: U.S. Escalates Online Attacks on Russia’s Power Grid, The New York Times, The BBC, and Rolling Stone, June 15-

19 2019

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SCENARIO TRENDS AND EARLY INDICATORS

As noted at the beginning of this report, WECC has a fully functioning EPS system related to the current 2018-2038 Scenarios. With that, the purpose of this section is to give SDS members a sense of how recent developments might reflect on the key potential developments in each scenario. Members should hold in mind that the scenarios are intended to be different possible future states and not “good or bad” or “opposites,” just different plausible futures that can be considered for learning and analysis. Therefore, the following is a high-level review of developments we have captured in the EPS system, and how they might resonate with the core ideas contained in each scenario.

Scenario 1: Open Markets Yet Restricted Customer Choice

The key elements of Scenario 1, as described in the WECC 2018-2038 Scenario Report are: • During the next 20 years, Scenario 1 is a world that experiences intermittent chaos due to social and

political conflicts, and as a result, regulators in different states and provinces in the Western Interconnection pursue uncoordinated energy policies. On the whole, the policies across the region do lean toward allowing more choices for energy services for consumers, but in many cases, the products and services meet only some consumer expectations and value, and in other cases, the benefits do not exceed the costs.

• State and local regulators, though embracing innovation and change in general, are watchful in overseeing the net benefits of proposed new options, and go about it in a variety of ways.

• In light of variation in energy policies, both energy service providers and consumers in all segments are hesitant to take on what may be innovative new options. The benefits of these new offerings must prove worthwhile and meet customer values.

We see this as a very relevant scenario in light of recent developments that put an accent on State regulatory power and control over the electric power industries within its boundaries.

In this quarter’s report, we see indications for the core arguments of this scenario present with individual states and provinces setting rules on clean energy, regulation around the development and use of electricity capacity, use of smart/digital technologies, ownership, integration of storage technologies, and support of EV expansion. Also, support of this scenario is evident in the slow rate of uptake of new energy options (some in pilot programs) by consumers and companies as benefits and costs are established.

We think the following links along with others in this report (and from previous reports) bolster the case for the development of this scenario:

• PJM looks to plug ‘leaks’ sprouting from patchwork of state carbon policies

• Report on Trends in Electric Customer Engagement Suggest Incomplete Business Models

• GCPA Panelists Contemplate Balkanized Energy Policies

• Supreme Court of U.S. passes on review of lower court ruling on power plant subsidies by States

• Nearly 75 percent of battery providers report regulatory barriers to market

• SCE rolls out $356M charging program to spur electric trucks, buses and other large vehicles

• In New Challenge for California’s Utilities, Rating Agency Warms to Community Aggregators

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Scenario 2: Open Markets with High Levels of Customer Choice

The key elements of Scenario 2, as described in the WECC 2018-2038 Scenario Report, are: • Scenario 2 is a world in which attempts are made over 20 years by innovative companies to shift

electric power services to a more distributed supply structure in which resources are distributed closer around the end consumer, and varied new reliability service options are available.

• The magnitude of the effort and challenges in making a quick transition to a more distributed structure, even with innovation, prove to be difficult. While traditional and embedded patterns of customer activity are slow to change and constrain the pace of market acceptance in some areas, in some states and provinces in the Western Interconnection the transition to a distributed structure is moving forward.

• State, provincial, and local regulations support and facilitate the introduction of new electric energy services into the market, but do so carefully to assure that customers incur reliable power at fair costs. Federal energy policies play a secondary role to states and provinces provided that power supplies are reliable.

• All customer segments are willing to try new innovative offerings but are careful to fully weigh the costs versus the benefits before widespread adoption can occur. Large Commercial and Industrial customers, locally organized communities, and micro-grids find the most beneficial and useful applications due to their scale.

Since we are in the very early years of this scenario, we still think it is relevant and useful for WECC analysis.

As we have mentioned in previous reports, we think the cautionary notes in the plausibility of this scenario concerning consumer uptake and costs versus benefits of new energy service options, are very present in recent developments captured in the EPS submissions. We see a heavy weighting in the consumer products areas related solely to electric vehicles, with very little in other end-use consumer products. Companies seeking to play in this area are also unclear on what business model will profitably work.

We think the following links along with others in this report (and from previous reports) bolster the case for the development of this scenario:

• Colorado Gov. Polis unveils roadmap to 100% carbon free by 2040, signs 11 clean energy bills

• SCE rolls out $356M charging program to spur electric trucks, buses and other large vehicles

• Utah Claims World's Largest Energy Storage Project

• FERC infrastructure inventory report reveals renewables surpassing coal

• Electric Cars Will Cost Less Than Gas Cars Within 3 Years

• Colorado and Montana Pass bills to help electric vehicles

• Residential DR to Triple by 2028

• Utilities May Need an iTunes-Like Business Model

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Scenario 3: Reliability and Cost Policy Driven with Restricted Customer Choice

The key elements of Scenario 3, as described in the WECC 2018-2038 Scenario Report, are: • Scenario 3 is a world in which movement toward a more distributed electric power system is

forestalled for 20 years due to concerns about assuring reliability, resilience, and control over the power system to manage risks and costs.

• Higher penetrations of rooftop solar PV will increase the risk to reliability and will make reliability assurance more difficult, especially regarding disruptive events.

• Utility-scale investments in power supplies are seen as an effective way to reliably address climate change concerns in the electric power industry

• Consumers in all segments and regulators turn toward incumbent and largely proven systems for electric energy services, especially as those providers can address environmental concerns and meet customer demands for service options within regulated rate structures.

As we mentioned in last our Winter Trends report, QPG along with SDS members are still seeking an accepted industry-wide engineering economic analysis that demonstrates that a more highly distributed electric energy system leads to lower costs or enhanced reliability under all conditions (especially adverse weather conditions). In light of this, we think the conservative approach to a customer-centric transition of the electricity sector in this scenario remains useful for WECC analysis and learning.

We think the following links along with others in this report (and from previous reports) bolster the case for the development of this scenario:

• California ISO to launch Reliability Coordinator service in July

• Colorado Passes New Energy Laws for Tri State Energy and Xcel Energy

• Supreme Court of U.S. passes on review of lower court ruling on power plant subsidies by States

• American Indian homes connected to grid in rural Utah

• Nearly 75 percent of battery providers report regulatory barriers to market

• CA Administrative Law Judge Proposes Statewide Renewables Procurement

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Scenario 4: Reliability and Cost Policy Driven with High Levels of Customer Choice

The key elements of Scenario 4, as described in the WECC 2018-2038 Scenario Report, are: • Scenario 4 is a world in which for 20 years regulatory policy, especially those policies meant to meet

environmental concerns, exerts significant influence in shaping customer energy service choices. Regulatory policies throughout the Western Interconnection create mandates and set standards that support choice options that prove technologically feasible and deliver on promised costs and environmental benefits.

• New energy services providers accept the regulatory oversight because it assures cost recovery and financial security for their investments.

• Residential customers adopt energy service options, such as community choice aggregation, as supportive regulatory policies make those options safe, reliable, and cost competitive.

• Large commercial and industrial customers adopt new electric supply options and services as those choices fit with the operational goals of the companies, and are facilitated by supportive government policies.

During our most recent meetings with SDS members, this scenario has resonated with several members, including those from the larger states. In particular, the strong regulatory direction in meeting environmental concerns as a major force shaping electric industry investment was seen as members discussed activities in their states. We continue to see developments validating the usefulness of this scenario.

We think the following links along with others in this report (and from previous reports) bolster the case for the development of this scenario:

• Southwest Power Pool Moves to Form Energy Imbalance Market

• Low Carbon Fuel Standard in California Sets Carbon Prices Across Energy Sectors

• El Paso Electric Enters into Agreement to Be Purchased

• California PUC Adopts Preferred Resource Portfolio

• Utah Claims World's Largest Energy Storage Project

• In New Challenge for California’s Utilities, Rating Agency Warms to Community Aggregators

• Supreme Court of U.S. passes on review of lower court ruling on power plant subsidies by States

• American Indian homes connected to grid in rural Utah

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Scenario 5: Energy-Water-Climate Change

The key elements of Scenario 5, as described in the introductory pages of the WECC Energy, Water, and Climate Change90, are:

Climate change is generally acknowledged to be occurring with effects across the world and throughout the global economy. A majority of climate scientists expect average global temperatures to increase by 2° F to 11.5° F by 2100 depending on the level of future greenhouse gas emissions, and the outcomes from various climate models. Research is ongoing about climate change impacts in many fields besides the electric energy industry, including agriculture, water resources, land use, and fishing. Listed below are the key areas in which climate change is likely to have the most significant impact on the electric power sector and thus electric reliability, not only within WECC but nationwide.

• Rising ambient temperatures are expected to have impacts on the operations of electric generating plants and transmission lines.

• Rising temperatures may contribute to more frequent firestorms in traditional and expanding areas of the Western US, raising the risk of damage to transmission lines.

• Changing patterns of precipitation, droughts, and floods may have impacts on the operating conditions of electric generation facilities and in particular the energy production of hydroelectric generation. Water availability for cooling thermal power plants and other generation plant operations may come under pressure from shortages.

• Rising temperatures may impact patterns of consumer energy demand and cause shifts in seasonal electric demand peaks that vary from the historical patterns used to build electric power infrastructure, which may require new investment to meet reliability.

Research and research results on climate change continue to argue for continued WECC analysis of this scenario. As reported in a number of studies over the past two years, the US and other nations have not taken near the level of effective actions needed to reverse or limit the growth of global greenhouse gas emissions. Climate-related events impacting the power industry are widely seen throughout the US as we have previously reported from Federal government reports.

We think the following links along with others in this report (and from previous reports) bolster the case for the development of this scenario:

• Scientists say definite link between climate change and increased, severe forest fires in Alberta and B.C.

• Canada warming at twice the global rate, climate report finds

• 57 Carbon Pricing Initiatives Now in Place Globally

• IEA: Nuke retirements could lead to 4 billion metric tons of extra CO2 emissions

• 415.26 parts per million: CO2 levels hit historic high

• Clean Energy Growth Stalls for First Time in Nearly Two Decades

• New report suggest that fossil fuel and pipeline development will lock in carbon emission for decades

• It’s A Match: Satellite and Ground Measurements Agree on Warming

90 WECC Energy, Water, and Climate Change Scenario Report, May 5 2015

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SCENARIO MOVEMENT

As we noted in the last SDS meeting, we believe that in the 2038 Scenarios, given the choices by the SDS for the Primary Scenario Drivers and other Key Drivers, states and provinces within the region will not move in lockstep towards any particular scenario. Considering the new Scenario Matrix, this would imply that there would not be a region-wide “movement” that could be plotted against the new scenario matrix as in the Legacy Scenarios. We think that developments and trends within each scenario, noting specific events at the state and local levels that fit that scenario is— at least at the beginning these 20 years— more useful to WECC and the SDS.

However, we can say that, based on the Key Driver events we have seen in the past three months with differing state and provincial policy actions, from a high level these events tend to support movement in the Western Interconnection as a whole towards both Scenario 1 and Scenario 4. We can also see developments that argue for Scenario 3 in many states in the Western Interconnection. A key element of this assessment is the lack of any significant technological developments or other market-related issues that would lead to a quickened uptake of the kinds of energy-related services and products advocated most strongly in Scenario 2.

Figure 11 below shows how members saw the various states and provinces within the scenario matrix during the May 2019 meeting. Further input on this will be sought from members during the Fall Meeting.

Figure 11, State and Provincial Scenario Matrix

During future SDS meetings, we will seek review, comments, and suggestions from SDS members from those States and Provinces to improve upon our starting effort. In the meantime, we would like readers of this report to email us at Quantum Planning Group91 and tell us where they think their state or province fits within the scenario matrix. Over time, we think reviewing those placements on the matrix will provide useful information for SDS members and WECC planning efforts.

91 You can email us at: [email protected], or [email protected]

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FROM THE ARCHIVES: EPS OF CONTINUING SIGNIFICANCE

This EPS system originated with the first set of Legacy Scenarios created by WECC and the SDS. Much of the data and information gathered there remains relevant in understanding developments in electric energy markets and the electrical power industry in general.

In this section, we want to remind and reconnect members to some of that past research that we think will be useful and appropriate in understanding developments that shine a light on the current 2018-2038 WECC scenarios.

PJM takes defense of capacity market plan to FERC: PJM market participants presented wide-ranging criticism of a proposal from the grid operator to reform its capacity market rules in comments filed at the Federal Energy Regulatory Commission (FERC). PJM wrote that its plan, meant to accommodate state preferences for clean energy, represents an acceptable compromise between the two camps. The grid operator was joined by nuclear generator Exelon, whose plant subsidies sparked the FERC effort to reform PJM's market rules. Fossil fuel generators argued FERC should reject PJM's proposed market carve-out for state-subsidized resources, writing that it would endanger competitive pricing in the remaining market. Consumer advocates, meanwhile, argued that PJM's plan to boost payments for remaining capacity market resources is unnecessarily costly and has already been rejected by FERC—we are still watching for the resolution of this proposal and FERC's ruling.

Cyber Security Risk Seen as Deeply Embedded Throughout Information Systems: Industry analyst Zeynep Tufekci, an associate professor at the School of Information and Library Science at the University of North Carolina, points to points to long-term structural problems that will make cyber-security risks a long-term problem that may be impossible to fix. She notes that we have built the digital world too rapidly. It was constructed layer upon layer, and many of the early layers were never meant to guard so many valuable things: our personal correspondence, our finances: the very infrastructure of our lives. Design shortcuts and other techniques for optimization — in particular, sacrificing security for speed or memory space — may have made sense when computers played a relatively small role in our lives. But those early layers are now emerging as enormous liabilities. Potential temporary fixes will entail a performance cost since they involve rolling back strategies for optimizing performance.