EnergyBiz SepOct2011 by Springboard Creative

VOLUME 8 // ISSUE 5 SEPTEMBER 11 // OCTOBER 11 energybizmag.com

GRID SCHOOL FOR REGULATORS

PEOPLE // ISSUES // STRATEGY // TECHNOLOGY EXCLUSIVE

EPA’S LISA JACKSON ON THE FRONT LINES ºº HER VIEWS ON THE FUTURE OF COAL

The Transmission Revolution ºº WHAT IS DRIVING IT ºº WHO IS LEADING IT ºº HOW WILL IT AFFECT YOU

GRID GURUS FERC CHAIRMEN WEIGH IN

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

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SEPTEMBER/OCTOBER 2011

Cover illustration by Eric Carver

Features

Departments

20 Transmission Revolution

4 O U R TA K E Back to School 6 Letters

24 Grid Gurus

26 The Chairmen Weigh In

28 Oceans of Gas 32 Leading in Disruptive Times 34 Public Power Confronts Change 36 The Reign of Cheap Gas

38 The Strategic Implications of IT 38 CIOs as Leaders 39 Transforming the Customer Relationship

E N E R GY B I Z 3 6 0

8 Today/SmartGrid.gov/ TransmissionHub Gets Rolling BUSINESS EDGE

10 14 16 18

Winning over Wall Street Don’t Be One of the Boys Transmission Boosts Competition Funding Energy R&D

T E C H N O LO GY F R O N T I E R

44 Carbon Capture Speeds Up 45 Amazing Flywheels 46 Gas Turbine Tweaks 47 Integrating Communications 48 Where We Need to Be 50 Breakthrough Innovation INTRODUCING

54 Positioning America for a New World Economy – EPA’s Lisa Jackson METRICS

56 Hot Stocks/Electric Vehicles LEGAL ARENA

40 Natural Gas Working with Renewables 42 Addressing Intermittency

58 The Fat Stimulus Pipeline 59 The Clash 60 Advocates Face Setback 61 What Regulators Learned at Grid School

62 Feds Poised to Remove Vol. 8, No. 5. 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 September/October 2011

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Getting Smart About Disaster ESCOs Adapt to New Realities AEP’s Morris Blasts PUHCA

Best Power Plant

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Inside Enron’s Bankruptcy Tribes Harvest Wind

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Metering & Data Management

An Energy Central Publication

RECYCLING NUCLEAR WASTE

Kelliher on FERC

GUIDE

SOURCEBOOK BILLING & CUSTOMER CARE

The Gold Standard in Call Centers

An Energy Central Publication

SIR JOHN MOGG ON EUROPE

Executive Summit

FOCUS ASIA Tokyo eleCTRiC’s Ceo

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CO-OPS ON BUILDING TEAR

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The Rising PoweR of China

IT IS INGRAINED. In September, we head back to school. Our businesses regain critical mass as our colleagues and customers put their vacation suitcases back in the attic, settle behind their desks and re-engage. With the issue you now hold, we too have gone back to school. With the upcoming November/December issue of EnergyBiz, we will proudly enter our eighth year of publishing the boldest, most cutting-edge coverage of a pulsating, hugely significant energy economy. Our goal, from the start, has been to provide you with a broad and deep understanding of the forces transforming the world of energy and the challenges and opportunities that they pose to your work and career. Our efforts have been recognized. For all but one year of our publication, we have received a gold medal in the prestigious Folio magazine Eddie Award competition as the best magazine covering energy, utilities and engineering when it comes to executing our editorial mission. In our off-year, we garnered a silver medal. As most everyone knows, recent years have been perilous to those laboring in the fastchanging publishing industry. We have evolved as an information provider in many ways. We now offer you, our community of readers, monthly webcasts to allow you to take time from your busy work day to plunge deeply into an issue of significance — without incurring the cost or inconvenience of traveling to a conference. But we are also aware that face-toNEW SHERIFF ON GRID face gatherings to ponder the most significant trends and issues of the day remain of paramount importance. In 2009, we launched our EnergyBiz Leadership Forum, a 1.5-day event in Washington for our readers to interact with industry thought leaders and leading policymakers. VOLUME 4 // ISSUE 2 MARCH 07 // APRIL 07 energybizmag.com

SEMPRA KING OF LNG

UK’s Darling On Warming

The Power of Information Integration

Inside NERC

WRESTLING WITh SARbANESOxLEY

KATRINA’S WRECKAGE Jesanis On KeySpan Deal DATA POWER NEEDS

inside The U.s. eneRgy infoRmaTion adminisTRaTion

WGL’S DEGRAFFENREIDT

TRANSMISSION UPDATE

LIBERTY POWER’S HERNANDEZ ON SMALL BUSINESS

NYC CO-OP GETS CREATIVE

LISTEN TO THE EXECUTIVE SUMMIT AT

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NREL in Prime Time

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2/24/07 11:27:43 AM

Guide Sourcebook OUTSOURCING

VOLUME 4 // ISSUE 3 MAY 07 // JUNE 07 energybizmag.com

An Energy Central Publication

AUSSIE CIO WITH VISION

An Energy Central Publication

PATRICK COOPER

L.A.’S MUNICIPAL UTILITY REINVENTING REGULATION

VOLUME 3 // ISSUE 6 NOV 06 // DEC 06 energybizmag.com

EnErgyBiz GolD meDal > eNerGy/uTiliTies/eNGiNeeriNG

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Mr. Roger’s Neighborhood The New Duke

Tackling Risk SRP’s Solar

TXU’s Childers’ Generation Build

Nrc on Licensing

Superconducting Sizzle

NEW DIRECTIONS

time inno to vate

IN M&A

EXELON’S JOHN YOUNG

EEI Frontline Report

Ge’s rice

Extracting Earth’s Energy The Promise of GeoThermal

Future Fusion

Chats with:

NRECA’s Glenn English

HydroQuebec’s Thierry Vandal

TAKING TXU FURTHER

N.Y.’S Top Regulator Talks Competition

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VOLUME 3 // ISSUE 4 JULY 06 // AUGUST 06 energybizmag.com

VOLUME 4 // ISSUE 1 JAN 07 // FEB 07 energybizmag.com

Guide Sourcebook TrANSMiSSioN & diSTribuTioN AuToMATioN

An Energy Central Publication

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AREVA’S TOM CHRISTOPHER

PEOPLE // ISSUES // STRAT EGY / / T EC H N O L O GY

Russia Beckons

4/30/07 1:37:47 PM

GUIDE SOURCEBOOK ASSET MANAGEMENT

Out Of SOuth AfricA

VOLUME 4 // ISSUE 4 JULY 07 // AUGUST 07 energybizmag.com

VOLUME 4 // ISSUE 5 SEPT 07 // OCT 07 energybizmag.com

PEoPlE // iSSuES // StRatEGy // tEChnoloGy

Arch Coal’s Future Focus

The Innovators

Carbon Quest

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

Our March 2012 event will focus on disruptive threats — in policy, technology and competition. Our parent company, Energy Central, has also grown and evolved to meet your changing information needs. This month, it launches TransmissionHub, an online, interactive intelligence service for professionals laboring in the huge transmission sector. To underscore the timeliness of that endeavor, we fully explore America’s Transmission Revolution in this issue’s cover package. In typical EnergyBiz fashion, we cover the theme in depth. We profile key leaders in the vanguard of the revolution, and present the reflections of four Federal Energy Regulatory Commission chairmen who have lived and breathed it. Since this publication was launched, you and other readers have increasingly gone online to obtain many of the insights vital to your effectiveness. Cognizant of that, we launch in this issue a new department that will highlight some valuable online resources. It is called “EnergyBiz 360” because we believe it will help you to better navigate the information onslaught we all face from all directions. We also have renamed two of our magazine departments to better communicate our intent. Our coverage of the financial side of the business will now appear in “Business Edge.” That department will focus on emerging issues, giving you an “edge” on competitors in your work life. “Legal Arena” will be where we will cover the regulatory and legal trench battles that will govern the future of energy. We formerly called the department “Legal Eagle” to convey that we were eagle-eyed in our pursuit of these issues. We intend to capture the heat of the battle over energy policy in our pages as the industry struggles to define the future of coal, nuclear, natural gas and renewables along with transmission and distribution. We intend to continue to evolve and be at your side for many school years to come.

IBEW’s Hill NYMEX’s Newsome ROBERT GALVIN’S INITIATIVE

CEOs on The Ramparts

CEOS BURKE, RATCLIFFE, ROGERS, STERBA AND MORE...

Mailing label www.energycentral.com

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Guide + Sourcebook >> Generation technoloGieS >> EnErgyBiz Gold Medal > enerGy/Utilities/enGineerinG Winner three ConseCUtive years

people // issues // strategy // technology

Our FiFth anniversary issue

The Innovators

PrOACTiVE CEOS, BOArDS, rEgULATOrS & SCiEnTiSTS

ChaT wITh NrC ChaIrmaN KleIN

regulating a revolution beyonD boulDer

CIo of The Year

NIGhTmare IN maNhaTTaN

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GUIDEBOOK >> TRANSMISSION + DISTRIBUTION

www.energycentral.com

energybizmag.com

people // Issues // strategy // technology

AN ENERGY CENTR AL PUBLICATION

ÂÂ cFos: DIggIng out

MIT’S HOT ENERGY CLUB

Innovators

AFRICA’S ENERGY HOPE

GOVERNOR VS. SUNFLOWER CEO

ÂÂ cIos: leaDIng In uncertaIn tImes ÂÂ coal’s mIXeD outlook

To 21st Century T&D

Utilities Adapt

EPRI’s Starr On Research

Talking with Peevey

POwer On the BAy

PG&E’s Darbee

GUIDE SOURCEBOOK

Asset Management 7/3/06 10:34:43 AM

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VESTAS CEO: DITLEV ENGEL

Mailing label www.energycentral.com

GUIDEBOOK

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BILLING

E N E RGYB I Z

CUSTOMER CARE

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

www.energycentral.com

12/31/07 4:09:59 PM

VOLUME 5 // ISSUE 2

AN ENERGY CENTR AL PUBLICATION

MARCH 08 // APRIL 08 energybizmag.com

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6/24/07 10:38:34 PM

4 E N E RGYB I Z September/October 2011

Volume 7 // Issue 2 mar 10 // apr 10 energybizmag.com

people // Issues // strategy // technology

MICROSOFT’S MUNDIE GAS BUILDUP

LEGISLATURES GET PROACTIVE OBAMA’S AGENDA

The Innovators GET READY FOR THE MOST MASSIVE OVERHAUL EVER

HERE COMES THE SUN A BIG ROLE FOR SOLAR POWER JEFF STERBA’S PUSHBACK THE GRID CAN HANDLE IT

SHOW-ME STATE REGULATION

PRESIDENTIAL ENERGY DANCE CLINTON, MCCAIN AND OBAMA PROPOSALS

RURAL SURGE

an emergIng nuclear power

UTILITY BLOGGERS Mailing label

CO-OPS WRESTLE WITH GROWTH www.energycentral.com

E N E RGYB I Z

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E n E rgyB i z

Volume 7 // Issue 3 may 10 // June 10 energybizmag.com

Workforce of the Future

outsourcinG

GuideBook

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

2/25/08 1:15:58 PM

Boulder’s smart Grid amin Bishara’s “Future expectations”

an enerGy centr al puBlication

people // Issues // strategy // technology

Volume 5 // issue 3 may 08 // June 08 energybizmag.com

DERYk kING the khazzoomBrookes postulate

WaNTED: NUcLEaR ENGINEERS

The Innovators

RESHapING La’S UTILITY

the Future oF GloBal enerGy emerGes

OUT OF THE BOX Vinod khosla

expect the unexpected

TERRY HUDGENS

the wirec world

ceo oF ppm enerGy

REINVENTING THE UTILITY

The Innovators Greening Power reneWaBles gaIn tractIon

EnergyBiz KITE Awards auBrey mcclendon

The emerging ArchiTecTure

fIrst energy to Wed co-ops Brace for rate Boost

li xiaolin on china’s new enerGy push

Mailing label www.energycentral.com

E n E rgyB i z

DON MASON’S REFLECTIONS GUIDEBOOk

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

www.energycentral.com

AN ENERGy CENTR AL PUBLICATION

E n E rgyB i z

Volume 7 // Issue 4 July 10 // August 10 energybizmag.com

MIT’s Sadoway on Battery Research

ASSET MANAGEMENT

people // Issues // strAtegy // technology

VOLUME 5 // ISSUE 4 JULy 08 // AUGUST 08 energybizmag.com

Here comes tHe smArt griD

FIll It uP

sHoppers tArget utilities nortH DAkotA’s vision

the Innovators

POWER uP ELECTRICS PREPARE FOR TRANSPORT

energY bAr Zigbee’s plAY

WorlD rounDup

º The Brave New world of INdepeNdeNT power

sMarT grId NaTIoN

º TesTINg The Merger waTers

garry Brown on pursuing grid security

º exec pay – BuckINg The dowNward spIral º a chaT wITh doN furMaN

pAY For perFormAnce

ieA’s tAnAkA

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E n E rgyB i z

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

URANIUM SUPPLY QUESTIONS

Volume 7 // Issue 5 sept 10 // oct 10 energybizmag.com

A CHAT WITH DOE’s MATTHEW ROGERS

GUIDEBOOK

METERING & DATA MANAGEMENT

AN ENERGY CENTR AL PUBLICATION

PEOPLE // ISSUES // STRATEGY // TECHNOLOGY

people // Issues // strategy // technology

VOLUME 5 // ISSUE 5 SEPT 08 // OCT 08 energybizmag.com

THE RUSH TO EFFICIENCY

ceos into the Breach º DefInIng our energy DestIny

The Innovators

Alaska’s Gov. Palin on Natural Gas

Mining its Future

Smart Transmission Investment

View from the Bridge

AEP Goes UltraSupercritical

EXECUTIVES TALK ABOUT BATTLES AHEAD

Dealing with Cyber Threats

Nextera

energy resources’ mItch DaVIDson

information technology economic Downturn hamstrings It

RATCLIFFE, ROGERS, ROWE... AND PUBLIC POWER LEADERS ON THE LEADING ISSUES

Dominion’s Farrell

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E N E RGYB I Z

CHAT WITH RICK SERGEL

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

8/27/08 1:52:58 PM

Volume 7 // issue 6 noV 10 // dec 10 energybizmag.com

STATE REGULATORS SHAPE ENERGY AGENDA

GUIDEBOOK

GENERATION TECHNOLOGIES

PEOPLE // ISSUES // STRATEGY // TECHNOLOGY

people // issues // strategy // technology

VOLUME 5 // ISSUE 6 NOV 08 // DEC 08

THE CHU EffECT

energybizmag.com

POSITIONING COAL

REGULATORS SPEAK OUT

º arch coal’s steVen leer

The Innovators FORMER MICROSOFT GURU NATHAN MYHRVOLD:

CIO OF THE YEAR

Inventing Our Energy Future

CUTTING-EDGE GENERATION TECHNOLOGIES new nuclear thinking

NEW COAL ECONOMICS

HYDRO STRENGTHENING THE ENERGY REVISITED CYBER SECURITY SHADOW GOVERNMENT

TEACHING SmART GRID

AN ENERGY CENTR AL PUBLICATION www.energycentral.com

E N E RGYB I Z

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

10/29/08 10:21:32 PM

carbon dioxide to fuel

Volume 6 // issue 1 jan 09 // feb 09 energybizmag.com

guidebook

Volume 8 // issue 1 Jan 11 // Feb 11 energybiz.com

CFOs WRESTLE WITH DOWNTURN Â predictions For 2011

transmission & distribution

people // issues // strategy // technology

ÂÂ state grid initiatiVes

people // issues // strategy // technology

TRANSELECT’S BIG SPLASH

ÂÂ chat With jacQues besnainou ÂÂ report from yucca mountain

Â Will it push oFFshore Wind?

The Innovators

Utilities take Cover cfos, t. boone pickens and steve forbes on the financial mess

T&D FOR A NEW ERA

Â What you need to knoW about the Future oF energy

tres amigas plans to transform the grid

COAL TAKES A BACK SEAT Â more plant cancellations coming?

FUTUREGEN 2.0 Â is it a breakthrough proJect?

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

www.energycentral.com

E n E rgyB i z

coal ash piles up

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

Volume 6 // issue 2 march 09 // april 09 energybizmag.com

guidebook

VOLUME 8 // ISSUE 2 MAR 11 // APR 11 energybizmag.com

DAN REICHER GOES TO STANFORD º GOOGLE GURU: WHAT FIXES WE NEED

billing & customer care

PEOPLE // ISSUES // STRATEGY // TECHNOLOGY

people // issues // strategy // technology

Chats With

Green Trade Wars Heat Up

edF captures constellation

ÂÂ nrg’s daVid crane ÂÂ midamerican’s daVid sokol

unions set goals stock market roller coaster

The Innovators

The Brain TrusT

º JOBS AND RICHES GO TO THE VICTOR

WOMEN RISING º EXECS THRIVE IN MALE WORLD. HOW?

STOCK STARS

º HOW DOES YOUR COMPANY COMPARE?

A REVOLUTION IN CUSTOMER CARE

DUKE’S INDIANA HEADACHE

Calling Dr. Chu

MAKING THE CONSUMER KING

º TAKEAWAY LESSONS LEARNED

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skains on natural gas

E n E rgyB i z

volume 6 // issue 3 may 09 // June 09 energybizmag.com

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

energy/utilities /engineering

VOLUME 8 // ISSUE 3 MAY 11 // JUNE 11 energybizmag.com

THE DODD-FRANK THREAT º READY FOR THE CHALLENGE?

guidebook outsourcing

PEOPLE // ISSUES // STRATEGY // TECHNOLOGY PeoPle // issues // strategy // technology

SPECIAL REPORT

SMART METER WARS

THE BUZZ FROM THE 2011 ENERGYBIZ LEADERSHIP FORUM

º THE TAKEAWAY FOR THE REST OF US FROM CALIFORNIA’S CONTROVERSY

ÂÂ Wind risk ÂÂ inside russia ÂÂ kelliher on Politics ÂÂ semPra’s schmale ÂÂ unido’s yumkella

LEADERS YOU KNOW TODAY AND WILL KNOW TOMORROW SPEAK ABOUT GAME CHANGERS

Nuclear

The Innovators EnErgyBiz KitE AwArds 2009 winnErs

The Next Act

ceo–rogers utility–Xcel energy achievement–Peevey

º NRG’S DAVID CRANE WARNS ABOUT PARALYSIS º GREENPEACE CO-FOUNDER: GOOD NUCLEAR OR BAD COAL

CO-OPS SEEK CLEAR PATH FORWARD

º VALUABLE INSIGHTS ON FACING UNCERTAINTY

º GLOBAL ROUNDUP OF UTILITY STRATEGIES

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OffshOre Wind in Offing

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

VOluMe 6 // issue 4 July 09 // August 09 energybizmag.com

guidebOOk

energy/utilities /engineering

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

ENERGY WARRIOR º LESSONS THE MILITARY CAN TEACH US

Asset MAnAgeMent

PEOPLE // ISSUES // STRATEGY // TECHNOLOGY

peOple // issues // strAtegy // technOlOgy

Nailing Down Grid Security

WIND & OCEAN POWER

Bechtel Sees Nuclear Surge

E n E rgyB i z

CUSTOMER CARE: Battle for the home Front

SPECTRA ENERGY’S FOWLER

EUROPE’S NEW APPROACHES TO

1/5/07 11:34:57 AM

ÂÂ chat WIth europe’s energy mInIster

T. BOONE PICKENS PURSUES WIND

The Innovators

º WHAT IT WILL TAKE

Proxy Revelations

Frontiers of Coal Generation

Volume 7 // Issue 1 Jan 10 // Feb 10 energybizmag.com

JAN 08 // FEB 08

//// CFOs, CIOs Speak Out ////

KANSAS COAL The DEBATE

E n E rgyB i z

nuclear serVIces eXpanD

VOLUME 5 // ISSUE 1

LEADERSHIP ROUNDTABLES

º WHY IT IS IMPORTANT

EXECUTIVE PAY TRENDS

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ThE EnErgy World in 5 yEars

a chat with ForD’s gioia

an E n E rgy C E nTr al Pu B liC aTion

www.energycentral.com

Inside TVA, BPA

cAlifOrniA tAcKleS wArMing

volume 6 // issue 6 nov 09 // Dec 09 energybizmag.com

guiDebook

generation technologies

Tale of Two IPos NexT for NaTIoNal GrId

fighting Mercury

BiOenergy center SPrOutS in KAnSAS

E n E rgyB i z

Duke goes to china

volUMe 4 // issUe 6 nov 07 // deC 07 energybizmag.com

An Energy Central Publication

BPl tAKeS hOld

FRESH ANSWERS TO WORKER EXODUS

ÂÂ Cio ExoduS ÂÂ thE PSyCholoGy of EffiCiEnCy ÂÂ thE GREEninG of kanSaS City

FroM PePCo’s rigby to sMUD’s Distasio

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

federAl POwer trendS

Utilities and Wi-Fi

VoluME 6 // iSSuE 5 SEPt 09 // oCt 09 energybizmag.com

GuidEbook

MEtERinG & data ManaGEMEnt

The Rise of Pebble Bed Reactors

The Russians Are Coming

Chat with PSE&G’S RalPh izzo

AN ENERGY CENTRAL PUBLICATION

learn the top of minD concerns of iou anD public power execs

fErc chAirmEn wEiGh in

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people // issues // strategy // technology

EPA’s LisA JAckson on thE front LinEs

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Volume 8 // issue 5 september 11 // october 11 energybizmag.com

Grid School for reGulatorS

SMART GRID AND UTILITIES

PREPARING FOR WHAT’S NEXT

MERGER WAVE º º

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

WHAT IF IT CRASHES ON YOU? 5 COMPANIES TO WATCH

TOP PAID BRASS

Safeguarding the Smart grid

ExClusivE

Michael Chertoff Chat ÂÂ riding the federAl funding WAVe ÂÂ executiVe pAy pAins ÂÂ Mailing label chinA piOneers An E n E rgy C E ntr Al Pu B liC Ation

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» LETTERS I read the guest opinion, “Solvable and Safe” [July/ August] in which the author advocates plunging forward to pursue a government-run spent-fuel interim storage facility. Spending any additional funds or time on this Department of Energy boondoggle is folly. Scientists have known for decades that interim storage, along with permanent stornailing age, is not practical Down grid both on a cost basis Security and because of safety concerns. I would like to see more efforts and activities directed toward arriving at a permanent solution that includes reprocessing and volume reduction to transform the waste into forms that can be properly and economically managed. EnErgy Warrior

º lessons the military can teach us

º What it Will take

º Why it is important

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

energy/utilities /engineering

Ronald Jacobstein Stuart, Fla.

One evening over dinner in January, a family friend shared the tragic news of a friend and colleague, whose 18-year-old son Shawn was courageously battling a life threatening illness in the prime of his life. In spite of visits to the hospital each week, treatments, and an emotional and physical battle, Shawn was determined to finish high school with his classmates and even attended sports practice as often as possible, cheering his teammates on from the sideline.

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 September/October 2011

Shawn’s battle was the proverbial spark that ignited the “Watts-forWishes” program, and the growth of the program is a testament to a simple vision, a positive cause, and high-caliber people in the energy space. My passion for The Make-A-Wish mission follows 18 years of volunteerism, financial donations, and serving two terms as a chapter board member. I launched the “Watts for Wishes” charitable donation program with a vision of connecting the renewable energy industry with the Make-A-Wish Foundation of Philadelphia & Susquehanna Valley to provide children who have life-threatening illnesses with the funding to fulfill their wishes. The program is designed to grow virally — companies elect to participate and fund wishes for local wish kids via the Make-A-Wish chapter in their area. The more renewable energy success in the market, the more wishes that get granted. Shawn’s inaugural wish was donated on behalf of SolarSense customer J. Ambrogi Foods. Volume 8 // issue 4 July 11 // august 11 energybizmag.com

people // issues // strategy // technology

smart griD anD utilities

www.energybizmag.com EDITOR-IN-CHIEF Martin Rosenberg

mrosenberg@energycentral.com 913.385.9909 CHIEF COPY EDITORS Don Bishop, Martha Collins SENIOR CONTRIBUTORS

Bill Opalka, Editor-in-Chief, RenewablesBiz Daily bopalka@energycentral.com 860.633.0090 FEATURE WRITERS Steve Barlas,

Russ Choma, Lisa Cohn, Pamela Coyle, Darrell Delamaide, Richard Korman, Paul Korzeniowski, Salvatore Salamone, Gary Sampson, Al Senia, Richard Schlesinger, Gary Stern

preparing for WhaT’s nexT

Merger Wave

º º

What if it crashes on you? 5 companies to Watch

Top paid Brass

10 Who got the

What Will Determine your pay?

Biggest raises

Energy providers in any sector should participate. US Global Glow, a lighting-efficiency provider in the Mid-Atlantic region, joined the mission in June and is already sponsoring its first wish as a result of a project with ShopRite grocery stores. And as for Shawn? He graduated from high school as planned in June and just returned with his family from his wish-trip. Chris D. Fraga SolarSense Radnor, Pa.

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energy/utilities /engineering 20 0 5 , 20 0 6 , 20 07, 20 08 , 2010

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» ENERGYBIZ 360

Editor’s Note SHINING A L IGH T

EnergyBiz 360 is yours. Rip it out. Save it. Use it. And join our influential army of EnergyBiz contributors. If you come across a novel Web site, a fascinating blog or some hidden corner of the Internet that helps you make sense of the world of energy, share it with us so we can share it with your fellow readers. If your organization has a datacrammed Web page — send us the link. Drop a note to editor@energybiz. com and we will take it from there. If you feel like it, write us a few sentences about what is unique about the site. We call this department “EnergyBiz 360” because we know you face an information onslaught from virtually every direction. Sorting through that information is important to you. Energy Central, publisher of EnergyBiz, recently surveyed readers of its many products, and 42 percent indicated that they prefer to get power information from a Web site. We intend to shine a light on intriguing, informative and provocative resources dealing with the complex, fast-changing world of energy.

Today FEDERA L SI T E HIGHL IGH TS NEW S

The U.S. Energy Information Administration’s latest update of its Web site (www.eia.gov) includes the introduction of a new daily feature “Today in Energy.” “Today in Energy” presents short, easy-to-understand articles about a variety of energy topics. Each article: » Covers a key energy issue in a one-page format » Includes a visual explanation — chart, map or photo — to illustrate the point

» Makes the data series behind the chart available for download when possible

» Uses plain language for a broad but knowledgeable audience

Charts are often interactive and enable users to modify and drill down when viewing them. Readers are also able to suggest topics for future articles. Links connected to related stories, glossary definitions, reports, maps and other information help support each article. Although articles are short — summarizing key points and making for easy reading — the topics are relevant to energy policymakers and others interested in energy issues. One day the feature might be trends relating to electricity generated by coal; the next day it might be highlights from the latest Short-Term Energy Outlook; next, you might see what’s going on with hydroelectricity in the Pacific Northwest or the effect of severe winter weather on natural gas production. Articles are sometimes written as a series of straightforward pieces linked to form a more complex picture of an energy topic. A recent example is the series on the vintage of electric power generators, which starts with an overview and then highlights each major fuel. Jonathan Kogan // U.S. Energy Information Administration

8 E N E RGYB I Z September/October 2011

SmartGrid.gov A N E A SY STA RT ING PL A CE According to a recent Oracle survey of utility executives, 71 percent of utilities say securing customer buy-in

the energy-saving programs enabled

how the smart grid will enhance the

by the smart grid.

grid, focusing on the ability for two-way

SmartGrid.gov, which is funded by

communication between utilities and

is a key step in smart grid success,

the U.S. Department of Energy, includes

their customers. As with every sub-

but only 43 percent say that they’re

a section called “What is the Smart

section, the introductory subsection

actually do-

Grid?” (smartgrid.gov/the_smart_grid)

includes links to additional resources

ing so. That

that can help introduce smart grid tech-

for customers who want to learn more.

disconnect

nologies to utility customers. Featur-

“The Smart Home” subsection

could hamper

ing colorful graphics, animated Flash

looks at smart meters, home energy

the success

videos and nontechnical explanations,

management systems, smart appli-

of the smart

this section of the Web site provides a

ances and home power generation.

grid, as utili-

simple, yet detailed, introduction to the

ties that have

power of the smart grid.

implemented

The section is broken into seven

Linking to SmartGrid.gov from utility Web sites and including the link in customer fliers provides an easy

smart grid technologies — either in

subsections that tackle the smart

way for utilities to explain the smart

pilot studies or systemwide deploy-

grid’s top features and benefits. An

grid to their customers.

ments — expect only 38 percent of

introductory subsection explains how

their customers to take advantage of

the current electrical grid functions and

Kevin Eber // U.S. National Renewable Energy Laboratory

TransmissionHub Gets Rolling SI T E RICH IN T RA NSMISSION SECTOR DATA

Understanding the rapidly changing transmission industry will be easier for industry professionals with the launch of Energy Central’s TransmissionHub. The online, interactive intelligence service will serve professionals who operate, plan, build, regulate, analyze or invest in electric transmission lines in North America. Going live this month, the service will provide an unprecedented level of intelligence on the transmission sector and the people, companies and policies that are aggressively changing the business of transporting power. In addition to regular free news and information resources, TransmissionHub’s premium service will deliver: » The most thorough, accurate and timely transmission project database available, including information on costs, expenditures and voltage for current and planned activities » In-depth profiles on every active transmission project

» Expert analysis and editorials throughout the day » A growing document library of every study, white paper or legislative document used for articles, research and analysis » Interactive community features to help build your network and your expertise » A daily Morning Report with news and headlines from the previous day » A weekly newsletter summarizing key news in a paginated, printable format

Each article on the site will link to all related TransmissionHub content, including other relevant articles, source documents, profiles, data and more. Relevant media, such as video and podcasts, will be imbedded into the articles. EnergyBiz readers can sign up for a free two-week trial of TransmissionHub by visiting transmissionhub.com/trial. Randy Rischard // Energy Central energybiz.com E N E RGYB I Z 9

» BUSINESS EDGE

Winning over Wall Street CHANGING DEFINITIONS OF UTILITY SUCCESS // BY GARY M. STERN IN THE ENERGY INDUSTRY, the times are transforming, not just changing. In 2009, energy consumption dipped 1.1 percent, the first time since the Great Depression in 1930 that power use declined in the United States. Utilities are urging consumers to employ smart meters, which improve energy efficiency but also reduce revenue. In addition, M&A action proliferated in 2011. To name a few deals announced this year, Duke Energy acquired Progress Energy for $13.7 billion, Exelon gobbled up Constellation Energy Group for $7.9 billion, and First Energy and Allegheny Energy merged. The Duke and Exelon deals await final approval. Mergers help lower costs and offset the effect of reduced revenue. Given these massive changes, what are industry analysts and experts looking for in the future from energy companies? What can a utility CEO do to stay one step ahead of the changes and boost a company’s share price and revenue? 10 E N E RGYB I Z September/October 2011

The utility CEO of the future will be a champion of innovation, said Michael Shellenberger, president of the Breakthrough Institute, an Oakland, Calif.-based energy think tank. Utility CEOs need to develop clean energy solutions, find ways to make solar cheaper and make nuclear power smaller and safer. The futuristic CEO needs to get “all stakeholders — shareholders, employees, lobbyists — oriented toward moving subsidies from older technologies to innovative new ones,” he said. By stressing innovation, the utility will boost revenue and limit reliance on coal-fired plants. “Energy innovation is a public good,” Shellenberger concluded. “The ideal utility CEO is one step ahead of the industry. The central challenge in the industry is managing tremendous turmoil in a regulatory environment,” explained David Victor, director of the University of California-San Diego’s Laboratory on International Law and Regulation. Utility CEOs face three major challenges. They must manage emissions of green-

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» BUSINESS EDGE house gases despite no overarching federal strategy, determine what to do about natural gas, and look to renewables to play a larger role even if subsidies are scaled back. The utility of the future is going to have to be a hybrid able to boost revenue while increasing renewable energy, transmission and environmental controls, said Travis Miller, associate director of utilities at Morningstar, based in Chicago. Relying on coal-fired plants that pollute and face increasing regulatory scrutiny won’t resonate with investors in 2012 and beyond. He cited National Grid and Westar Energy as two utilities that have boosted earnings while meeting regulatory mandates. Westar, Kansas’ largest utility, has benefited from the state’s huge wind resources, and National Grid gained from developing offshore wind power in the United Kingdom. “The key growth opportunity for utilities is in transmission investment,” Miller said. Investing in transmission can lower costs and offset reduced demand. He cited Northeast Utilities and NSTAR, which are merging, as two leaders in transmission. NRG Energy is an example of an energy company that is transforming its coal generation fleet to rely predominantly on low-sulfur coal to produce power. Miller expects that more stringent EPA emission rules will force 53 gigawatts of coal-fired plants, older than 30 years and smaller than 200 megawatts, to close in the next few years. As coal plants close in Texas, NRG Energy is well-positioned to CLEAN COAL NIXED meet environmental rules General Electric and and increase market share. the University of Wyoming have ended Utility stocks that boost a $100 million clean earnings in the future will coal research project, according to the rely on nuclear power. Associated Press. Many coal-fired plants An unclear national are likely to close in the energy policy and falling natural gas prices were Midwest, and Exelon, the cited as factors leading largest nuclear operator to the suspension of the effort, which was in the United States, will to work on converting benefit. “Exelon has virtually coal to gas. no exposure to coal plants or to increased environmental regulations,” Miller said. GenOn Energy is another stock primed for growth because it relies on a fleet of natural gas plants in the Mid-Atlantic and Northeast. It too should benefit from 12 E N E RGYB I Z September/October 2011

coal plant closings, higher costs for coal plants and increased environmental scrutiny, Miller said. Because of these massive changes transforming the utility industry, Paul Franzen, a senior utility analyst at Edward Jones, based in St. Louis, expects utilities to prosper that “provide competitive overall total return, a good yield and potential for dividends to offset inflation and lower volatility.” He said Edison International, Pacific Gas and Electric, and Ameren have maintained their core missions and avoided diversifying into nonenergy assets. Although the carbon cap-andtrade program never made it out of Congress, Franzen said recent EPA rules limiting carbon dioxide emissions will hurt the utilities that don’t comply with guidelines. NextEra Energy Resources and Westar Energy CEOs have done an effective job of developing renewables to limit CO2 emissions. NextEra is number one in generating wind power in the United States and plans on adding 600 to 1,000 megawatts of new wind generation over the next five years, and Westar Energy has strengthened its wind power in Kansas and the Midwest. Utilities relying on coal-fired plants may see their stock prices pull back, but the utilities exploring new ways to meet regulations and find new power sources may prosper, analysts said

The key growth opportunity for utilities is in transmission investment.

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thestructuregroup.com SCADA & Energy Management Systems, Smart Grid, Distribution Automation & Operations, Market Solutions, ETRM energybiz.com E N E RGYB I Z 13

» BUSINESS EDGE Don’t Be One of the Boys WOMEN SET PRIORITIES, LEAVE A LEGACY // BY PAT VINCENT-COLLAWN EDITOR’S NOTE: The Women’s Executive Forum was founded in 2008 by Lynn LeMaster at the Edison Electric Institute. Held during EEI’s annual conventions, the WEF brings together professional women who are leaders in the electric utility industry. Here are excerpts from a keynote presentation from the forum held during EEI’s recent annual meeting in Colorado Springs, Colo.

I AM OFTEN ASKED three questions: How did you get to be CEO? What is it like being CEO? And what do you want your legacy to be? So, I thought I would share with you my thoughts on these questions. Getting to the Top Job » To be a CEO, you have to really want it. That means hard work, sacrifice and absolutely no ambivalence. » Be open to change. Be willing to move locations, jobs and companies if that is what you need to do to succeed in your career. » Be yourself and hold yourself to professional standards. Don’t try to be one of the boys, but look for common ground. I am a huge sports fan and often find shared interest in debating the merits of the most recent game. » Understand how your company makes money. Employees should know how their company makes money and how their decisions impact the bottom line. » Get a line job. Operations experience is enormously valuable in management. Find a mentor. It doesn’t matter whether your » mentor is a man or woman. It just matters that the mentor appreciates your value to the workplace and is willing to be a source of advice and counsel. Living the Top Job » There are no excuses; you are the one accountable. Never blame others or throw colleagues under the bus. » Get out of the office and be active in your community. Get on boards and contribute. The ability to raise money is an important qualification and aspect of your professional and community responsibilities. 14 E N E RGYB I Z September/October 2011

» Develop a broad area of knowledge. Understand that good management includes picking the right people for the job and asking the right questions when you are making decisions. Delegate. Allow your colleagues to do their jobs and » respect that just because it isn’t done exactly as you would do it doesn’t mean it isn’t right or well done. » Seek people who will tell you the truth — respectfully. Leaving the Top Job » At the end of the day, legacies aren’t about the CEO. They are about leaving your company with the right resources, the right people in the right jobs and the right prices for your customers. Key Priorities » Take care of yourself, especially your health and your finances. Not every meeting is important. It is fine to skip one and go work out if you can’t fit it in during personal time. Also, taking care of your finances gives you the confidence and the freedom to take the job you want. » The following are answers to some specific questions raised: Women are underrepresented in the trades; how can we introduce more?

It is very important to support women in the trade jobs, and we need to do more to ensure they succeed. One approach is to ensure a support network is in place by introducing new women employees into the trades in small groups rather than individually. How do you achieve the work-life balance?

Choose your spouse and your company carefully. We all need support to succeed, so make sure your personal and professional environments give you the chance to take opportunities. And never forget to take care of your finances and your health. What legacy would you like to leave?

A well-run company with high customer satisfaction and a longer line at the women’s room. Pat Vincent-Collawn is president and chief executive officer of PNM Resources.

P E O P L E

P R O C E S S E S

T E C H N O L O G Y

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for achieving

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» BUSINESS EDGE Transmission Boosts Competition LOWER PRICES AND IMPROVED RELIABILITY // BY LINDA BLAIR IN THE PAST FEW MONTHS we have seen a lot of discussion in Washington and throughout the country about investments in our nation’s energy grid. Much of that discussion, rightly so, has been focused on what consumers get out of transmission investments. Consumers have every right to know what investments in our nation’s infrastructure cost and the benefits they will receive from those investments. And policymakers should be responsive to those questions. By all recent accounts, they have been. In fact, the Federal Energy Regulatory Commission acted recently to ensure that the costs of transmission align with its benefits. The agency’s new rule protects those who don’t benefit from transmission investments from unfairly paying for them. After all, whether you live in Oregon, Kansas, Florida or Michigan, energy costs comprise a big part of any consumer budget. When it comes to electricity, twothirds of the average consumer bill goes to generation. The next step in the power delivery process — transmission — is the smallest part of the bill at less than 10 percent on average. The rest of the costs are eaten up by local distribution. This important perspective on the transmission component of the electric bill has largely been absent from the conversation about costs, benefits and who should pay for updates to the grid. When you look at the facts, it is easy to see that transmission does not drive up electricity costs. Instead, transmission facilitates more robust competitive energy markets that can significantly drive down prices. Here is how. Transmission links consumers to competitive wholesale energy markets that stretch across state boundaries and regions. This gives consumers a more robust energy mix that can incorporate all types of generation — natural gas, wind, coal, solar and nuclear. We all know that when consumers have more choices, costs come down. New transmission infrastructure will also reverse the effects of 30 years of underinvestment that have 16 E N E RGYB I Z September/October 2011

left our electricity grid unable to meet today’s demand. Consider this: Most of the existing transmission system was built more than 30 years ago and has only received incremental investment since. This underinvestment comes at a time when Americans are consuming more electricity than ever before. All of the gadgets that families now find essential — mobile phones, computers, and even electric cars — are putting new strains on our already constrained grid. Per capita consumption of energy has doubled since the 1970s, yet our nation’s electricity grid has stayed largely the same. Underinvestment also threatens the reliability of our grid. While reliability may not sound like a pressing issue, I am confident that residents hard hit by tornadoes, sweltering heat and other natural disasters this year would disagree. Reliability directly correlates with investments in the infrastructure because expanding transmission allows us to link up to new, diverse sources of generation. When a disaster happens and one energy generator is affected, the grid can pull power from another generator. The irony is that our underinvestment in the infrastructure that makes up a small slice of a typical electric bill is actually costing us money. According to the Department of Energy, major power outages and power quality disturbances cost our economy from $25 billion to $180 billion annually. While the facts tell the full story, many have tried to turn this debate on its head and focus on the costs of transmission as the root of high energy costs. When you understand the relative costs of transmission, that simply doesn’t add up. What is very clear is that transmission can provide numerous benefits.

Underinvestment ... threatens the reliability of our grid.

Linda Blair is executive vice president and chief business officer for ITC Holdings.

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» BUSINESS EDGE Funding Energy R&D FROM 2011 AND ONWARD // BY REED HUNDT THE U.S. DEPARTMENT OF ENERGY needs a continuously available financing arm so projects emerging from research and development can access deployment capital. To that end, Congress should create the Clean Energy Deployment Administration (CEDA). Energy reform legislation should be broken into chunks because it has proven too difficult to pass comprehensive legislation. It would be better to let pieces of legislation travel different pathways with a hope that all will pass. Events shape history, and legislators should have different bills they can pass as responses to particular events such as oil spills, commodity price spikes and climate change data. Important chunks include the previously mentioned CEDA, and legislation to attract private capital to investments in clean energy projects with reliable returns. This is the idea behind our Coalition for Green Capital’s Energy Independence Trust (EIT). (See www.coalitionforgreencapital.com.) Every state should have a green bank that can borrow from the EIT and provide low-cost, long-term financing for clean energy and energy efficiency projects. Congress should impose taxes on carbon-intense commodities high in the value chain. EPA should protect us from mercury and other poisons.

Gatherings//Business Edge Oct. 4-6

Smart Homes

Amsterdam

Oct. 9-13

International Telecommunications Energy Conference

Amsterdam

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

18 E N E RGYB I Z September/October 2011

When utilities merge, regulators should not translate efficiency gains into reduced electricity prices but should capitalize state green banks for efficiency investment. The energy generation, transmission and efficiency investment in America should be integrated with the rebuilding of our transportation infrastructure. We need a national energy plan as another chunk, and we have to keep funding R&D both at DOE and in academic centers. We need breakthroughs in energy generation, transmission and efficiency. Finally, the United States should sponsor an international green bank to lower the cost of sustainable electricity in the developing world. I would accept friendly amendments and comments of any kind about these chunks. We don’t need Congress for all these purposes but we do need some help from Capitol Hill. There’s not a moment to lose. Reed Hundt is a former chairman of the Federal Communications Commission and is chief executive officer of the Coalition for Green Capital.

Transmission Revolution PREPARING THE WORLD’S BIGGEST MACHINE FOR THE 21ST CENTURY BY RICHARD SCHLESINGER

is the biggest machine in the world and the greatest engineering feat of the 20th century, according to the National Academy of Engineering. It’s one of those human accomplishments so successful as to have become virtually invisible. And it’s incredible that, despite the enormous demands we’ve placed on the grid — the unprecedented technological developments and the concomitant social and economic upheavals and metamorphoses — its essential structure has remained the same. It still basically serves to transmit power from a central point of generation to end users within a certain locale. That basic structure is beginning to change, and the pace of change and the extent of technological innovation are looking more and more like a revolution, at least in terms of the scope of change. But the pace of change is another thing. The revolution has yet to hit the streets. “The biggest enabler of the smart grid is communications technology,” says Matt Wakefield, smart grid program manager at the Electric Power Research Institute. Communications technology is transforming the grid from a one-way highway to an interactive, dynamic, integrated network. The most obvious manifestation of this change is smart metering. With the advent of dynamic pricing, which encourages customers to shift demand to match off-peak supply, customer acceptance would seem to be a no-brainer. However, most customers don’t seem THE ELECTRIC GRID

20 E N E RGYB I Z September/October 2011

to want to participate, according to Wakefield. “Where dynamic pricing has been in place for some time we do see significant growth, but in newer programs, we typically see participation on the order of 5 to 15 percent in the first year. That translates to energy savings in the 5 to 10 percent range. As the technology evolves and automation is enabled, we hope to see those numbers go up,” he says. Another factor that’s slowing the evolution of the grid is a lack of standards. Automation, especially the ability of appliances to communicate directly with the grid, depends on the development of standards, which have yet to be established. EPRI is rolling out a three-year demonstration initiative to automate demand response signals and is working with utilities to understand how they can be standardized and utilized across the entire industry. “If we can agree as an industry to adopt common mechanisms, we’ll unleash the creativity of the market, so that an appliance bought in Tennessee won’t need to be retrofitted when you move to California. Only with national standards will appliance manufacturers come on board,” says Wakefield.

The biggest enabler of the smart grid is communications technology.

energybiz.com E N E RGYB I Z 21

THE TRANSMISSION REVOLUTION

While smart meters are at the heart of the evolution toward a smart grid, the lack of public enthusiasm for them is another fairly serious stumbling block. A study by Oracle, the software and hardware systems company, finds that although 71 percent of utilities see customer buy-in as essential to driving the success of the smart grid, only 43 percent acknowledge taking any steps to educate customers about the smart grid’s advantages. The fact that both Google and Microsoft recently announced their withdrawal for the time being from participating in the manufacture and design of smart meters and the software to run them suggests that the industry needs to invest much more in selling the benefits of the smart grid before it can expect the support it needs from the private sector. Google remains a player on the transmission side, with its 37.5 percent investment in the $5 billion Atlantic Wind Connection project, the offshore cable that’s projected to carry 6,000 megawatts of wind-generated power from off the Atlantic coast to users along a 350-mile corridor on the Atlantic seaboard. The new communications technology has implications that go well beyond smart metering. It enables the integration of renewable, intermittent, distributed generation with the rest of the grid. It allows each element to instantly and seamlessly interact with the others in order to precisely regulate power in a dynamic system. And integration allows discrete elements to play multiple roles and thus become cost effective. EPRI’s Wakefield cites energy storage as typical of an application that in its stand-alone version may not be cost effective, but when employed in multiple applications — for backup power, to smooth out the intermittency of wind or solar and to help regulate voltage within ANSI standards — ROI can turn positive. The smart grid will also provide utilities with realtime information about the capacity of transmission lines. Traditionally, utilities estimate how much power is lost as it moves across the grid to end-users and build in enough capacity to make up for the loss. That results in significant waste. A study cited by the National Science and Technology Council found that using advanced communications technology to implement real-time voltage control could reduce systemwide demand by as much as 3 percent. Of course, cutting demand is a two-edged sword. Although it obviates, at least temporarily, the need for additional peaking plants, it also cuts revenue based on end-use consumption. Regulatory bodies will have to take into consideration both the capital costs of upgrading the grid and the effects — positive and negative — that greater energy efficiency will have on utilities. Real-time information is also key to integrating the changing resource mix with the legacy grid. Addressing 22 E N E RGYB I Z September/October 2011

control issues and the intermittent nature of many of these resources, as well as their physical characteristics, requires new standards as well as real-time information, according to Mark Lauby, the vice president and director of reliability assessments and performance analysis for the North American Electric Reliability Corp. Lauby notes that wind turbines, for instance, have inherently different characteristics from, say, combined-cycle gas generators when it comes to spinning and frequency response reserves, the ability of generators to increase their output on a contingency basis. “We’re going to have to have enough spinning to pick up any loss and sustain the frequency at 60 hertz, because if we fall too low, things start tripping,” he said. The increased dependence on complex, distributed information technology inevitably involves an increased level of risk. “The risk profile has changed dramatically and it will continue to change,” says David Batz, manager for cyber and infrastructure security at the Edison Electric Institute. Batz cites numerous risks beyond terrorism. “Terrorism is a threat, but while it may receive the most attention THE by the public, the TRANSFORMATION system is vulnerable OF TRANSMISSION to many other threats, Massive transmission investments including from stateare planned to transform the grid, sponsored entities and make it more secure and better tie renewables into our power system. organized crime as well What lies ahead? as from hackers of various Listen in as leaders in the stripes.” Batz emphasizes transmission revolution are featured in a one-hour webcast. the need for the industry IT WILL BE HELD AT NOON ET and government to work ON OCTOBER 20. hand-in-hand to ensure Register for the free webcast the sharing of information at www.energybiz.com/ about risks and threats transmissionrevolution . to the grid. That means a shift in the culture of grid security from a compliance-based model of checklists and inventories, to one rooted in risk management and situational awareness. The grid is clearly at a critical juncture. The forces for change are powerful, from the rise in demand to the increasing pressure to address environmental issues and reduce dependence on dwindling carbon sources. But the obstacles to changing the structure of the grid are daunting, from cost issues to security, from a fragmented regulatory environment to the complex technical challenges of integrating disparate sources of power. What the grid will look like five, 10 or 20 years from now is unclear. The only certainty is that it will be radically different from the grid that has performed so well for more than 100 years.

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THE TRANSMISSION REVOLUTION

Grid Gurus FIV E LE ADERS CH ANGING THE L ANDSCAPE

BY RANDY RISCHARD

THE

UNPRECEDENTED

CHANGE

that is

reshaping the North American transmission system has not come easy. A number of industry leaders have overcome countless obstacles to gain new ground and reinvent how transmission is built, managed and monetized. Here are five leaders who have put transmission on a different, more innovative, path. Robert Mitchell When Robert Mitchell initiated the formation of TransElect in 1999, he pioneered a new way of thinking about transmission in the United States. He was the first to prove that a U.S. transmission system could be better operated and more profitable if owned independently from the electric utility when TransElect bought Consumer Energy’s transmission assets in 2002. Mitchell and Trans-Elect went on to drive several other innovative transmission initiatives, including California’s Path 15, which was its first newly developed line made possible by a unique partnership between Pacific Gas and Electric and the Department of Energy. However, even with his track record of innovation, Mitchell caught the industry by surprise with a plan to build a $5 billion, 350-mile, direct-current transmission backbone for offshore wind power along the Mid-Atlantic coast. 24 E N E RGYB I Z September/October 2011

Trans-Elect, along with project investors Google, Good Energies and Marubeni, are currently navigating the regulatory waters to forge their path through Atlantic waters with one of the most innovative and significant transmission projects ever conceived. The Atlantic Wind Connection will enable up to 7,000 megawatts of new offshore wind power to be developed over the next 10 years without having to erect transmission towers or wind turbines near cities and backyards. Trans-Elect has liquidated 12,000 megawatts of transmission, including Path 15 and the systems it acquired, to focus on development. “We are not following the typical model of being reactive. We’re taking a proactive approach to building transmission,” Mitchell told EnergyBiz in an interview last year.

Donald Jessome Donald Jessome, Transmission Developers CEO, president and cofounder, is leading a different underwater transmission venture. His largest project, called the Champlain-Hudson Power Express, will lay a line under Lake Champlain and the Hudson River to feed power-hungry New York. The $3.8-billion, 330-mile, direct current line will carry about 2,000 megawatts of clean hydropower from Canada. The company is also working on a 150-mile underwater direct current line that will link the Maine and Massachusetts coasts to bring some of Maine’s new renewable energy to Boston. Jessome says there are many benefits of running transmission underwater, including the lack of maintenance and the minimal impact to the environment. Putting lines

underwater “addresses a lot of concerns people have about the transmission of power,” he said in an interview.

Joseph Welch When Joseph Welch, ITC Holding chairman and president, was asked during a quarterly earnings call last year what he thought of the growing competition in the merchant transmission sector, he said it gets his juices flowing. Even as more merchant transmission and transmission-only companies enter the field, there is plenty of opportunity to go around, he said. ITC is “a pretty nimble company” and that gives it a competitive advantage, Welch added. Nothing epitomizes how nimble yet strong Welch’s ITC is more than its ambitious plan to build a 3,000mile, 765-kilovolt, direct current renewable power superhighway at a cost of $10 billion to $12 billion. ITC’s Green Power Express will integrate up to 12,000 megawatts of wind and other renewable resources into the U.S. grid in seven Midwestern states. Welch has been publicly skeptical about merchant transmission developer plans to build alternating-current lines to integrate renewable power because AC lines are synchronous with the system and free flowing. Developing an AC merchant line outside the regional planning process makes it difficult to integrate with the rest of the power grid, he said. ITC has an AC merchant transmission project in the works in Michigan that is another first. The 345-kilovolt Thumb Loop project will be the first ever “multivalue” project, which means it will be eligible for regional cost recovery under Midwest ISO’s cost-recovery plan.

John Procario It seems many transmission companies are now pursuing opportunities to bring Midwestern wind power to market, and it’s only fitting that American Transmission Co., led by John Procario, is one of them. ATC was created from the acquisition of Midwestern transmission assets and was the first multistate transmission-only utility in the United States. Procario, ATC president, chief executive and chairman, recently announced a 150-

mile, 345-kilovolt line in the company’s home state of Wisconsin that will integrate renewable resources with the grid, but it has been no secret that he wants to expand beyond the region. Earlier this year, Procario made good on promises to grow a national transmission company befitting its name when he announced a partnership with Duke Energy to pursue transmission projects across North America. The venture, called Duke-American Transmission, will develop power lines anywhere in the North America where there is a need and the economics are right. The choice of partners for the venture is also no surprise considering Procario spent 32 years of his career at Duke/ Cinergy. The innovative partnership is a transmission-only utility and will own and operate all of the transmission assets it builds.

James Hoecker Many of today’s advances in the transmission business would not have been possible without regulatory reforms that opened access to transmission capacity, enabled regional transmission organizations and, in the process, retooled how the industry owns, operates and manages transmission assets and the capacity on the lines. As U.S. Federal Energy Regulatory Commission member and then chairman, James Hoecker led regulatory reforms that made the grid what it is today. As senior counsel and energy strategist for Husch Blackwell, plus counsel for transmission advocacy group WIRES Group, Heocker now helps power and transmission companies rethink the grid and navigate new regulatory obstacles. Although power markets and grid operations have and need their regional differences, Hoecker said “We must find ways to accommodate those differences and still promote integrated, liquid, interstate power markets — and the strong, integrated transmission grid which supports them.” The industry still needs greater predictability and administrative efficiency in regulatory areas such as cost allocation, planning and siting, he said. “People often say we need an energy policy; the real problem is that we have too many of them,” he added. Randy Rischard is vice president, data and analysis, for Energy Central, parent of EnergyBiz. energybiz.com E N E RGYB I Z 25

THE TRANSMISSION REVOLUTION

The Chairmen Weigh In ASSESSING IN V ESTMENT AND TR ANSMISSION LE ADERSHIP What will be the biggest impact of the huge transmission investments now under way? The first question to be answered is whether or not the capital spend actually occurs. Having spent the last decade on the corporate side of the energy space, I can tell you there are many challenges. The second question is, where will the proposed transmissions projects be located? Finding ways to reduce costs and deliver more energy more efficiently should lead the way to a more reliable system that can actually transport all forms (existing and alternative/renewable) of electricity to the marketplace and benefit all consumers. We must find a way in America to build new and more efficient/reliable transmissions systems. CURT HEBERT JR.

Although transmission investment has returned to historical levels, the drought isn’t necessarily over. However, assuming (this is not a given) that the United States will make investments sufficient to meet the reliability, economic development, market competition, security and clean energy demands that economists foresee, the outcome will be stable if not lower electricity prices, new homegrown energy businesses and less vulnerability to international energy blackmail. JAMES HOECKER

JOE KELLIHER The huge transmission investments now under way — if made rather than merely planned — should lower grid constraints, improve reliability, lower price differentials and facilitate the transition to a clean energy future. The U.S. electricity supply is changing, and when our electricity supply changes, the grid must change along with it. State energy policy is a driver, as well as federal environmental policy. If these investments continue, we will end up with a grid designed and built to be interstate, delivering multiple benefits — reliability, economic, and public policy — rather than a series of interconnected single-company systems planned primarily for local delivery to native load. 26 E N E RGYB I Z September/October 2011

Unlocking new, more efficient, lower cost generation for broader markets (including those resources needed to fulfill renewable mandates). In most cases, this will impact the regional dispatch curves and may make some incumbents uncomfortable, while pleasing their customers. PAT WOOD

Who would you identify as a key leader in this transformation? Technology is and must be the leader in transmission. Innovators and entrepreneurs have historically helped industry solve problems, while technology has been an honest and efficient way to create winners in markets. CURT HEBERT JR.

JAMES HOECKER There are unquestionably many important policy and regulatory leaders who recognize the need for increased investment in the grid, but I would nominate the capital markets as key. More than $300 billion is needed to strengthen and expand the transmission system over the next 20 years, and this will not be a governmentsponsored program. Capital markets will Former Chairmen lead if complex and overlapping regulation of the Federal and balkanized market models don’t Energy Regulatory muddy the waters. Commission JOE KELLIHER The policy leader has Curt Hebert Jr. 2001 been FERC — federal transmission policy is changing more now than it has James J. Hoecker in the past 75 years. Up to this point, 1997–2001 federal transmission policy has had a Joseph T. Kelliher single organizing principle: open access. 2005–2009 Historically, grid adequacy has not been a Pat Wood federal priority. The policy changes taken 2001-2005 in recent years (Order 890, incentives, and Order 1000) are changing federal policy to make adequacy as important as open access. It is less clear who the business leader is at this point. The ITC and ATC models are attractive, but a number of large utilities have established affiliate transmission companies (AEP, NextEra Energy, Exelon). New entrants are another model, one that may be encouraged by Order 1000. PAT WOOD I may be a little biased, but I think Quanta Services is really plowing the way, building many of these large projects (Tehachope, Sunrise, CREZ, et al.). Having the workforce and the technology is key in these expansions.

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28 E N E RGYB I Z September/October 2011

Oceans of Gas TR ANSFOR MING GENER ATION

BY THOMAS F. ARMISTEAD

NATURAL GAS IS ON A ROLL.

Recoverable resources, together with reserves of gas, are at their

highest level since 1971, according to the U.S. Energy Information Administration. The nearly 237 gigawatts of gas-fired generation capacity added in the United States between 2000 and 2010 represented 81 percent of total generation-capacity additions in that period. Power-sector gas consumption grew 38 percent from summer 2001 to summer 2010, but gas-fired generation increased faster — 44 percent — thanks to increased efficiency in the generation units. Peaking and intermediateload units fueled by gas have steadily contributed more significantly to baseload needs since 2005 as their capacity factors have increased. Gas prices and supply rose after the restrictive provisions of the Fuel Use Act were repealed in 1987, and more efficient combined-cycle technology encouraged greater use of gas for power generation, according to the EIA. But gas prices became highly volatile during the last decade, choking off a boom in gas-fired power plant construction. Since summer 2008, however, gas has competed consistently with coal on price, prompting an unprecedented run of fuel-switching that analysts expect to last until at least 2015. The Interstate Natural Gas Association of America forecasts that natural gas demand for power generation

will grow at a 4.8 percent annual rate between 2010 and 2025, but it will start fast, averaging 5.9 percent until 2015. INGAA projects that gas demand for power will grow from 26 to 40 percent of total gas demand by 2025. The Electric Power Research Institute recently released a report on generation technology options that cites “the profound impact of the shale gas boom on present and future natural gas prices” as one of five trends affecting planning for new power generation. Researchers modeled scenarios to determine the effects of climate policy, environmental regulations that apply to coal plants, energybiz.com E N E RGYB I Z 29

and advances in other technologies to determine the economically most-attractive fuel, said John Hutchinson, senior energy strategist. He said what he found was that “there’s more certainty around gas, associated with capital cost.” Lack of policies on climate change and coal generation make modeling difficult, he said. Technological advances have greatly improved production of shale gas, inflating gas reserves. From 2000 to 2006, shale gas production growth averaged 17 percent per year. Since then, it has averaged 48 percent growth, and it has been “recognized as a ‘game-changer’ for the U.S. natural gas market” in an EIA report. At year-end 2009, about 21 percent of all U.S. natural gas reserves consisted of wet shale gas. But the report also cautions, “There is considerable uncertainty regarding the ultimate size of technically recoverable shale gas and shale oil resources.” The wells, for one thing, are so new that their long-term productivity is untested. Furthermore, in the newer shale plays, production has been confined largely to recognized sweet spots with the highest known production records. Subsequent drilling might reveal that shale gas is not uniformly as productive as it is now thought to be. Two late-June articles in the New York Times questioned the claims of reserves and the commercial feasibility of large-scale production of shale gas, but the EIA and industry leaders responded vigorously. Competing with Coal Fuel-switching began in August 2008 and it has continued to occur almost every month since then. “I would be surprised if it didn’t continue until 2015,” said Skip Horvath, president and CEO of the Natural Gas Supply Association, Washington, D.C. That’s when proposed Environmental Protection Agency rules will come into force and increase gas demand. Gas prices in recent months have fluctuated in a band centered on $4 per million Btu. Supply and prices both are stable for now, and that gives power planners the confidence they require to invest in new capacity, Horvath said. New U.S. gas-fired generation capacity is growing far faster than coal capacity, while older coal plants are being retired

30 E N E RGYB I Z September/October 2011

at an increasing rate. The NGSA anticipates that this trend will continue, driven by the combination of pending EPA regulations and “very competitive new gas-fired generation.” The NGSA’s projections for 2011 and 2012 show large quantities of new coal capacity, but those may well be the last for a while. There will be no coal new-builds beyond what is now under construction or permitted, said Stephen L. Thumb, principal with Energy Ventures Analysis, Rosslyn, Va. “The economics are just hands-down,” he said. “It’s not even a contest anymore.” The financial community won’t put up money for new coal capacity until questions of carbon regulation have been answered, Thumb added. The eventual result of these trends is startling. Coal, which has long fueled half of the power generation in the United States, will slip to 38 percent by 2020 while gas-fired generation rises to 28 percent from 19 percent. Gas supply and demand both are higher, and the transportation infrastructure is largely in place. Shale gas resources are all located in traditional oil provinces, which are well served by pipelines, said Philip Budzik, EIA gas industry analyst. “Building pipelines has not been a significant constraint in this country to date.” In the gas plant construction boom a decade ago, turbine demand outstripped manufacturing capacity, resulting in order backlogs of as much as two years. “Customer inquiries are up dramatically,” said Jim Donohue, GE’s manager of heavy-duty gas turbine marketing, but he said there is no need yet for adding capacity to meet a surge in demand. Siemens Energy is seeing rising demand for gas turbines, and now is expanding a manufacturing plant in Charlotte, N.C. The company will be able to supply 36 to 48 gas turbines per year, said a spokesman.

The economics are just handsdown. It’s not even a contest anymore.

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Leading in Disruptive Times UTILIT Y E X ECUTIV ES DISCUSS M AJOR THR E ATS AHE AD BY MARTIN ROSENBERG

struggle with a full agenda of disruptive threats. The federal government is imposing new emissions guidelines on an extensive fleet of coal-fired generation that the industry has relied on for decades. It is also rewriting the rules of risk management. At the same time, many states are requiring utilities to ramp up deployment of renewable generation resources. New information technologies will provide an avalanche of information about customers and the power system that could revolutionize how business is conducted. New competitive threats lurk. Massive investment in the power grid is being planned. TODAY’S UTILITY LEADERS

EnergyBiz magazine recently sat down with the top leaders of investor-owned utilities at the annual meeting of the Edison Electric Institute. We met with the leaders of public power utilities at the annual meeting of the American Public Power Association. Subsequent to our roundtable discussions, Michael Madison stepped down as chief executive officer but will remain on the Cleco board and Richard Kelly stepped down from his role as chief executive officer and will not remain on the Xcel board. Comments made at the two meetings, edited for style and length, appear below.

MADISON Our growth now is primarily targeted toward the wholesale side of our business, both regulated and unregulated. With our new Madison Unit 3 and the Acadia Power Station, we are now overbuilt in Cleco Power, which gives the company the opportunity to take on new wholesale load. ENERGYBIZ Tom, to what extent has the falloff in sales led to Ameren’s decision to go slow on nuclear power?

Nuclear power was always something we thought was out 10 to 15 years. We definitely are slowing down in our pursuit of that option. VOSS

Xcel has two nuclear power plants. How do we revive the nuclear option in America? ENERGYBIZ

KELLY The nuclear industry will continue to move but at a slower pace for a while as we implement what we have learned from the Fukushima accident.

There is a certain inevitability that this country needs to move ahead with nuclear power. We want to lessen our dependency of foreign oil. You can’t do it all with renewables. RIGBY

How will softening in power demand affect your strategies?

ENERGYBIZ How long will it take for nuclear power to stand on its own without federal loan guarantees?

With the impact of the economic downturn along with the focus on energy efficiency, I’m just not sure that we are ever really going to get back to the level of robust growth that we used to experience in the past.

KELLY It is very difficult to move forward without the federal guarantees. We are years away from a plant coming online that the rest of us will feel comfortable with and say, “Okay, this is not a bet-the-company type of thing.”

HARVEY We don’t envision building new plants just to meet load growth for probably 10 to 15 years.

What is the impact of the huge reserves of domestic shale gas on your operations?

ENERGYBIZ

RIGBY

32 E N E RGYB I Z September/October 2011

ENERGYBIZ

LEADERSHIP ROUNDTABLE

Richard Kelly CEO, Xcel Energy

Thomas Voss CEO, Ameren

William Harvey CEO, Alliant Energy

HARVEY Any planned new generation is going to be natural gas-fueled. The shale gas play is going to transform the industry for the next two decades or longer. VOSS Natural gas right now is a bridge fuel. As some of our aging coal plants come to the end of their life, the natural choice will be to build combined-cycle gas plants for baseload generation. KELLY I agree. But about 30 some states now have a renewable energy standard. If you are trying to achieve an 80 percent reduction in CO2 emissions, you’re not going to make it if natural gas is your fuel. ENERGYBIZ What will be the effect of stricter federal emissions guidelines?

We are hoping to gain a little more time and a little more flexibility because it is going to be very expensive. The cost will go down substantially if you can delay everything for a year. KELLY

ENERGYBIZ What share of existing coal generation will be retired because operating them will no longer be economical, given the new emissions rules?

It is going to be a fairly large percentage, perhaps 20 percent. KELLY

Should the American public be bracing itself for rate increases? ENERGYBIZ

HARVEY There is no question that the industry is going to see considerable uptick in rate-case activity.

The prices are going up and more and more rate cases are coming. MADISON

VOSS In Missouri, we are looking at compliance strategies that involve fuel-switching and have only scrubbed one

Joseph Rigby CEO, Pepco Holdings

Michael Madison CEO, Cleco

plant at this point. That cost about $600 million. Over the next several years, utilities are going to be putting in major scrubbers every couple of years and it is going to have a profound influence on rates. ENERGYBIZ Turning to another major capital expenditure program, Pepco is deploying smart meters in Maryland with the help of $69 million of federal stimulus funds. RIGBY Right. We should have the meters deployed by the end of 2012.

How will that enhance operations and customer relations? ENERGYBIZ

RIGBY What we are proposing with the smart grid is not just information to help our customers use less energy but also to help us operationally to respond to outages and achieve more reliability. We are also putting a lot of equipment beyond the meter just within the distribution system to be able to have the system heal itself. KELLY The last thing you want to do is increase your rates for smart grid. Our smart grid project in Boulder, Colo., cost more than we anticipated and the regulators have limited the amount we can recover. We found that the customers aren’t as excited about it as we are. You can’t get them to change their behaviors because our rates are too low. ENERGYBIZ

What has been Ameren’s experience?

VOSS Our rates are very low and nobody is really interested in shifting their lifestyle to get a discount of, say, $5 a month. We put in automated meter reading probably 10 years ago. We can do outage detection and we can do virtual energybiz.com E N E RGYB I Z 33

disconnects and we can measure system loads on peak days on every transformer. Mike, how did you manage costs and risks associated with your new 660-megawatt Madison 3 power plant project? ENERGYBIZ

We laid out a risk profile that had decision points throughout the process. We showed that a diversified fuel portfolio was better than just a gas portfolio. We mitigated every risk that we had. The first one was construction, and we were able to get a fixed price. The state utility commission allowed us to collect our financing charges during construction. When it came time to negotiate our rates, they gave us a very favorable return and we got rates based on 10.7 percent with the ability to earn up to 11.3 percent without a sharing mechanism. MADISON

ENERGYBIZ

Can you tell us some of your

top risks? Public policy. What happens to the nuclear industry if there is an accident somewhere in the world? We’ve always worried about risk. Every CEO probably that has ever been a CEO has worried about risk, and we all have risk-mitigation plans. We list our top 10 risks every year. We spend a lot of time and effort. KELLY

ENERGYBIZ

Joe, what about Pepco’s list of

risks? The evolution of public policy is probably at the top. For all of us, safety is also at the top. The ability to have productive regulatory outcomes is so essential. RIGBY

The biggest challenge for our industry right now is the environmental regulation. We really need some different compacts with our states on how we go about doing this because it’s just too big. VOSS

HARVEY The transition into the utility of the future — a substantially lower carbon utility infrastructure future — can be breathtaking and terribly disruptive.

Politics bothers me more than anything and worries me more than anything. As cost goes up, there is going to be pressure, political pressure, and that can lead to adversarial relationships. MADISON

You have to believe that the regulators and the politicians are going to do the right thing. It is becoming more and more difficult. RIGBY

34 E N E RGYB I Z September/October 2011

Public Power Confronts Change How will tighter federal emission regulations affect your generation and operations? ENERGYBIZ

As the rules are promulgated today, they’re going to have a very significant impact on the entire fossil fueled fleet. Some units would retire even with the current regulations that are in place. We have never seen so much activity out of the Environmental Protection Agency. Our costs will go up significantly. The industry as a whole needs to always be trying to improve its ability to produce electricity with the least impact it can have on people and the environment. But you can’t promulgate this many rules all at once. CARTER

We don’t believe any of our fleet will have to be retired. We’re watching it, and we’re concerned about what it will mean for us in the long term. TEJEDA

About 30 percent of our portfolio is hydroelectric generation. In the old days, you used to be able to choose, “Do I want to buy power from somebody or do I want to build my own power plant?” And the decision was pretty simple. Today, you’ve got EPA regulations, cyber security and reliability, all at the same time. We’ve just overloaded the plate. STAUFFER

We are concerned about the burden being placed on the coal fleet in the Southeast. You’re just pushing to that tipping point where you’re taking a weak economy and adding a burden to it. JOHNSTON

How has the downturn in electricity sales affected you? ENERGYBIZ

The agriculture-based heartland has actually prospered this entire time. Our energy prices are very low. Large data centers have come in, wanting to use 100 megawatts, and they want to be where power and energy are inexpensive. Right now, demand is pretty stable. We have not seen things pick up a lot because they never dropped off a lot. STAUFFER

How has reliability fared down in hurricane alley? ENERGYBIZ

We’re at the end of a single 138-kilovolt transmission line. We have enough generation now that we can back up that transmission line up to 60 percent. For us, though, reliability means making sure that the channels don’t have boats in them with masts that go higher than our transmission lines. We have to have all of our distribution TEJEDA

LEADERSHIP ROUNDTABLE

Lonnie Carter President & CEO Santee Cooper Moncks Corner, S.C.

Robert Johnston President & CEO MEAG Power Atlanta

lines rated to withstand winds of 150 miles per hour. That means using very large concrete poles. What is your response to concerns about grid cyber security? ENERGYBIZ

JOHNSTON There’s been an awful lot written about cyber security and the threat of it. There are a lot of people who want to spend a huge amount of money on something that we have not necessarily identified. There have been some hackings into some certain systems around the country, but show me an event where we’ve lost systems due to cyber terrorism. I’m not aware of one.

There’s not a utility in this country that does not do everything possible to keep its system reliable, and that would not act on any threat that it understood and had a way to mitigate or eliminate it. Explain the threat to us and we will go work on it. Congress is going to have to decide who in our government is responsible for identifying and communicating those threats to us. CARTER

ENERGYBIZ In addition to focusing on cyber security, the government is forging new guidelines for dealing with risk. STAUFFER We have effectively traded and hedged and have done very sophisticated swaps on the gas side for many years, and have been very successful. We also are very careful that we never have any open-ended commitments. Unfortunately, I think we’re going to get swept up in the frenzy about unmitigated risk taken by people who are financial players and not commodity users. Potentially, the credit requirements that will be imposed on us will limit our ability to manage our business. I’m worried that what happened on Wall Street in a liquidity crisis is going to end up in a credit crisis for small towns, municipalities and villages in the heartland.

Gary Stauffer Executive Director NMPP Energy Lincoln, Neb.

ENERGYBIZ

Lynne Tejeda General Manager & CEO Keys Energy Services Key West, Fla.

How are power markets functioning

today? Capacity is not being built. The incumbents are not encouraged by the market to build because if supply is less than the demand, the price goes up. We see places like New Jersey trying to take action to ensure that capacity is actively installed and added to these markets. These markets have failed to produce the promised benefit to consumers. The APPA has made some suggestions to the Federal Energy Regulatory Commission and others to reform markets, and those suggestions have gone unaddressed. Now what we see is that several states are taking some of the matters into their own hands to ensure that additional capacity gets put into those markets. CARTER

What worries me is what’s just occurred in the forward capacity auction in the PJM Interconnection. It looks like we would not be able to have any right to selfgeneration in the capacity market. Clearly, it needs work. STAUFFER

ENERGYBIZ

What disruptions in your business do

you fear? Hurricanes. You can’t plan for them, and they take away all your ability to plan. TEJEDA

We serve 49 cities throughout the state of Georgia and the most disruptive thing for us is the economic downturn that’s been very uneven across those 49 communities. JOHNSTON

CARTER Regulation without a doubt is the thing that is the most disruptive for our business. STAUFFER The most disruptive situation we’re facing is externally imposed political mandates relative to decision-making on what portfolio we will put together to supply power. energybiz.com E N E RGYB I Z 35

LE A DING IN DISRUPTI V E TIMES

The Reign of Cheap Gas A CON V ERSATION W ITH E X ELON’S JOHN ROW E BY MARTIN ROSENBERG

this spring announced plans to merge, creating a company valued at $52 billion, with 6.6 million customers in Illinois, Maryland and Pennsylvania. John Rowe, currently chairman and chief executive officer of Exelon, will exit after the completion of the merger, which is expected in early 2012. Rowe, 66, is considered one of the industry’s most astute leaders. He recently reflected on his 28-year career and the future of the industry — and nuclear power. Exelon operates the largest nuclear fleet in America. His comments, edited for style and length, follow. EXELON

AND

CONSTELLATION

ENERGY

Several decades ago, many predicted that there would be widespread consolidation of utilities. Why hasn’t that happened? ENERGYBIZ

ROWE It happens in fits and starts. Take a look at New England. Twenty years ago there were 16 investor-owned utilities in New England. That was an extreme case of fragmentation. Now it is an extreme case of how much consolidation has occurred. It has been erratic all through that period. To do a utility merger requires a very special combination of economics and politics, and that just doesn’t happen all the time. ENERGYBIZ What would be an ideal configuration for the industry? ROWE I would probably have a different view than many of my colleagues. I think we would have between five and 10 major transmission and distribution companies and between five and 10 major generation companies. But we’re not going to see anything like that for a very long time. ENERGYBIZ

What would that allow us to accomplish?

It would create institutions that are big enough for the scale of the investments that we are supposed to be ROWE

36 E N E RGYB I Z September/October 2011

doing right now. A decade ago it appeared that most utilities would become competitive on the generation side. Now it appears that that was a temporary aberration. We will see competition rearing its head in more ways. But in every state that is open for competition we see interventions in the market. Most of this industry believes that the rate-based model is back. ENERGYBIZ Will we see as many large generating facilities built in the future, or will there be greater reliance on smaller units?

That depends on natural gas. Gas is queen for a decade, maybe for two. If gas is queen for two decades, you will see more small, distributed generation. ROWE

Some people have talked about smaller nuclear units. Do you think that is possible? ENERGYBIZ

For security reasons, for reasons of popular acceptance, I just don’t think you will see many distributed nuclear plants. ROWE

Coal’s most ardent defenders are in no hurry to build ... in this environment.

ENERGYBIZ What about the future of nuclear in general given what happened in Japan in March?

I am very much at sea. I don’t think the Japanese events will have a major effect on the economics or longevity of the current plants. It is one more thing along with the low gas prices that puts the nuclear renaissance off a decade, maybe two. Southern Company will build two. There may be two or four more built, but I will be very surprised if any others are started in the next five years. ROWE

ENERGYBIZ Will anybody build a nuclear plant without loan guarantees from the federal government? ROWE

I don’t think so.

ENERGYBIZ

Why is that?

ROWE Because they simply cost too much and they are too risky. One utility is proposing a plant and said it would go ahead simply based on regulatory guarantees. Personally, I’d run from that. More to the point, will you see anyone build a merchant nuclear plant? I don’t think so.

ENERGYBIZ

ROWE We like nuclear but can’t build new nuclear at $5 gas. You just can’t. Gas is queen for a decade but sooner or later that runs out. When it does, does new nuclear become inevitable or is it some mix of gas and wind and solar that becomes the new source of generation? None of those things do everything by themselves but together they can be a pretty potent combination.

What are some of the financial risks that you face today? ENERGYBIZ

With new federal emissions restrictions, what is the future of coal-fired generation? ENERGYBIZ

We will see something like 10 to 15 percent of the coal plants disappear. Nearly all of them will be more than 50 years old, and nearly all of them will be unscrubbed. The others will be scrubbed and fixed to comply with regulations. The real issue is will anyone build any new coal plants? Coal’s most ardent defenders are in no hurry to build new ones in this environment.

ROWE Things are different in a very low demand-growth environment. Most of us are looking at demand that doesn’t get back to 2007 levels until 2013 or 2014.

ROWE

ENERGYBIZ Will carbon capture work?

We know how to do it, but I don’t think we’ve done enough of it at scale to know what it costs. ROWE

Do you think the Chinese will teach us how to do it? ENERGYBIZ

ROWE

No. I think they’ll build coal plants without carbon

capture. ENERGYBIZ

Exelon has largely exited coal generation.

ROWE We sold most of our coal generation in 2000. We shut down a couple of our remaining coal plants earlier this year and have a plan to shut down another one because of economics. Cheap gas has amazing effects on the market.

Do you think natural gas is going to be cheaper for 10 years? ENERGYBIZ

I do. I’m not going to say it will be $4 per thousand cubic feet for 10 years, but will it be under $6 for 10 years? I’m afraid so. Exelon would have made a lot more money if it were $7. ROWE

Exelon has plans to build more nuclear

generation.

What would you like to do next? ENERGYBIZ

ROWE I chair a couple of museums and chair a university board and teach history at the charter schools that my wife and I subsidize. January will be 28 years for me. That’s long enough. I’ve had the great privilege of running first a little company and then a medium-sized one and now for the last 14 years a big one, and it is time to do something different. ENERGYBIZ

What is the biggest disruptive threat

at Exelon? The most disruptive threat would be if something drastic came out of Fukushima for American nuclear plants, something that required a fundamental redesign of a plant that is already 40 years old. If solar costs were cut in half again, I think that would be very disruptive. ROWE

The issue is will we be so busy protecting some past investment that we will miss some new opportunity? We are required to look in two directions at once and that is not so easy. ENERGYBIZ

How nimble will utilities have to be?

Utilities all talk about being nimble. None of us are nimble by nature. I mean an elephant can dance, but it’s not ballet. ROWE

energybiz.com E N E RGYB I Z 37

THE STRATEGIC IMPLICATIONS OF IT

CIOs as Leaders TOOLS AND SKILLS GAIN VALUE AT UTILITIES // BY MIKE SMITH WITH THE REALIZATION of the smart grid, utilities are seeing fundamental changes to how their business operates. The operation of a primarily electro-mechanical infrastructure for nearly 100 years is rapidly being replaced by an intelligent digital network that requires different staffing, equipment and business processes. Although the core mission remains the same (keep the lights on at an affordable rate), the means by which the mission is accomplished is undergoing sweeping changes. At the heart of these changes is not only technology for technology’s sake, but also the deployment of technology at the appropriate levels in the right places at the right time to meet the dizzying myriad of technical, regulatory, customer and financial challenges that are the new normal for utilities. In short, technology has become strategic. This relatively new piece of a utility’s strategic puzzle calls for leadership that understands the utility’s business and how technology is deployed to meet the business needs. Enter the chief information officer, or CIO. The relatively new executive role of the CIO has quickly evolved from one that was seen as less than glamorous or even career-ending to become pivotal. The old inside joke was that CIO stood for

“career is over.” There is even a website for this — www.careerisover.com — but joking aside, it has information for CIOs and those who aspire to be a CIO. We spoke with some CIOs who are thought-leaders about how the CIO role has evolved and how it is central to utility strategy. Coincidentally, these CIOs are all part of the Knowledge CIO Summit Advisory Board. You can learn more at www.knowledgesummits.com. 38 E N E RGYB I Z September/October 2011

Dave Harkness is the CIO at Xcel Energy, arguably one of the more progressive utilities in the country, and previously he was CIO at PNM Resources. “A big part of the growing role of utility CIOs is the realization that the people working anywhere and everywhere in the utility simply cannot do their job without IT,” he said. “This is true BUILDING IT INTO from the executive suite CORPORATE to the guys in the field.” STRATEGY Harkness said that Information technology will technology is being revolutionize what utilities can leveraged in new ways, know about their customers and operations. What are the with analytics at or opportunities — and the near the top of the list. roadblocks ahead? Xcel Energy is drilling Listen in on a one-hour deep into customer webcast on these crucial topics featuring IT leaders. analytics with a focus THE WEBCAST WILL BE AT on demand response NOON ET ON SEPTEMBER 15. and meter-to-cash Register for the free webcast at analytics. Although his www.energybiz.com/ITstrategy . organization is looking at grid analytics, Harkness pointed out that the advantage of analytics on the customer side is the opportunity to work with truly enterprisewide data, whereas on the grid side of the house, analytics are still evolving. Wanyonyi Kendrick, CIO at JEA, a municipal electric, water and sewer utility in northeast Florida, raised another interesting point. “Two decades ago, IT was distributed across multiple departments, which made sense at the time,” he said. Kendrick said that as the technologies became more complex and increasingly larger IT-based initiatives were implemented, such as smart metering, IT was often taking the lead, not just playing a supporting role. This, along with a new CEO who was implementing an operational excellence initiative, brought the IT group to prominence at JEA. An additional dynamic is that most CIOs have experience that touches virtually every aspect of how a utility operates. Randy Senn, CIO at SCANA, said that this unique background equips many CIOs to be change agents. Senn worked in a dozen positions at SCANA prior to becoming CIO 10 years ago. “In

addition to being the company’s technology leader, the CIO is truly a change agent in the company,” he said. “I find myself trying to take a lead role in pushing initiatives forward in the company.” In Senn’s case, this has involved working in areas as diverse as Sarbanes-Oxley compliance, being on SCANA’s executive risk management committee and, not surprisingly, taking a lead role in the company’s smart grid posture. Senn said that although technology has a role in these various initiatives, of equal or greater

importance is understanding the organizational implications of these issues in the context of operating a multibillion-dollar business. As utilities build out their smart grid/metering infrastructures, watch as CIOs continue to be at the forefront of driving utilities to complete their mission effectively and cost-efficiently, leading by example in a challenging, changing environment. Mike Smith is a vice president at Energy Central heading up the market practices division.

Transforming the Customer Relationship FACING NEW CHALLENGES FROM MARKETERS // BY MICHAEL GIANUNZIO ELECTRIC UTILITIES NEED TO ADDRESS a new challenge or they may become mediocre, obsolete, servant infrastructure to other customer raiding industries. Electric utilities must change their customer relationship and change customer behavior. Electric consumers have to evolve from passive “so what, the lights come on” consumers to actively become engaged customers who want to use energy wisely. Electric utilities must become consumer coaches as well as power providers; for some customers they must become like personal trainers, motivating them to pick and adhere to individualized energy plans. Multiple customer communication channels must be developed through mobile devices, smart phones, Facebook and Twitter. What used to be a poles, wires and power business is about to become an energy communications-customer relations industry. Telecommunications and Internet providers are poised to sell mobile communication applications promising consumers big savings. They will set up “home energy store fronts” online and go after electric customers with a vengeance. Home solar and wind

generators will be hawked like chamois sales at the state fair, promising consumers that all their electric needs will be taken care of. They can sell back excess power to their utility, making money on generating electricity at home. Legislators and regulators will order utilities to facilitate all this at the utilities’ cost. When asked, many electric utilities today will say defensively, “We have a fine relationship with our customers, thank you.” But they don’t. Most customers cannot identify their electric provider, and they don’t care. The old utility-customer relationship will end. Left unchallenged, electric utilities won’t have direct customers anymore. Internet, media and telecommunications companies will take that relationship. The thousands of electric utilities operating today will be viewed as the old backbone, backwater infrastructure, like roads and water pipes. Utilities will have to be there to fix everything, so marketers can profit. To survive, electric utilities must act now and preempt the invasion of these marketers on their turf or find ways to partner with them. They must be proactive in Congress, state legislatures and regulatory agencies, proving that electric utilities can do all these things being promised and do them better. Michael Gianunzio is chief legislative and regulatory affairs officer for the Sacramento Municipal Utility District. energybiz.com E N E RGYB I Z 39

Natural Gas Working with Renewables HYBRID PLANTS INCH AHEAD // BY WILLIAM OPALKA IN RECENT MONTHS,

the choice for new power generation is either renewables or natural gas. In some limited circumstances the answer could be evolving into: Why not both? It seems like a match made in energy heaven. Take decidedly clean technologies like wind or solar and the in-vogue, cheap and plentiful energy choice of the present, natural gas, and combine them to create a seamlessly operating power plant. The concept has been around for decades, but recent developments worldwide have shown this as an idea whose time has come. Some existing concentrating solar plants use natural gas as a backup, but the new breed of plants is using concentrating solar power as a supplemental fuel source. A few demonstration plants have been either proposed or built worldwide, and one operating hybrid plant in Florida is approaching its first anniversary. And General Electric has broadened its game by expanding a combined cycle plant that integrates solar and wind generation. Florida Power & Light last year started operating its first hybrid energy plant. The Martin Next Generation Solar Energy Center is a natural gas-solar power hybrid. The utility took an existing 3,705-megawatt combinedcycle plant, the largest fossil fuel power plant in the United States, and installed a $476 million 75-megawatt solar plant to supply heat. “It’s just a way to augment what we already have in a heat recovery steam generator,” said John Gnecco, director of project development at FP&L. “Combustion turbines are going to run at full capacity most of the time, and when we get the sun, for free, we’ll actually generate more electricity as a unit than we normally would have done.” And they’ll do it without the emissions. The concentrating solar power system of parabolic troughs uses 190,000 solar thermal tracking mirrors to create heat. And with existing transmission lines, the company was able to leverage infrastructure to keep costs down. “Obviously, it makes this more cost-competitive than if we built a stand-alone 75-megawatt solar thermal plant,” Gnecco said. 40 E N E RGYB I Z September/October 2011

But don’t look for too many plants to copy this exact model. For starters, the solar plant required 500 acres of adjacent land. Ideally, the parabolic troughs would have ringed the turbines instead of being primarily concentrated on one side of the plant. But Martin had enough “head room,” or excess capacity in the combined-cycle plant to efficiently allow a supplemental heat source, in this case, solar. The plant started making solar steam in September 2010 as the first of its four phases was connected, and total operation was achieved last December. FP&L had projected a 23 percent capacity factor or 155,000 megawatt-hours a year on average. “We’re tracking that number pretty well, but we really won’t know until we get a full year or two of operations,” Gnecco said. The marriage of fossil fuels with solar has gotten worldwide attention. A hybrid plant combining 30 megawatts of concentrating solar power with 470 megawatts of natural gas generation in Morocco went online last November. A 150-megawatt natural gas hybrid with 20 megawatts of CSP capacity was commissioned south of Cairo late last year. A recent development in the combined power plant design, with an American twist, has been proposed in Turkey and could be available in the United States in a year or two. The 530-megawatt plant would include 22 megawatts of GE wind turbines and 50 megawatts of CSP technology. GE this spring invested in CSP technology company eSolar, which employs a “power tower” alignment with a steam boiler surrounded by concentric circles of reflective mirrors concentrating sunlight on it. The combination is made possible, GE says, with its new combined cycle technology, which is 61 percent efficient. “This is all about putting together high efficiency, lower fuel costs and the operating flexibility that goes with it,” said Guy DeLeonardo, product manager at GE Energy.

As renewable penetration increases, you need to back that with stable generation ...

Florida Power & Light Company’s Martin Next Generation Solar Energy Center is believed to be the first natural gas-solar power hybrid plant in the United States. // Photo courtesy of Florida Power & Light Company.

“As renewable penetration increases, you need to back that with stable generation that drives the need for operational flexibility.” Intermittent resources like wind and solar ramp up or down during the course of a day, and system integrators often need to balance load with fossil generation. One reason natural gas combined-cycle plants have gained favor is their

ability to start quickly or turn down as more renewable energy is integrated into the grid. “Customers are going that way, that’s the way the market is going, so you have to put the two together,” DeLeonardo said. Unlike the FP&L natural gas generator described earlier, this base plant is not expected to run constantly. It is designed for a high number of starts and stops, perhaps 250 to 300 starts per year, operating for perhaps 4,000 hours a year. “It’s the idea that when the wind’s blowing and the sun’s shining, they will always be ‘on’ but this type of gas plant would be the first in numeric order to start when the renewable resources tail off,” DeLeonardo added. For now, the plant is being marketed in Europe and places that accommodate a 50-hertz line frequency. For the American market, a 60-hertz capability is expected to be available in 2012. With the shale gas boom in the United States and increasing demand for renewable energy, technologies are providing the opportunity to meld intermittent solar and wind power with natural gas.

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Addressing Intermittency MEETING THE RENEWABLE CHALLENGE // BY DANIEL J. FOLEY about a great desire to include renewable energy into the national energy mix, if it weren’t for the issue of intermittency. Mother Nature decides when to make the wind blow or the sun shine. As the CEO of a renewable energy company with more than 500 megawatts of wind and solar installed in North America, I know we only build renewable energy projects in areas with the best wind or solar capabilities within a given market. Although intermittency has become the foremost excuse for utilities to restrict or block the addition of renewable energy resources, intermittency itself is not the immediate issue for utilities. Instead, utilities need to consolidate into more modern and broader markets that diversify management of the intermittency issue and ensure competitive access to the power grid. The nation’s power grid is actually a mesh of smaller grids owned and controlled by several large and small regulatory bodies. Some portions have been organized into markets controlled by relatively large independent market operators, but a patchwork quilt of many smaller utilities controls other portions. Each entity, large or small, is required to control its grid boundaries by matching its generation resources to consumer demand for electricity at all times, day or night. Consumption of electricity is also somewhat intermittent, changing minute by minute, influenced by random events and nature. Think of intermittency as a big rock being thrown into a small pond if you are a small utility. That same intermittency becomes a little pebble being thrown into a big lake or even the ocean if you are a broad, independent market, leveraging the advantages of consolidated grid operating benefits. For the sake of efficiency, some portions of our nation’s mesh of power grids have consolidated and organized to span large geographic areas with centralized operating centers and highly integrated operating protocols. For them, intermittency is diversified and managed across a larger market with a broader set of tools. The wind might not blow in one corner of the region, but maybe the sun is shining in the other corner. Diversifying the region tends to reduce I HEAR A LOT OF TALK

42 E N E RGYB I Z September/October 2011

the effect of or cancel out intermittency, allowing a larger portion of power to come from renewables instead of coal, gas or oil. Although this makes sense for integrating renewable energy, it makes even more sense for driving down the cost of electricity. In 1999, a dozen or so utilities operating grids formed the Midwest Independent System Operator and began consolidating key operating functions, leading to the launch of the Midwest ISO market in 2005. Midwest ISO’s 2010 Value Proposition Report says it demonstrated adjusted total net benefits between $648 million and $874 million for members as a result of efficiencies obtained through consolidation. Interestingly, $34 million to $42 million of those savings are directly related to wind integration. Other markets organized in the United States and other countries issue annual reports that demonstrate that consolidation results in greater day-to-day grid management efficiencies, reductions in overall seasonal and daily reserve requirements and greater grid growth management efficiencies, in turn resulting in annual savings of hundreds of millions, if not billions, of dollars. It’s time we revisited the value proposition for greater consolidation among grid operators as we discuss how to grow renewables within the context of a cleaner environment and energy independence. Federal power agencies are conducting studies to increase their individual utilization of renewables, but there isn’t much talk of consolidating control into independent markets. Consolidation will help establish a modern foundation for a more diverse national energy portfolio. It has the potential to save hundreds of millions, if not billions, of dollars over a broad regional area, and it will more dramatically open up our grid to a cleaner energy future.

Consolidation will help establish a modern foundation for a more diverse national energy portfolio.

Daniel J. Foley is the chief executive officer of ACCIONA Energy North America.

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» TECHNOLOGY FRONTIER Carbon Capture Speeds Up INTERNATIONAL COOPERATION NEEDED // BY SALVATORE SALAMONE WHILE THE URGENCY to reduce carbon dioxide emissions has diminished somewhat in the United States for now due to the current political climate, many other regions of the world have strong reduction mandates in place. At the same time, some states are moving forward with their own initiatives. The bottom line is that a handful of pilot programs in the United States continue to evaluate technologies and the business issues of carbon capture and sequestration. And international efforts are picking up steam. For example, in April, a $1.3 billion commercial-scale carbon capture and sequestration program got under way in Saskatchewan, Canada. The province approved the plans by utility SaskPower to rebuild a coal-fired unit at its Boundary Dam site, capture CO2, and use that CO2 to recover crude oil from nearby oil fields.

The SaskPower Boundary Dam coal plant. // Photo courtesy of SaskPower

The new generating unit at Boundary Dam will have the capacity to generate 110 megawatts of electricity. Dubbed the Boundary Dam Integrated Carbon Capture and Storage Demonstration Project, the goal is to reduce greenhouse gas emissions by about one million tons per year. Cansolv, a wholly owned subsidiary of Shell Global Solutions, will supply the carbon capture process. Hitachi will supply a state-ofthe-art steam turbine, which the company claims is the first in the world designed to fully integrate a coal-fired power plant with carbon capture technology. The carbon capture technology is expected to become operational in 2014. Globally, activity in this area is vibrant. For example, in March, a new $148 million European Union pilot was launched for a power plant in Brindisi, Italy. There, Enel, Italy’s largest electric operator and Europe’s 44 E N E RGYB I Z September/October 2011

second-largest utility, plans to deploy an innovative pilot CCS plant at its Federico II power plant. The pilot plant in Brindisi is the first of its kind in Italy, and one of the first in Europe. It will be able to treat 10,000 cubic meters of exhaust per hour from the Federico II coal plant, separating out 2.5 metric tons of carbon dioxide per hour, up to a maximum of 8,000 metric tons per year. The captured CO2 will be transported to another site where it will be injected and permanently stored underground. The company expects that the pilot will provide useful know-how to support future applications of the technology at other plants, as well as provide information to scale the technology to handle a larger capacity. The design stage of the program has been completed; the plant is expected to be operational next year. Carbon capture and sequestration requires many varied technologies for each of the steps including extracting CO2 from a coal plant’s exhaust, capturing that CO2, transporting it and storing it. And some of the processes are more controversial than others. For example, an issue with underground storage was raised in December. Stanford University geophysicist Mark Zoback noted the technique had the potential for triggering small to moderate-sized earthquakes. His research found that the problem with these quakes is that they might damage the seal of an underground reservoir that has been pumped full of carbon dioxide. Because this is an area that needs extensive research and has global implications, international efforts have been undertaken to try to advance the technology. For example, there is a joint U.S. Department of Energy and European Union effort in Algeria, which has been under way for several years. The pilot at In Salah is an industrial-scale CCS effort tied to gas production. The goal of the project is to store 17 million metric tons of CO2 over the next 20 years. And although the capture part of this effort is different from that to be used on coal plant emissions, the underground storage issues are the same. This would help counter the view that the underground storage technology is not yet proven.

Amazing Flywheels FAST AND RESPONSIVE // BY SALVATORE SALAMONE THIS SUMMER, an innovative 20-megawatt capacity flywheel energy storage plant was officially opened in Stephentown, N.Y. The plant, the largest of its type in service in North America today, will be used by the New York Independent System Operator to help store excess energy when power generated exceeds the load. When load levels increase, the energy can be delivered back to the grid. Beyond acting as a buffer for variable load levels, the flywheels will also help with frequency regulation. In that regard, all of the independent system operators that operate regional grids in the United States keep the electric frequency at 60 hertz. When the supply of electricity exactly matches the demand, grid frequency is held at a stable level. However, when there is a mismatch in supply and load, operators have had to slightly modify power output up and down to balance loads and smooth out frequency differences. Load balancing and frequency regulation are important today, but system operators expect greater challenges in the near future as more electricity is generated from renewable sources. The reason: The variability of wind, hydro, and solar power can lead to imbalances between supply and load levels. “We’ve set a goal of meeting 45 percent of New York’s electricity needs by the year 2015 through a combination of investments in energy efficiency and renewable energy,” said Francis J. Murray Jr., president and CEO, New York State Energy Research and Development Authority. “We know that’s an ambitious target, but [the] flywheel plant is exactly the kind of technology investment we need if we’re going to accomplish this important objective.” That sentiment was echoed by the system operator. “Energy storage systems are critical to our future and it’s great to see pioneering technology bring new solutions to our need,” said Stephen G. Whitley, president and CEO of the New York Independent System Operator. To store energy and regulate frequency, the Stephentown plant uses 200 flywheels from Beacon Power. The cylindrical-shaped flywheels have a rotor that spins to store and deliver energy. To store energy, the flywheel’s motor draws power from the grid and

A 20-megawatt flywheel energy storage plant, designed, built and operated by Beacon Power in Stephentown, N.Y. // Photo courtesy of Beacon Power

accelerates the rotor to a higher speed. When delivering power back to the grid, the inertial energy of the rotor drives a generator. A single flywheel spinning at top speed can deliver 25 kilowatt-hours of energy at a 100-kilowatt power level for 15 minutes. The plant gets its 20-megawatt storage capacity by connecting 200 flywheels in parallel. The flywheels offer some advantages over other previously used frequency regulation technology and methods. For one, the flywheels are more responsive. Power can be throttled up or down in less than four seconds after receiving commands to do so. A second benefit is that the plant should have a longer operating lifetime with lower operating costs. When frequency regulation is done using traditional generators, the changes in power output causes greater wear and tear on equipment. This can increase maintenance costs and shorten equipment lifecycles. Beacon Power claims its flywheels are “built for 20 years of virtually maintenance-free operation.” Additionally, unlike conventional fossil fuel-burning frequency regulation plants, the flywheels do not consume fuel, produce particulates or generate emissions. According to Beacon Power, “this helps make it possible to rapidly permit and site a 20-megawatt flywheel-based plant almost anywhere on the grid relatively close to a transmission line.” energybiz.com E N E RGYB I Z 45

» TECHNOLOGY FRONTIER Gas Turbine Tweaks NEW DESIGNS IMPROVE EFFICIENCY // BY SALVATORE SALAMONE OVER THE LAST 20 YEARS, the use of natural gas to generate electricity has been growing at a higher rate than many other energy sources. That trend is expected to continue as natural gas plants are eyed for a prime role as load balancers as more renewable energy sources are added to electric grids. In recent years, use of natural gas seemed poised for additional growth because of the lower carbon dioxide emissions of power plants versus coal plants. A recent study by the Massachusetts Institute of Technology Energy Initiative noted that there is an abundant supply of natural gas, and taking into account its environmental benefits, natural gas is “one of the most cost-effective means by which to maintain energy supplies while reducing CO2 emissions.” With the current political climate in the United States, capping and controlling carbon dioxide emissions has lost some urgency. So one might think the enthusiasm for the use of natural gas would be blunted. However, that is not the case. With many utilities and systems operators incorporating larger quantities of electricity from renewable sources, natural gas plants are expected to play a larger role in stabilizing or smoothing out the power generation fluctuations. Natural gas plants have some attributes that make them well suited for this role. For example, they can quickly throttle electricity production up and down to meet changing loads. Focusing in on this particular role of complementing renewable generation capacity, General Electric in May announced it had designed a new gas-fired combined-cycle power plant that could start up rapidly and also offered higher efficiencies than traditional

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

46 E N E RGYB I Z September/October 2011

natural gas plants. GE is testing a pilot plant of this design at its facility in Greenville, S.C. According to reports, the new plant can go from shut down to start in less than 30 minutes. Additionally, it can increase electricity generation by 50 megawatts a minute, which the company claims is twice the rate of current plants. One of the key features of the new plant design is more efficient gas and steam turbines. The turbines use technology developed to improve the performance of jet plane turbines. This includes tightly integrated electronic control systems and the use of new materials. For example, the turbines use nickel-based super alloys, which are used in jet aircraft engines. The advantage of using this material is that it can withstand higher temperatures, and this in turn allows the plant to throttle up faster without damaging turbine components. The design improvements result in a plant that will have a baseload fuel efficiency of 61 percent, which is higher than that offered by existing gas combinedcycle power plants. According to GE, the new technology in the new plant could save some power companies $2.6 million a year under typical operating conditions and cut carbon dioxide emissions by more than 12,700 metric tons a year. The current pilot plant offers a power frequency of 50 hertz, which is the frequency used in most parts of the world, but not North America. GE says it will announce a 60-hertz version for the U.S. market at a later date.

Integrating Communications SECURING POWER FROM CYBER THREATS // BY GENE ZIMON AN APRIL 2009 Wall Street Journal story said Chinese and Russian cyberspies penetrated the U.S. electric grid and left behind software programs that could disrupt its operations. As reported in the Journal of Energy Security two months later, security firm IOActive told the Department of Homeland Security that a hacker with a $500 piece of equipment could take over a smart grid’s two-way communications system, disrupt service to homes and businesses and, potentially, cause a blackout. IOActive said it had “created a computer worm that could quickly spread among smart grid devices, many of which use wireless technology to communicate.” The energy act of 2005 gave the Federal Energy Regulatory Commission oversight for the electric system’s security. In 2006, FERC made the North American Electric Reliability Corp. responsible for developing and enforcing security standards. In 2008, NERC issued the Critical Infrastructure Protection standards. The standards’ effect on improving grid security is marginal because what should be protected is unclear. Utilities used a narrow interpretation to identify the critical security perimeter and the assets covered. A January Department of Energy audit found that 81 percent of generation owners and 37 percent of transmission owners did not identify a single critical asset that needed to be protected. The majority of the other transmission owners and load-serving entities limited the perimeter to the primary and backup control centers where SCADA systems are located. The standards cover only a small number of transmission substations and no distribution substations. In addition, the standards’ zero-tolerance audit process led utilities to focus more on strict compliance to procedures instead of minimizing the risk of security breaches. Continued smart grid implementation will exacerbate the nation’s security risk because smart grid

operations systems incorporate information technology management and controls. Historically, the SCADA system would monitor the transmission and distribution network through direct one-way connectivity with substations; however, actions by system operators were largely done manually or by locally managed switches. Utilities had limited ability to monitor network conditions beyond the substations. Distribution automation and smart grid applications monitor and control power quality, voltage, and electric demand and supply at the circuit and even the transformer or edge-device level. Smart applications will execute control through two-way communications using private and public networks, including the Internet. In addition, energy consumers are managing energy consumption, supply and demand response through Internet Protocol gateways that use public communications networks. Increasingly, software applications and communications networks that are not secure will monitor and make real-time changes to the network, opening new threats to powersystem reliability. The energy act of 2007 directed the National Institute of Standards & Technology to develop standards related to the smart grid’s interoperability and cybersecurity. This year, the Government Accountability Office completed an audit of NIST and FERC efforts to develop and implement these standards. Issued in 2010, the initial NIST guidelines are voluntary and FERC has yet to adopt them. Further, the GAO report indicates that EISA has authorized

A hacker with a $500 piece of equipment could take over a smart grid’s two-way communications system ...

energybiz.com E N E RGYB I Z 47

» TECHNOLOGY FRONTIER no clear enforcement mandate. GAO noted “a lack of security features being built into certain smart grid systems.” Traditional power system vendors will need to ensure that their grid optimization applications, networking and smart equipment are designed and deployed in a manner that supports compliance with the NIST and CIP standards. POWER PEAK Given the evolutionary PJM Interconnection state of federal cybersecurity recorded a peak power demand of 158,450 standards, utilities should conmegawatts on the hot sider three actions to improve afternoon of July 21. It serves 58 million transmission and distribution consumers in 13 states. grid security:

» Begin integrating IT with operations technology functions such that all OT systems are managed with the same disciplines as IT systems. » For your grid, develop a risk-based security strategy that not only ensures compliance with existing standards, but that also continually extends the security perimeter to cover all points where electricity power and voltage controls are executed. » Require that all new vendor systems purchased or upgraded comply with applicable NIST, CIP and company security standards. Gene Zimon is president of Edge Advisers and a former CIO of NSTAR and Boston Gas.

Where We Need to Be WHERE WE ARE // BY ANNABELLE LEE THE HOUSE COMMITTEE on Homeland Security asked the Government Accountability Office to assess the extent to which the National Institute of Standards & Technology has developed smart grid cybersecurity guidelines. It asked GAO to evaluate the Federal Energy Regulatory Commission’s approach for adopting and monitoring smart grid cybersecurity and other standards. It further asked GAO to identify challenges associated with smart grid cybersecurity. In January, GAO published “Electricity Grid Modernization: Progress Being Made on Cybersecurity Guidelines, but Key Challenges Remain to be Addressed.” The GAO said that NIST’s August 2010 Interagency Report, “Guidelines for Smart Grid Cyber Security,” was a “positive step.” However, GAO said the document did not address some specific cybersecurity issues such as combined cyber-physical attacks and cryptography. It is not realistic to address all cybersecurity issues prior to implementing the smart grid, given constant changes in technology, threats, and vulnerabilities. 48 E N E RGYB I Z September/October 2011

Also, many issues related to cryptography are not unique to the electricity sector. These include efficient implementations on resource-constrained devices and scalable key management; that is, key management for up to a billion cryptographic keys. These issues apply to control systems that are a part of critical sectors throughout the world. Key management systems must be tailored to address the requirements for specific domains such as distribution, generation and transmission. Cybersecurity and privacy are growing concerns at the Electric Power Research Institute, which has launched a research initiative that seeks to ensure the reliability and integrity of key electric sector assets. The use of standards is important for interoperability and cybersecurity. However, the adoption and imple-

Effectively measuring cybersecurity is a problem for all organizations.

mentation of a standard does not ensure that a smart grid system will be secure, particularly when many standards being assessed by NIST and considered by FERC and state regulators are technical standards with a narrow scope. The Interagency Report includes high-level governance, risk, compliance and technical security countermeasures applicable to all systems within the smart grid. The next steps are to map the various technical standards to the Interagency Report and to provide a how-to guide for the report. The current electric sector regulatory framework includes the federal government, FERC, the North American Electric Reliability Corp., state regulators, municipalities and electric cooperatives. Privacy issues are typically the responsibility of regulators that are not part of the electric sector. It is difficult to coordinate the various regulatory organizations because of the separation of federal and state authorities and the separation of the public and private sector authorities. To begin addressing the overall coordination among the various organizations, the White House proposed legislation to address cybersecurity for the nation’s critical infrastructures, including the electric sector. Many organizations in the electric sector are reluctant to share cybersecurity information. For control systems, the update process can take many months and sometimes years. As more people become aware of the vulnerability, it becomes increasingly difficult to prevent the information from becoming public. To address this issue, DOE awarded a research grant to

establish a private sector information sharing collaboration called the National Electric Sector Cybersecurity Organization. Effectively measuring cybersecurity is a problem for all organizations. If an organization is effective in designing and implementing cybersecurity countermeasures, security compromises such as the installation of malicious malware, the exfiltration of sensitive information and denial of service attacks are less likely to succeed. From a metrics perspective, how can you measure FEDS AND what did not happen? To FUEL CELLS date, effective cybersecuFederal support may soon be cut for rity metrics have not been hydrogen-fueled vehicle developed. Damage estiand fuel-cell technology research, according to a mates for a single breach report in the Columbus, of security vary widely, Ohio Dispatch. Some in Congress may try to ranging from several reverse those cuts. hundred thousand dollars The Obama to several million dollars. administration said that research into batteries What’s needed now are for electric vehicles cybersecurity metrics that seems more promising than fuel-cell research. accurately measure the effect of a security breach. The key challenge of this critical issue is to establish a holistic approach to measuring cybersecurity, rather than focusing on individual breaches. Annabelle Lee is a technical executive at the Electric Power Research Institute. energybiz.com E N E RGYB I Z 49

» TECHNOLOGY FRONTIER Breakthrough Innovation CHANGING THE UTILITY WORLD // BY MARK GRIFFIN POLICYMAKERS AND EXECUTIVES face investment and adoption decisions for myriad innovative solutions. Although each utility may have the spirit to adopt many innovations, it will lack some combination of funding, extensive stakeholder involvement, regulatory commitment and customer acceptance. Some innovations will change the rules of the game, expand value creation to unheard of levels and make early adopters either wealthy or disappointed. When evaluating breakthrough innovations, decision makers must avoid wishful thinking and groupthink. Challenge any evidence of hype. Push your team and advisors to avoid “must have” attitudes that make for regrettable investments and management vacancies. Innovative ideas have the power to make or break careers. What innovations promise to change the structure of the industry? Which ones will upset regulatory order, shift authority from utility operations to newly empowered customers, and either generate great wealth or fail to return the cost of capital? Here are four innovations to consider.

Water to Energy A breakthrough technique for converting water into electrical energy splits hydrogen from H2O molecules. Using wafer technology with artificial cobalt and phosphate surface skin, researchers have generated electricity from the base energy inherent in a glass of water. The energy captured exceeds the energy expended on the process itself — at least in a lab setting. A joint venture involving MIT and the Tata Group from India made the breakthrough, led by MIT Professor Daniel Nocera. The next step is to further refine the extraction of hydrogen and conversion to electricity on a scale basis. It is hoped that within 10 years a practical micro power station application will result. Tata Group is especially interested in bringing 50 E N E RGYB I Z September/October 2011

electricity to rural areas where communities lack the means for fossil fuel-based power plants. Extracting electrical power from hydrogen and dirty water is not new, but this extraction method is vastly superior to previous attempts. It may scale to a production level sufficiently economical to produce electricity at more attractive prices than the latest market clearing prices. Moreover, the application of a micro turbine solution will bring new peaking unit resources and perhaps baseline unit resources into the energy supply portfolio, thus avoiding certain transmission investments. Converting hydrogen to electricity this way will dramatically change revenue for incumbent generators and new market entrants. It will involve new forms of regulation from transmission scheduling to revenue recognition and cost recovery.

Next-generation Solar Newly developed solar technology promises a fivefold improvement in output yield. The application of a new, super-thin form of solar-capture sheet can harvest more than 90 percent of available light. Prototypes are expected to become available in the next few years. Previous solar panel applications relied on traditional photovoltaic methods of collection. The older methods are sensitive to cloud cover that degrades

collection efficiency. The new technology overcomes some of the weather-related limitations. The versatile solar sheet can be used in products ranging from roofing to children’s toys. For home energy supply, the new thin sheets can be imbedded into roofing shingles for a much better aesthetic appeal.

CoolEarth Inflatable Solar Balloons Solar photovoltaic cells are expensive to operate and maintain. The amount of energy collected is generally proportional to the size and number of capture panels. To compensate, systems use expensive concentrators. CoolEarth of Liverpool, Calif., developed a breakthrough. Instead of aluminum-based concentrators, CoolEarth uses inflatable solar collectors that are 400 times cheaper. The balloon collectors are easy to maintain, repair and replace.

Paint on Solar Photovoltaics Taking solar to a whole new level, a spray or paint made of nano cells captures solar energy from almost any surface. The material applied to each surface has been reformulated to be super-thin, 1/1000th of

the thickness of human hair — in some cases, nearly transparent. Office towers packed with windows can become large energy collection points without losing the priceless views enjoyed by tenants. The National Science Foundation endorsed the development. Universities in the United States and Europe are teaming with private sector businesses to further the development. Each initiative has partners contribute money, staff and expertise to refine the technology. The four breakthrough developments have strategic implications for the direction of utility organizations worldwide. Policymakers should incorporate innovation assessments and environmental scans in their strategic discussions to ensure each business understands the four innovations along with other developments. Forward strategic scans will enable each organization to plan how, when and under what circumstances each innovation will be embraced or avoided. Mark Griffin is national practice leader with Tata Consultancy Services.

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energybiz.com E N E RGYB I Z 51

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» INTRODUCING

Lisa Jackson, the administrator of the U.S. Environmental Protection Agency, is flanked by a local Girl Scout troop during a public ceremony in Washington. // Photo courtesy of the U.S. Environmental Protection Agency

Positioning America for a New World Economy LISA JACKSON’S U.S. ENVIRONMENTAL PROTECTION AGENCY // BY MARTIN ROSENBERG LISA JACKSON is a key architect and implementer of Obama administration environmental policy. For some time now she and the U.S. Environmental Protection Agency that she heads have had the undivided attention of the utility world, as she oversees implementation of a new era of regulations for power plant emissions. She recently talked with EnergyBiz. Her comments were edited for length and style.

Your agency will be issuing major rules shaping the future of the power industry.

Do you think coal-powered generation will continue to be a major source of electricity?

What is your best assessment on the number of coal units that will be uneconomical and unable to comply and that will, therefore, close down?

ENERGYBIZ

JACKSON That’s going to depend on business decisions that are being made right now. Coal has economic challenges because other fuels like natural gas are becoming more cost competitive and also because renewable technologies are coming down in price. There is also the issue of clean energy, and the American people are in fundamental agreement that cleaner energy sources are better. 54 E N E RGYB I Z September/October 2011

ENERGYBIZ

The transport rule will be finalized this summer. With the air toxic rule, we just extended the public comment period and stated at the time of the extension that we intend to finalize the rule in mid-November. JACKSON

ENERGYBIZ

Our estimate is that 1 percent of old, inefficient units that have never had controlled emissions would probably elect to close. Others might also, but those become business decisions that may or may not be driven by an individual rule. You have to remember these are the oldest, most inefficient plants out there. JACKSON

What about the transport rule? What impact will that have? ENERGYBIZ

On the transport rule, I don’t think we have an estimate of the number of closures. The transport rule is by far the most beneficial for its cost. It costs about $2.8 billion a year. It will result in $120 billion to $290 billion in annual benefits in 2014 when the rule is in place. JACKSON

We create tens of thousands of short-term jobs when we invest in modernized power plants.

ENERGYBIZ Those benefits are primarily in health cost savings?

That’s right. It’s in terms of premature deaths, heart attacks, emergency department visits, bronchitis cases, aggravated asthma cases, upper and lower respiratory symptoms and also missed work and school days. JACKSON

The industry has some studies that say as much as 50,000 to 60,000 megawatts of coal generation will have to be retired. What is your view of that assessment? ENERGYBIZ

The most important thing to do is ask what assumptions these projections are based on. I have seen study after study that makes projections about what our rules will say before they are out. JACKSON

ENERGYBIZ What is your opinion of so-called clean coal, the promise of capturing carbon and sequestering it?

There are ways to sequester it underground right now to enhance oil recovery. So neither the capture nor the sequestration is technologically impossible. The industry of our country is all about technological innovation working to achieve a higher quality of life. You actually have cleaner air, over 40 years, while our GDP has gone up. The difference is in technological innovation. JACKSON

How do you respond to those critics who say your agency is going beyond its approved role and usurping the policymaking authority of Congress? ENERGYBIZ

JACKSON The Supreme Court, which is the interpreter of the law according to our constitution, confirmed that it is EPA’s job and that EPA has a responsibility

to regulate carbon dioxide pollution just like it regulates other pollution. Critics who somehow question why EPA is doing anything with the carbon dioxide pollution either are skeptics of it in general, or they just don’t like it. I point them to the Supreme Court decision that interprets the Clean Air Act, which is a law of the land. Is your plan right now to stay in the second Obama administration? ENERGYBIZ

JACKSON I haven’t made any announcements about the next term, but certainly I’m here as long as the president wants me and needs me.

If you stay, what would be some of your main objectives in the coming years? ENERGYBIZ

The EPA’s work is to implement the major environmental law of our land. It is my belief still that clean energy is one of those game changers that does have the potential to give us cleaner air and healthier citizens. I would like to do anything that we can do to reduce pollution and encourage industries. Utilities need to stand up and work with us to make sure we have the most modern, most efficient, least polluting energy sector. That is going to strengthen our country and make us a stronger country for my kids and their kids. That is how I think we achieve a strong economy and a strong environment. And that is why I do what I do. JACKSON

What is your view of how responsive the utility sector has been? ENERGYBIZ

JACKSON Well, I think the record is mixed and that is unfortunate. There have been some very good actors, people who have stepped up and seen the rules coming. The air toxic rule, for example, is 20 years in the making. It was the 1990 Clean Air Act revision that called for the EPA to address toxic pollution from power plants. They have stepped up and made the investments. They were doing what the law required. Some got ahead of the curve, maybe because they wanted to be good environmental stewards in their own communities, and they saw it as a good way to ensure a good return for their shareholders. We create tens of thousands of short-term jobs when we invest in modernized power plants. But it also makes us stronger because the country that wins the clean energy race and implements those technologies will, I think, be best positioned in the new world economy.

energybiz.com E N E RGYB I Z 55

» METRICS 28.57%

HOT STOCKS Top power and gas utilities by stock appreciation Southern Union, a recent acquisition target, saw its stock price soar the first half of the year, rising more than 66 percent between Dec. 31 and June 30. That was the steepest rise of any utility stock, according to data compiled by SNL Energy. Almost gaining as much – Central Vermont Public Service. Other shares rising significantly were ONEOK, PNM Resources and Constellation Energy Group.

33.42%

65.37%

PNM Resources 12/31/10 13.02 6/30/11

16.74

ONEOK 55.47

12/31/10 6/30/11

66.81% Southern Union 12/31/10 6/30/11

Central Vermont Public Service 12/31/10 6/30/11

21.86 36.15

74.01

24.07 40.15

23.93% Constellation Energy Group

12/31/10 6/30/11

30.63 37.96 Source: SNL Energy

CUSTOMERS ON ELECTRIC VEHICLES Would they buy an electric vehicle? Almost two-thirds of consumers say they would probably or certainly consider buying an electric vehicle or plug-in hybrid, according to a recent survey by Accenture. The study of more than 7,000 people was conducted in 13 countries. The biggest supporters of EVs are in China, where 96 percent of respondents said they would probably or certainly consider buying an EV in the next three years.

WITHIN 3 YEARS

24%

Certainly

37%

Probably Source: Accenture

56 E N E RGYB I Z September/October 2011

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energybiz.com E N E RGYB I Z 57

» LEGAL ARENA The Fat Stimulus Pipeline SOLAR FOR PET BUSINESSES // BY RUSS CHOMA

[INSIDE]

DEFICITS AND BUDGET A variety of other pet-boarding CUTS are all Washington has places, pet groomers, alpaca farms talked about this summer. The bad news and sundry other animal businesses WASHINGTON for now, particularly for renewables, is are on the list as well. There are pastry Congress won’t be acting on much else, shops, doctor’s offices and quilting like extending the production tax credit or creating shops. And there have even been a number of big a renewable portfolio standard. retailers, including Walmart and Kohl’s, that have The summer of stimulus was two years ago, and collected millions in grants. the program was officially wound down last year. But For some of these places, renewable energy might don’t be fooled — money is still flowing from that tap. make some degree of sense, but none are businesses One of the biggest and most prolific stimulus that stake their primary mission on renewables. For programs has been the Section 1603 grant program, them to enter the renewables game, the barrier of and of all the original programs, this one is arguably entry to the market must have been lowered. Section more alive than ever. To date, more than $7.8 billion 1603 lowered it for all of these places by at least has been handed out — almost $5 billion more than 30 percent. originally intended — to more than 3,160 applicants. Even more important for the future of renewables The program allows developers of renewable enis that as these grants have burrowed ergy facilities to take a cash grant in lieu of the usual deep down into the market they’ve 30 percent investment tax credit. Originally intended dragged a long tail of supporting infrato be over by the end of 2010, with a final price tag of structure with them. $3 billion, the Section 1603 program got new life with And when you analyze the grants, a one-year extension. With several months to go, the you see pockets of activity where those program is still doling out money at a furious clip. experienced workers and supply chains Officially touted by the administration as a megaare hardening into a permanent fixture. job creator, it was viewed privately as a great way to For instance, within 50 miles of York, funnel liquidity into a renewables industry suffering in Pa., there are dozens of recipients such the fall of 2008. The primary beneficiary, and the one as bologna manufacturers, steel fabricamost in need of cash injections, was the wind industry. tors, heating oil companies and chemiMore than $6 billion from the program, 77 percent, cal plants. The common thread among many of these has gone to just 133 large wind farms. recipients is that they have one or two relatively new But while most of the funds available under Section companies that cater specifically to the financing and 1603 went to large wind installations — the kind that installation of small renewable systems. By the time the take up a lot of real estate and capital — the list of Section 1603 program officially gives its last dollar — recipients shows the program had a much broader probably some time in late 2012 — these companies and deeper reach than some big cash handouts to will have had years of experience and business. the wind industry. The vast majority of projects — more Section 1603 continues to give money, and new than 3,000 of them — went to small businesses. patterns are continuing to develop. Of the 16 fuel cell Included on the list are hundreds of unexpected projects on the list, eight have received their money recipients. Pet-related businesses, for instance, are this year, including several Bloom Energy fuel cells. In well-represented. Places like DogBoy’s Dog Ranch, the month of June alone, $482.5 million was given to a dog-boarding facility in Austin, Texas, which got 254 recipients — a pace in line with the previous five a $23,948 grant for solar panels, or Pet Tender’s months. It isn’t hard to imagine that the final tally for Country Boarding Cattery, a cat-boarding place in this program might be north of $10 billion. rural Missouri, which received nearly $5,000 for a While Washington talks about getting thin, the solar-thermal setup. stimulus stays fat.

The program is still doling out money at a furious clip.

58 E N E RGYB I Z September/October 2011

The Clash THE STAMP OF POLITICS AND REGULATION ON ENERGY POLICY // BY DARRELL DELAMAIDE

[INSIDE]

IN THE MIDST of the polarizing pending regulations could seriously debate in Washington over the impact energy supply, reliability debt ceiling and the federal deficit this and affordability. WASHINGTON summer, the five members of the Fed“The uncertainties caused by eral Energy Regulatory Commission — international events that are well Democratic and Republican appointees alike — unanibeyond the administration’s control are further mously approved a long-awaited order changing the compounded by the unreasonably aggressive way costs can be allocated when new transmission regulatory agenda” of the EPA, the state chief lines are built across several states and regional grids. executives said. The EPA, they said, is pushing The change, which was under discussion for rules with “extremely short and converging compliyears and which came after consideration of hundreds ance deadlines within the next five years, which will of public comments, will enable construction of significantly impact the energy industry, increase new lines to connect renewable energy sources to burdensome costs to consumers, and hurt the population centers and to expand competition in competitiveness of U.S. manufacturers.” electricity with separate operation of power generaBut studies by the Economic Policy Institute, a tion and transmission. Washington, D.C.-based think tank affiliated with the FERC’s bipartisan unanimity on such a contentious labor unions, have found that the actual cost of impleissue is an increasingly rare event in the acrimonious menting the new rules already approved by the EPA political atmosphere reigning in the capital. under the Obama administration would represent less “They were able to come to a decision because than 0.1 percent of U.S. GDP through 2013. Even if they don’t think of themselves as Republicans and all the rules currently proposed by the agency were Democrats but as regulatory professionals,” said Scott adopted, the cost would be only 0.2 to 0.3 percent of Hempling, outgoing executive director of the National GDP by 2020, the EPI studies estimate. Regulatory Research Institute. The benefits in terms of health and worker producHempling said he did not agree with everything tivity would outweigh the costs on a ratio of anywhere in the order but had nothing but praise for the comfrom 4 to 1 to 22 to 1, said Isaac Shapiro, director mission being able to reach a decision. “The country of regulatory policy at the would be amazingly better off if every decision-maker think tank. would be equally willing to take a hit to make a deci“There may be some disEV CHARGING sion in the public interest,” Hempling said. location,” Shapiro acknowlDominion Power has With the presidential campaign kicking into high edged, in implementing received state regulatory permission to set up gear in the next few months ahead of primary season, rules on carbon emissions. a pilot program to test it remains to be seen what impact that contest will “Certain coal plants may consumers’ interest in charging their electric have on the politics of energy regulation. be put out of business, but vehicles at night to get a Most of the political battle is focused not on no utility would be put out lower power rate. FERC but on the Environmental Protection Agency. of business.” The pilot begins Oct. 3. The Democratic administration is using the EPA to The EPI calculates that advance what it sees as necessary restrictions on the implementation of the EPA rules would lead to a emission of greenhouse gases and other pollutants. net creation of jobs. Losses due to higher energy Republican opponents charge that the agency is uncosts would be more than compensated for by new necessarily increasing the cost of energy production jobs in pollution abatement, the think tank found in in a time of economic weakness. a recent study. In March, 20 Republican governors wrote to the The political flack that the EPA is catching is due White House, urging President Barack Obama to to its being portrayed as a “bogeyman” by those who rein in the EPA because of concerns that new and want a smaller role for government, Shapiro said. energybiz.com E N E RGYB I Z 59

» LEGAL ARENA Advocates Face Setback CONSUMERS’ NEEDS GROW // BY JANINE MIGDEN-OSTRANDER THE OFFICE OF THE OHIO CONSUMERS’ COUNSEL, the state utility advocate office, is cutting its operating budget 33 percent this year, followed by a 51.3 percent reduction next year. As a result, the OCC, which is funded by assessments on utility bills totaling $1 per household per year and not through state revenues, will have dramatically fewer resources for protecting utility customers from higher rates and declining consumer safeguards. According to Charlie Aquard, executive director of the National Association of State Utility Consumer Advocates, most agencies such as ours have sustained budget reductions of 5 percent or less, plus travel restrictions. So the large cuts to the OCC’s budget stand alone. Over the last biennium, the OCC saved customers approximately $2 billion in rate increases, much of which benefited commercial and industrial customers. A loss of funding means less staff to intervene in cases and, ultimately, higher rates. However, limited resources notwithstanding, we remain committed to representing the interests of 4.5 million residential utility households and advocating for fair and affordable utility rates. The challenges we face are unique to our state, but are similar to those of utility advocates in 40 other states and the District of Columbia in that they reflect a complex and changing industry landscape. Energy issues are at the forefront of America’s economic challenges. Utilities routinely invest hundreds of millions of dollars to implement new technologies and upgrade equipment. These changes affect the cost and delivery of energy supplies and services. Customers need understandable information about changes in the industry and how those changes will affect their budgets. The OCC and other advocacy agencies have an important role to play in educating consumers about how to manage their energy usage. 60 E N E RGYB I Z September/October 2011

Recent developments have contributed to making the task of evaluating utility costs more complicated. Many utilities are now subject to less regulation than ever, even in their monopoly businesses. A shift has occurred in which, instead of having many smaller, locally owned, regulated utilities, we now see larger multistate entities that are partially regulated and partially competitive. Cross-state mergers have complicated the job of tracking costs for their individual projects. For example, soon all four major electric utilities in Ohio will also operate in other states, increasing competition for operating capital. As the industry changes, utilities are no longer necessarily located in the areas they serve and are dedicating fewer resources to customer service. As a result, many companies have traded a customer-centered business model for a focus on protecting the bottom line for shareholders in an evermore competitive environment. This industry upheaval is taking place at a time when consumers are faced with individual household budgets stretched to the breaking point. In Ohio, one in 10 electric or natural gas customers has been faced with service disconnection during the past year. As of October 2010, the most recent such data available to the OCC, 20 percent of utility customers were behind on their utility payments. The circumstances I have described highlight the need for a strong, independent advocate in each state to not only represent consumers before state regulatory bodies, but also to provide information and outreach, as well as individual assistance. The OCC has been proud to carry out this worthwhile mission for 35 years. As one of its proud founding members, we stand with NASUCA, as well as other state agencies that are similarly involved. We are also proud of our successes, including more than $10 billion in savings in avoided utility costs shared with partners during our 35-year history. And we remain determined to represent the utility consumers of Ohio in this complex and changing environment. Janine Migden-Ostrander is Ohio consumers’ counsel.

What Regulators Learned at Grid School HOW MUCH SMART GRID IS ENOUGH? // BY KENNETH ROSE WE ALL HAVE A FRIEND or relative who has to have the latest gadget. Whatever new i- or e-something becomes available is a must-have item. Well, that’s fine when they’re spending their own money, but when it’s a utility that wants to spend ratepayers’ money, that’s a different story. The Institute of Public Utilities at Michigan State University, in collaboration with MSU’s College of Engineering and Argonne National Laboratory, has been conducting a series of “Grid School” programs on the U.S. electricity grid in general and smart grid in particular. So far, there have been two national Grid Schools held in Richmond, Va., and one in Charleston, S.C. They have been open to the public and private sectors, including economic and environmental regulators. In addition, several more targeted programs have been held for individual state commissions. These Grid School programs are intensive, interdisciplinary, interactive, and above all, objective. The goal is to improve regulatory capacity for grid-related policy development and decision-making at all government levels. Grid School discussions have covered a range of issues. First, although the grid could benefit from some updating, it’s still pretty “smart.” The grid could be made even better and smarter, but let’s recognize the achievement that the physical system performs every day and go from there. The nontechnical parts of the grid have become especially complex over the last 20 years. Restructuring or deregulation of the wholesale power market and some retail markets, increasing complexity of regional transmission organizations, and state and federal

These Grid School programs are intensive, interdisciplinary, interactive ...

mandates have all contributed to a complex web of responsibilities and duties. No matter how shiny and new the technology may be, evaluating investments wisely requires a cost-benefit analysis. The cost side is relatively easier to determine than the benefit side. Which metric should be used to measure benefits? Different projects and components require different measures — kilowatt-hours saved, emissions avoided, operational efficiency measures (reducing duration and frequency of outages), loss of load probability, expected unserved energy. In some cases, constructing an index of several of these components may be the best way to measure benefits. When things go according to plan, that’s great. However, things do sometimes go wrong — especially when dealing with new technologies. Equipment may break down often because of complexity or other unforeseen problems. Equipment may become obsolete much sooner than expected. There may be cost overruns and delays. What if customers don’t want the technology (as has happened in some places with smart meters) or reject it after a trial? What if few retail customers purchase the equipment necessary to fulfill the vision of a “smart” home? These things can and likely will happen to varying degrees, So it’s a good idea to have a plan for what to do if the new technology doesn’t work as expected TVA or is unreliable. CONTAMINATION What we hear about Arsenic and other toxic chemicals have been most of the time are the found in Tennessee marvels of the new techValley Authority groundwater at coal ash nologies and what they sites, according to UPI. could do for us. But just as when deciding whether to buy some new gadget for yourself, there’s no substitute for hardheaded analysis before the purchase so you won’t regret it later. Kenneth Rose is a senior fellow with the Institute of Public Utilities and a lecturer at Ohio State University. energybiz.com E N E RGYB I Z 61

» LEGAL ARENA

Looking upstream at the soon-to-be-removed Glines Canyon Dam spillway and gates in Washington state. // Photo courtesy of Bureau of Reclamation

Feds Poised to Remove Northwest Dam LARGEST DEMOLITION EVER // BY LISA COHN THE U.S. BUREAU OF RECLAMATION this month is expected to begin the largest dam demolition project in the United States — the $324.7 million removal of the Elwha and Glines Canyon Power Plants on the Elwha River in a protected area of the Olympic National Park in Washington State. Environmentalists say the move is a one-of-a-kind opportunity to show scientists and environmentalists what can happen when dams are demolished in a protected river with few roads, no other dams and little pollution or development. “This is a pristine lab that will allow us to study how a river can come back once you take out the dams,” 62 E N E RGYB I Z September/October 2011

said Amy Kober, a spokeswoman for American Rivers in Portland, Ore. She said other dams removed to date have been on rivers that were not protected. Before the dams were built, the Elwha was home to Chinook salmon that weighed up to 100 pounds and that were critical to the Lower Elwha Klallam Tribe, according to American Rivers. Five species of salmon originally swam in 70 miles of spawning habitat, but the dams reduced the habitat to 4.9 miles. What’s more, the dams decimated the salmon runs, cutting salmon numbers from 400,000 to 4,000, the river-protection organization says. That hurt 137 other species that relied on salmon for their diet.

Kober said American Rivers expects to see the river bounce back quickly within three years of the dams’ removal. In addition to salmon, the organization anticipates new vegetation and rapids for paddlers and for wildlife such as eagles, black bear and elk. Within 30 years, 300,000 salmon are expected to spawn in the river, Kober said. The 12-megawatt Elwha Dam started producing power in 1913, and the 16-megawatt Glines Canyon Dam came online 14 years later. They were originally owned by Crown Zellerbach and provided power to the company’s pulp and paper mill. The projects, now owned by the federal government, produced about 19 megawatts annually, said Bob Hamilton, resource management coordinator and activity manager for the Bureau of Reclamation. The Bonneville Power Administration has been responsible for marketing the power. The dam removal is the next phase of a process that began in 1992, when Congress passed the Elwha River Restoration Act, requiring restoration of the river and its runs. Hamilton, who has been assigned to this project since the Act was passed, said it is not uncommon for dam removals to span decades. Before this project, he was assigned to the removal of the Savage Rapids dam on the Rogue River in Oregon. “It took 22 years to do that,” he said. In the Elwha River case, the delays were caused by lack of funding from Congress and delays in completing environmental studies, among other issues, Hamilton said. “Not until 2000 did Congress come up with the money to buy the projects from the owners,” he said.

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Kober added that some politicians held up the dam removal by opposing it. In addition, infrastructure changes were needed before the dams could come out. For example, the city of Port Angeles needed a new water treatment plant before demolition could begin. The city obtains its drinking water from the Elwha and the dam removal will initially affect water quality. Now that demolition is about to start, the biggest challenge is safely removing the dams without releasing too much water down the river, Hamilton said. “We’re trying to minimize damage to existing archeological sites,” he said. A main goal of the project is to restore sacred tribal sites along with salmon for the tribes. This will require additional time and patience, Hamilton said. “It’s hard for people to wrap their minds around how long this takes.” However, as soon as the dams are out, the payoff will be big, Kober said. When dams are removed, people are often surprised at how quickly the rivers are restored, she said. “The lesson we have learned is that the river knows what to do,” she said. “It will find its channel again. Time after time, we see these things happen pretty quickly.”

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» FINAL TAKE Troops to Energy Jobs EMPLOYEES WHO WILL BE RISK AWARE, DISCIPLINED // BY THOMAS F. FARRELL II LEGAL JARGON includes the phrase “prima facie case,” a proposition that argues for itself on first sight. Troops to Energy Jobs — a concerted effort by the utility industry to connect American military veterans with energy jobs — fits the definition. Look at the numbers: A recently tallied jobless rate for veterans comes in at a distressing 30 percent; unemployment benefits to newly discharged servicemembers climbed from $450 million in 2008 to $882 million in 2010. That describes a situation that goes well beyond unacceptable. It is a national disgrace. We must do better by these Americans, who volunteered to defend us at profound risk and personal sacrifice. Troops to Energy Jobs offers the potential for making a significant difference while addressing a growing and pressing challenge faced by the utility sector. The nature of that challenge was outlined in a 2009 study by the Center for Energy Workforce Development, which anticipates that the gas and electric utilities could lose almost 200,000 workers from 2009 to 2014. Some of that loss will occur through attrition, some through retirement. In either case, the potential retirements and attrition present a daunting situation, as they could represent more than one-third of our total workforce. As threatening as the general numbers may look, the specifics — the breakdown by occupation — are even more unsettling. In that same five-year period, from 2009 to 2014, gas and electric utilities could lose 28,000 of 69,000 line workers (41 percent); 21,000 of 43,000 power station and field operators (49 percent); and 15,000 of 34,000 engineers (44 percent). That represents a staggering potential loss of institutional knowledge and technical skill. In response, the Edison Electric Institute, the American Gas Association, and the Nuclear Energy Institute, along with unions and contractors, formed a nonprofit consortium of gas and electric utilities and created the center five 64 E N E RGYB I Z September/October 2011

years ago. The mission is straightforward: “Build the alliances, processes and tools to develop tomorrow’s energy workforce.” At present, we have managed to keep the workforce supply steady, but the prospect of an applicant pool of highly experienced people used to operating and exercising authority under great pressure offers an opportunity too rich to ignore. That applicant pool — namely, the men and women who have served in America’s armed services — are risk-aware, safety-conscious and highly disciplined. It takes little insight to appreciate that the military culture and the utility culture are naturally compatible. And, with 190,000 to 200,000 active-duty personnel separating from the military annually over the next quarter-century, the proposition makes its case on the face of it. A pilot program, undertaken in March by five major utility companies — Dominion, Arizona Public Service, American Electric Power, Pacific Gas & Electric and Southern Company — has provided us with some realworld understanding and helped us to lay out a road map for military personnel to make the transition from uniformed service into energy careers. Our industry will collaborate with the U.S. armed services, identifying what training and skills those leaving the military already have, and what we will have to add on. The key is that the Troops to Energy Jobs effort will be focused and accelerated, tailored to moving these valuable people from harm’s way to the way we power America. In effect, the Troops to Energy Jobs initiative will function much like a bridge, so that we efficiently develop career pathways and make use of the extensive training already acquired by veterans. Dominion, for example, employs about 1,200 veterans across 14 states. Our eyes are wide open. We know the quality of people we will be getting and why this effort makes such good sense — not only for veterans, but also for the cause of keeping the lights on. Thomas F. Farrell II is chairman, president and CEO of Dominion and chairman of the Edison Electric Institute.

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