EnergyBiz JulyAug2011

VOLUME 8 // ISSUE 4 JULY 11 // AUGUST 11 energybizmag.com

ENERGY WARRIOR ºº LESSONS THE MILITARY CAN TEACH US

PEOPLE // ISSUES // STRATEGY // TECHNOLOGY

Nailing Down Grid Security ºº WHAT IT WILL TAKE ºº WHY IT IS IMPORTANT

SMART GRID AND UTILITIES

PREPARING FOR WHAT’S NEXT

MERGER WAVE ºº WHAT IF IT CRASHES ON YOU? ºº 5 COMPANIES TO WATCH

TOP PAID BRASS ºº

10 WHO GOT THE

BIGGEST RAISES ºº WHAT WILL DETERMINE YOUR PAY?

AN E N E RGY C E NTR AL PU B LIC ATION

energy/utilities /engineering

© Siemens AG, 2011. All Rights Reserved.

The world of tomorrow needs

answers that last.

That’s why we’re building them today, with customers all over the world.

It’s why we’re designing our technology to last longer and use fewer resources. It’s why we’re helping our customers reduce their CO2 emissions. And it’s why we’re pioneering new answers with one of the world’s largest environmental portfolios.

As a result, we were just named the best in our business sector by the Dow Jones Sustainability Index. And recognized as the top company overall by the Carbon Disclosure Project,

the world’s largest independent database of corporate climate change information.

Yet we’d never claim to have all the answers. That’s why we’re working with 190 countries. Thousands of cities. Tens of thousands of companies. In energy, industry and healthcare.

We’re working with the world today to create answers that last for the world of tomorrow.

siemens.com /answers

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JULY/AUGUST 2011

14

26

22 Features

14 Merger Wave

Cover illustration

by Brian Everett

34

Departments O U R TA K E

18 Fish or Fish Food

4 A Pregnant Moment

20 Either an Executive’s Dream or Nightmare

6

22 Make it Secure 24 Building in Security

26 Retail Rollercoaster 28 Let Free Markets Reign

LET TERS

FINANCIAL FRONT

8 Pay for Performance 10 Bolstering Security with Renewables T E C H N O LO GY F R O N T I E R

50 Solvable and Safe 52 The Quest for a Big Battery

34 Smart Grid Transformation of the Utility Sector 34 Orchestrating a Smart Grid 36 Utility Transformation

53 Teaming Up With Google METRICS

54 Gas Up, Coal Generation Down / Top Concerns INTRODUCING

56 Energy Warrior —

38 Bringing Jobs Back from China 39 The Urban EV Problem 40 Israel’s Solar Vision Vol. 8, No. 4. Copyright 2011 by Energy Central. All rights reserved. Permission to reprint or quote excerpts granted by written request only. EnergyBiz (ISSN 1554-0073 ) is published bimonthly by Energy Central, 2821 S. Parker Road, Suite 1105, Aurora, CO 80014. Periodical postage paid at Aurora, Colo., and additional mailing offices. Subscriptions are available by request. POSTMASTER: Send address changes to EnergyBiz, 2821 S. Parker Road, Suite 1105, Aurora, CO 80014. Customer service: (303) 782-5510. For change of address include old address as well as new address with both ZIP codes. Allow four to six weeks for change of address to become effective. Please include current mailing label when writing about your subscription.

2 E N E RGYB I Z July/August 2011

Col. Bob Charette of the Marines L E G A L E AG L E

60 Troubles Vex California’s Carbon Plan 62 The Regulators’ Agenda F I N A L TA K E

65 See-Through Solar

A trAil blAzed What will tomorrow say about today? Itron’s software solutions improve utilities’ business intelligence and their ability to act upon it across the network. When the smart grid becomes a reality that benefits all, Itron will be remembered as an early leader in making a sustainable future possible.

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» OUR TAKE A Pregnant Moment WHO WILL LEAD? IN YIYANG, CHINA, many of the town’s 360,000 residents and businesses receive electrical power only one out of three days. Imagine if your lights, computer and refrigerator were off two out of three days.

Then you will understand why China is going all out to build more conventional and renewable power.

On the nuclear front, it has announced plans to build 50 nuclear power plants in the next five years. That is about equal to half the number of nuclear units now operating in America.

India is building five new reactors and has plans for 39 more.

In the months after the Fukushima crisis in Japan, the Germans, who get about one-quarter of their power from nuclear energy, and the Swiss, who get 40 percent of their electricity from nuclear reactors, declared that they will phase out their reliance on nuclear power.

Utilities in the United States have been reluctant to plow their investment dollars into the much-heralded nuclear renaissance, and the technology is facing new regulatory and public relations hurdles.

That raises an interesting possibility. Will the future course of nuclear energy be largely determined in the most populous, least economically developed regions of the globe? Is the industrialized world ready to cede technological leadership in nuclear energy to engineers in China and India?

The ramifications of that would be immense — and intriguing. In America, we are increasingly reliant on deep shale deposits of natural gas. Efforts to tap and develop that resource have attracted $250 billion in investments. That dwarfs the financial resources directed to other forms of energy in the country.

So increasingly, the United States will be placing its bets on natural gas as its goto fuel for electricity generation.

Europe sits atop a sizable ocean of natural gas almost as 4 E N E RGYB I Z July/August 2011

large as the resources under America. But the densely populated continent already is signaling that it does not want to risk the possible environmental consequences of going after that gas in a big way.

Europe has dabbled in carbon capture and storage — clean coal technology — but that too is politically toxic in many parts of the continent.

Europe, therefore, may have just one option, and that will be to invest heavily in driving down the cost of renewables and solving its intermittency problem.

What will be the industrial policy implications for our country in all this?

For industry insights — If nuclear power makes a and my blog — visit www.energybiz.com. comeback in America, will we be seeing Chinese and Indian reactor designs and equipment proliferate here, alongside solar and wind technology stamped “Made in Europe”?

Americans will continue to perfect shale gas extraction technologies that will be used predominantly in this country — assuming concerns about the impact of the process on our water supply do not spark opposition to using the resource.

But how will the United States remain competitive in nuclear energy, solar power and wind power industries when the boldest growth in those sectors will take place off our shores?

Our political leaders need to worry about this because thousands of jobs and hundreds of millions of dollars of tax revenues may be at stake.

It is a pregnant moment in the world of energy. As we get ever more interdependent, unanticipated consequences loom. For example, if China and India are the hothouses where new nuclear technology is pioneered in the next two decades, what will the Chinese reaction be if the U.S. Nuclear Regulatory Commission imposes costly, 11th-hour design changes on a Chinese nuclear plant under construction in Texas?

A regulatory dispute could morph into a trade flap with much broader implications.

Energy companies and their customers may be nicked in the crossfire.

Martin Rosenberg, Editor-in-Chief editor@energybiz.com

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» LETTERS Even though The Fukushima effort, noble as its intentions were, nuclear incident [“Nuclear – failed to gain lasting support.

The Next Act,” May/June], has put The length to which this design many new nuclear power projgoes to alter the technology disects on hold in countries such as plays a lingering doubt by many that Germany, Switzerland, and Japan, can be said to underpin standard we cannot let this ruin the nuclear horizontal axis configurations. renaissance Europe has been expe- Whether or not there is some truth riencing lately. We must to these concerns, also remind ourselves researchers should be that if Europe does not encouraged to delve create more use of a little deeper into the nuclear energy, then physics of the wind it will inevitably fail nuclear interaction with turbine The Next Act to reach its goal to blades to see where reduce carbon dioxide ideas such as this emissions, which was or others can lead. planned to reduce cliUnfortunately, many mate changes. Abandoning nuclear universities have been somewhat power would also create a shortage uninterested in wind energy of usable power in many countries. aerodynamics up until now.

The DoDD-Frank ThreaT

º ready for the challenge?

smart meter wars

º nrg’s daVid crane warns about paralysis

º greenpeace co-founder: good nuclear or bad coal

the buzz from the 2011 energybiz leadership forum

leaders you know today and will know tomorrow speak about gAmE ChAngErs

Co-ops seek Clear path Forward

º Valuable insights on facing uncertainty

º global roundup of utility strategies

An E n E rgy C E ntr Al Pu b liC Ation

energy/utilities /engineering

If Britain does not build its planned nuclear plants by 2015—2018, the great nation would begin to experience power shortages.

Salvatore Bosco Houston

The column, “A New Wind Axis,” [Final Take, May/June] focuses on a technology that is similar to an idea tried about eight years ago in Montana. In that case, the blades operated like doors, which could rotate on hinges to catch the wind like sails on the downwind side and turn edgewise to it on the way back upwind. A quite large working unit was built.

The turbine was, with no little humor, called “HOG,” which was supposed to mean “High Output Generator,” and the enterprise named itself “OPEC” for “Our Private Energy Company.” The entire

To contribute to the Letters column, please e-mail your submission to editor@energybiz.com.

Provide your name, address and daytime phone number. Letters may be edited for style and space.

6 E N E RGYB I Z July/August 2011

EDITOR-IN-CHIEF Martin Rosenberg mrosenberg@energycentral.com 913.385.9909 CHIEF COPY EDITORS Don Bishop, Martha Collins SENIOR CONTRIBUTORS

Volume 8 // issue 3 may 11 // june 11 energybizmag.com

people // issues // strategy // technology

º the takeaway for the rest of us from california’s controVersy

www.energybizmag.com

Tony Chessick IntegEner-W Tehachapi, Calif.

I read the guest opinion, “Emerging Leaders,” [March/April] with interest as this push for saving the world seems some days to gather even more steam.

The individuals interested in saving us all are from the “most respected institutions of higher learning” and “most prominent business schools.” Apparently this membership grants them some insight into just what needs to be done to save the world.

There is talk of “the future of the planet” and “saving the planet.”

How could anyone argue against such noble goals and interests?

However, there is no indication as to what these individuals bring to the table. What in fact will these elite individuals actually produce?

Utilities provide energy that we all depend on. It’s not just a lot of hot air.

John Fischer Palatine, Ill.

Bill Opalka, Editor-in-Chief, RenewablesBiz Daily bopalka@energycentral.com 860.633.0090 FEATURE WRITERS Steve Barlas, Lisa Cohn, Pamela Coyle, Darrell Delamaide, Richard Korman, Paul Korzeniowski, Salvatore Salamone, Gary Sampson, Al Senia, Richard Schlesinger, Gary Stern VICE PRESIDENT, SALES/MARKETING SERVICES

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» FINANCIAL FRONT Pay for Performance DIFFICULT TO ACHIEVE // BY GARY M. STERN PAY FOR PERFORMANCE has become a major initiative in CEO compensation in many industries including utility and energy. By using it, CEO compensation is based on the success of the utility using tools such as a company’s rising revenue and share price compared with industry leaders, which can justify raises in salaries and incentives.

Between 2009–2010, the compensation packages of the utility CEOs were all over the map. One CEO saw compensation fall as much as 45 percent.

Another logged a compensation jump of 996 percent.

Among a group of 10 CEOs who logged the biggest dollar increase in total compensation, increases ranged from 7 percent to 147 percent, while their companies’ stock prices advanced 3.5 percent to 16 percent, and one dipped 5 percent. In 2009, the Dow Jones Industrial average rose 11 percent.

If pay for performance has taken hold, why is there such a disparity between rising CEO pay and stock performance?

The U.S. economy in 2009 was recovering from a recession and most workers didn’t get DAMS TO raises. But don’t tell that to the BE REMOVED CEOs of Dominion Resources, Two hydroelectric dams on Washington’s Elwha Westar Energy, Hawaiian ElecRiver will be dismantled tric Industries and Duke Energy starting this fall, reports Corp, the energy CEOs whose the Associated Press.

The $325 million executive compensation spiked three-year effort, to help the highest amount in the industry restore fish runs and in 2009–2010. the river’s wildness, is the largest dam removal According to data supplied project in U.S. history.

by SNL Financial, a Charlottesville, Va.-based research firm, the energy CEOs with the fastest-rising pay packages based on total compensation including salary, stock and options, and nonequity incentives (but not pension benefits) were: Thomas F. Farrell II, Dominion Resources, up $4.6 million; William B. Moore, Westar Energy, up $4.2 million; Constance H. Lau, Hawaiian Electric, up $3.1 million; and James E. Rogers, Duke Energy, up $2 million.

SNL reported that compensation rose 147.9 percent from the previous year for the CEO of Hawaiian Electric, 44 percent at Dominion Resources, and 30.2 percent at Duke Energy. But in most cases the rise in stock prices was less robust: Dominion 8 E N E RGYB I Z July/August 2011

Resources, 10 percent; Hawaiian Electric, 9 percent; and Duke Energy, 3.5 percent. Westar’s stock price increased 16 percent while its CEO’s raise was 384.7 percent, in large part a result of a sizable increase in stock awards in 2010 compared with 2009.

These spikes in CEO compensation arose because 2010 was a rebound year, and many CEOs saw salaries and stock options decline in 2009, explained Mike Halloran, a Dallas-based senior partner specializing in executive compensation at Mercer, an HR and financial consulting firm.

Much of the CEO compensation stems from incentives, not salary. For example, Farrell at Dominion Resources earned $14.9 million based on a salary of $1.3 million and the bulk came in $7.7 million in stock awards and $5.8 million in nonequity incentives.

Many utilities reward CEOs in incentives and not salaries because of IRS rules, explained Ted Allen, director of the governance council at Institutional Shareholder Services, a private corporate governance firm based in Rockville, Md. The IRS allows companies to deduct certain top executives’ pay over $1 million, but only if it qualifies as “performance-based incentives.” However, he added, some companies fail to disclose metrics and often use subjective criteria.

Bruce Ellig, author of The Complete Guide to Executive Compensation, explained that some of the rising CEO compensation is misleading because numbers are inflated by stock options whose value can’t be determined until shares are sold. “Unless the stock price goes up, the option isn’t worth a thing,” Halloran noted.

Connecting CEO performance with compensation is a very complicated, ambiguous task, explained Chris Crawford, executive director of Longnecker & Associates, a Houston-based executive compensation boutique specializing in utilities. Crawford said boards often follow analysts who use 20 different measures to analyze CEO performance including company earnings, cash flow, balance sheet, stock price and social responsibility. “All come into play and they may or may not dictate a positive shareholder return in the period looked at,” he said.

But it doesn’t have to be so complicated. Allen said that boards could review shareholder returns over a one-to-three-year period and reward appropriately or show restraint if the utility is underperforming.

TOP 10 Power and Gas Utility CEOs // 2009—2010 Change ($) in compensation

COMPANY CEO

2010 OPTION ADJUSTED COMP ($)1

2009 OPTION ADJUSTED COMP ($)1

CHANGE IN COMP ($)

Dominion Resources

Thomas F. Farrell II

Westar Energy

William B. Moore

14,953,536

10,381,764

4,571,772

5,286,672

1,090,625

4,196,047

Hawaiian Electric Industries

Constance H. Lau

Duke Energy

James E. Rogers

5,119,092

2,065,438

3,053,654

8,462,892

6,502,354

Edison International

Theodore F. Craver Jr.

7,435,907

5,528,388

1,960,538 1,907,519

FirstEnergy

Anthony J. Alexander

8,744,651

6,981,262

1,763,389

American Electric Power

Michael G. Morris

8,684,346

7,092,788

1,591,558

Alliant Energy

William Douglas Harvey

4,750,861

3,185,497

1,565,364

National Fuel Gas

David F. Smith

4,825,119

3,396,151

1,428,968

Consolidated Edison

Kevin Burke

7,087,065

6,017,109

1,069,956

Change ($) in stock and options

COMPANY CEO

2010 STOCK AND 2009 STOCK AND OPTIONS AWARDED ($) 2 OPTIONS AWARDED ($) 2

CHANGE ($)

Dominion Resources

Thomas F. Farrell II

7,731,000

3,000,010

Westar Energy

William B. Moore

4,619,552

448,500

4,730,990 4,171,052

Duke Energy

James E. Rogers

8,040,180

6,111,142

1,929,038

Edison International

Theodore F. Craver Jr.

4,537,533

2,960,204

1,577,329

Constellation Energy Group

Mayo A. Shattuck III

7,699,975

6,500,000

1,199,975

Public Service Enterprise Group Ralph Izzo

5,726,042

4,723,045

1,002,997

AGL Resources

John W. Somerhalder II

1,938,797

964,756

974,041

National Fuel Gas.

David F. Smith

1,507,675

614,115

893,560

Hawaiian Electric Industries

Constance H. Lau

1,722,253

921,483

800,770

ONEOK

John Gibson

3,491,288

2,816,600

674,688

Represents the sum of cash equivalent comp, stock awards, option awards, and nonequity incentive plan compensation. Changes to pension benefits were excluded from total comp.

All stock and option awards are taken at grant date fair value.

1

All stock and option awards are taken at grant date fair value.

2

Only companies with the same CEO for 2009 and 2010 for which compensation data represents the entirety of those years were included.

Source: SNL Energy

“There are only so many Lebron James’s that can take a company and create positive shareholder return, and boards are clamoring for these people,” Crawford said.

CEO pay for performance can work effectively with bonuses when utilities set two or three goals and determine whether they were achieved or not, Mercer’s Halloran said. But linking compensation with stock price is trickier because utility fortunes are influenced by factors outside of their control.

Crawford sees the spike in utility CEO incentives and stock options dipping in the next year because of provisions in the Dodd/Frank act that stipulate that shareholders can vote on compensation for the top five executives. But Allen noted that shareholder results are “nonbinding advisory and offer no legal impact,” though results may encourage boards to be more attuned

to shareholder concerns. In fact, ISS urged a negative recommendation on executive compensation at 190 of 1,484 companies or 12.8 percent.

But Halloran doesn’t expect that the Dodd/Frank act will cut back on CEO incentives. He said boards need to do a better job of “telling the story and ensuring that they’re measuring the right things.”

Allen said that the disparity between CEO compensation and stock price arises because most boards think highly of their CEOs and try to justify raises. If the stock price has risen, pay increases are merited. “But unfortunately, there are many cases where executive compensation is driven upward by increased equity grants and a lack of meaningful pay for performance considerations and rigorous performance criteria for incentives,” he said. energybiz.com E N E RGYB I Z 9

» FINANCIAL FRONT Bolstering Security with Renewables ENERGY REVOLUTION UNDER WAY // BY VICE ADMIRAL DENNIS V. MCGINN, USN (RET.) FROM MY NEW PERSPECTIVE as president of the American Council On Renewable Energy, it is clear that although the United States’ energy posture constitutes a serious and urgent threat to our national and economic security, that challenge also represents a great opportunity. It is well past time for us to take threats to our energy security seriously and to begin to overhaul how we’ve been going about energy in a business-as-usual-manner, especially in Washington.

That overhaul begins with us working together to take charge of our own energy future. By recognizing the scope of the challenge and aligning what sometimes seem to be quite divergent views about truly sustainable energy solutions, we can create a vibrant new energy economy to make America more secure and prosperous. And renewable energy, of all types, is a rapidly growing part of that 21st-century energy economy For many years, many other national security leaders and I have been speaking out about America’s dangerous, costly and unsustainable energy posture.

As a nation, we use over 25 percent of the world’s oil supplies each year, but we control less than 3 percent of the known reserves. Our over-reliance on fossil fuels, especially foreign oil, is expensive, unreliable and puts us at the mercy of unstable, unfriendly governments and fluctuating global economic trends that determine the unacceptably high price we pay for our fossil fuel addiction.

In 2008, at the beginning of our economic recession, the United States sent $386 billion overseas to pay for oil, with many of those petro-dollars flowing into Iranian coffers and, in turn, financing insurgents in Iraq and Afghanistan who are killing and wounding our men and women in uniform. America sends nearly $1 billion out of our economy every single day to import oil. For way too long, we have bet our security and economy on a global petroleum market that is volatile and getting more so each year. As global demand for oil increases along with dwindling supplies, 10 E N E RGYB I Z July/August 2011

and as the increasing effects of climate change are felt worldwide, global political unrest and upheaval will create even more OHIO PLANT COMPLETION havoc with the price of oil — as we have A $485 million been a powerless witness to recently. cogeneration natural This is clearly an unacceptable level of gas and steam plant, under construction risk to our national, economic and energy for a decade, will be security, exploitable by those who wish to completed in the fall, according to American do us harm. As a former military commandMunicipal Power. er, I am used to recognizing and managing Construction was risks, evaluating cost and benefit options, launched by Calpine one decade ago but and planning courses of action to deal with stopped six years ago, different scenarios. As we determine the according to the Toledo best ways to deal with America’s security Blade. Eventually, it will produce 707 megawatts. and energy risks, significantly scaled-up American Municipal clean, renewable energy is an essential Power acquired it from threat-reducer.

FirstEnergy, which obtained the unit from A multibillion-dollar economic revolution Calpine. American in renewable energy technology already Municipal Power said the favorable terms of the is under way around the world. Renewdeal will result in a able energy currently is responsible for $350 million savings over 30 years for 11 percent of America’s domestic energy participating member production, with more than 125 gigawatts communities. of operating renewable power projects and 13 billion gallons of biofuels projects directly replacing oil. Tremendous technical and financial potential exists

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» FINANCIAL FRONT to greatly accelerate its growth. Compelling evidence exists that clean energy policies are powerful economic drivers and enable large-scale deployment of capital and renewable energy technology. Largely driven by strong, state-led initiatives, the United States attracted more than $30.7 billion in total renewable energyspecific investments in 2010, and the country was home to more than 160,000 jobs in the wind and solar sectors alone.

An example of the positive economic effect of renewable energy power generation is the Nellis Solar Power Plant located at Nellis Air Force Base in Clark County, Nev. The Nellis solar energy system was inaugurated in December 2007 and generates in excess of 25 million kilowatt-hours of electricity annually, supplying more than 25 percent of the power used at the base. The energy generated will support the more than 12,000 military service members and civilians at Nellis who are responsible for some of the Air Force’s advanced combat training, tactics development and operational testing. The Nellis project supports Nevada’s commitment to developing its strong solar energy resources, with more than 100 megawatts of solar power already deployed in the state.

In Hawaii, Kahuku Wind provides nearly 7,700 homes on Oahu with clean, reliable energy. As one of the most advanced wind projects in the country, the 30-megawatt project features the largest wind turbines manufactured in North America and an innovative battery system to smooth the output. With few conventional sources of energy available in-state, the project moves Hawaii forward on its path toward energy independence and reduces the state’s costly

Gatherings//Financial Front Aug. 1-3

Nuclear Power Communications in Planning, Policy and Crisis

Washington

Sept. 18-21

APPA Business & Financial Conference

Denver

For more information about these and other events, please visit www.energycentral.com/events.

12 E N E RGYB I Z July/August 2011

reliance on imported oil for power. A Madison Dearborn Partners investment funded the $148 million wind and storage project together with a $117 million federal loan guarantee, and the project created more than 200 construction jobs.

Beyond developing new sustainable energy technologies, energy efficiency, transmission solutions and conservation are essential pieces of a broad national energy policy. Electricity infrastructure upgrades, increased fuel-efficiency standards and flex-fuel upgrades for cars and trucks, energy efficiency through residential, commercial and industrial building standards all will work to greatly reduce energy use, create jobs and save families, businesses and industries a lot of money.

As ACORE moves into its second decade of renewable energy leadership, it will deepen its commitment to its members, expand its scope and knowledge base and fully engage renewable energy thought leaders in creating a path forward.

Through strengthened partnerships across the entire energy industry, ACORE will develop and support the ideas, policies, technologies and financial mechanisms that will help bring 21st-century domestic energy and fuels to their full commercialscale potential.

While staying fully engaged at the national level, ACORE will expand its understanding of the best state and regional energy solutions through its Regional Roundtables and bring those good ideas to Washington to help inform a broad national energy strategy that will be more secure, sustainable and domestically produced.

As Americans, we cannot close our eyes and pretend our unsustainable energy posture and our threatened national and economic security will fix themselves. This is our challenge to meet and our opportunity to succeed. Now is the time for us to take action and greatly expand our energy choices.

Let’s join together to create the kind of energy future that will ensure and enhance our national security and prosperity.

America sends nearly $1 billion out of our economy every single day to import oil.

Vice Admiral Dennis V. McGinn, USN (Ret.), is president of the American Council On Renewable Energy.

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Merger

Wave

HOT PACE CONTINUES

BY DARRELL DELAMAIDE

“They need a bigger balance sheet so they have better access to the capital CAPACITY IS DRIVING THE NEW WAVE OF CONSOLIDATION markets,” says one expert who did not IN THE INDUSTRY, EXPERTS SAY, WITH THE ACTUAL DEALS want to be quoted by name because he is involved in a number of transactions.

DEPENDING ON HOW WELL THE COMPANIES FIT IN TERMS OF This was the viewpoint of Duke EXISTING PEAK CAPACITY AND JURISDICTIONS. Energy CEO Jim Rogers last year when he said the industry faces high “These things tend to come in waves,” says capital requirements for replacing retired plants, upgrading John McConomy, utility leader for transactions at grid structures and conforming to new regulations.

PricewaterhouseCoopers. “In this industry, it is very cyclical Rogers foresaw the possibility of a “third wave” of M&A and it builds when transactions start to occur.” in the industry, after the wave in the early to mid-’90s and a Based on the activity so far this year, McConomy expects second wave in the middle of the 2011 to reach the same level of merger activity as the nearly past decade. And Duke, which was $60 billion last year. The current wave of consolidation known to be on the prowl last year, could extend into next year as well, he believes. has helped fuel that wave with the That would continue a level of activity not seen in a announcement in January of its decade. “In relation to corporate activity, 2010 was the best mega-merger with Progress. year since 2001 from the standpoint of number of deals,” “They have to look ahead 20 says Rob McCeney, partner, PwC Transaction Services. years and envision how things The first quarter was marked by the $26 billion deal for are going to look then,” says the Duke Energy to take over Progress Energy, while the second transactions expert. “With the quarter saw announcement of the smaller but still quite requirement for big new generation significant $7.9 billion for Exelon to take over Constellation capacity, they say we have to get Energy. Largely driven by the Duke-Progress deal, the value to the size we want.” The result, of mergers and acquisitions in North America nearly tripled this expert agrees, is that “these in the first quarter of this year to $31.7 billion, according to things feed on each other,” as a PwC survey of the period. companies feel the need to grow Whereas many of last year’s acquisitions seemed bigger when they see others opportunistic and designed to produce cost savings, it is growing through acquisition. becoming clearer now that companies are seeking to grow As companies transition from coal-fired generation through acquisition so they will be in a better position to to cleaner energy like natural gas and renewables, nuclear finance big investments in new generating capacity. will continue to play a role, experts think, even after THE NEED FOR UTILITIES TO REPLACE AGING BASELOAD

In relation to corporate activitiy, 2010 was the best year since 2001 from the standpoint of number of deals.

14 E N E RGYB I Z July/August 2011

energybiz.com E N E RGYB I Z 15

MERGER WAV E

the nuclear accident in Japan. “The Japanese thing funds are quite active, but it’s more competitive,” he says, isn’t the same as us,” the transactions expert says. The as the industry pursues a strategic consolidation.

The PwC survey also found that foreign utilities have not process for building nuclear plants and maintaining standards is more transparent in the United States, been a big factor on the acquisition scene. “They are often shocked to find that each separate jurisdiction has its own he suggests.

The Exelon-Constellation deal was motivated in part to regulator to deal with,” McConomy says, and they may not help Chicago-based Exelon, which is already the biggest have the resources to pursue an acquisition in that situation. operator of nuclear plants in the country, build its nuclear capacity, this expert says.

TOP 10 DEALS // FIRST QUARTER 2011 Another factor in the growing

Value Transaction wave of big mergers is that more Rank ($ million) Acquirer name Target name type are getting to the finish line, as 1 26,018 Duke Energy Progress Energy Corp. regulators begin to acknowledge 2 1,123 BluEarth Renewables ACH Corp. the need of companies to grow 3 934 SNC-Lavalin Group Altalink Corp. their balance sheets to finance the cost of new capacity.

4 531 Oglethorpe Power KGen Power Corp–Combined Cycle Assets And companies, for their 5 470 EpcorWater (USA) Arizona American Water Corp. part, have learned how not 6 450 Magma Energy Plutonic Power Corp. to antagonize the regulators.

7 420 Innergex Renewable Energy Cloudworks Energy Corp.

“They’ve learned the lessons from the past,” says PwC’s McConomy.

8 355 Capital Power Bridgeport Energy Assets “Deals don’t get to the finish line.”

9 351 MinnTex Power Holdings PSEG Power (Guadalupe Facility) Assets “Synergies,” for instance, is 10 335 High Plains Diversified Energy PSEG Power (Odessa Facility) Assets often a code word in the merger world for layoffs, whereas *Amount not disclosed Source: Thomson Reuters, PwC analysis regulators are keen to preserve local jobs, he says. “One of the things is you don’t hear companies touting the synergies as Geography plays a role in domestic acquisitions, too, much as in previous years,” says McConomy. as companies look for targets that build out capacity in Companies are also willing to make more concessions to jurisdictions where they are already present. regulators, such as pledging customer rebates or agreeing to The new wave of acquisitions is also characterized by a stay out of rate cases for a certain period. focus on regulated utilities as the industry’s attention returns Exelon, for instance, has tried three times in the past few to the classic model of an integrated utility controlling the years to mount a merger effort, but has not been able to get generation of its own power. to the finish line as deals founder on regulatory approvals.

“States found out that deregulation is not a great thing,” The hope is clearly that this time with Constellation will be says the transactions expert. “If you give up the means of more successful. production, you give up control of the price.” This is another Because of lower demand in the wake of the recession, reason regulators have become more acquiescent in letting assets in the industry tend to be depressed, making mergers mergers proceed, this expert believes. opportune right now. But whereas private equity and Even though a wave of consolidation is clearly under way, hedge funds have been eager to snap up these assets in the experts don’t see a massive sea change, such as consolidation past, the need to add new generating capacity increasingly into a handful of mega-utilities. The U.S. industry remains means that strategic deals dominate, PwC found in its too fragmented. first-quarter survey.

“I don’t think the floodgates are about to open,” says “During the quarter, strategic buyers dominated larger PwC’s McConomy. He expects the current wave to continue value deal activity,” McConomy said when the report was at a good pace, possibly through next year. released in May. “We expect corporations to stay focused “Companies are much, much bigger in Europe,” the on ‘buy versus build’ transactions, and both strategic transactions expert notes. “It doesn’t seem that anybody here and financial sponsors to show an increased appetite for is that big yet.” renewables deals.”

In the course of time, however, the United States might This does not mean that financials are not active, have 25 percent fewer companies than it has today, this McConomy explained in an interview. “Private equity expert says.

16 E N E RGYB I Z July/August 2011

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MERGER WAV E

Fish or

Fish Food?

NAMING SOME NAMES

BY GARY L. HUNT

Exelon/Constellation deals create a scramble of both predators and prey in the utility industry. There are only a few big fish capable of such game-changing deals. Every other utility is potential fish food. While Duke and Exelon focus on getting their deals approved, competitors have an opportunity to do deals of their own.

What other big deals may be ahead?

THE

DUKE/PROGRESS

AND

Entergy // Jilting SPP for MISO is a sign that Entergy is getting ready to act. CLECO is an easy choice.

But Wayne Leonard, Entergy chief executive, could bulk up on nuclear assets, diversify his market position and deeply penetrate the Midwest Independent Transmission and PJM Interconnection market before Duke or Exelon can strike again by combining Entergy with either Dominion or NextEra Energy. Each reorders the energy map creating scale and positions the new company as a leader in any market with great assets.

Dominion // Dominion’s home markets are well placed for any play. A logical move would be SCANA, which shares Southern roots and nuclear ambitions but lacks the financial heft to ensure success. Another target might be PSEG as a safe deal, but that keeps a bigger Dominion tied to the mid-Atlantic. Dominion must be bold if it wants respect in the world series of utility M&A, so that means a really big deal like AEP seeking to dominate baseload with coal and nuclear or the Entergy/Dominion combo to rewrite the map combining nuclear forces in a crowded space.

NextEra Energy // Its success in renewable energy is clear, but it could surprise us with a big bet for stand-alone scale.

18 E N E RGYB I Z July/August 2011

A logical NextEra move could be acquiring Calpine to add gas backup to its renewable energy fleet and position this clean energy company to grow with unconventional gas supply. However, the oxygen-sucking deal might be a NextEra combo with AEP or Dominion to seize the middle kingdom while Duke and Exelon are tied up and before Entergy can act. But I still like the Entergy/NextEra Energy combination for a clean energy powerhouse play.

MidAmerican Energy // With Warren Buffett’s money and his railroad, MidAmerican can buy anything he wants. The big bet would be to acquire AEP to double down on low-cost coal and the means to supply it. There are likely to be plenty of coal plants on the market as smaller players fear U.S. Environmental Protection Agency torment from the death of a thousand regulations.

While Duke and Exelon focus on getting their deals approved, competitors have an opportunity to do deals of their own.

Edison International // A Western Electricity Coordinating Council player well positioned to get bigger is Edison International, parent of Southern California Edison. Edison’s merchant position gives it MISO/PJM experience, and building a position somewhere other than California would be useful.

Xcel Energy gives EIX a straddle play in both the WECC and Eastern Interconnect combining two solid companies.

Five big fish and plenty of fish food.

Gary Hunt is president of Scalable Growth Strategy Advisors.

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MERGER WAV E

Either an Executive’s

Dream or Nightmare STR ATEGIES FOR DE ALING W ITH M&A

BY K. QUENTIN BURCHILL THERE HAS BEEN AN UPTICK in M&A activity within the

sector over the past few months, and it will continue.

Some of it is rumor; some is real, but will never come to fruition. This kind of talk and potential activity provides some nervous days and nights for employees of those companies whose names are mentioned — especially for those at the executive level.

If your company’s name has been mentioned, here’s how to make the most of the situation: Take a step away and look at the proposed deal objectively If you’re in the C-suite or a senior executive, you have a lot to gain — or lose — depending on who is the hunter (acquirer) and who is the hunted (target). Be honest with yourself. Will you be the frontrunner to transition into your same (or better) role in the integrated company?

If not, then begin a self-assessment of your skills and functional strengths, put your resume together and begin a very selective, casual search. Utilize a talented headhunter and your professional network. HINT: Be mobile.

If you feel that you will be a casualty of the merged and integrated organization, all is not lost, as strong alternative options exist.

20 E N E RGYB I Z July/August 2011

Funds // Funds and private equity look for people with deep sector knowledge to work within the firm as principal investors or to work external to the firm as operators within their portfolio companies.

Corporate // What other companies have a similar business model, operate the same or are closely parallel to your company? I would suggest that those organizations would be good targets for your skills.

Consulting // Maybe this is a good opportunity to start your own advisory firm or join one already in existence. All of the larger consulting firms have energy practices. The fun of this work is that you get to apply your knowledge to a variety of situations and organizations each with its own unique issues. The downside is the travel.

If you are an executive, you probably got there in large part because of your vision and ability to see the big picture.

Apply those same skills to take stock of your professional situation, and, if need be, take the proactive steps to help you seamlessly transition into a new challenge.

K. Quentin Burchill is managing director – energy, Angott Search Group.

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Make It Secure NAILING DOW N GR ID CY BER SECUR IT Y

BY STEPHEN BARLAS THE OBAMA ADMINISTRATION’S economywide cyber security plan presented by the White House this spring makes it much more likely that the holes in existing electric utility cyber defense plans will be plugged sooner rather than later.

Legislation passed in 2005 gave the Federal Energy Regulatory Commission the responsibility for overseeing cyber security defenses for transmission and generation companies, the only companies for which there is a national legislative mandate. But recent federal reports have underlined the Swiss-cheese nature of the standards published by the North American Electric Reliability Corp., which FERC designated to produce standards aimed at guarding against computer virus attacks on critical assets.

The Obama legislative initiative would extend the federal mandatory cyber attack umbrella to the steel, chemical and other industries. Sens. Jeff Bingaman (D-N.M.) and Lisa Murkowski (R-Alaska), chairman and ranking member of the Senate Energy and Natural Resources Committee, held hearings in early May on a draft bill that would strengthen the original 2005 electric utility provisions. The bill, which contains some provisions the industry opposes, would become amendments to a broader bill based on the Obama initiative that is expected to be shepherded through the Senate by Sen. Jay Rockefeller (D-W.Va.), chairman of the Commerce Committee.

The 2005 energy act gave FERC authority to designate a private-sector group to establish standards for the “bulk power system,” which excludes local distribution companies and transmission facilities in Hawaii and Alaska. FERC designated NERC to formulate the standards. FERC has the authority to review NERC standards and ask for revisions.

However, since August 2006, when NERC submitted its first eight proposed cyber security standards, FERC

22 E N E RGYB I Z July/August 2011

has repeatedly directed NERC to fill gaping holes in those standards, which have also been the subject of criticism from the inspector general at the Department of Energy and the Government Accountability Office. Joseph McClelland, director, office of electric reliability at FERC, told the Senate Energy Committee on May 5 that the majority of FERC modifications have not been incorporated into the NERC standards. “Until they are addressed, there are significant gaps in protection such

as a needed requirement for a defense-in-depth posture,” McClelland said.

In a January report, the DOE inspector general implied that FERC was to blame for not pressing NERC harder and faster. “Although the commission had taken steps to ensure cyber security standards were developed and approved, our testing revealed that such standards did not always include controls commonly recommended for protecting critical information systems,” the report stated. “In addition, the standards implementation approach and schedule approved by the commission were not adequate to ensure that systemsrelated risks to the nation’s power grid were mitigated or addressed in a timely manner.”

The Bingaman and Murkowski draft bill would allow FERC to issue an interim final rule establishing electric reliability standards if it felt NERC had failed to do so, and FERC could do that without the prior notice and public comment period that traditionally accompany federal rulemakings and could issue the interim final rule with less than 30 days notice. In the event of an emergency cyber threat, the secretary of the Department of Energy could issue an emergency order forcing the power industry to take certain steps to protect critical electric infrastructure.

The order initially would be effective for 90 days and could be extended if public hearings were held. Companies could

recover from ratepayers reasonable costs involved with complying with such an emergency order.

David K. Owens, executive vice president, business operations, Edison Electric Institute, said any new authority given to FERC or the DOE should be limited to truly critical assets. “Over-inclusion of electric utility infrastructure would be counterproductive,” he explained at the hearings.

Critics of NERC’s standards say they only cover a limited number of generation and transmission assets. The DOE inspector general’s report said: “Even though critical assets could include such things as control centers, transmission substations, and generation resources, the former NERC chief security officer noted in April 2009 that only 29 percent of generation owners and operators and less than 63 percent of transmission owners identified at least one critical asset on a self-certification compliance survey.”

Owens added that any new DOE emergency authority “should be limited to true emergency situations involving imminent cyber security threats where there is a significant declared national security or public welfare concern.” The draft legislation is much broader; it doesn’t mention that there needs to be an “imminent threat,” for example.

Regarding the FERC interim final rule authority, Owens said, “We are concerned about the lack of due process for stakeholder input.”

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M A K E IT SECURE

Building in Security ENGINEER ING THE SM ART GR ID

BY TIM OSTERMEIER

electric power grid, it may be tempting to look at grid security and reliability as an end-goal rather than a process. However, history is replete with examples suggesting that few things are truly secure or constant. We can count on the fact that today’s electric grid is going to age, vegetation is going to encroach on the right of way, storms are going to pass through and the grid is likely to experience increased levels of malicious cyber and physical attacks.

Today’s secure design will surely be challenged followed by tomorrow’s force majeure and vulnerability exploitation.

In the news, we have seen recent severe weather and geologic activity disrupt power. All too often we hear of another cyber breach. The reality is that we are operating in a harsh environment. Organizations with static defense systems are already in trouble. Organizations that actively refresh their operations, train their employees and work with new technologies are in the best position to keep their part of the electric grid robust, reliable and resilient.

History is rich with ideas that can help organizations shake off the tendency to think they have reached a secure grid design and shift over to a dynamic process perspective.

The Fort McHenry Metaphor teaches that technology and time render existing defenses useless. In 1812, Fort McHenry guarded the entry to Baltimore’s Inner Harbor.

Through the use of its people, technology and operations, the fort successfully repelled an attack on the city and prevented enemy access to assets critical to the young United States. Today, the same fort is irrelevant to the defense of critical national assets in the Mid-Atlantic region.

To prevent substations from becoming historical artifacts, we must continually incorporate new information.

As microprocessor-based devices move deeper into the grid structure, vast volumes of data suddenly become available.

The learning challenge is to figure out how to gather, qualify, organize and present that data in a timely way so that actionable information harmonizes with operational and organizational priorities. If technology and time render all defenses useless, then the moment we stop learning from the grid is the moment the grid is completely insecure.

AS WE ENGINEER THE SMART

24 E N E RGYB I Z July/August 2011

The Shewhart/Deming Principle says that high-quality systems never stop improving, so gather data, make adjustments, update your plans and keep pushing toward constant improvement. This process model transformed industrial manufacturing and incorporated a methodology for continuous process improvement. If applied to the national grid, the Deming Cycle suggests that a secure, robust and resilient grid will require continuous improvement in order to ever more closely approximate total quality and reliability.

The Defense-in-Depth Concept says to think in layers, and constantly use people, technology and operations to form layers of defense around critical assets.

Military history teaches that there is no perfect defense.

Some modern thought indicates that layers of defense, or defense in depth, are highly effective in deterring or delaying exploits. In a document prepared for the National Security Agency, defense in depth is described as being built on three pillars — people, technology and operations.

The North American Electric Reliability Corp. indicates that the reliability standards, as a whole, act as a defense in depth for the bulk power system. We are all familiar with NERC’s reliability standards. Whether focused on vegetation management in the right of way, relay protection, or critical assets, these standards motivate continuous vigilance and measurable improvement.

Continuous improvement and learning, compliance with reliability standards and effective defense in depth all contribute to the process of making our electric power grid more robust, resilient and secure. When compliance with reliability and technology standards goes beyond simply avoiding penalties and adopting new protocols and becomes the foundation for improving our people, our technologies, and our operations, then we will more closely approach the ideal we seek.

The reality is that we are operating in a harsh environment.

Tim Ostermeier is executive vice president of POWER Engineers.

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Retail Rollercoaster FAST AND SLOW BUT FORWAR D

BY RICHARD SCHLESINGER

is either speeding toward record growth or rolling down a winding road, headed toward a stop sign. How you see it depends in part on whom you talk to. “Retail electric services is an emerging high-growth industry,” says Craig Goodman, president of the National Energy Marketers Association.

“The short version is, there are no new deregulatory efforts going on at the present time,” says H. Sterling Burnett, Senior Fellow at the National Center for Policy Analysis.

Actually, they’re both right. Where deregulation has worked, it’s worked spectacularly well, with customers exercising choice — migrating — in very large numbers.

Where it’s been botched — think California in 2001 — it’s been such a disaster as to discourage other states from even addressing the issue. But in the last couple of years, more states have embraced deregulation, albeit cautiously, and where the rules have been clear and where restructuring has met certain criteria, it’s been markedly successful.

The consensus now is that the move to deregulate the retail market will ultimately prevail over the forces that would keep things as they always were; the only question is about timing.

A recent study by KEMA, the Dutch-based international energy consulting firm, reported that total retail energy volume sales increased 19 percent in 2010 over sales in 2009. The firm expects retail sales to post a 30 percent increase in 2011. Volume increases are driven by a number of factors, but increased marketing by retailers, more robust competition and policy changes are key. While the numbers are impressive, those increases are from a small base.

Competition among energy suppliers is available in only 20 states, according to a survey by the Retail Energy Supply Association. While 88 percent of Americans say having a choice of retail energy suppliers is a good thing, fewer than 50 percent are aware such a choice is available, even in those states where it is.

Deregulation got off to a slow start and was essentially derailed by the California experience. Between April and December of 2000, the wholesale price of electricity in California exploded by 800 percent. That was the result of a perfect storm, including a drought, a heat wave, a sudden increase in demand, historic delays in approving new plants THE COMPETITIVE RETAIL ENERGY MARKET

26 E N E RGYB I Z July/August 2011

and, perhaps most seriously, market manipulation that was made possible by the market design produced by partial deregulation, with Enron one of the chief villains. California mandated divestiture of installed capacity by incumbent utilities, which remained responsible for distribution, and mandated that utilities buy back power from independent producers on a newly created day-ahead basis that precluded entering into longer-term contracts to hedge price volatility.

Most disastrously, California deregulated wholesale prices but capped retail prices. With the utilities essentially captive customers, the new independent marketers had no incentive to compete on price. In fact, they withheld supply and actually shut down plants to constrain supply.

Another significant problem, according to H. Sterling Burnett, senior fellow at the National Center for Policy Analysis, was that proponents of deregulation oversold its promise to lower retail prices and basically ignored other benefits, such as offering customers a choice of green energy and various billing options. As in California, many states only partially deregulated the power industry; where caps on retail prices remained in effect, the results were particularly disappointing.

Deregulation on the retail level depends on deregulation of the wholesale market. In the Western mountain region, Florida and the Southeast there is no competitive wholesale market, and until those wholesale markets become competitive, retail competition is difficult if not impossible. That pretty much limits deregulation to areas covered by ISO New England, the Midwest Independent Transmission System Operator, the PJM Interconnection in the East, and ISOs in California and Texas.

If the elimination of rate caps and a liquid deregulated wholesale market are essential for successful retail deregulation, perhaps the greatest impetus for success

If retailers don’t have to worry about bad debt, they become agnostic to which type of customer they can accept.

is having a purchase of receivables program (POR) in place. Without such an agreement, an alternative supplier has only two choices: run credit checks on every customer who wishes to migrate and reject those who fall below a certain credit threshold, a costly procedure that could eliminate a large pool of prospective customers, or accept anyone who chooses to switch and risk acquiring customers who default. Those customers then return to the original utility and the alternative supplier is left either swallowing the unpaid bill or initiating costly court procedures. A POR makes it much easier for a supplier to accept all customers. If a customer of a supplier defaults, the original utility buys back the receivables at a discount.

“If you want vibrant retail competition, you need to have POR,” says Young Kim, principal consultant to KEMA. Kim credits expanded POR in Pennsylvania, along with the elimination of rate caps, as the greatest factor in Pennsylvania’s now vibrant retail market. He also says it opened the Cincinnati territory for Duke and the Chicago area for ComEd in Illinois as well as the Maryland market.

Legislation is pending to introduce POR in Massachusetts, and he thinks it’s been key in New York. “If retailers don’t have to worry about bad debt, they become agnostic to which type of customer they can accept. In places with POR, we’ve seen a huge increase in migration,” Kim says.

Goodman agrees: “POR was one of the key factors that made Pennsylvania attractive to suppliers. POR is always a game changer. It’s the single biggest impetus in a state that is developing a retail market program.” He points out, however, that the discount rate — the rate at which

a utility buys the receivables — must be reasonable. “If the rate exceeds 2 or 3 percent, you’re probably not going to have a successful retail program,” he says.

Where price caps have been eliminated and generation infrastructure has been separated from transmission, as in Texas, competition has been strong. In Texas, 43 percent of residential customers have migrated; when the fact that not all residents can migrate is taken into account — municipally owned utilities, for example, are exempt from competition — the number is all the more impressive. Some states, including Michigan and California, have so-called shopping caps that limit how many customers can switch. The idea is to phase in competition gradually by limiting it to, say, 10 percent of total sales from the prior year. According to Kim, the day the cap in California was opened for enrollment it was totally filled within 24 hours.

Uncertainties remain. If Dodd-Frank makes hedging against sudden spikes in fuel prices too difficult or too costly, the wholesale market could shrink, severely constraining retail competition. And if states regulate fuel sources too strictly, the result could distort the market or make it too complex for all but the largest retailers to bother with. But as retail customers learn of the benefits of a competitive energy market, either through increased education by organizations such as the National Energy Marketers Association, or simply by word of mouth, and as customers move from deregulated states like Texas to states that remain regulated, demand will undoubtedly increase. And as retail customers demand it, it’s hard to imagine that legislators and regulatory bodies will not respond and open new territories to competition. energybiz.com E N E RGYB I Z 27

R E TA I L R O L L E R C O A S T E R

Let Free Markets Reign A CON V ERSATION W ITH FEDER ICO PENA

BY MARTIN ROSENBERG

in the Clinton administration and is now co-chairman of the COMPETE Coalition. Pena recently sat down with EnergyBiz to discuss his vision for energy competition. His comments were edited for style and space.

FEDERICO PENA WAS U.S. ENERGY SECRETARY

What is the COMPETE Coalition?

COMPETE is an organization of electricity users, including commercial companies such as Safeway and Wal-Mart and some economic development corporations.

We have about 550 members. COMPETE’s purpose is to foster more competition in the electricity sector.

ENERGYBIZ PENA

ENERGYBIZ Do you think more markets will be opened to competition?

We have seven regions of the country now that PENA have wholesale competition and 20 to 30 states that have some form of retail competition. Texas is probably the best example. In 1998, when I was secretary of energy, I introduced legislation calling for national retail competition rather than having the balkanized system we have today.

Because of the Enron problems and the troubles in California’s energy markets in the late 1990s, Congress had no interest in talking about competition. But that was 12 years ago. Since states started to open up their markets, we’re seeing success in achieving innovation and lower prices.

ENERGYBIZ There are people who dispute the assertion that competition leads to lower prices.

PENA Every sector of the economy that has gone through some form of deregulation and competition has had ups and downs. There has always been a need for the government at some level to come in and provide oversight and make some adjustments. That’s what’s going to happen in the electricity retail competitive arena.

But we need to have more robust competition. We’ve seen more innovation, more energy efficiency, more smart grid technology and more demand response efforts in areas of the country that have more competition.

The political climate has changed since you were energy secretary. There is more skepticism about government.

PENA I think the political climate in Congress today would probably be more receptive than it was in 1998 to competitive markets. Congress normally waits for the states to experiment. They wait for governors and legislators to exercise their entrepreneurial political skills and demonstrate success in certain sectors. Once they see success stories, then ENERGYBIZ

28 E N E RGYB I Z July/August 2011

they’ll say let’s make this a national program. That’s what I predict will happen in the electricity sector. A number of our members – for example, Wal-Mart — are in every state. It’s unfair to expect that company to adjust its electricity policy in every state because of different regulations. Americans are mobile; consumers ought to have a uniform basis for buying something as fundamental as electricity.

Does it make sense to continue to have large, vertically integrated utilities?

PENA For many years it made sense to have that kind of system in place to ensure that rural parts of the country had electricity. Today, we need competition. The American people need choice. We have enough competitors, enough technology, enough innovation, enough new services ready to be provided to the American consumer if we have competitive markets.

ENERGYBIZ

ENERGYBIZ So you’re saying large, vertically integrated utilities are dinosaurs?

PENA I think we can have much more efficient companies providing electricity to the American people if we have more competition. We have seen that in states like Texas that have more competition. We need to begin to move to a more competitive market over time — at the wholesale and the retail level.

Assuming energy markets are thrown open to competition, what will be the impact?

PENA All potential energy sources would have price transparency, and consumers would know — as would investors — what would be the potential cost and benefit of a new technology or a new service.

ENERGYBIZ

Is there still a need for federal subsidies for wind, solar, nuclear and clean coal?

PENA There will be a point at which they’ll compete with all sources of energy and will not need any federal subsidies.

That will take some time, but that’s what the market will do and it’ll drive efficiencies. That’s where I think we’ll be a few decades from now.

ENERGYBIZ

You served on Obama’s transition team when he entered office. What is his vision for national energy policy?

PENA He has done more than any president in the last 20 years. There is an energy policy. The president recently announced a whole new strategy for helping us become less reliant on foreign oil.

ENERGYBIZ

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CONNECTING THE FUTURE AT BECHTEL building the future means building new power generation and distribution systems. We provide our customers with solutions for the 21st century by raising the bar with innovative designs and quality work delivered on time and on budget.

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A SMARTER COMMUNICATIONS NETWORK TO POWER DISTRIBUTION AUTOMATION ‘Interoperability’ of applications and devices over common network is critical

By TOM JOhNSON, ITRON

Over the last century, the distribution

of electricity has seen little change. It is a oneway process – power is generated and distributed through transmission circuits to substations and on down the line to the end user. As this delivery system ages and load increases, it becomes more and more vulnerable to energy delivery interruptions, which according to the Galvin Energy Initiative, cost American consumers an estimated $150 billion annually. In other words, for every dollar spent on electricity, consumers are spending at least 50 cents on other goods and services to cover the costs of power failures. These costs result from losses in affected industries being passed down to consumers. So from this perspective, the reliability of our power supply has an appreciable impact on our economic growth and prosperity.

With new communication technologies emerging and the smart grid taking shape, the reliability of the grid will greatly improve in the years ahead. While Advanced Metering Infrastructure (AMI) deployments are often the first milestone of smart grid technology implementation enabling grid efficiency and consumer engagement, the real-time command and control of higher-level grid devices is of equal – if not greater – value in the push for overall grid efficiency and reliability.

30 E N E RGYB I Z July/August 2011

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As utilities look for cost-effective solutions to improve grid operations, distribution automation (DA) is a key technology to improving operational efficiency and reliability. In a recent utility study conducted by the Electric Power Research Institute (EPRI), reliability improvement is a primary driver for automation investments (see Figure 1).

Instead of deploying separate communication networks and systems which increases costs, utilities will increasingly leverage their AMI communication investment to enable various DA applications, implementing multiple vendor devices for data integration, and support of “best-in-class” grid-optimization software applications to deliver solutions for multiple-user accessibility, grid situational awareness, and reliability through a global footprint of the grid.

With DA technologies, utilities can deploy data end-points that provide conditional awareness of the distribution system to achieve higher resolution of asset loading and capacity management, which becomes much more important with the emergence of electric vehicles on the grid. This enables “grid awareness” – and ultimately, the optimization – of power-network components, behavior and performance. It also allows utilities to anticipate, prevent or respond to problems before disruptions can arise, while also maximizing performance of feeders, transformers and other distribution system components. The value of this new network of data points – both meters and other types of sensors—is that it provides utilities with a range of possibilities for improving their operating system as well as the confidence to do so thanks to a steady stream of decision support data. So what types of applications and synergies that are enabled by the convergence of smart meters, distribution automation, and a common network architecture?

Distribution Automation Applications Among the specific DA capabilities utilities want are voltage monitoring and load balancing; fault isolation, sectionalizing and open-point switching; and Volt/VAr optimization.

1. Voltage Monitoring and Load Balancing: DA gives utilities the

ability to monitor feeder voltage remotely, enabling utility personnel to receive advanced notification about line voltage drop due to high usage. Additionally, recorded feeder voltage data provides a snapshot of the actual usage patterns. Add in transformer load balance monitoring and the utility gains remote access to near real-time information about the overall operation of the distribution system. This information can then be used on a daily basis to verify the effects of other “down line” events, such as capacitor switching, residential load control, and recloser operations. It is also useful on a periodic basis to fine tune the efficiency of the utility’s power distribution configuration.

2. Fault Isolation, Sectionalizing and Open-Point Switching:

The application of linking communication-enabled devices to deliver immediate information when an outage or fault occurs on a feeder and quickly sectionalizing the distribution grid to minimize the impacted area is called Fault Detection, Isolation, and Service Restoration (FISR). FISR is an example of how distribution automation reliability improvement supports the electric utility’s reliability performance as measured by system average interruption duration and frequency indices (SAIDI/

Chart courtesy of the Electric Power Research Institute THOUGHT LEADERSHIP - SPONSORED BY ITRON

energybiz.com E N E RGYB I Z 31

SAIFI). A lower number indicates fewer prolonged outages or reduced frequency of outages. Further metrics can be assimilated from FISR to support tracking of momentary outages for vegetation management and power quality analysis based on device loading feedback. FISR also supports load shedding and capacity reallocation strategies a utility may deploy for demand-side management and alternative generation.

3. Volt/VAr Optimization: Volt/VAr Optimization (VVO) is

a high-value opportunity related to power quality improvement. Volt-ampere reactive (VAr) is the inefficient transmission of power that occurs when capacitive or inductive loads adversely affect the synchronization of voltage and current across the grid. If VAr levels are high, they can cause further power quality problems for industrial businesses; and VAr delivery is costly to utilities. Utilities typically control VAr through infrastructure equipment, such as load tap changers, voltage regulators and capacitor banks (fixed and switched) to manage volt/VAr levels.

The typical approach for utilities is to execute Conversation Voltage Reduction (CVR) at the substation with communication-enabled downstream voltage regulators, capacitors and end-of-line (EOL) voltage references to reduce the EOL voltage to the lowest allowable voltage limit per ANSI C.84.1.

This action provides a utility with an average of seven percent lower line losses. When combined with circuit switch capacitor banks controls, a utility can optimize power factor efficiency while providing the lowest amount of losses on the distribution circuit. The optimized solution enables less line loss and more efficient power delivery, which can reduce generation costs and improve system efficiency and power quality. An added benefit of communication-enabled controls is the ability to execute conditioned-based maintenance through control monitored conditions and identify capacitor assets that may require service or replacement based on out-of-tolerance readings or problems.

32 E N E RGYB I Z July/August2011

A Smarter Communications Network In order to power these DA applications, utilities need a smart communications network. Currently, utilities have varying degrees of maturity in their overall communications strategy and architecture. Most utilities today use some form of substation SCADA that is connected to a substation backhaul communications to the utility office. Communication linkage from the distribution circuits to the substation feeders is much more inconsistent and piecemeal.

Some utilities approach their distribution communication model using a private and/or dedicated network, while others try to integrate with their AMI. Often this produces a mixed breed of communications that depend on the legacy and nature of the devices (firmware versions and different manufacturers), proprietary software for reading and programming, and varied device interfaces (e.g. serial or Ethernet). This is the problem that must be solved to achieve these benefits in the most cost-effective manner.

Seamlessly connecting multiple networks and devices is essential to understanding power delivery and better managing it to allocate resources appropriately to meet demand, as well as to promote the efficient use of existing transmission, distribution and generation infrastructure. A network that can connect hundreds, thousands or millions of devices and readily exchange data both securely and reliably requires a set of common standards that provide for interoperability within the smart grid. IPv6, offering best-in-class network management, quality of service and security, is the standard that can deliver these desired capabilities on a large scale.

The interoperability of IPv6 can accommodate data from multiple devices from multiple vendors with various protocols and software applications. This approach goes beyond “standards-based” and “multi-application.” This provides a network infrastructure that delivers true interoperability of applications and devices. In other words, utilities no longer need to be dependent on their AMI THOUGHT LEADERSHIP - SPONSORED BY ITRON

provider – and who they’ve partnered or integrated with – when it comes time to select and deploy DA capabilities on the network.

This platform reduces a utility’s cost of ownership through selection of best-in-class solutions with network integration that supports real-time data, efficient energy management and consumer engagement within an open and interoperable network.

This migration path to an open IP network reduces the utility’s cost of ownership since one network can support all applications.

Further, DA applications can be supported on the same infrastructure as AMI applications and co-exist with other utility applications without compromising the performance or security of any application. Utilities can leverage this multi-service network for data delivery from multiple-vendor devices to multiple-vendor monitoring and control applications.

The implementation of a comprehensive network communication standard can bring true interoperability to the smart grid—as it has been envisioned by technology companies and utilities alike.

Interoperability is one of the four main tenets of an open and successful grid, along with scalability, security and cost of ownership reduction.

INTEROPERABIlITy To harness the full potential of the smart grid, interoperability is vital. No single technology vendor can source every component of a smart grid initiative and one physical communications network can’t meet the needs of every utility. In order to ensure that multi-vendor products work properly together across multiple environments, standard protocols—such as IPv6—provide the common language in which devices speak to each other. A standards-based communication infrastructure optimizes existing assets and provides a migration path for new initiatives, fostering an open environment for ease of integration with existing and future third-party applications. Standards also enable utilities to take advantage of broader industry best practices to harmonize the technologies and drive down ownership costs.

SECURITy Opening up the historically closed, proprietary power grid with networked communications could feel a bit unsettling for the utility industry. Primarily, the concern is over protecting data integrity and consumer privacy from malicious hackers who must be taken seriously. In IPv6, network security is tightly integrated into the overall architecture. Through the adoption of security standards, such as the National Institute of Standards and Technology (NIST) and the North American Electric Reliability Corporation (NERC), utilities can rest assured that potential security breaches have been examined and addressed by experts in the field. Additional IP security standards such as IP SEC are used to protect data flows between interface points, and standards must be met at all times as data is passed throughout the utility network.

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SCAlABIlITy In recent years, IP has proven that it is capable of supporting new applications as they are developed, as well as evolving to meet the changing networking needs without altering the core design of IP. As a utility grows, an open, standards-based network must be able to serve both the large and small—and everything in between. Additionally, as utilities incorporate smart technology, they must be able to do so in incremental steps, without a fear of stranding assets along the way. IPv6 provides the flexibility to adopt new applications or increase the number of networked devices without impacting the reliability of the data transport.

COST Of OWNERShIP REDUCTION Smart grid projects require significant capital investments, and when implementing a new solution, costs are a primary concern.

Migration and maintenance spending must be affordable and predictable to achieve a ROI that makes moving to the smart grid a sound business decision. With an open-standards approach, utilities can choose from a variety of best-in-breed vendors to select the products that are right for them, at a price that is right—without worrying about how to integrate them into the network.

CONClUSION While utilities assess their investment in improving reliability and operational efficiency, the ability to manage diverse applications across multi-service network can deliver value as identified in several distribution automation use cases to support DA objectives including FISR, VVO and transformer monitoring to optimize loads, isolate faults and manage system capacity.

As utilities evaluate their communication options to integrate distribution automation devices for data integration to support gridoptimization software solutions, the value of these applications are dependent on timely, accurate and secure data. An open, standards-based IP network will provide utilities with quality information to cost-effectively achieve their overall objectives within a multi-service communication architecture that delivers both AMI and DA applications on the same communications platform.

Tom Johnson is Itron Product Line Manager-Distribution Automation. He is responsible for DA Solution Integration with Itron’s OpenWay communication network.

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SMART GRID TRANSFORMATION OF THE UTILITY SECTOR

Orchestrating a Smart Grid WHAT’S NEXT? // BY PAUL KORZENIOWSKI THE SLOW, SOMETIME TEDIOUS, build up of the nation’s smart grid is nearing a key transition point. The number of smart meters deployed in the United States is reaching a critical mass: Pike Research, a clean energy market research firm, estimates that 21 million were deployed in 2010, and that number is expected to swell to 57.9 million in the coming years as more than 90 U.S. utilities have outlined such deployment plans.

Once utilities roll out these wireless, smart solutions, they need to determine how to start to take advantage of the new usage information that they now can collect. Rather than periodic polling of energy usage typically reported in days or weeks, they can see how their energy delivery infrastructure is functioning in short intervals, say, every 15 minutes. Consequently, a raft of ways for utilities to make themselves more efficient is possible: They can help residential and commercial industrial users consume energy more effectively, troubleshoot network and equipment problems more effectively, and integrate renewable energy sources into their distribution system more easily.

However, moving from here to there is a gargantuan task because the smart grid is complex and has many interrelated parts. Software, hardware and infrastructure upgrades are needed, starting at the physical power infrastructure and extending to the communications network and to a company’s business applications. Currently, these items sit in autonomous silos, so information cannot be easily shared. A bevy of technologies are being developed, evaluated and deployed to break down these barriers. However, 34 E N E RGYB I Z July/August 2011

the process will unfold slowly, and realizing the smart grid’s potential is a never-ending task. “Smart grid means digitizing our energy delivery infrastructure, something we have been trying to do since the early 1990s and will continue to focus on in the coming decades,” said Michael Lamb, managing director at Xcel Energy.

One challenge is that the smart grid rollout is proceeding at an uneven pace. “Utilities have been following the lead of the local regulators,” said Bob Gohn, a research director who leads the smart grid practice at Pike Research. “California and Texas have been pushing the most aggressively, with other areas at least taking a few steps toward implementing smart grids.”

Sempra Energy, which has nearly 16,000 employees and generated $9 billion in revenue in its last fiscal year, buttresses that statement. Created in 1998 by the assimilation of three competitors, the utility serves about 26 million consumers, mostly in California. In 2007, the company allocated $572 million to replace 1.4 million electric meters and retrofit approximately 900,000 gas meters with smart meters.

That project is now about 95 percent complete and is expected to be finished by the end of the year. “Customers can now examine their rate and usage information and change their usage patterns,” said Lee Krevat, director of smart grid at Sempra.

Improved customer service is another potential smart grid benefit. Xcel Energy provides energyrelated products and services to 3.3 million electricity customers and 1.8 million natural gas customers in eight Western and Midwestern states. Since 2007, the utility has been transforming Boulder, Colo., into a fully integrated smart grid city. The goal is to test new capabilities during pilot projects conducted in Boulder and eventually deploy the capabilities throughout the company’s eight-state service territory.

Improving Customer Satisfaction “During our pilot, we have received a great deal of feedback about how customers want energy and billing information delivered to them online,” Xcel Energy’s Lamb said. In response, the company developed the MyAccount online usage and billing portal that is expected to have a positive effect on the utility’s bottom line. As more customers are served online, fewer

been upgrading its distribution nodes with wireless network functions, so the utility now has insight into how the nodes are performing.

Further down the line, the smart grid offers other potential benefits. Increasingly, consumers are turning to electric and hybrid automobiles. Energy companies are developing applications to help consumers energize these cars during off-peak times so they do not strain the grid or customers’ wallets.

There is also interest in using the smart grid to increase usage of renewable energy sources, such as wind and solar. “Renewable energy production is much more dynamic than the alternatives, so energy providers need more visibility into how their networks are performing to make it work,” said Doug Kim, director of advanced technology, Southern California Edison.

Data integration is another significant challenge.

“Utilities first must figure out how to collect and store all of the new usage information that they now are able to collect,” Pike Research’s Gohn said.

Next, they need to provide access to that information. In most utilities, applications such as customer service, billing and workforce management have evolved in an autonomous manner, so corporations need to build software interfaces that can move information from one system to a second. A service bus, which is software that translates information among a variety of different systems, was one of the major initiatives that came from Xcel Energy’s smart city work.

Nontechnical challenges also have arisen. “I’ve been surprised that there has been so much resistance to the smart grid from consumers,” Gohn said. In areas such as San Francisco, consumer groups have raised accuracy, health, privacy and pricing questions and have managed to slow down and even halt smart meter deployments.

The energy industry has RETHINKING peeled back the first layer on the SMART GRID smart grid onion. Many utilities Learn more about the issues are well along in their deployment swirling around the smart grid — and continue the of smart meters and are looking dialog with industry experts. to implement other new feaListen to the tures. “The steps that the energy one-hour webcast industry is taking are similar to RETHINKING SMART the deregulation process that ocGRID — DO THE curred in the telecommunications BENEFITS OUTWEIGH industry,” concluded Southern THE CHALLENGES? California Edison’s Kim. “BeThe webcast will be noon ET on July 21. Register for cause the process is so complex, the free event at progress needs to be measured www.energybiz.com/ in decades rather than years.” rethinkingsmartgrid .

calls come into the company’s call center. Also, online services can improve customer satisfaction, which may lead to reductions in churn as markets deregulate and consumers gain more choices.

Although the bulk of the early emphasis has been on smart metering, utilities see other, maybe more significant and lucrative ways that the smart grid can improve their business. “With the smart grid, energy companies can streamline and improve the efficiency of their energy delivery systems,” Pike Research’s Gohn said.

They can transform their energy delivery infrastructure from a slow static system into a dynamic electric system communications network, providing real-time, high-speed, two-way communication throughout the distribution grid. Improvements are needed because the volume of energy now pumped into their networks is significantly more than the amount that customers consume.

Various inefficiencies, such as heat dissipation and overloaded circuits, diminish system performance.

The conversion of dumb substations into smart systems capable of remotely monitoring near-realtime usage data will enable energy companies to optimize network performance. “We are now able to see how our transformers are performing, make changes if any are overloaded, and deliver more energy to customers,” Sempra’s Krevat said.

Smart grid means digitizing our energy delivery infrastructure, something we have been trying to do since the early 1990s.

Visibility into the Distribution Network Con Edison, which provides electric service in the New York City area, had virtually no visibility into many of its distribution nodes. “We are in a heavily populated area, and much of our distribution network is underground, so it had been impossible for us to see what was happening with those devices,” noted Tom Magee, general manager of the smart grid implementation group at Con Edison, whose smart grid initiatives were funded with $181 million in federal stimulus funds. The energy company has

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Smart Grid Transformation of the Utility Sector

Utility Transformation THE SMART GRID CONUNDRUM // BY CHUCK MCDERMOTT ONE MAJOR CHALLENGE to achieving an intelligent grid is the fact that the electric power industry is highly fragmented. Thousands of key players are spread over 50 states, each with its own rules and requirements. Their conduct is constrained by 100 years of regulatory evolution that never contemplated the new business models, market players, technologies, customer requirements and security concerns that have emerged over the last two decades.

And although regulations are created based on federal and state interests, markets are regional. So players in those regional markets have limited ability to rationalize costs and benefits across the mismatched boundaries of natural market geographies and overlapping federal and state regulatory jurisdictions.

There are four primary players in the smart grid: the utility, the regulator, the innovator and the customer.

All are behaving rationally, though the end result of all their actions taken together comes up well short of realizing the full potential of the smart grid.

The providers are behaving rationally by closely adhering to their mandate to provide for the production and delivery of safe, reliable economical electric service. The regulators are behaving rationally as they seek to represent the interests of all ratepayers when reviewing utility plans to repair, expand and maintain their safe and reliable systems. You’ll note that neither of these sets of players has a mandate to take technology risks.

The innovation community — technologists, entrepreneurs, financial backers — are behaving rationally in being totally frustrated by how difficult it is to break into this marketplace. And customers — especially residential customers — are behaving rationally by barely thinking about their electric bills at all. Those bills take about 3 to 4 percent of the discretionary income of the average American household. All of these factors combine to slow the adoption of the breakthrough technologies that could realize our vision for a smart, interactive grid.

So what do we do? For one, we need to determine how we can better manage the risk of bringing new 36 E N E RGYB I Z July/August 2011

technology into the system. Federal and state governments already play an important role in supporting the very early stages of technology development. Within the world of venture capital, “cleantech”– the market segment that includes smart grid investments – is the biggest slice of the venture capital pie, representing more investment dollars than IT or life sciences. But as companies hit the deployment stage, the lengthy lead times for customer adoption in the utility space can be a killer. The term “death by pilot” refers to the lengthy and incremental process by which new technology becomes integrated. The venture capital community often cannot supply the sums of capital necessary to cross this valley of death.

One suggestion for bridging this gap is to acknowledge that risk management at this level is a desirable thing and the cost — like other system costs — should be spread equitably across all ratepayers. Perhaps a small system benefits charge could create a pool of capital to accelerate new technology deployment. Alternatively, a funding pool like this could be leveraged to provide an insurancetype backstop for new technology. The 21st Century Energy Technology Deployment Act, introduced last year in the U.S. Senate, would create a number of new financial instruments that could help speed deployment. We need more creative thinking and action along these lines.

The move toward the smart grid offers exciting outcomes, but will require great change. The role of the utility, and the core competencies it must possess, will expand. The regulatory community will need to experiment with new ways to allocate near-term costs that deliver long-term benefits. And we’ll need to be more innovative in how we manage the risks — performance, safety, durability — that we must somehow bear if we hope to turn our aspirational goals for the smart grid into reality.

Chuck McDermott is general partner at RockPort Capital and former chairman of GridWise Alliance.

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Bringing Jobs Back from China LABOR AGENDA SHOWS GAINS // BY WILLIAM OPALKA to bring green energy manufacturing jobs to the United States, closer to the project development sites for large wind and solar installations, the industry says. There is mounting concern over how fast that can happen.

And that’s why the issue gained some added prominence last year when the United Steelworkers union initiated a complaint alleging anticompetitive practices by China. The transformation to the clean-energy economy would be even faster if the Chinese were playing fair, the unions argued.

The Obama administration took up the complaint first lodged by the United Steelworkers. The United States and China could agree to extend consultations to resolve the dispute, which are ongoing. They could reach a mutually agreeable resolution in order to avoid moving the dispute to the World Trade Organization.

“I think it’s fair to say some portions of the complaint have been complied with,” said Tom Conway, vice president of the United Steelworkers. He cited some of the subsidies to Chinese manufacturers and loosening of the rules concerning foreign companies setting up joint ventures.

But there are other remaining concerns. “I don’t think the United States can be naive about China’s ability to withhold rare earth metals,” he said.

Although the metals are a component in wind turbines, the major employment gains are counted in manufacturing the nearly 8,000 parts that go into a utilityscale machine. As the American Wind Energy Association likes to point out, about half of the value of a turbine is now manufactured domestically.

Elizabeth Salerno, director of statistics for the organization, said the domestic manufacturing industry for wind has really only existed since about 2004.

“Manufacturing follows a different trajectory than the development of a project,” she said. “Manufacturing investment is a multimillion-dollar investment in a heavy industry. To recoup those investments you need to sell product and have orders for 10 or 15 or 20 years.”

Although project development fell by one-half from 2009 to 2010, from 10,000 megawatts to 5,000 megawatts, the drop-off in manufacturing was not as severe. “We saw the drop-off in the number of megawatts installed, but we didn’t necessarily see that drop-off in manufacturing as that SLOW PROGRESS IS BEING MADE

38 E N E RGYB I Z July/August 2011

sector continues to grow,” Salerno said. “There were 14 new manufacturing facilities in a year when the economy was down and another 23 were announced.”

Employment dropped from 21,500 manufacturing jobs to about 20,000.

Wind followed a familiar pattern in the development of its domestic manufacturing. Towers, more readily supplied by steelmakers, came first, followed by blades. Component parts, electronics, gears and finally, nacelles, the dome-like structure that contains the guts of the machine, come last.

Foreign-based wind turbine makers Siemens, Nordex, Vestas and Alstom are just a few of the companies that have expanded U.S. operations in recent years. Although progress isn’t fast enough for Conway, “It’s encouraging. It’s certainly better than it was a year-and-a-half ago,” he said.

“But I don’t know if we’re seeing a lot of gear shops and large castings that the country needs,” he said.

“Nacelles are still coming from offshore and that’s really the heart of the machine.”

Conway said that in midMay, the largest Chinese wind turbine manufacturer, Sinovel, and some other Chinese representatives participated in a Pennsylvania forum about locating manufacturing here. Thus, they are coming to terms with the idea of manufacturing in the United States to gain greater market share.

China still has a minor share of the U.S. wind market.

The vast majority of foreign supplied components still come from Europe, which provides about half of the parts used in domestic turbines. The solar market has an entirely different dynamic at play.

The importing of low-cost solar modules from China has gotten the most attention recently, for good reason.

Last year, the Solar Energy Industries Association and GTM Research released a study analyzing trade flow and domestic value creation in the U.S. solar industry. The solar industry is a significant net exporter of solar energy products, with net exports totaling $723 million in 2009.

I don’t think the United States can be naive about China’s ability to withhold rare earth metals.

The Urban EV Problem ADDRESSING A NEW LOAD // BY SALVATORE SALAMONE become more common, they are expected to place new loads on the electric grid.

Most of the attention has focused on the potential problems these cars might cause in the suburbs. Many industry experts believe that with a combination of smart meters, time-sensitive electric rates and intelligent demand response systems, utilities will be able to handle the additional loads from electric vehicles charging in home garages at night.

Getting much less attention are the potential problems that might arise when people take their electric vehicles to work in urban areas. Unlike the suburban drivers who charge their cars at night when power demands are at their lowest, daytime charging will occur during the time of peak power demands.

Studies by the Electric Power Research Institute, the National Renewable Energy Laboratory and others find that the load from electric vehicles in urban areas could be substantial. A 20 percent adoption rate of electric vehicles, AS PLUG-IN ELECTRIC VEHICLES

with half using 120-volt, 20-amp chargers and the other half using 240-volt, 40-amp chargers, could increase the load by 150 megawatts or more in small cities like Atlanta, Boston and Baltimore. And larger cities like New York and Los Angeles would need to provide an additional gigawatt of power just for the electric vehicles.

To accommodate these additional loads during the day, utilities have limited options.

Adding such significant capacity is challenging. Building new urban substations is an extremely expensive proposition. Adding capacity to existing substations is often not possible since most typically use every available inch of space and they are land-locked, preventing physical expansion.

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So what else can be done? One idea proposed at last year’s IEEE Conference on Innovative Technologies for an Efficient and Reliable Electricity Supply was to take advantage of unused step-down transformer capacity, which is already installed but sitting in reserve in case of problems.

Specifically, most substations use what is called an N-1 or N-2 contingency criteria for operations. That means, if one or two transformers, respectively, fail, there is enough spare capacity to continue operations as normal. For example, a small substation with two transformers might normally run both at half their rated load level. If one fails or needs to be taken offline for maintenance, the second transformer would throttle up to handle the full combined load.

American Superconductor proposed tying urban substations together using superconducting cables to make more efficient use of the installed capacity that sits in reserve in case of transformer downtime.

“By tying substations together, each substation is no longer required to contain its own spare capacity but may share it among substations,” said Jack McCall, director of high-temperature superconductor transmission and distribution systems for American Superconductor.

If three substations are connected together, there would be three spare step-down transformers. McCall noted that in this scenario, a utility could keep two of the transformers in reserve, freeing up one to increase the total power capacity of three stations taken together.

As a result, when tying the substations together, power transformers can be more heavily loaded during periods of normal operation and maintain excess capacity in either N-1 or N-2 contingency scenarios. This would help utilities meet the daytime power load increases that would come if many drivers use electric vehicles and expect to charge them at work in cities during the day.

Israel’s Solar Vision STRATEGIC ALTERNATIVES // BY DAVID ROSENBLATT THE SOLAR INDUSTRY IN ISRAEL is more limited in size, but it is not as complicated as its counterpart in the United States because Israel has the same rules throughout the country. In the United States, each state has its own rules involving economic incentives, taxes, zoning and land use.

Some people like to compare the cost-competitiveness of solar power with conventional forms of power generation, but the comparison is unfair. A key reason for price discrepancies between solar and conventional forms of power generation is that carbon-based energy sources had economic subsidies of one kind or another before they achieved scale. Solar is starting to scale now and is receiving an economic push until it hits scale. Comparing the two price points is sort of like equating an infant to an adult and wondering why the infant needs more care.

In fact, even today, many conventional forms of power still benefit from economic advantages, but those benefits — whether they are achieved through taxation policy or other measures — are not always as transparent as they are for solar. Accordingly, solar is, unfortunately, more vulnerable to criticism because its cost is easier to understand.

40 E N E RGYB I Z July/August 2011

Forward-thinking countries are willing to understand that to receive the benefits of solar — economic An Arava Power 5-megawatt solar installation in Kibbutz Ketura, Israel. Photo courtesy of Arava Power activity, foreign direct investment and a cleaner environment — it is necessary to make investments today. In that regard, Israel is among forward-looking countries.

Utility executives need to recognize and have the courage or support to make early-stage, relatively low-dollar-amount investments in entrepreneurial solar developers that can execute well and generate outsized returns through successful projects. It is not enough for companies to only invest in project equity, they must also recognize that working capital investments are required to support strong and talented teams that can produce impressive results.

Israel is a microcosm of the energy choices and strategic alternatives facing countries around the world in large part because the country has to produce almost its entire electric energy supply domestically.

David Rosenblatt is cofounder and vice chairman of Arava Power.

Smart Networks Make for Smart Utilities ver the past several years, the way utilities conduct their day-to-day business operations has evolved. Smart grid initiatives spurred by federal grants, technology and efficiency goals are ushering in a new wave of smarter utilities. These initiatives are presenting a shift in the way utilities view communications infrastructure requirements. Communications networks will increasingly be a foundational element to not only enable the smart grid, but also to enable myriad new marketdriven services. Because of the many discrete solution providers in this space, optimally realizing smart grid benefits involves teaming with an ecosystem of partners that can offer complementary and interoperable solutions. This white paper addresses the benefits of partnering with wireless service providers and the solutions they provide across three significant areas: smart metering, home energy management and distribution grid automation.

42  E N E RGYB I Z  July/August 2011

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energybiz.com E N E RGYB I Z 43

Introduction

Smart Metering

Utilities are undergoing a major network and operational transformation. This is most evident across the electric utility space. The nation’s power grid is evolving from a pure distribution platform to a sophisticated intelligent network.

Migrating toward a digital and automated realtime network that manages far-flung devices and systems across a variety of communications networks is an arduous task. Two-way communication with customers is replacing interaction that has been traditionally limited to a meter read and a bill mailing. Real-time energy management in customers’ homes helps increase efficiency of customer energy consumption and provides utilities various operational benefits. At the same time, sophisticated grid automation is enabling utilities to better monitor and control their assets. (see Figure 1).

For many utilities, the evolution toward a smarter network and a richer set of service offerings begins with smart metering projects. The first step is to enhance communication with meters to be two-way. A more accurate picture of energy consumption helps utilities to improve their resource management and empowers customers to have increased control over their energy consumption. Achieving this requires a way to install smart meters, implement integrated automated meter reading (AMR) and later implement advanced metering infrastructure (AMI).

A reliable and secure communications network with coverage across a utility’s footprint is key for any successful AMI project. Verizon Wireless today offers utilities private network options over the nation’s most reliable network.

This avoids the need for utilities to build out

Electric Utility Ecosystem

Generation Generation

Transmission Transmission

Substations Substations

Figure 1. Verizon Wireless enables the reliable, secure and cost-effective flow of real-time data across the electric utility ecosystem.

44 E N E RGYB I Z July/August 2011

Monitoring Monitoring

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their own networks or reuse technologies that are approaching the end of their useful life. Use of private networks over a commercial network allows Verizon Wireless to parse out a portion of the IP address scheme and dedicate it to its commercial customers so they are not competing with consumers for network resources. The network does this by providing traffic segregation—keeping commercial data traffic segregated from that of the private network customer (see Figure 2). This means that important utility operations can run smoothly, with more security and more control on the private network.

Wireless solutions from Verizon Wireless and its partners enable utilities to establish private, secure direct connections between their

Distribution Distribution

gand andControl Control

THOUGHT LEADERSHIP - SPONSORED BY VERIZON WIRELESS

enterprise network and assets, including Verizon Wireless-certified devices.

Verizon Wireless has built an ecosystem of industry partners that enables utilities to leverage best-in-class solutions, over 100 certified devices and other products. For example, one of the world’s leading metering manufacturers, Itron, partners with Verizon Wireless to enable advanced metering solutions. This solution forms the foundation for data collection and communications systems. When powered by the Verizon Wireless network, the Itron OpenWay® platform enables an end-to-end smart metering solution for utilities across the country.

Consumption Consumption

Redistribution, Redistribution, Generation Generation and and Storage Storage energybiz.com E N E RGYB I Z 45

Verizon Enabled Utility Network

Verizon-Enabled Utility Network

IPS ec

Verizon PE

Utility LAN

Application

CE

Data

Figure 2. In this simplified Verizon Wireless private network layout, private network connectivity traffic is segregated from public traffic.

Distribution Grid Automation Often the quickest way to a smarter grid is an efficient and optimized distribution network of substations, lines, feeders, transformers and switches. Such a grid addresses operation, maintenance, and performance of the distribution grid infrastructure that provides reliable power to customers. Much of the existing infrastructure, constructed 50 to 100 years ago, is showing its age under today’s increasing demands. Designed and built for another time, much of the infrastructure provides little visibility into what is happening in the field. Despite consistently providing high reliability levels over several decades, much of it does not operate at peak performance, outages do occur and issues are sometimes not addressed until they become critical. Utilities are seeking ways to cost-effectively enhance performance and maximize their service levels.

Distribution grid automation is about improved, accurate real-time monitoring and control of distribution equipment and systems in

According to the World Economic Forum, “The total estimated annual cost to the U.S. economy from power outages and power quality disturbances is more than US$ 100 billion…”

which can be saved through smart technologies.

From “AccelerAting SmArt grid inveStmentS”, © 2009

46 E N E RGYB I Z July/August 2011

the field on the grid. Hence, distribution automation solutions will also leverage the communications network. And low latency is particularly important in this area. Receiving reliable, timely information to avoid outages, limit their scope and enable rapid restoration, for example, is at the core of the utility’s charge—to keep the lights on.

Verizon Wireless adopts a similar approach in this area to maintain its own network at an industryleading level of reliability.

Verizon Wireless works together with its partners such as Cooper Power and the Current Group to deliver solutions that provide visibility to a utility’s distribution grid. Devices from Verizon Wireless partners powered by the Verizon Wireless network help utilities monitor grid conditions, outages and failures across a variety of their grid assets, such as reclosers and capacitor banks. Solutions that can monitor voltage ampere reactive (VAR) levels and variance on distribution lines help utilities control their output at peak efficiency. Solutions like these also help utilities monitor equipment condition in real time, react more quickly to disturbances and automate previously manual processes. Utilities can then improve visibility, and field crews can respond to outages more quickly, thanks to automatic notification of appropriate workers, reducing downtime. Related solutions can enhance device maintenance—conducting maintenance on a condition basis, rather than a scheduled basis.

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6

Peak Shaving Operations

5

4

Demand (MW)

3

Figure 3. Consert enables utilities to implement peak shaving operations to level the demand curve of participating customers.

2

1 Peaks Distributed Peaks 1AM

12PM

12AM

Average

Time (Hours)

Home Energy Management After deploying metering and distribution automation solutions, many utilities then seek a way to work with customers to enable and promote end-use conservation and to integrate distributed energy resources. Combined with metering and distribution automation, a home energy program brings utilities into the 21st century. Solutions today enable customers and utilities alike to create energy profiles that cycle customer appliances and equipment off during peak periods to optimize energy distribution.

Real-time energy management and conservation solutions typically consist of all the necessary hardware and software to enable true active participation in conservation by a utility and its customers. When combined with a wireless network solution, utilities can set varying time-based rates with collected meter data to encourage lower

Consert Pilot at Wake eleCtriC Wake electric membership Corporation, a rural electric cooperative in Wake Forest, north Carolina, recently successfully completed an eight-month pilot program with the Consert energy management system. Wake electric was motivated by the desire to lower its members’ utility bills, while complying with the state of north Carolina’s renewable portfolio standard. the co-op achieved all intended goals of the program, including actualizing operating reserve capacity, tracking renewables and reducing participant member energy consumption. (the average perceived savings was 16%. the actual savings for Consert users relative to all other consumers was 6.5%.)

“Wireless connectivity is the backbone of the Consert Energy Management Solution,” said Jack Roberts, president and chief executive officer of Consert.

consumption during peak times and spread usage out more evenly throughout the day (see Figure 3).

This also enables the utility to cycle appliances off during peak periods, saving energy, and offer this back as a source of capacity and energy reserves for the utility. The reductions to peak load are measureable and can be verified.

“The ability to securely aggregate and transport data in real time from consumers to our Consert Data Center for access by our utility partners is a key point of differentiation between our offerings and those of other smart grid service providers.”

Customers typically see significant reductions in energy consumption and lower monthly bills through this partnership with utilities (see the sidebar For an example). At the same time, the capability provides utilities operational gains,

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energybiz.com E N E RGYB I Z 47

“Smart grid is the way of the future, and fits into Wake Electric’s long history of helping its customers manage energy use and become more energy efficient.”

– Jim Mangum, CEO of Wake Electric

such as improved demand forecasting and reduced capacity constraints. Verizon Wireless is investing heavily in this space and specifically with Consert and its energy management solution.

The Role of Verizon in the Smart Grid Verizon Energy and Utility practices are engaged across the smart grid ecosystem and throughout the energy industry. We have embraced the opportunity to play our role in driving both societal and environmental benefits. The Verizon family of companies is leading the way in our path to energy independence and is offering our customers the tools to become more efficient and to do their part to become part of the energy conservation solution.

First, a word about Verizon and about our energy footprint: Verizon Wireless is the leading mobile wireless broadband service provider across 48 E N E RGYB I Z July/August 2011

the entire United States. Verizon also provides traditional telephone, broadband Internet and video entertainment services, and we also operate a global Internet backbone network that analysts have called the “most connected network in the world.”

Regarding our energy footprint as it relates to electricity, Verizon operates: • 485,000 route miles across 150+ countries • 31,000 facilities, including more than 200+ data centers in 22 countries • 42,000 cell sites • 10.3B kWh of electricity used in 2010 The point in describing our energy footprint is to remind that Verizon—indeed, our entire industry—depends upon the success of the electric industry and its delivery of reliable, affordable, quality energy. Verizon is dedicated to not THOUGHT LEADERSHIP - SPONSORED BY VERIZON WIRELESS

only reducing its own carbon footprint but helping to facilitate the conservation of energy across the nation.

We are active participants in advanced meter deployments with utilities. We are active in the NIST standards process. We offer cyber security and smart grid data management services. We are working with partners today in the smart home and building marketplaces. In short, the machine to machine communications that are essential to smart systems of all sorts is a growth market for us. As outlined in this paper, we have and continue to create an ecosystem of partners in the energy space that will enable us to provide a host of smart services to our utility customers.

The energy ecosystem is a broader concept than the “Smart Grid.” Verizon looks at it as a “smart energy ecosystem” because it reminds us that we have a system that is comprised of discrete modules. The grid is an essential component in a smart energy system. So are “Smart Homes.” So are “Smart Buildings.” So are “Smart Transportation Systems” and let’s not forget “Smart Meters.”

In order to transform how our society thinks about energy and about how energy is used and where it comes from, we need a smart energy ecosystem. Verizon is at the forefront of developing and building this ecosystem. Whether by enabling smart meters or deploying connected home energy platforms, or by working with utilities like Duke Energy to create sustainable cities like “Envision: Charlotte,” or even by making sure your electric vehicle charging station is always connected, we are right there with you to ensure success.

For More Information Rule the grid with solutions enabled by Verizon Wireless. Find out more. Contact your business specialist or visit verizonwireless.com/utilities.

To learn how the Verizon Wireless Open Development program can empower your developers to create devices that will run on the Verizon Wireless network, visit us at opennetwork.verizonwireless.com.

MaChine to MaChine ManageMent Center What wireless technology has done for human communications, the Verizon Wireless machine to machine management Center, powered by nphase advanced m2m, is now doing for machines, products and devices. by streamlining the business of connective devices, the machine to machine management Center facilitates much of what Verizon Wireless and its partners offer utilities in the smart grid space (in all three areas described above). the machine to machine management Center provides a single interface to connect any device to any back-office application, infrastructure or field service operation, over a highly secure, robust, wireless infrastructure provided by Verizon Wireless. it interfaces to virtually any wireless device, whether embedded or external usb, and whether ethernet, serial or both. the machine to machine management Center provides a single portal for simplified management of a very large number of devices on Verizon Wireless networks. this enables a utility to self-manage its devices through a portal without Verizon Wireless interaction. For example, utilities can activate, deactivate, provision, upload software for and manage their meters.

About Verizon Wireless Verizon Wireless operates the largest high-speed wireless network in America. We work hard to provide customers with the highest level of satisfaction by offering quality products and services. Headquartered in Basking Ridge, NJ, Verizon Wireless is a joint venture of Verizon Communications (NYSE:VZ) and Vodafone (NYSE and LSE: VOD).

More than 85,000 Verizon Wireless people serve over 90 million customers nationwide. Verizon Wireless is committed to helping the local communities where we work.

Network details and coverage maps at vzw.com. © 2011 Verizon Wireless.

Learn more about the Envision: Charlotte initiative at envisioncharlotte.com.

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energybiz.com E N E RGYB I Z 49

» TECHNOLOGY FRONTIER Solvable and Safe ADDRESSING NUCLEAR FUEL STORAGE // BY JOHN HERRON THE STATUS QUO IS not acceptable — that is a sentiment we in the nuclear industry widely acknowledge today. Not only must we look at our plant systems and communications protocols to ensure that we never face a situation in the United States similar to Fukushima, but we must also address the long-term management and storage of used nuclear fuel in this country. Although we can manage used fuel safely and securely on-site as we currently do, it is not the best answer. We can do better, and the federal government has the legal obligation under the Nuclear Waste Policy Act to do so.

Currently, the administration’s Blue Ribbon Commission on America’s Nuclear Future is studying this issue, and the three subcommittees recently previewed their draft recommendations. These draft recommendations seem to reflect some of the sentiments of my company and of others. Namely, we need a final disposal location, a repository will be needed and fuel should be removed from the decommissioned plant sites.

Last November, during a meeting of the transportation and storage subcommittee of the commission, I highlighted several key considerations.

The Department of Energy needs to meet its obligation for fuel storage. America’s electricity consumers have contributed more than $34 billion to a nuclear waste fund.

JAPAN AND Although funds collected EUROPE TEAM UP from consumers are sent Japanese and European to the government, utilities scientists plan to work together in the must incur ongoing costs next four years to to store used fuel on-site. develop the most efficient photovoltaic The nuclear waste funds cell, according to the collected from consumers Associated Press. must be dedicated to the The goal is to achieve 45 percent efficiency purposes for which they in solar units with a were intended, and the technology that should entity in charge must have be ready for commercial rollout by 2030. control of how dollars are spent. The responsible entity for fuel and waste storage must be insulated from changing political winds.

The nuclear energy industry will eventually need a permanent repository. Thus, as others in the industry 50 E N E RGYB I Z July/August 2011

agree, the Yucca Mountain license application review should continue. Whether Yucca Mountain itself ever opens or not, the application review can provide valuable lessons.

Although safety is the top priority of our industry, the increasing costs of fuel storage and growing uncertainty are a concern. These costs make it difficult to run a nuclear generation business, especially in the merchant market.

A national demonstration project or projects are needed to assess the overall logistics associated with transporting and storing used fuel. Such a program could build public and regulatory confidence in the ability of government and the industry to manage used nuclear fuel by demonstrating transportation and storage arrangements.

A demonstration project could also provide additional technical insights on cask design, performance and management as the department develops its plan for packaging and transportation.

A new plan for storing used nuclear fuel needs to be created. High-level waste needs to be moved to centralized regional storage locations and a long-term final depository is needed.

The technology and the experience are there. Now is the time to make it happen. The nuclear energy industry must have certainty in planning and investment for nuclear fuel storage.

John Herron is president, CEO and chief nuclear officer of Entergy Nuclear.

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energybiz.com E N E RGYB I Z 51

» TECHNOLOGY FRONTIER The Quest for a Big Battery GETTING THE COST DOWN // BY RICHARD SCHLESINGER THE PROBLEM WITH intermittent sources of power is just that; they’re intermittent.

One of the challenges facing utilities that want to take advantage of wind and meet increasingly demanding standards for renewable energy is to find a way to store the power when it’s plentiful and make it available when it’s not. There are a number of techniques for doing that – compressed air, pumped hydro and batteries, for instance – but cost and reliability have remained significant stumbling blocks. Still, the issue is of enormous potential value, and Duke Energy recently announced a major project to store energy at its Notrees Windpower Project in west Texas.

Duke chose Xtreme Power, based in Kyle, Texas, to design and produce the system. XP, which makes integrated energy storage and power management systems, already has a contract to provide storage and energy management for a wind farm in Hawaii, but the Notrees project, at 36 megawatts, will be the largest such undertaking to date. “Figuring out how to change the variable nature of wind and match it to our customers’ needs is the long-term ideal game-changer for this business,” says Greg Wolf, president of Duke Energy Renewables.

One reason Duke finds XP’s approach attractive is that it uses proven technology – their battery is essentially an array of lead-acid batteries – but at a hitherto untried scale. Lead-acid technology is employed in other applications, including large commercial and industrial UPS devices, but no one has yet employed it on this scale. Wolf says Duke’s goal is to make it an economically viable option, but he acknowledges that this particular project depends on a matching grant from the DOE of roughly $22 million.

Cost has been the chief factor limiting deployment of battery storage. Both of the main alternatives to lead-acid batteries, lithium ion and sodium sulfur, are expensive.

Gatherings// Technology Frontier Aug. 10-12

Energy Efficiency: Real World Case Studies

Chicago

Aug. 21-25

Solar Energy + Applications

San Diego

For more information about these and other events, please visit www.energycentral.com/events.

52 E N E RGYB I Z July/August 2011

Donald Sadoway, professor of materials chemistry at MIT, is focusing his research on finding a costcompetitive battery technology. “The world needs a cheap battery, especially for use with intermittent energy sources, where the price point is so low. It’s low because it’s not a case of battery versus battery, it’s a case of battery versus internal combustion, and when you’re competing against internal combustion of a hydrocarbon fuel, hydrocarbon wins. The challenge then, from a green perspective, is enabling renewables by addressing their intermittency and doing so with storage that’s robust and cheap.”

Sadoway believes that some large power companies are beginning to deploy battery technology, despite the fact that on a cost basis it is not competitive with peaking plants, in the hope that costs will come down as manufacturers scale up production.

AEP deploys two different battery technologies. It’s testing the use of sodium sulfur batteries at five locations for capital POTENT GAS deferral, providing some relief for substaCAPTURED tions during peak times. These are rated at Researchers at a federal lab have invented either 2 megawatts and 14.4 megawatta device to capture hours or 4 megawatts and 25 megawattand reuse sulfur hours. AEP also plans to deploy 80 lithium hexafluoride, according to the Daily Press of ion battery systems to provide backup Newport News, Va. power to retail customers as part of its The gas, a potent AEP Ohio gridSMART demonstration threat to the climate, is used to prevent fires in project in northeast Columbus. The price high-voltage electrical for these batteries is still high, according switches. to Emeka Okafor at AEP, but the company hopes the automobile industry will drive the cost down.

The batteries AEP is deploying are 25 kilowatts each. They will be placed in boxes underneath transformers at the residential level, and each will provide backup power anywhere from several minutes to two or three hours for two to five homes. Deployment is scheduled for August. Like Duke, AEP considers this a demonstration because the cost remains too high for widespread use. “Our vendors tell us that within three to five years they can get to price points that would make it reasonable for us to deploy batteries to solve grid challenges,” says Okafor. He sees load leveling to defer capital expenditures as the most immediate benefit of energy storage systems. And as the pressure mounts to expand the renewable portfolio, the need to address the issues of intermittent power sources will make battery storage systems ever more attractive.

Teaming Up with Google ENDLESS OPPORTUNITY IN THE HEARTLAND // BY MICHAEL CHESSER IMAGINE THE POSSIBILITIES if an entire community had access to the fastest Internet service in the world. Imagine if large companies, disadvantaged neighborhoods, research institutions and schools all had Internet connectivity 100 times faster than what is available anywhere else. Imagine the platform this would create for innovation and the potential for job creation. This is exactly what is happening in the heartland of the United States as a result of a first-of-its-kind partnership between Google and Kansas City Power & Light to broadly deploy Google’s 1-gigabit Internet service in Kansas City, Mo. Our agreement with Google will allow it to have access to key parts of our electrical infrastructure, including our poles, substation land and existing fiber network to deliver its ultrahigh-speed service to customers in Kansas City, Mo. Rather than having to build its own delivery system, this innovative agreement will allow Google and KCP&L to work together to deploy service over KCP&L’s existing infrastructure, significantly reducing costs as well as time for engineering, permitting and construction.

KCP&L has a proud history of innovation and firsts in our industry. From our landmark carbon offset agreement with the Sierra Club to the introduction of some of the first all-electric bucket trucks to our fleet in 2009, KCP&L is committed to improving life in the communities we serve through innovation and collaboration. This agreement is an extension of that tradition and a confirmation of our collaborative approach.

We are particularly excited about the possibilities and benefits Google Fiber could bring to our transmission and distribution system as well as our smart grid demonstration project. By having ultra-high-speed fiber deployed not just on our transmission system, as we do today, but also overlaying the bulk of our distribution system, we hope to be able to move from rapid and automated outage response to a system by which we are able to predict and prevent outages.

Throughout our smart grid demonstration project we hope to marry state-of-the-art energy technology with next-generation communication and Internet technology, giving customers better information and more control over their energy use and utility bills.

Get the Recognition You Deserve Submit your paper now to: http://mc.manuscriptcentral.com/pes-ieee

Michael Chesser is chairman and CEO of Great Plains Energy and Kansas City Power & Light. energybiz.com E N E RGYB I Z 53

» METRICS GAS UP, COAL GENERATION DOWN Percentage Change: 2010 – 2011 In most regions of the country, net generation from coal is trending down in 2011, compared with 2010, according to the U.S. Energy Information Administration. In the industrial upper Midwest, the East North Central area, electricity generated by natural gas-fired units surged 62.9 percent between 2010 and 2011. Rising production from shale deposits has helped keep prices down. Meanwhile, utilities are retiring aging coal-fired units to avoid the expense of complying with federal emissions standards.

Mountain

-13.6 -2.3

Natural Gas Generation Coal Generation

West North Central

-23.4 -1.3

East North Central

62.9 -6.5

New England

12.6 -18

Pacific Continguous

Middle Atlantic

-26.3 -36.9

26.9 -7.8

South Atlantic Pacific Noncontinguous

-2.8 0

West South Central

-4 9

5.6 -13.4

East South Central

17.7 -2.9

Source: U.S. Energy Information Administration

TOP CONCERNS Carbon taxes may not be a top-of-mind concern to most Americans today, but it is tops on the minds of utility executives. Asked what political issue will most affect their organization in the next five years, 41 percent of utility executives responded “carbon taxes.”

State renewable portfolio standards and U.S. Environmental Protection Agency air emissions policies were each cited by 30 percent of the 152 executives contacted in March and April, according to the survey conducted by Oracle Utilities.

Source: Oracle Utilities

54 E N E RGYB I Z July/August 2011

Boeing Global Services & Support is a world leader in delivering value-added support solutions, with proven expertise in complex systems development and integration, performance-based logistics, cyber security and more. Ideal for the Smart Grid, renewable energy facilities, and utilities large and small to enhance efficiency and energy assurance. Maybe it’s time to put our power to work for you.

» INTRODUCING

Energy Warrior COL. BOB CHARETTE LEADS MARINES’ ENERGY CHARGE // BY MARTIN ROSENBERG MARINES TRUDGING through hot, dusty Afghanistan are replacing heavy batteries in their backpacks with rolled-up solar sheets. It is part of an initiative by the Marine Corps to use new energy technologies to make the military more effective.

One Marine Corps goal is to cut per-soldier fuel use in half by 2025.

Major technological advances through the ages were developed first for military use and then, as they became more broadly adopted, they altered civilization.

Some experts say that the military’s bold deployment of new technology on the battlefield today will alter our energy universe here at home in the near future.

Col. Bob Charette is one of the leaders in the effort.

He opened an office in the Pentagon last year to speed deployment of new energy technologies developed by the Navy. In a telephone interview with EnergyBiz, Col. Charette discussed the pioneering endeavor.

56 E N E RGYB I Z July/August 2011

Can utilities benefit from some of the cutting-edge use of renewables now taking place on battlefields in Afghanistan?

ENERGYBIZ

We’ve actually been learning a long time from industry folks. We’re trying to push it to the next level and get industry to help guide us. But unlike utilities, we’re not dealing with fixed infrastructure.

CHARETTE

ENERGYBIZ

What is your view of solar?

In Afghanistan, we pay $7.22 a gallon at the pump in Helmand Province. Trucking that fuel in is a great risk to Marines. So if I use solar — which we’ve done — my equations are much different than back home. The economics work out incredibly well in combat.

CHARETTE

Many technological advances have come about because of military research initiatives. Will that be true in energy?

ENERGYBIZ

Proven.

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To learn more about how UTC Power provides clean, efficient and economical fuel cell technology that has been changing the world for more than 50 years, visit UTCPower.com.

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energybiz.com E N E RGYB I Z 57

» INTRODUCING The military has led on the Internet, and the Navy led in computers. NASA has led in developing fuel cells.

The U.S. Marine Corps has established a process

You are hoping to slash fuel use per Marine in half by 2025. What would be the implications of that?

evaluate and deploy technologies to reduce its

We’re moving about 120 trucks a day to support our armed forces in Helmand Province.

About 80 are water trucks and 40 are fuel trucks.

That equates to about 200,000 gallons of fuel a day.

If you could take half those fuel trucks off the road, you would have a force now that could operate in more austere locations and you would be at less risk.

New technology, in a battlefield environment, gives us tremendous capabilities.

The Corps’ Experimental Forward Operating

CHARETTE

ENERGYBIZ

CHARETTE

ENERGYBIZ

that brings stakeholders from acquisitions and technology development communities to quickly need for “liquid logistics” today and establish long-term requirements for tomorrow.

Base — ExFOB — is a multi-organizational initiative led by the Marine Corps Warfighting Laboratory and supported by the Office of Naval Research and the Marine Corps’ Systems Command, Training and Education Command, and Marine Corps Expeditionary Energy Office.

Describe some of your efforts.

We are using energy-efficient shelter liners, basically insulating our tents to reduce our need for air conditioning. We are also using LED lighting for our tents. We are using a solar blanket that the Marines take with them on patrol. It charges up radio batteries. One of our big demands at the small-unit level, along with fuel, is batteries, a lot of batteries. In the Marine Corps, we spend about $22 million a year for batteries. We found that with these solutions, we can cut that battery use by 50 percent.

CHARETTE

ENERGYBIZ Have you looked at wind turbine technology?

We have. Because of our expeditionary nature, we cannot harvest enough wind in a tactical situation. However, every day, we’re probably going to have seven hours of sunshine. Even on a cloudy day, we’re able to harvest energy using the newer technologies. We’re looking at harvesting energy from every source available. There’s heat energy in our vehicles, there’s heat energy from our generators, there’s heat energy on the battlefield that we’re not even capturing today. There’s kinetic energy on bumpy roads, so there is the potential of harvesting energy from shock absorbers and the vehicle’s muffler system. We’re starting to look at some approach to capture heat energy from the sun. We need to find better storage technologies. We’re looking at improved ways of making our gear more efficient. We’re really looking at a systems approach to solve these problems. There’s not going to be one new technology. It’s going to be CHARETTE

58 E N E RGYB I Z July/August 2011

increasing efficiencies and increasing our energyharvesting capabilities. We need to train Marines to be aware, train leaders to be engaged, and change the culture of the Marine Corps. Resource efficiency means better effectiveness.

ENERGYBIZ

Are electric vehicles of interest?

CHARETTE Yes, they are. Right now, the technology for the battlefield is really costly and expensive, but that doesn’t mean we’re not interested. But we haven’t found a technology that’s the right cost yet.

What do you hope to achieve for the Marine Corps?

ENERGYBIZ

CHARETTE We’re really looking for the entrepreneurial spirit that’s in America to support folks who have great ideas. Actually, we just got another 60 technologies that we’re looking at right now. I’ve probably looked at another 100 or so more than that, personally. We would like to make the Marine Corps more combateffective by making it less dependent on resources.

Let me give you some perspective. In Helmand Province, we have over a hundred patrol bases. Our aim is to get as many of those off of fossil fuel as we can. Those patrol bases use anywhere from 25 to 300 gallons of fuel per day. If we can reduce the energy consequences of having gear on the battlefield — surveillance equipment, computers, radios — those things that enable us to distribute 100 patrol bases — that gives us an amazing combat advantage. Our Marines would be at less risk.

This is Walter Thomas.

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energybiz.com E N E RGYB I Z 59

» LEGAL EAGLE Troubles Vex California’s Carbon Plan CAP AND TRADE SPARKS POLITICAL UPHEAVAL // BY AL SENIA CAP AND TRADE HAS been a controversial topic around the nation and the world, but perhaps no more so than in California. The state intends to implement the first full-scale carbon-trading system in the United States in January. That multimillion-dollar effort is growing much more difficult as the deadline looms. Lawsuits, political bickering, environmental resistance, the uncertain support of Gov. Jerry Brown and a major dose of political jitters jeopardize the California plan, which has been under development for the past five years.

The tribulations California is suffering over capand-trade, the lynchpin of the state’s effort to create a clean-energy economy, underscore the difficulty public officials face in taking bold energy steps in the current political environment. Any delay or abandonment of the plan would certainly catch the attention of other policymakers who may be contemplating cap-and-trade solutions of their own.

State officials estimate that if successfully implemented, the California program would generate $10 billion in carbon trades by 2016, making it the largest such market in North America.

Despite the current difficulties, state officials are keeping a stiff upper lip. “We are hopeful we will meet our target start date,” said Stanley Young, a spokesman for the California Air Resources Board. The board is the state agency charged with implementing the cap-and-trade system the state adopted to fulfill the requirements of a 2006 California law that aims to reduce carbon dioxide emissions to 1990 levels by 2020. To accomplish this, CARB established industrywide limits on greenhouse gas emissions, and it reduces those limits each year until the 2020 deadline.

Companies that exceed those limits could buy offsets from other clean businesses that have them to sell.

The program aims to cap greenhouse gas emissions at 600 of the state industrial plants and is modeled after the system implemented in Europe that covers an estimated 12,000 businesses in 30 nations.

Almost immediately, the California cap-and-trade plan drew fire from all directions.

Industry executives are concerned that the state is not providing enough ways to offset their carbon emissions by purchasing credits. Some industry experts fear the program could foster financial fraud.

The International Emissions Trading Association of 60 E N E RGYB I Z July/August 2011

Geneva is complaining that the California system will not work if companies that unknowingly purchase fake carbon-offset credits are forced to replace them with real ones. Two energy companies, Valero Energy and Tesoro, backed a state ballot initiative in November that would have suspended the entire state climate law, including the cap-and-trade portion. Voters rejected that move.

More significantly, a group of grassroots environmentalists slowed implementation of the proposed system by filing a lawsuit arguing that environmentally superior alternatives weren’t adequately considered before cap and trade was implemented. The judge in the case agreed and cited a carbon tax as one alternative. Meanwhile, state environmentalists are fighting among themselves over cap and trade. In May, the Sierra Club — which is not involved in the lawsuit — urged Brown to revise the proposed rules that allow companies to purchase credits from other companies outside the state and country. Several other national environmental groups also complain that cap and trade lets serious polluters off the hook. On the other hand, the Environmental Defense Fund argues cap-and-trade is beneficial because it will reduce emissions quickly and protect the economy while doing so. Not surprisingly, Brown has kept a low profile as the escalating cap-and-trade political battle plays out, and it is unclear if he supports the proposed system.

Nevertheless, it seems likely a cap-and-trade system of some sort will be implemented in the state sometime next year, although perhaps several months behind the original timetable. “All interested stakeholders will have an opportunity to participate in the conversation about California’s clean energy future,” said Young, the CARB spokesman.

Of course, once the California system is implemented, the real fireworks could start. “The eyes of the world rest upon this market,” Tom Lewis, chief executive of Green Exchange, a consortium of investment bankers and brokers, told the Los Angeles Times in April. “The criticism will be abundant if we get it wrong.”

The eyes of the world rest upon this market.

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energybiz.com E N E RGYB I Z 61

» LEGAL EAGLE The Regulators’ Agenda DEALING WITH RISING COSTS AND CONVERGENCE // BY TONY CLARK AS REGULATORS GATHER in Los Angeles for the National Association of Regulatory Utility Commissioners (NARUC) summer committee meetings, we will be focusing on the unprecedented challenges ahead. Two key themes are emerging: rising costs and converging industries.

The rising cost environment has been on the minds of regulators, industry and consumer groups for some time, but this year seems to be when many of these drivers are coming to a head. On their own, rising costs are not unique within the regulatory world. As a cyclical business, these periods have been weathered before. What is unique about this period is that the rising costs are coming from all utility sectors — electricity, natural gas, water and telecommunications — at once, and with a significant amount of uncertainty to boot. Regulators are grappling with these issues with the full understanding that our decisions today are in MERCURY EMISSIONS CUT relation to investments that New federal rules will be with us for 20 to 40 would require a years or more.

91 percent reduction in mercury emissions.

Within the electric The Environmental industry, proposed environProtection Agency recently has been mental regulations could collecting public dramatically alter the cost comments on the structures and generation proposal.

In addition, the profiles of our nation’s government plans to electricity providers. While require more than a much is still unknown, 50 percent reduction in the emissions of sulfur economic regulators need dioxide and a steeper to understand how environcut in the releases of other gasses that create mental regulators go about acid rain, the Tampa their business and vice Tribune reported. versa. Potential impacts Power plants are responsible for half of on reliability and cost are the mercury released very real concerns in the into the atmosphere. minds of most utility commissioners. We are working to understand how this new suite of regulations will impact the consumers in each of our states. Add on top of new environmental compliance costs the several hundred billion dollars in capital expenditures already planned, and the rising costs issue becomes even more acute.

62 E N E RGYB I Z July/August 2011

Concurrently, state commissioners are being asked to consider significant expenditures in various smart grid technologies. Although regulators can see the potential promise of grid modernization, most are also very aware that in a regulated environment, costs and benefits must be weighed. It will fall primarily to the members of NARUC to discern how these costs and benefits are to be assessed, no small task with emerging and evolving technologies.

It would be one thing if it were merely the electric industry that were facing these challenges, but state utility regulators are finding that each of our regulated sectors faces rising cost challenges.

Most utility regulators oversee the natural gas pipeline safety programs in their states. These programs go unnoticed most of the time, which is how we want it. But as the old saying goes, if our programs are on the front page of the newspaper, it is likely something very bad has happened. Unfortunately for all of us, pipeline safety has found itself on the cover of papers more often than we would want recently. Several highvisibility incidents, which included the loss of life, have

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» LEGAL EAGLE caused everyone in this business to rededicate their efforts to ensure the safest natural gas pipeline system possible.

Natural gas utilities and state and federal regulators are involved in an ongoing effort to make sure such incidents do not happen. No one should have to go to bed concerned about such catastrophic events. Yet all of us acknowledge that the answer we may get from our efforts is a realization that more money is needed to both upgrade infrastructure and increase oversight.

And if some early predictions are correct, these costs could be significant.

Finally, while not related to the energy sector specifically, it is not lost on state regulators that some of the other industries we regulate are facing similar pressures. The water industry, whose pipes have been in the ground, in some cases, for many decades, is looking to upgrade and replace its aging delivery network.

And the telecommunications industry is undergoing its own transformational set of changes, marching ever forward toward greater bandwidth and reforming the regulatory structures that were set up for a different time and technology. All of these infrastructure investments will cost money, and that money ultimately is paid by consumers.

The second key theme that will dominate discussions at our summer meeting is the notion of industry convergence. In years gone by, regulators could neatly tuck each industry in its own pigeonhole. Telecom went to one corner. Electricity went to another. Water and gas each had their own as well. Those days are now long gone. Smart grid is quickly converging the telecom and electricity worlds. Water deliverability and affordability are directly linked to electricity and vice versa. The natural gas world and the electricity world are both on a collision course as they merge into the transportation sector.

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64 E N E RGYB I Z July/August 2011

And all of this foreshadows one other possible area of convergence: the regulatory world and the political world. While all regulators understand that we are first and foremost beholden to statutes, hearing records and the rule of law, we also understand that each commission, in one way or another, is eventually accountable to the people we serve. Real questions exist about the willingness of the body politic to absorb these potentially trillions of dollars in costs all at one time.

Despite these challenges, this is a fascinating time to be involved in this line of work, and I am heartened that our nation always rises to the task at hand.

The regulatory compact has served our nation well for more than 100 years. It has helped give us the infrastructure that has made our electric, natural gas, water and telecommunications networks the envy of the world. Working together in the public interest, it can continue to provide our nation with the essential services we need for the next century as well.

Tony Clark is the chairman of the North Dakota Public Service Commission and president of the National Association of Regulatory Utility Commissioners.

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» FINAL TAKE See-Through Solar MIT EXPLORES INNOVATION // BY SALVATORE SALAMONE WHEN IT COMES TO windows and energy, most efforts have focused on two areas. Either they tried to eliminate drafts to reduce energy loss or they blocked sunlight from entering a building to reduce air conditioning demands of summertime heating.

Researchers at the Massachusetts Institute of Technology have developed technology that could support another, lesser-known approach. They have fashioned photovoltaic solar cells that could be applied to a window in a thin film to harnesses the energy of heatcausing infrared light, while allowing visible light to pass through.

An invisible solar cell film allows visible light to pass through windows, but converts the infrared rays into electricity.

Photo courtesy of MIT

Coated onto a pane of standard window glass, these cells could provide power for lights and other devices and would lower installation costs by taking advantage of existing window structures. The cells offer a double energy boost in summer. Besides generating electricity, by absorbing the infrared light before it enters a structure, there is less heating of a building’s rooms. This would lessen the need for air conditioning, thus reducing a building’s electricity use.

Another benefit of the technology: Using the window surfaces of existing buildings could provide much more surface area for solar power than traditional rooftop solar panels. In mornings and evenings, with the sun low in the sky, the sides of big-city buildings are brightly illuminated and the large vertical light-harvesting area of a tall building could produce a significant amount of power.

Previous attempts to create transparent solar cells have either had extremely low efficiency (less than 1 percent of incoming solar radiation would be converted to electricity), or have blocked too much light to be practical for use in windows.

The MIT researchers came up with a new chemical formulation for their cells that, when combined with partially infrared-reflective coatings, gives both high visible-light transparency and much better efficiency than earlier versions of similar cells.

If the new cells prove out, they could alter the solar market. This technology would overcome some of the inhibitors to using photovoltaic solar today.

One obstacle to adding solar to a building is its cost. A big part of the cost is the glass upon which a photovoltaic material is applied to make an electricityproducing cell. In a new building, or one where windows are being replaced, adding the transparent solar cell material to the glass would be a relatively small incremental cost because the cost of the glass, frames and installation would all be the same with or without the solar component.

Beyond the cost of the glass, the cost of traditional solar cells is driven up due to the labor needed to handle that glass in a solar cell or solar panel production facility. “A large fraction of the cost could be eliminated if the process were made part of an existing window-manufacturing operation,” said Vladimir Bulovic, professor of electrical engineering in MIT’s Department of Electrical Engineering and Computer Science.

Bulovic and his colleague Richard Lunt, a postdoctoral researcher in the MIT Research Laboratory of Electronics, published their work on these transparent solar cells earlier this year in the journal Applied Physics Letters.

Bulovic and Lunt caution that there is still much work to be done before we will see their developments commercialized.

Currently, they have achieved an efficiency of 1.7 percent in the prototype solar cells, but they expect they should be able to reach 12 percent, making it comparable to existing commercial solar panels.

The researchers expect that after further development in the lab followed by work on manufacturability, the technology could become a practical commercial product within 10 years. energybiz.com E N E RGYB I Z 65

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