EnergyBiz JanFeb 2012

VOLUME 9 // ISSUE 1 JANUARY 12 // FEBRUARY 12 energybizmag.com

CARLOS PASCUAL: HILLARY’S ENERGY GUY

PEOPLE // ISSUES // STRATEGY // TECHNOLOGY

OBAMA VS. CONGRESS

SHAPING CALIFORNIA’S SMART GRID

LNG EXPORT TAKING ON CHINA ºº SOLARWORLD’S BRINSER

PAYING FOR NUCLEAR AN E N E RGY C E NTR AL PU B LIC ATION

Funding the Enterprise AS CFOs SE E IT

Only KEMA can put your Smart Grid to the test Embracing a bold, new world of Smart Grid technologies introduces complexity, uncertainty and risk. KEMA applies deep knowledge of the grid, operations and IT to help customers across the globe build their new Smart Grid infrastructure. We’re helping customers understand the complexities of new technologies, while also putting these technologies through the rigors of performance, compliance and interoperability testing in our new, state-of-the art Smart Grid Interoperability Lab…an impartial facility to help you maximize your investments, while minimizing risk.

KEMA has been building relationships in the power and gas industry for decades, while staying on the cutting edge of the technical and business issues you face everyday… there are few challenges our energy experts haven’t already seen and overcome. In short, we speak your language and understand what it takes to help you stay competitive in a growing, competitive market. Before you put your Smart Grid to the test with customers, let KEMA put it to the test with our experts. You’ll be glad you did.

Join us at DistribuTECH, booth 659 to chat with one of our Smart Grid experts, take our Smart Grid test and register to win a FREE Ipad.

Call: 1.781.273.5700 Visit: www.smartgridsherpa.com

www.kema.com

JANUARY/FEBRUARY 2012

18

16

12

56

Features

Departments

12

Funding the Enterprise

4

16

Hillary Clinton’s Energy Strategist

18

Defining the Future of Generation 20 The Coal Option 21 Next Generation Energy

22 Obama vs. Congress 24 The GOP’s Energy Strategy 25 Tax Credits Now

O U R TA K E

Harnessing Disruption

5 Letters E N E R GY B I Z 3 6 0

6 Generating Intelligence A Winning Senate Site BUSINESS EDGE

7 LNG Ready for Export 8 Let’s Go to Sea 9 Assessing the Regulatory Environment T E C H N O LO GY F R O N T I E R

42 The Nanotechnology Revolution 43 On the Fusion Front INTRODUCING

26 CIOs’ Growing Prominence

26 Focusing on Consumers and Aging Workers 28 Aligned With Corporate Vision

46 Taking on China/ SolarWorld’s Gordon Brinser METRICS

49 Smart Meter Deployments Up/ Power Construction Dips LEGAL ARENA

30 Offshore Wind Choppy 32 Promoting an Energy Storage Hub Vol. 9, No. 1. Copyright 2012 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 January/February 2012

52 Shaping California’s Smart Grid 54 Rebranding Solar 55 Rates Rise Before New Nuclear Plants F I N A L TA K E

56 Pylons as Art

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

» OUR TAKE Harnessing Disruption EXECUTIVES WILL PROBE RISKS AND OPPORTUNITIES AS I PUT TOGETHER the content for EnergyBiz, I am privileged to have access to thoughtful, powerful executives, leading government officials and industry experts. We routinely discuss the most pressing long-term issues facing our energy sector.

One overarching theme has emerged from these conversations in recent months, focusing thoughts and concerns that have been bubbling up for years: Disruptive forces are accelerating. Those forces are technological, financial, political and legal.

Energy sales are flat. At the same time, the seemingly unending period of economic downturn has put pressure on governors and state regulators to hold the line on the rates that utilities can charge consumers for every unit of energy sold.

Cross-country transmission lines and a spider network of distribution lines put in place during the post-World War II suburban expansion of America, along with power plants erected to enliven those lines, are old and getting older. According to one study, the electric utility industry will need to invest $1.5 trillion by 2030 in needed infrastructure.

In two decades, utilities will have to raise and spend 1.4 times their current net asset value, which has been built up over decades.

Disruption will come in many guises.

New technologies promise to give consumers unprecedented insights into their own energy use and lead them to alter their behaviors. Will utilities usher in those changes or will new market entrants use them to launch huge, profitable new enterprises?

These are the themes that will be explored in the fourth EnergyBiz Leadership Forum in Washington, March 19—21.

The disruptive forces now buffeting the utility sector are significant and unprecedented. We have transformed our 4 E N E RGYB I Z January/February 2012

conference to deeply consider the disruption through the eyes of talented, diverse executives to better understand what they understand — and what they should know.

Leading chief executive officers will offer their nuanced views of the technological, financial and political forces external to their organizations, and the inner workings of their businesses.

Chief information officers have a seat at the highest level of their corporations. What are they being asked by their executives — and what are they telling them — about the The EnergyBiz long-term costs versus the benLeadership Forum – Harnessing Disruption efits of the hundreds of millions March 19–21 // Washington of dollars of investments waiting www.energybizforum.com to be made? Does it make sense to go all out and become as smart as possible about operations and customers? If not, how smart will be smart enough to thrive? Is it possible insufficient investment will harm the organization?

Chief financial officers will discuss what the financial community believes can and should be done to build the utility of the future. What will be the cost of making needed investments, and when might those costs endanger financial viability in a tough economy?

Risks are magnified in these times of industry transition. There is regulatory risk, commodity risk, risk of embracing the wrong technology or putting in place technology that will soon be outdated. What are chief risk officers telling their companies about how all these risks can be sorted out and prioritized?

The utility executives responsible for monitoring every aspect of how their company touches the customer — what are they saying about harnessing disruption?

The disruption that is facing energy is hugely complex and vital. Understand the emerging strategies for harnessing that disruption and you will seize the future of the utility business.

I hope to see you at the EnergyBiz Leadership Forum as we focus on this important work and dive deeper into the problems and opportunities that lie ahead.

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

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

mrosenberg@energycentral.com 913.385.9909 CHIEF COPY EDITORS Meaghan Alfier,

Don Bishop, Martha Collins SENIOR CONTRIBUTORS

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

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

Jean Micketti, Ken Maness, Todd Hagen, Eric Swanson sales@energycentral.com 800.459.2233 ADVERTISING COORDINATORS

Stephanie Wilson

I read “From Soap to Energy” in the Final Take section of the November/December 2011 issue of EnergyBiz, written by Robert A. McDonald, CEO of Procter & Gamble, with a bit of skepticism. After further consideration I would have to agree with McDonald’s statement, “My advice to the electric industry is to get off the grid and into people’s homes.”

When McDonald talked about developing empathy and connecting with people as people­—not as energy consumers—it struck me that, to date, the electric industry has not accomplished this task as they seek to gain buy-in for the smart grid and its associated components. A large part of the smart grid is geared to the benefit of the industry. However, nowhere in this program are energy consumers looked at with empathy or their lifestyles taken into consideration when applying smart grid technology.

Financing Renewables

america’s nuclear eFForT

CIRCULATION CUSTOMER SERVICE

Cindy Witwer 800.459.2233

Anthony EArlEy

engineering Pg&e’s Turnaround

From soaP To energy

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procter & gamble ceo on getting consumer FrienDly

two regulators Debate renewable stanDarDs

ENERGY CENTRAL

www.energycentral.com PRESIDENT/CEO Steve Drazga CHIEF OPERATING OFFICER Steven D. Solove VICE PRESIDENT, ENERGYBIZ, INTELLIGENT UTILITY Mark Johnson VICE PRESIDENT, DATA & ANALYSIS Randy Rischard VICE PRESIDENT, MARKET PRACTICES Mike Smith DIRECTOR OF MARKETING Sarah W. Frazier DIRECTOR OF SALES, EMPLOYMENT SERVICES Kyle Schnurbusch

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

Gene Jinkens Brush, Colo.

I am an avid reader of EnergyBiz. Your ability to draw on a wide variety of contributors and address a broad cross section of the entire energy industry in a consistently meaningful and engaging manner makes EnergyBiz a must-read for anyone involved in the energy sector.

Nishan Swais Capgemini Canada Toronto

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

The Office of the Ohio Consumers’ Counsel governing board is currently seeking the person it

will appoint as the state official responsible for representing the interests of the state’s 4.5 million residential utility households. The next consumers’ counsel must be a licensed attorney with at least five years of utility-regulating experience at the state or federal level.

Beth Gianforcaro Office of the Ohio Consumers’ Counsel Columbus, Ohio

In response to your article, “Public Power Confronts Change” [September/October], control system cyber incidents are real.

I have documented more than 200 actual control system cyber incidents in electric, water, oil and gas, chemicals, pipelines, mass transit, and manufacturing. An important distinction between IT and control systems is that a control system cyber incident does not have to be malicious to cause devastating impacts. In the United States, there have been four control system cyber incidents that have killed people. Unfortunately, there is minimal control system cyber forensics so most of these incidents were not identified as cyber.

Volume 8 // issue 6 noVember 11 // December 11 energybizmag.com

people // issues // strategy // technology

The FuTure oF Fossil Fuel generaTion

Joe Weiss Applied Control Solutions Cupertino, Calif.

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.

energybiz.com E N E RGYB I Z 5

» ENERGYBIZ 360 A Winning Senate Site GOL D MOUSE W INNER

Generating Intelligence L AUNCH OF POW ER PL A N T SI T E

GenerationHub, a new, online, interactive intelligence service designed for generation executives and decision-makers, is intended to help with owning, building, operating, planning or regulating power generation.

The GenerationHub subscription service offers free hand-picked news content, blogs and a primer along with industry-exclusive intelligence.

Subscribers receive an in-depth database with profiles of all existing generation plants in North America, including a dynamic map and details on the plant and operator.

GenerationHub offers subscribers a growing document library of studies, white papers, and legislative and regulatory documents used for articles, research and analysis. It also includes resources for job seekers.

The service delivers a daily morning news report and a weekly interactive PDF newsletter.

By visiting www.generationhub. com potential subscribers can sign up for a free three-week trial of GenerationHub. Energy Central, publisher of EnergyBiz, offers the service.

Randy Rischard//Energy Central

6 E N E RGYB I Z January/February 2012

For the third consecutive Congress, the Senate Energy and Natural Resources Committee’s bipartisan Web site has been singled out as one of the best on Capitol Hill, receiving a coveted 112th Congress Gold Mouse award.

In an evaluation of all 618 congressional Web sites, the energy committee was the only U.S. Senate committee to win a Gold Mouse. The Congressional Management Foundation, a nonprofit organization that seeks to improve communication between citizens and Congress, grants the awards.

CMF conducted its analysis from June to September in 2011. Reviewers assessed several criteria: usability of the Web site, timeliness of content, breadth and depth of information on issues, constituent services and casework information, promoting accountability to constituents, legislative process information, district/state information, floor proceedings information, availability of diverse forms of content, availability of diverse forms of content channels and social media components.

The Senate’s energy committee is proud of the fact that its Web site is bipartisan — a rarity in Washington. As one of the most active Senate committees, the energy committee stresses the importance of transparency in the legislative process. Hearings are posted online within moments of being noticed, witness lists are uploaded as soon as they are confirmed, testimony is posted as soon as a hearing gavel opens and webcasts are archived after adjournment.

Previews of legislative activities are posted, and summaries of pertinent bills and historical documents such as past comprehensive energy bills are all easily accessed on the Web site.

Stay tuned to www.energy.senate.gov — not just for the most up-to-date information available on the energy committee’s activities, but also for a new look.

Rosemarie Calabro//Senate Energy And Natural Resources Committee

» BUSINESS EDGE LNG Ready for Export SHALE GAS IGNITES CHANGE // BY THOMAS F. ARMISTEAD COMPANIES THAT BUILT TERMINALS to import liquefied natural gas during the past decade watched shale gas development boost supply and restrain prices. Now a handful of them are preparing to profit nicely Cheniere Energy Partners’ recent October announcement of the first sale-and-purchase agreement for liquid natural gas from its Sabine Pass LNG receiving terminal capped a nearly decade-long effort to profit from the trade in supercooled gas. When construction of the terminal in Cameron Parish, La., was completed in mid-2009, it was the largest LNG terminal in the world, with 4 billion cubic feet per day of regasification capacity. By then, however, development of unconventional gas resources had already upset the gas industry’s economics, and Cheniere had obtained a Department of Energy permit to re-export LNG. Cheniere’s Sabine Pass plant is one of three with permits to re-export, and it accounted for 35 percent of all the LNG shipments from the United States in 2010. “Re-exporting is a niche business,” said Andrew Ware, Cheniere spokesman. Cheniere uses Sabine Pass as an arbitrage tool, receiving LNG for which the company has long-term contracts, then storing it and re-exporting it when the price is high in other countries, he said.

Since November 2010, Cheniere and seven counterparties have signed nonbinding memoranda of understanding that the company will now seek to convert into sale-and-purchase agreements, Ware said.

LNG terminals have resorted to re-exporting to earn a return on their investment. “The industry overbuilt gasification facilities” in the early 2000s when gas prices were high and proven U.S. gas reserves were declining, said Stephen L. Thumb, principal, Energy Ventures Analysis, Rosslyn, Va. The rapid development of shale gas since 2004 has knocked the props from under gas prices, making LNG imports uncompetitive. As a result, most LNG terminals have all but shut down. In 2010, only two of 11 U.S. terminals had utilization rates greater than 18 percent. Sabine Pass, at

This is an entirely new model for LNG.

3.1 percent, was higher than six of the remaining nine terminals. Of the plan to liquefy U.S. gas for export, Thumb said, “This is an entirely new model for LNG.” Besides Cheniere, five other companies are applying for export permits. Dominion Gas Transmission has applied to add 1 billion cubic feet a day of liquefaction capacity to its Cove Point LNG terminal in Maryland. Southern Union is seeking a permit for 2 billion cubic feet a day of liquefaction added to its Lake Charles LNG terminal in Louisiana. Freeport LNG Development is planning 1.8 billion cubic feet a day in Texas, and Fort Chicago Energy Partners has announced its intention to construct 1.2 billion cubic feet a day of liquefaction at Jordan Cove LNG terminal in Coos Bay, Ore. As this was being written, Sempra LNG applied for a permit to export 1.7 billion cubic feet a day from its Cameron terminal in Louisiana. Nearly all say their plans call for operation in 2016 or 2017.

Cameron LNG is one of two terminals owned by Sempra LNG, a nonregulated unit of Sempra Energy.

“Sempra LNG has serious interest from significant creditworthy counterparties who want to procure liquefaction services from Cameron LNG on long-term, 20-plus-year tolling arrangements,” said Paty Ortega Mitchell, spokeswoman. Cameron would export its first shipment no later than seven years after the just-submitted application SWISS NUCLEAR is approved.

SHUTDOWN In Oregon, construction The cost of shutting down Switzerland’s of the Jordan Cove terminuclear units is nal has not even begun, 10 percent higher than expected, according to but plans are to build the the Associated Press. liquefaction plant first, Closing down the units by 2034 will including all the parts of cost $22.5 billion. the plant that are common to both importing and exporting LNG. “Many components are identical,” said Bob Braddock, project manager. The plant may be converted to bidirectional operation when the economics of importing LNG justify it, he said. The estimated cost of the terminal and a 234-mile pipeline is $5 billion, with structured financing, he said. energybiz.com E N E RGYB I Z 7

» BUSINESS EDGE How exporting LNG may affect the pipeline network is not clear. “The cost of new natural gas transmission infrastructure needed over the next 25 years is projected to average approximately $5.7 billion per year,” said a June 2011 report from the Interstate Natural Gas Association of America. “Historically, the industry has proven its ability to finance and construct this level of infrastructure. Industry investments in pipeline infrastructure alone equaled or exceeded $8 billion per year in three of the past four years,” it added.

Conversion of a half-dozen LNG terminals to bidirectional operation seems unlikely to contribute

much to the demand for new midstream infrastructure. For one thing, four of the six terminals that have applied for LNG export permits are located in the energy-producing Gulf Coast area and five already have pipelines to transport regasified LNG to the transmission network. They can be modified at a modest cost to operate bidirectionally. Still, the INGAA report included LNG exports on a list of potential “Big Market Movers” that could “create significant changes in the market.” Once all of them enter service, their demand may add upward pressure to gas prices.

Let’s Go To Sea TIME TO BUILD OFFSHORE WIND // BY ROBERT L. MITCHELL A RECENT POLL conducted on behalf of the Atlantic Wind Connection found that over 78 percent of mid-Atlantic residents favored the development of offshore wind power and are willing to pay more on their electric bills for this clean resource. Clearly, a large majority of people wants energy that is actually clean and not just advertised to be clean, and fortunately they recognize they will have to pay more for this investment to achieve a more secure and prosperous future.

Despite the long and painful delays to the Cape Wind project, we have to keep in mind that creating anything new is most likely going to be painfully slow. Wind turbines for electricity production first appeared in 1887 with two professors acting independently in Scotland and Ohio. It is clear that we have to be patient. Over the years, turbines have grown larger, more efficient and more reliable. From 1998 to 2010, the average turbine capacity has increased by 151 percent. This technical evolution has played an essential role in making terrestrial wind energy a ubiquitous and affordable source of clean energy.

8 E N E RGYB I Z January/February 2012

It was not until 1991 that the world’s first offshore wind farm was built off the coast of Denmark with 11 small turbines, each just 450 kilowatts. Twenty short years later, over 3,000 megawatts of offshore wind capacity has been installed. The vast majority of this capacity has been built in European waters, but the China Daily recently reported that China’s National Energy Administration expects that China will increase its offshore wind power installed capacity to 5,000 megawatts by 2015 and 30,000 megawatts by 2020.

Danish turbine manufacturer Vestas will be installing a 7-megawatt offshore turbine in 2013. This giant machine has 80-meter blades. Not to be outdone, GE just recently announced its efforts to develop a 15-megawatt offshore turbine using advanced composites and superconducting technologies that could be a game changer.

Why is this important? Affordability. We will achieve affordable offshore wind energy and the economic development and jobs we need through better technologies, better policies and better execution. Offshore wind is on the path to large scale and cost reduction.

As the turbines become better, improvements will follow in the balance of plant, manufacturing, construction

methods, permitting and other areas. Each improvement will strip cost and risk from these projects.

The sheer scale of these machines is also a good thing for coastal states that want to revive local manufacturing. These machines are expensive to move.

Building large offshore turbines, foundations and other components locally, close to where they will be installed, saves money at the same time it creates jobs. A study by the Virginia Coastal Energy Research Consortium found that “the RUSSIAN NUCLEAR greatest upside opportunity for reducing the SUPPORT cost of offshore wind energy in Virginia is Russia will lend Vietnam $8 billion to build its first to attract major elements of a mid-Atlantic nuclear power plant, offshore wind supply chain to the state.” according to Xinhua.

The two-unit plant The Atlantic Wind Connection is another is expected to be example of the power of innovation applied completed in 2020.

Vietnam plans to build to the challenge of making offshore wind as many as eight units affordable. The project is an offshore, highwith a combined output of 15,000 megawatts voltage, direct-current backbone transmisby 2030. sion line spanning approximately 350 miles from northern New Jersey to southern Virginia. Over a 10-year period, it would efficiently connect up to 7,000 megawatts of offshore wind turbines to the strongest parts of the PJM grid, while at the same time providing a new, high-capacity network reinforcement that makes the grid more robust, reliable and efficient.

Currently, offshore wind farms are connected with single-user point-to-point radial subsea connections to the grid on land. The transmission equipment is

designed to move 100 percent of the potential output from the wind farm, but it sits unused when there is no wind. By contrast, AWC adopts an integrated approach that links several strong points on the landbased grid to multiple offshore farms. This steadies the variable output of wind farms and provides access to conventional generation that can firm up the wind energy. Europe also appears headed in this direction.

According to a report by the House of Commons on a similar offshore European supergrid, “An integrated network for the UK’s offshore wind delivery could provide a 25 percent discount for the UK consumer on the capital cost compared to connecting each offshore wind farm with a dedicated radial connection.”

Integrated offshore grids, advanced turbines, submarine cable factories and the other parts of the value chain that will provide affordable offshore wind energy are costly, long-term investments. It will take strong policy signals to drive these investments. Sustained policies at the state and federal level will provide the long-term demand that will spur investment in U.S. manufacturing and job creation and lower the cost of offshore wind energy. Weak signals discourage investment and place more reliance on imported components. This limits job growth and keeps costs high.

The time is now to get the policy signals clear so that we can build a strong U.S. offshore wind industry.

Robert L. Mitchell is chief executive officer of the Atlantic Wind Connection project.

Assessing the Regulatory Environment THE CHALLENGE OF MAINTAINING CREDIT QUALITY // BY RICHARD W. CORTRIGHT JR. UNDERLYING THE INVESTMENTGRADE CHARACTER of the U.S. investorowned electric utility industry rests the monopolistic structure of the industry and the framework of state rate-setting jurisdiction. These two features propel utilities into a credit stature that few corporate industries enjoy. Indeed, without such an underpinning, the industry would exhibit a credit profile that is more speculative grade in nature. For an industry that is

among the most capital-intensive in the United States, failure to maintain investment grade could have significant upward cost implications.

The most common Standard & Poor’s Rating Services corporate credit rating among electric utilities is BBB, which also tends to be about the average for the industry and is two notches above speculative grade. The ratings for the industry range from a high of AA– (Madison Gas and Electric) to a low of BB (PNM energybiz.com E N E RGYB I Z 9

» BUSINESS EDGE Resources and its two utility subsidiaries). NV Energy, its two utility subsidiaries, and Puget Energy are the only other non-investment-grade electric utility companies, all of which are rated BB+. At the time of the last major utility-led infrastructure build-out period in the 1970s and ’80s, ratings were more typically at the A to AA— levels.

With such profound influence over the creditworthiness of an industry, a state’s regulatory environment is the central credit factor in driving our analysis of utility creditworthiness. But the analysis does not end at the public WIND PACT Scotland and China service commission; rather, it will work together to extends to the state’s judicial promote offshore wind generation, according and legislative realms as well, to Xinhua. which can at times dramatically Scotland aims to develop affect the environment in which up to 10,000 megawatts of offshore wind regulators make decisions. by 2020. The Scots Indeed, there are several and Chinese each seek investment instances in recent years where opportunities. the interference of governors, legislatures and attorneys general has significantly influenced the outcomes of rate-making procedures. Further intervention of this nature is a near certainty as utilities across the country submit an increasing number of rate increase requests to address exceptionally heavy spending requirements. To minimize political intervention as much as possible — which we recognize as a nearimpossibility, particularly with a vulnerable economy and high unemployment — a sustained, collaborative and open working relationship among the principal vested interests will be critical to the execution of corporate, environmental and public policy initiatives.

Utilities are vehicles for all three.

Standard & Poor’s considers regulatory risk as it does any other risk: one that each utility must manage

Gatherings//Business Edge Feb. 1-2

Clean-Tech Investor Summit

Indian Wells, Calif.

Feb. 8-10

Customer Experience Management

San Antonio

March 19-21 EnergyBiz Leadership Forum For more information about these and other events, please visit www.energycentral.com/events.

10 E N E RGYB I Z January/February 2012

Washington

to the best of its ability. We recognize that different jurisdictions represent different degrees and characteristics of risk, but what this implies is that management must adjust its regulatory strategy to meet those unique challenges.

So what is Standard & Poor’s view on the credit-supportive character of the current regulatory environment? We, of course, rate individual utilities, so what is most important to our analysis is the influence of a state commission on the specific utility in question. Having said that, we view most favorably those commissions that establish rates that reasonably reflect the costs incurred by a utility, including a return on equity, and where timely adjustments to these rates are made to recognize changes in costs.

Various legislative actions and regulatory mechanisms that support such an environment include future or adjusted test years, interim rate authority, decoupling structures, and expense riders. By this measure, we believe that public service commissions continue to be reasonably supportive despite frequently lower authorized returns.

Moreover, in some states, such as Michigan, Virginia, Pennsylvania and Illinois, legislatures have enacted very supportive laws that require future test years, time constraints on commission decision making, and even formula rates of return.

Standard & Poor’s recognizes that the real tests lie ahead, when federal environmental mandates and consequent spending requirements are more certain, when state renewable portfolio standards begin to command heightened expenditures in earnest, and when an aging infrastructure reveals its vulnerability in more than anecdotal ways.

Even with the open and collaborative dialogue noted earlier, rapidly increasing consumer resistance to rising bills will test regulatory support for timely and perhaps even full rate recovery, a preference for expense deferrals may develop, and a proclivity for less competitive authorized returns will almost certainly prevail. Such a turn of events would likely result in a shift of our stable outlook on overall U.S. electric utility credit quality to negative.

What is most important to our analysis is the influence of a state commission.

Richard W. Cortright Jr. is managing director of Standard & Poor’s U.S. utilities and infrastructure ratings.

FUNDING THE ENTERPRISE

What’s Top of Mind for CFOs?

BY MARTIN ROSENB ERG

12 E N E RGYB I Z January/February 2012

LEADERSHIP ROUNDTABLE

UTILITIES ARE PREPARING

to make an unprecedented mountain of capital expenditures, yet

sales have been flat in recent recessionary years. Regulators are increasingly concerned about rising rates. And several huge utility merger deals are nearing completion, changing the industry landscape.

Challenges continue to mount for utilities and energy companies as they execute their mission to provide power to their customers.

EnergyBiz magazine recently sat down with chief financial officers to discuss the pressures they and their organizations face in 2012 and beyond. The conversation, edited for length and style, follows.

Where do you see the economy headed and what kind of potential disturbances do you foresee?

cent to 2 percent this year in energy demand, driven mainly by small commercial growth. It’s not a thriving economy, but it’s a growing economy.

We’re located in New Mexico and also Texas where there has been steady load growth and customer growth.

Our issue is on the regulatory front and how we’re challenged with a poor regulatory environment in New Mexico.

Great Plains Energy is headquartered in Kansas City with service territories in western Missouri and eastern Kansas. We have seen a decline in weather-normalized demand this year. However, in our most recent quarter, we actually did see some growth led by the commercial sector, but it is too early to call that a trend. We’re being conservative as we plan the business for 2012, expecting modest load growth. The big wild card I think for everyone is whether we get a surprise coming out of Europe with the banking system that could derail things.

ENERGYBIZ

ENERGYBIZ ROUNDTABLE 2011 Maria Pope PGE Brian Bird Northwestern Energy Charles Eldred PNM Resources Mark McGettrick Dominion Dilek Samil NV Energy Jim Shay Great Plains Energy

We’re in Nevada, a state that was growing by leaps and bounds, 5 percent or 6 percent per year in customer additions. That was nice for revenue growth.

But keeping up with that from a capital perspective was challenging. We’re having a chance to catch our breath and look at the business and evaluate how we’re doing business.

SAMIL

We’re principally in Michigan and parts of Iowa and Minnesota, Kansas and Oklahoma. In Michigan, the auto sector rebound is helping, but it’s going to be a long, slow recovery. Iowa and southern Minnesota have agricultural economies that tend to lag going into recession, and they tend to lag a bit coming out, but they have generally persevered better.

Cameron Bready ITC

Illustration by Patrick Sullivan

ELDRED

BREADY

Dominion operates in 13 states but our principal customer operations are in Virginia and North Carolina. I’m glad I’m in Virginia. We never had negative growth in this recessionary period. We will grow 1.5 perMcGETTRICK

SHAY

POPE Portland General Electric serves an economy going through a transition. We’re probably about 5 percent to 6 percent off of our peak loads of a few years ago. Certain sectors, particularly high technology, are doing very well and others continue to struggle.

BIRD Northwestern Energy is located in Montana, South Dakota and Nebraska. We see a 1 percent to 2 percent growth rate typically.

ENERGYBIZ

Your best economic predictions

for 2012?

ELDRED SAMIL

It will be an improved economy.

If you are asking if a recession is likely, I would

say no.

McGETTRICK

I think it’s going to be flat.

How much of a strain has flattened load growth put on your financial health?

ENERGYBIZ

energybiz.com E N E RGYB I Z 13

LEADERSHIP ROUNDTABLE Brian Bird

It hasn’t really impacted our business much. We have quite a bit of investment we need to do to maintain reliability and that investment continues.

BIRD

We have been extra conscious of how our prices affect our customers’ businesses and have done everything we can to keep prices as low as possible. We’ve made investments to lower our production as well as operations and maintenance costs, and that’s having a positive effect.

POPE

Some estimate that as much as $1.5 trillion of investment will be made by this industry by 2030. How are your companies preparing for outlays ahead?

ENERGYBIZ

We will spend $13.5 billion over the next six years just on growth capital. We also spend about $2 billion a year on maintenance capital expenditures, or a total of $20 billion to $25 billion in a five- or six-year period. We have a significant generation deficit in Virginia and will need to add significant generating capacity over the next decade. We’re in the gas business in the Marcellus and Utica shale region, which is giving us significant growth opportunities in Ohio, West Virginia and Pennsylvania. We’ve also been a very large beneficiary of bonus depreciation that has allowed us to stay out of the equity markets. The very large generation and construction projects we have over the next two years qualify for this benefit, which limits our tax to the federal government.

That allows us to defray financing costs. We are often in the debt markets, but they’ve been very favorable to us. We have no trouble financing our capital needs over the next decade or so.

McGETTRICK

We are about a $2.8 billion rate-based transmission-only utility. Over the next five years we’re investing about $3.9 billion of new capital into our business. So by 2015 we’ll essentially double our size as a transmissiononly utility.

BREADY

ENERGYBIZ

The slow economy has given NV Energy

a breather.

We started the decade short of capacity. We embarked on a strategy of becoming more self-sufficient, SAMIL

14 E N E RGYB I Z January/February 2012

Cameron Bready

Charles Eldred

and that meant building and buying generation. We easily doubled the rate base of the company starting in 2005.

After 2012, we are thankfully looking at a much more manageable, modest capital expansion program. Our challenge now is to harvest what we’ve sown.

ENERGYBIZ Great Plains Energy just finished a major coal generation unit.

SHAY Yes, and we have a $1 billion environmental capital investment plan and that compares to our $5.6 billion rate base. We have a great deal of sensitivity toward managing the customer bill and being efficient in our organization, which is critical as these investments are not really tied to growth. Our capital expenditures in the next few years will be significant, but manageable.

We have seen quite a bit of investment growth over the last few years. A lot of it has been driven by renewable energy standards. We will need to add renewables and transmission. We’ll continue spending on environmental retrofits, particularly around mercury, particulates and other issues.

POPE

BIRD On the distribution front, we’re trying to address aging infrastructure. On the generation front, we are focused on what we need to do to deal with the U.S. Environmental Protection Agency regulations. We are looking at opportunities to grow from a transmission perspective.

ELDRED We have a core investment in infrastructure of more than $1 billion over the next five years. The EPA is attacking one of our coal plants, which may require an additional $400 million of investment. We also have mandated renewable portfolio standards in New Mexico.

Ensuring certainty of regulatory recovery will be crucial, but we also need to work hard at reducing costs to lessen the rate impact to customers.

Proposed emissions rules are changing. What kinds of problems does that create on the financial side?

ENERGYBIZ

It’s a challenging environment. The good news is that we finally are getting some clarity from the EPA. Dominion is well positioned. We started well over a decade ago to install emissions controls on our units.

McGETTRICK

Mark McGettrick

Maria Pope

We’re shutting down a number of facilities because we’re not going to invest the capital. We’re going to replace them with gas facilities. I’ll be happy when the final EPA rules are out on mercury and other emissions in the next few months so we can get some policy stability.

State regulators are particularly concerned about energy costs in a poor economy.

ENERGYBIZ

You have regulators who regulate on ideology.

They don’t regulate on being accountable for what it takes to finance the business and what it takes for shareholders to get a fair return. There are huge gaps between federal policy and state regulators who don’t show utilities how we recover our investments. According to Standard and Poor’s, New Mexico regulation is the lowest rated of anywhere in the country.

ELDRED

SHAY Consistency is important. Regarding the need for rate cases in the future, our role is to strike a balance. We want to maintain a high level of system reliability but also manage the impact on customers’ rates. As a whole, we expect utilities in general to increase the frequency of rate case filings.

ENERGYBIZ What will be the impact of smart grid and smart meters on your operations and rates?

McGETTRICK Our regulators have been extraordinarily cautious on smart meters, and they want to be absolutely sure that the benefits will be realized before you invest — in our case, $600 million to replace meters. Regulators are not against it, but until they really see concrete results, they’re not going to allow us to move ahead. In Virginia, it’s going to be a slow march.

I agree. We’ll probably be taking a slower, more cautious approach.

SHAY

We’ve completed our investment in smart meters.

We’ve invested over $145 million actually in the same meter technology that NV Energy and others are using.

We have achieved about $20 million annually in savings.

It’s really improved our entire operation.

POPE

There’s a fundamental lack of appreciation for how “smart” the transmission grid is today. We haven’t done the best job communicating that.

BREADY

Dilek Samil

Jim Shay

With the smart meters, there’s a big difference between New Mexico and Texas. Texas has incentives and encourages utilities to install smart meters. They want to go to smart meters. New Mexico has no policy.

ELDRED

ENERGYBIZ What will be the impact of the DoddFrank Act on your operations and risk management?

POPE As for Dodd-Frank, it’s just one more set of regulations that we’re dealing with. We are very concerned about what it will mean for the liquidity of the market. In terms of overall risk management, we are looking at how we manage the entire power supply operations area and doing extensive benchmarking with other utilities. We also have a fairly robust enterprise risk management program.

Through enterprise risk management, we’re looking at risk in an entirely new integrated way.

BIRD We also have a very active risk management program. We use an automated system.

Every manager within the company rates and ranks the risks of their business. Those risks go up ultimately to their vice president and their VP looks at and ranks them. We have action plans for how we address or try to mitigate those risks as best we can.

ENERGYBIZ

What tops the list?

BIRD Regulation. We spend a lot of time educating commissioners about our plans and they appreciate that.

ENERGYBIZ How important have the low interest rates of recent years been to your company?

BREADY We are investing significant amounts of capital in our operating companies to improve reliability, so it’s been tremendously helpful.

SAMIL Certainly the low-interest environment has been very helpful in refinancing our existing debt. But the flip side of that is return on equity. We are in the middle of a rate case right now. The challenge has been to convince folks that equity risk premiums have gone up.

BIRD Lower interest rates have certainly hurt pensions.

We’re all looking at that issue.

energybiz.com E N E RGYB I Z 15

Hillary Clinton’s Energy Strategist ELEVATING THE PR IVATE SECTOR’S ROLE

BY MARTIN ROSENBERG AS CARLOS PASCUAL SEES IT,

energy is at the core of America’s power and influence in the world. The Obama administration and Secretary of State Hillary Clinton have tapped Pascual, the former U.S. ambassador to Mexico, to head a significant ramp up of the resources our government dedicates to advance the combined energy and strategic interests of America.

Clinton this fall established a Bureau of Energy Resources in the Department of State to address energy geopolitics, promote alternative and renewable supplies of power and bring EDITOR’S NOTE energy resources to poor This is the first of a twopart interview with Carlos regions of the world sufPascual, special envoy fering from a chronic and coordinator of the lack of energy. new Bureau of Energy Resources in the U.S. State Pascual, 53, sat down Department. Coming in with EnergyBiz in his the March/April issue of Washington office for a EnergyBiz, Part II: America’s Global Energy Objectives. wide-ranging discussion of his mission and the global energy issues confronting America. His responses, edited for style and length, are below.

ENERGYBIZ What are the objectives of the Bureau of Energy Resources and what kind of resources will be devoted to it?

Our objective is to bring enhanced energy security to the United States. That means energy that is affordable, supplies that are available and supplies that are reliable. The resources that we bring to bear are the diplomatic and policy capabilities of the U.S. government. We will work with suppliers of oil and gas on how to maintain market stability. We can play a strong role in policy leadership on how to bring commercially viable models to extend energy and electricity services to the 1.3 billion people in the world who don’t have access to electricity.

PASCUAL

What contributions can the United States make to that effort?

ENERGYBIZ

16 E N E RGYB I Z January/February 2012

PASCUAL It is necessary to identify the kind of policy environment that will attract private capital. The scale of investment that’s needed is on the order of tens of billions of dollars a year. Addressing the problem of energy access for all by 2030 will require a $48 billion a year investment every year through 2030. That is not going to come from development budgets. It’s going to come from the private sector. And what the public sector can do is to work with individual countries on the policy environment that gives investors the confidence to invest their money.

How is the situation in China different from the underdeveloped nations of the world?

ENERGYBIZ

China has already brought electricity to a large share of its population. It’s investing more in renewable energy today than any other country in the world. In 2010, it invested about $49 billion in renewable energy, far exceeding any developing or developed country including the United States. It’s also investing massive sums in modernizing its coal plant infrastructure, and it’s beginning to look at significant investments in gas production. The issue with China is how to ensure that it undertakes investments in ways that have sound regulatory and environmental frameworks. Shale gas is one of the principle areas that we’ve talked to China about because, as we’ve seen here in the United States, it’s a huge resource with tremendous potential. But it has regulatory challenges on a whole range of issues such as the use of fluids, its impact on water and its impact on air emissions.

PASCUAL

They have a carbon capture and sequestration research effort under way that rivals what’s being done in the United States. What is the potential of collaborating with China on energy research?

ENERGYBIZ

There have been collaborative efforts on carbon capture and sequestration. The Department of Energy has had a lead role in that. It had a conference earlier this fall that was partly focused on an exchange of lessons and information on CCS. It’s particularly important to share lessons PASCUAL

and information with other countries that are working in this area, such as Norway and the United Arab Emirates. We all stand to benefit from it because as we look at the fuel mix for the global economy for the next 20 years, fossil fuels under almost any scenario will still make up 70 to 75 percent.

ENERGYBIZ To what extent do you think China is ahead of us technologically in energy?

Are there any initiatives that can link Mexico, Canada and the United States on the energy front?

ENERGYBIZ

Absolutely. One of the issues that we’ve begun discussing with our Canadian and Mexican counterparts is how to develop the most appropriate and effective power interconnections across the three countries. Mexico has strong power generation capacity, lots of hydro power and a strong commitment to introduce more renewable power, particularly solar and wind.

PASCUAL

PASCUAL There’s no doubt that the United States is the most advanced and sophisticated country in energy technologies overall, especially if we include appliances and ENERGYBIZ How closely do you work with efficiency standards. Individual countries have invested in Secretary Clinton? specific areas. China is investPASCUAL Quite closely. I ing a tremendous amount send her weekly notes on the in solar technologies and is work that we’re doing and advancing very quickly. The what some of the big chalUnited States is clearly a lenges are. Some of those leader in wind technologies, are focused on specific issues although others have great or problems and some of capabilities, especially Spain. those are focused on broader Germany has great capabilities trends of market stability. in solar because of the price She has a profound interest differentials that the Germans in these questions. put in for solar power. We have to have as free a trade as ENERGYBIZ If there’s a possible in green technologies, change in administrawhich creates the best opportions in the next electunity for American suppliers tion, do you believe the and developers to sell their work you’ve done will products. We need adequate continue on? protection of intellectual PASCUAL One thing that property. Both issues are impressed me is the consistent Photo courtesy of The Victor Pinchuk Foundation. Photo by Sergei Illin and Olexandr Indydchyi. topics we regularly discuss bipartisan interest in having with our Chinese counterparts, Europeans and others. an effective American energy policy. There is little doubt ENERGYBIZ How does the State Department in the minds of most sophisticated policymakers that our work with other government agencies addressing international energy policy is not a question of bipartithese issues? san dispute. It’s something that is fundamental to our PASCUAL When we can work together and combine the national security, it’s different capabilities that we have, we can achieve better fundamental to our Carlos Pascual will results. Regularly, we try to work with the Department of economic growth, address the EnergyBiz Leadership Forum, Commerce, the Export-Import Bank, the Overseas Private and it’s fundamenMarch 19–21, in Investment Corp., the Trade and Development Agency, the tal to our ability to Washington.

U.S. Agency for International Development and develop- understand and prewww.energybizforum.com ing countries in a way that brings together a complementary dict how the world is set of policies that can support economic growth in other going to change. In the end, energy conveys wealth, and countries and that can create an environment where U.S. wealth conveys power — and it conveys influence regionproducts can compete more effectively. The Department ally and globally. You have to understand those things to be of Energy is an especially important partner because of its able to effectively operate and conduct a foreign policy in a strong research and technical capability. way that serves your national interest. energybiz.com E N E RGYB I Z 17

Defining the Future of Generation ONE W INNER M AY BE NUCLE AR

BY DARRELL DELAMAIDE WHEN GULF POWER IN PENSACOLA, FLA.,

began making plans in 2008 for a new power plant, things looked different than they do now.

“Load projections were much more optimistic than they are today,” said the utility’s public affairs manager, Sandy Sims. “We’ve slowed down our planning.”

But the Southern Company subsidiary has been buying up land about 35 miles north of Pensacola and so far has assembled 2,200 of the 4,000 acres it wants for the new plant, which won’t start construction anytime before 2015.

Between now and then, Gulf Power faces the same decision as most of the nation’s electricity utilities contemplating an expansion of capacity — what type of fuel will the new power generators use?

In a debate that so far has been largely couched as coal versus natural gas, the eventual choice for the new Gulf Power plant may be a third option — nuclear power.

“We’re not thinking in any specific direction,” said Sims.

“The site would afford us the availability of that option.”

It is an option that other utilities may also be taking a closer look at, said Revis James, an analyst at the Electric Power Research Institute in Washington.

While the near-term emphasis in plant construction is on gas and combined cycles, coal is destined to remain part of the mix in the long term, he said, while nuclear will also be used to provide the reliable baseload generation needed in any future scenario.

Coal has the problem of high carbon dioxide emissions, which have led many utilities to delay or abandon plans for new coal-fired generators, even as older plants are shut down or switched to natural gas.

But the promised boom in natural gas from the exploitation of shale gas reserves has its own set of uncertainties.

“Production can’t keep up with demand,” James noted, ticking off the problems with relying too much on natural 18 E N E RGYB I Z January/February 2012

gas as a solution. “There are environmental concerns about hydraulic fracturing,” he said, referring to technology for extracting shale gas.

There is also an issue with siting gas turbines because of the need to build additional pipeline infrastructure to deliver the gas. In the Gulf Power case, for instance, it would require construction of hundreds of miles of new pipeline to connect to existing major pipelines.

“It’s recognized that there is a potential exposure here,” said James. “The question is what do you do to hedge.”

For this reason, most utilities are keeping coal-fired capacity in their planning, pending emission restrictions from the Environmental Protection Agency or any further legislative efforts to limit carbon emissions.

Some are shifting coal-fired plants from baseload use to load following capacity, James said, so that even though the role of coal is gradually diminishing, it will continue to remain high.

Nor have people given up on the prospect of clean coal. The FutureGen project in the United States for carbon capture and storage suffered another setback in November when Ameren announced it was shutting down the coal plant that is supposed to function as a pilot for the technology.

The other partners are now negotiating to lease the plant to continue the project, and James is optimistic that further progress will be made. “We get a lot of money for CCS,” he said. “There are tens of millions going into it every year.”

In the long term, by 2050, according to EPRI’s scenarios, clean coal and nuclear will probably account for 45 percent to 60 percent of U.S. generating capacity, James said.

So, what will Gulf Power do with its new plant? Coal, natural gas, or nuclear?

Nuclear is a viable solution — the most viable solution.

Illustration by Gary Waters

The utility’s parent is actually in the vanguard of building new nuclear capacity. Southern Company has started work on the first new U.S. nuclear power plant in three decades with two new units at Vogtle, its existing nuclear station outside of Wayne, Ga. “In today’s world, we’re the leader in the country in nuclear experience,” said Gulf Power’s Sims. Susan Story, the former CEO of the Pensacola utility, is a nuclear engineer who is now a member of the parent company’s management council.

David Goetsch, an economic development expert at Northwest Florida State College, is an enthusiastic supporter of the nuclear option for the new Gulf Power plant.

“Any kind of fossil fuel is going to present you with some kind of issue,” he said. “Nuclear is a viable solution — the most viable solution.”

While the Chernobyl nuclear accident was a genuine disaster due to Soviet negligence, the biggest U.S. accident, Three Mile Island, resulted in little actual harm, he noted.

“It was a victory, not a disaster,” said Goetsch, since the first layer of protection actually stopped the radiation leak before the other two layers were even needed.

As for the Fukushima incident in Japan, he said it may be impossible to fully shield a nuclear power plant from earthquake damage, and the leakage was in fact quickly contained.

The bottom line for nuclear power in the United States, Goetsch said, is that it can provide power reliably, at low cost, and with virtually no emissions. The public will come to accept nuclear power when it emerges as the best way to achieve these objectives.

“What people want is for that light to go on when they flip the switch and go off when they turn it off,” Goetsch said. “And they don’t want to pay much for it.” energybiz.com E N E RGYB I Z 19

G E N E R AT I O N

The Coal Option A CLE AN ENERGY FUTUR E

BY STEVE MILLER

for new ways to add jobs to the economy, they need to remember the critical role that American coal is already playing in protecting our jobs and helping our economy. Just as the Hippocratic Oath compels doctors to “first, do no harm,” so, too, must our elected and appointed officials ensure that any actions they take will not harm coal and, by extension, our nation’s economy.

It is no accident that coal generates nearly half of our nation’s electricity. It is because coal is affordable, abundant and reliable and is being increasingly used in more environmentally friendly ways. Thanks in large part to investments by the utility industry in clean coal technology during the past 30 years, major air pollutants from coal-fueled power plants traditionally controlled under the Clean Air Act are more than 80 percent lower per kilowatt-hour of electricity generated.

Coal’s ability to serve as a baseload power source means that it provides the electricity needed for millions of American families and businesses, day or night. Coal makes sure that our lights are on, our water is hot, and appliances and computers are working, regardless of whether the sun is shining or the wind is blowing.

Today, coal is directly responsible for more than a halfmillion U.S. jobs, but this is just the beginning. With even broader deployment of clean coal technologies, we can create new jobs that will keep America competitive through lowercost energy in addition to building toward a future of using coal with nearly zero emissions.

A 2010 state-by-state study done for the American Coalition for Clean Coal Electricity by BBC Research and Consulting found that investments in technologies that can capture and safely store carbon dioxide would create or support more than 150,000 skilled, high-wage jobs across at least 30 states. If there was ever a time when we needed affordable, reliable energy and new, well-paying jobs, it is now.

WHILE POLICYMAKERS LOOK

20 E N E RGYB I Z January/February 2012

To make sure that coal can continue to work for America, the industry needs a clear view of the regulatory landscape.

That means federal and state policymakers must ensure that we have both a cleaner environment as well as affordable and reliable electricity.

Over the past few years, the EPA has issued or proposed a cadre of regulations that would result in a substantial decline in the usage of American coal and lead to the premature shutdown of many coal-fueled power plants. A study done for ACCCE by the National Economic Research Associates found that four of the Environmental Protection Agency’s new and proposed regulations would lead to significant increases in the price of electricity and natural gas and result in 183,000 jobs lost per year — that’s an American job lost every three minutes.

Without reliable energy, we are also at risk of disruptions in the many industries that are the backbone of our country’s economy. For example, in addition to the families and small businesses that rely on coal-fueled electricity, the U.S. manufacturing industry relies heavily on coal-fueled electricity for producing American goods. If these industries are faced with increased electricity costs and possible blackouts because of unreasonable regulations on electricity generation, they will be less competitive in the global economy and ultimately that will mean fewer jobs for Americans.

Coal has been America’s fuel for decades — a pillar of our nation’s economy. The path forward for the United States therefore must include greater investments in clean coal technologies to continue our nation’s environmental progress, and implementation of public policies that recognize coal’s key role in supporting American jobs, businesses and families.

Coal is directly responsible for more than a half-million U.S. jobs.

Steve Miller is president and chief executive officer of the American Coalition for Clean Coal Electricity.

Next Generation Energy THE PROMISE OF THE GAS R EVOLUTION

BY DAVE McCURDY

clean foundation fuel for the present and our long-term future. Natural gas touches nearly every segment of American life. It is the dominant source of energy for heat and hot water in residences and businesses across this country. It also cooks our food, dries our clothes, powers industry and generates electricity. The natural gas industry supports the employment of nearly 3 million Americans in all 50 states. There is a tremendous opportunity for consumers and our nation as a whole through greater use of natural gas.

All natural gas, including shale gas, can and should be produced in an environmentally responsible fashion. Our nation possesses a 100-year supply of natural gas. In fact, the United States now has more natural gas than Saudi Arabia has oil, making us the largest producer of natural gas in the world. Advances in technology have led to the cost-effective development of natural gas from shale formations. The result has been a dramatic increase in the amount of domestic natural gas available for the American energy market. Neither the political instability in the Middle East nor last year’s winter of sustained cold and record snowfall significantly affected natural gas prices in the United States, which remained relatively low and stable. We must put this abundant resource to good use.

More than half of the new electric generation capacity expected to be built in the coming decades will burn natural gas. Still, the impact on total natural gas supply will not be detrimental. Most of the new plants will use highly efficient combined-cycle technology, consuming less natural gas to generate electricity than traditional plants. While these highly efficient plants are being added to the system, older, less efficient gas plants will be retired, helping to offset any increase in gas demand from these new units. Even if natural gas use for electricity generation grows at a faster pace than expected, our abundant supply of natural gas can meet that demand.

Despite this abundance, we should still use this resource wisely. The best use of natural gas is directly powering natural gas appliances in America’s homes and businesses, rather than NATURAL GAS IS AMERICA’S DOMESTIC,

burning gas to generate electricity that will power comparable electric appliances. Direct use of natural gas is the cleanest, most efficient and least expensive way to utilize this fuel.

The size of the average American home has increased by more than 50 percent since 1970, yet during that same time period natural gas consumption has gone down by 40 percent per household. This is due to more efficient gas appliances and more efficient homes. In short, the direct use of natural gas is the smarter, cleaner and more efficient choice.

We are only beginning to tap natural gas’s potential. In the transportation sector, natural gas can immediately be put to use across the country to fuel a wide range of transportation options, from fleet and light-duty vehicles to heavy-duty trucking and off-road applications. More than 50 natural gas utilities and producers have joined forces and are working alongside fleet managers and other industry players to further policies for the use of clean, domestic and affordable natural gas as a transportation fuel.

Natural gas is available now to reduce our dependence on foreign oil. Combining abundant supplies of natural gas with the entire energy portfolio of wind, solar and nuclear creates an entirely new playing field for the U.S. economy. Natural gas is a foundation fuel that can help meet the energy needs in all sectors — residential, commercial, industrial, electricity generation, and transportation — cleanly, economically and efficiently.

Dave McCurdy is president and chief executive officer of the American Gas Association. energybiz.com E N E RGYB I Z 21

GOING TO THE MAT

BY RICHARD SCHLESINGER THREE ISSUES ARE LIKELY TO DOMINATE the 2012 election

season and crowd out almost all other concerns: jobs, jobs and jobs. As a result, there’s little chance that anything more than piecemeal energy legislation will be enacted until after the election. And while the public may focus on energy-related headlines such as the high price of gasoline and the pros and cons of drilling for shale gas, politicians up for re-election feel little or no pressure to address longterm energy-policy issues.

The fact that issues at the heart of energy concerns so often involve this year’s most polarizing topics — taxation, regulation, long-term investments, the environment — 22 E N E RGYB I Z January/February 2012

only makes political consensus all the more unlikely.

So, while prospects for sweeping legislation are dim and the possibility of piecemeal regulatory and legislative movement only slightly better, paralysis, with possibly serious consequences on this as on so many fronts, is a distinct possibility.

Like most Washington insiders, Bill Wicker, communications director for the chairman of the U.S. Senate Committee on Energy and Natural Resources, doubts any sweeping energy legislation is possible until after the election. “As far as a big, omnibus energy bill, I don’t think you’ll find anyone in this town who thinks that’s

going to happen. But there are some small energy bills that out of some other program. And there aren’t a lot of have a fairly good chance of getting through.” What Wicker extra dollars lying about Washington these days. Unless means by “small” is legislation dealing with alternative-fuel someone can come up with an extension that is paid vehicles and nuclear energy research, for example. for and can not only pass muster in the Senate, but also A large issue that could fall victim to the bitter fly in the House, it’s hard for me to see how their prospects partisanship that has so far stalled any meaningful efforts for success are good.” to address broad fiscal policy Funding for renewables, never is an extension of the cut in a conservative priority, suffered the qualified dividend tax rate. a serious blow when Solyndra In 2003, the rate was cut to failed. That it was just one of 15 percent for five years; a twoaround 40 companies supported year extension was enacted in by the loan-guarantee program, 2008, and President Barack and that it is to be expected that Obama signed a further twoa certain percentage of startups year extension in 2010. If no are bound to fail, has been totally Photo courtesy of Whitehouse.gov agreement is reached before the eclipsed by the largely partisan election, taxes on dividends would soar to a maximum rate of uproar the failure provoked. Dan Reicher, the executive 39 percent at the end of the year. Thomas Kuhn, president director of the Steyer-Taylor Center for Energy Policy of the Edison Electric Institute, sees that as a looming and Finance at Stanford University and former assistant disaster — a “cliff,” as he puts it — that would devalue secretary for energy efficiency and renewable energy in the utility stocks and seriously raise the cost of capital for one Clinton administration, thinks the debate over the viability of the most capital-intensive industries in the nation. Kuhn of the loan guarantee program could shift attention to an has spearheaded an industry-wide lobbying effort to extend alternative, the Clean Energy Deployment Administration. the policy, but acknowledges that it might depend on CEDA could operate with some independence, he passing fundamental tax reform, and that looks increasingly believes, and it would have a range of investment tools, unlikely. Still, Wicker argues, things including bonding authority, in addition to loans and loan that seem dead in the water often guarantees. Once funded by Congress, it could become come through in the end, and this is self-funded, taking profit stakes in the projects it invests an issue that affects many industries in. Wicker, who acknowledges that CEDA’s prospects have as well as a large constituency been tarnished by Solyndra, thinks it still enjoys broad that depends on dividend income bipartisan, bicameral support. Furthermore, it’s been for retirement. around for a couple of Congresses, so it’s already fairly Continued government support well defined. The administration supports it and Wicker for alternative energy is also up in believes its chances remain fairly good. the air. The production tax credits Energy issues still make good sound bites, and will for wind, geothermal, hydropower no doubt remain popular for commercials, speeches and and a couple of other renewables (solar is separate) are set campaign literature. But that’s not to say they will move to expire at the end of 2012. The credit has been extended any legislation through a basically paralyzed Congress. four times since it was first enacted in 1992, but on three Pollution may have some traction, especially in local occasions it was allowed to sunset, which is disastrous for elections, but global warming remains controversial. Half any long-term plans. “There’s a lot of wind in a lot of states,” of Americans do not believe it is a problem, according to notes Wicker, “and they’re blue and red states. Wind enjoys a recent Harris poll. That means that any movement on quite a bit of support in the Senate.” Whether an extension pricing carbon is out of the question at this point. can also pass in the House remains to be seen, but even if it President Obama has distanced himself from the does, it will probably be for just a year or two. legislative dysfunction and focused on regulatory action.

As for extensions of other tax credits, Wicker isn’t Stanford’s Dan Reicher, who advised the president on sanguine. Any new funds Congress allocates must be offset energy issues during his first campaign, believes Obama by equal cuts. “A new allocation needs what’s frequently remains firmly committed to pushing an agenda that called a ‘pay-for,’” according to Wicker. “If you’re going focuses on cleaner energy. But regulation itself is a hotto enact legislation the Congressional Budget Office button issue, and how much can be accomplished through scores at $8 billion, you’re going to have to cut $8 billion limited regulatory action remains to be seen.

There aren’t a lot of extra dollars lying about Washington these days.

energybiz.com E N E RGYB I Z 23

OBA M A VS. CONGRESS

The GOP’s Energy Strategy A Q&A W ITH R EP. ED W HITFIELD

BY MARTIN ROSENBERG

WHEN REPUBLICATIONS TOOK CONTROL OF CONGRESS

two years ago, their influence over the future of national energy policy increased. The Obama administration subsequently rolled back several regulatory initiatives central to the utility sector. To better understand how House Republicans view the future of energy policy, EnergyBiz submitted questions to Rep. Ed Whitfield, R-Ky., the chairman of the House Subcommittee on Energy and Power. His written responses, edited for style and length, follow.

What is the top energy legislation that Republican members of the House would like to see passed in 2012?

Republicans will be focused on legislation to advance the development of our domestic resources, while also taking up much needed oversight of the energy acts of 2005 and 2007. Another item that is beginning to get some attention is potential legislation to revisit the Clean Air Act. Too many times over the past decade, environmental policy has been set by the courts through litigation between regulators and outside advocacy groups, and we intend for that to end.

What will be the major energy issue in 2012 and beyond?

The major issue in the coming years will not be much different from past years, and that is how we fuel our transportation, manufacturing and electricity sectors, in addition to home and commercial heating requirements. Will we continue to rely too much on foreign supplies of energy, often from countries that don’t like us too much?

Do you see any way forward for the Republicans and Democrats in the House to work together on major energy policy initiatives?

Energy issues have not been partisan issues, traditionally.

Every energy or environment bill we have passed in this Congress has carried the support of several Democrats, so while there has been some obvious policy difference on some issues as well as issues that break along geographical interests, we’ve also had very good bipartisan support for every bill that has come out of the Energy and Power Subcommittee.

What is your view of efforts to extend the renewable energy tax incentive program past its expiration in 2012 for wind projects and 2013 for other projects?

24 E N E RGYB I Z January/February 2012

That’s an issue under the jurisdiction of the Ways and Means Committee, rather than the Energy and Commerce Committee, but I believe it’s time to end these subsidies.

The federal government should not be picking winners and losers among energy providers, especially at a time when we have a $14 trillion debt.

Should the federal government play any role in promoting emerging new energy technologies through subsidies?

The federal government can play a role in helping new technologies get up and running through mechanisms other than tax incentives or direct subsidies. A more effective approach may be support for large-scale projects that can have the potential for big results, either through a federal partnership or through elimination of barriers that might dissuade private sector investment.

Do you think Congress needs to address the carbon emissions issue?

Congress has spoken to this issue at least three times already, and the answer has been “no” each time. This does not seem to be an issue of priority concern among the American people, many of whom are unsure of the science and some of whom favor controls but not the costs required to implement them. Meanwhile, there are lowcost or even no-cost steps that might be taken to reduce carbon emissions, such as promoting energy efficiency or removing disincentives for the modernization of existing power plants.

Other issues?

I want to continue to examine what we can do by way of federal policy to assure that we have a sufficient and reliable source of electricity generation, and the infrastructure to reliably deliver it at a fair cost to consumers. We need to modernize and enhance the security of our electricity grid. We have vast oil and gas reserves that are becoming available to us through new technology that can address environmental concerns of the past, and we need to nurture that development and be sure we are responsible in our use of it.

Tax Credits Now THE ARGUMENT FOR R ENEWABLE TA X INCENTIV ES

BY REP. EARL BLUMENAUER

is critical to American businesses, consumers, our national security and our environment. Investing in our budding clean energy businesses is vitally important for the American economy because it creates jobs, curbs our dangerous dependence on foreign oil, and creates the market certainty that fuels continued growth in the renewable energy sector.

Federal energy tax incentives are the primary energy policy that ensures the deployment of American wind energy. In addition to providing direct support for wind and other renewable manufacturers, production tax credits help companies leverage millions of dollars in private investment. Unfortunately, despite its track record of success and its importance to our economy, without congressional action the production tax credit is scheduled to expire at the end of next year.

It is critically important that Congress act on this extension now. Wind-related projects are planned months if not years in advance, and as a result, construction will slow down if the credits are not extended in a timely manner. Worse, some of the benefits of these tax credits to our economy — including job creation and cheaper clean energy that’s made here in America — will be greatly diminished if Congress follows the pattern it has established on other issues this year and pursues a last-minute extension instead.

As business and labor leaders have told us time and time again, it is important to have consistency in policy to support the continued development of wind manufacturing in the United States. When the production tax credit has expired in the past, installations have dropped between 73 and 93 percent, with corresponding job losses. This pattern has needlessly created a boom-bust cycle in one of our country’s most promising industries. As America continues to struggle out of the worst economic recession of our lifetimes, another expiration would cripple growth. Dollar for dollar, tax incentives for renewable energy are creating four times as many jobs as subsidies for oil and gas. A smooth, timely extension of these tax credits will help ensure that these new jobs are created in America, and not China or Europe.

SUPPORT FOR RENEWABLE ENERGY

Since 2005, the wind industry has spurred more than $60 billion in investment. More than 400 facilities across 43 states now manufacture products for the wind energy industry, and U.S. wind turbine manufacturing has grown twelvefold.

Today, 60 percent of the value of a wind turbine is produced here in America, compared with 25 percent prior to 2005.

A surge in technological advances has reduced costs by more than 90 percent since 1980. In the last four years, wind energy has provided 35 percent of all new U.S. power capacity.

According to a study by the Department of Energy, wind energy alone already supports 75,000 jobs across the country today and could create up to 500,000 new American jobs in the next 20 years with adequate policy support. From manufacturing and construction to engineering and development, these family-wage jobs can become part of the American economic comeback story if we can simply provide the necessary help now to make our clean energy industry competitive in the global economy, where other countries already have a head start.

The production tax credit has a long record of bipartisan support in Congress, including from my colleague from the Pacific Northwest, Rep. Dave Reichert of Washington, with whom I have introduced legislation to extend these incentives. The credits are also supported by a wide range of business, labor and environmental interests, as well as dozens of major utilities including Oregon’s own Portland General Electric.

It’s time to extend the Production Tax Credit for Renewable Energy so American know-how can keep producing domestic clean energy and jobs across the country. Even in today’s divisive political climate, clean energy is something that members of both political parties should agree on.

The production tax credit is scheduled to expire at the end of next year.

Rep. Earl Blumenauer, D-Ore., is the former vice-chair of the U.S. House Select Committee on Energy Independence and Global Warming. energybiz.com E N E RGYB I Z 25

CIOs’ GROWING PROMINENCE

Focusing on Consumers TRENDS EXPLORED AT KNOWLEDGE2011 // BY KATE ROWLAND EnergyBiz recently sat down with electric utility chief executive officers gathered in Florida for Knowledge2011 to discuss the issues of most importance to their companies in 2012. Their comments, edited for style and length, follow.

What is the biggest challenge facing the electric utility industry?

ENERGYBIZ

Certainly, an aging workforce is a business issue with us. The big challenge of that is not only that we have a lot of pending retirements in the next few years, but we’ve operated based on the Socratic method in the past, where knowledge was passed on from individual to individual, and we’ve not been particularly good at preparing formal documentation on all of our business processes. So that’s the area that we’re really focused on the most across our organization, developing more formal documentation of our knowledge and putting it into electronic format.

We’re also making sure it’s in a format that can be passed on to others, and we’re starting the process of transitioning that knowledge to new individuals.

As a government agency, we have civil service rules that restrict our ability to prefill positions before the retirements occur. That presents some additional challenges for us with the whole concept of succession planning, which is extremely difficult to do in a government organization because of the rules.

HATRIDGE

HENDERSON I certainly agree that the aging workforce is an issue for us, as well. A third of our employees are eligible to retire in the next five years, and so that’s a concern about how we prepare for that. We’re doing some succession planning there. Security is 26 E N E RGYB I Z January/February 2012

also a big issue. Keeping our system and our customer data secure is very important to us. In addition, our industry has many external agencies concerned about security. The North American Electric Reliability Corp., the Federal Energy Regulatory Commission, the U.S. Department of Homeland Security and the state public utilities commissions are all placing security demands on utilities. I think staying a step ahead of all those security requirements is a worry to our whole industry.

BARRIOS I would agree with both of these. Another issue of ours is the changing consumer expectation.

One of our corporate initiatives is shaving the peak for a 20-by-2020 reduction. But figuring out how to get members to adopt a load management program or demand management, energy management, and what the mechanics of that system are going to look like, is a challenge. With some of this technology, it’s a commitment — a decade-long commitment for the life of that equipment, so we feel that we really have to make the right decision and a prudent investment.

Those are all valid points. I think for us in Ohio, a lot of it has to do with competition from deregulation. It’s been around for years, but it’s just now really heating up, and so we see a lot of switching going on with customers. We also see a lot of confusion being created with customers, as well, and from an IT perspective, that translates into much more of a need to be dynamic around the projects. More so than ever before, we find ourselves switching gears. This makes planning more frequent. We used to be able, around this time of year, to put forth an expected portfolio of projects. And there were always some dynamics involved, but now HOSKINS

LEADERSHIP ROUNDTABLE

it seems like we’re having to revisit that planning more often and do a little bit of a reset or readjust it in a new direction.

So some of that’s not entirely new, but the frequency and the dynamics of it are greater than we’ve seen in the past.

THE EXECUTIVES Leslie Barrios Executive Manager, IT Bluebonnet Electric Cooperative Vic Hatridge Vice President and CIO Nashville Electric Service

technologies, keep them from making mistakes, but be a partner with them.

And so, as a result, we’ve developed a group in IT called business partners, and we put our business analysts there. We’ve got consultants dedicated to each line of business, and that’s been very well received. In order to execute on our strategic plan, there’s usually an IT component there somewhere, so it’s important that we be aligned in the business and be partnering with them to make sure that we’re working on the right things that give the most value.

Everything everybody’s said — except maybe for competition — is Cam Henderson something that’s on our minds. We Vice President, came out of pretty much a lost summer Information Technology with the floods in the Missouri River & CIO Portland General Electric Valley, and it created a big impact on our customer-owners. A lot of David Hoskins cost and our energy went into CIO DPL (parent company of protecting more than $3 billion Dayton Power & Light) HOSKINS I think continuing to strive in assets. Consequently, a lot Steve Schmitz of the things we planned to do to get that seat at the table and to be Division Manager, just didn’t get done. So going out in front of those things during the Information through our portfolio and trying discovery phase of the strategy is critiTechnology Division Omaha Public to figure out what’s not going cally important. We’ve done something Power District to get done versus what is, is similar, and we call ours business challenging. And then there is the EPA, relationship managers, but they are our and the cross-state pollution rules that are coming link to the business. They are essentially our eyes and our way. We are in one of the states that got pulled ears as to what’s going on and making sure that we into that really late in the game. Our major problem is continue to stay involved in those things, and that’s the timing. We’re getting six months to do the same been somewhat effective for us as well. things other utilities have had many years to prepare BARRIOS I think as systems continue to get more for. That makes it extremely expensive and significant. and more integrated, it does become a requirement.

Our customers aren’t used to the rate increases that We’re very integrated, so we have are coming their way due to some of the U.S. Envia group that specializes in OT, and ronmental Protection Agency and flood issues, and a group that specializes in IT, but that’s a big communication opportunity that our team there’s no project where they’re not is spending a lot of time on. both involved. You can’t do it without SCHMITZ

ENERGYBIZ How are information technology and operations technology converging at your company?

both sides. It’s very hard to introduce any new process that’s not going to affect the entire system.

HENDERSON We went through a reorganization/ transformation in IT this past year. As a part of that exercise we interviewed all of our officers and a large group of senior managers, and we asked what their expectations were for IT. The message came through loud and clear that they want IT to be a business partner, that they want IT to be an ally in helping them bring the technology to the table to help solve the business problems and help them assess the

SCHMITZ I think we’ve seen that, as well, where the IT/OT organizations that typically wouldn’t have had to work together, the NERC critical infrastructure program has brought us to the table together, and it’s been a really good relationship. And I see that continuing. Smart grid, for me, is where I see the convergence really happening with IT/OT, and I don’t know exactly what that looks like. I’m not necessarily in a hurry to push that. It’ll happen.

What I’m in a hurry to do, really, is to keep the open relationship.

energybiz.com E N E RGYB I Z 27

CIOs’ GROWING PROMINENCE

Aligned With Corporate Vision OGE ENERGY’S REID NUTTALL // BY KATE ROWLAND REID NUTTALL, vice president of information technology and chief information officer of OGE Energy, received the 2011 CIO of the Year KITE Award at the Knowledge2011 Executive Summit in early November.

The KITE Awards — representing knowledge, innovation, technology and excellence — recognize utility leaders who have moved their companies forward through strategic initiatives, measurable technology efforts and innovative solutions that have delivered business results such as high efficiency, greater production, measurement and profitability.

Nuttall has worked with OGE since early 2006.

As CIO, he is a leader in the transformation of OG&E electric services, allowing the utility and its customers to benefit from new smart grid technologies. In partnership with its customers, OG&E, a subsidiary of OGE, is building the Positive Energy smart grid to improve energy efficiency.

The utility began by installing 6,600 meters in northwest Oklahoma City for a short study. Following the success of that small pilot, it installed 42,000 smart meters on customer homes in Norman, Okla.

At the same time, it also installed the information delivery infrastructure to carry the information to and from OG&E and its customers. An estimated 3,000 customers in Norman participated in a summer 2010 study using in-home devices, Internet portals or both to obtain pricing and usage information. An additional 3,200 customers in Moore, Norman and parts of southern Oklahoma City were later added to the study.

Nuttall’s nominator said, “Nuttall’s vision is in line with the corporate vision to enable the smart grid. In the short time he has been with OGE, he has been able to understand the needs of the business and articulate a road map for reliability and customer engagement in the future.” In addition, the nominator wrote, “All of the employees from OGE that I have talked with since Reid has been on board have been enthusiastic and energized by his approach — especially those in IT.” Further, Nuttall’s nominator said, “The innovation here is in the area of orchestrating smart grid at the 28 E N E RGYB I Z January/February 2012

right pace. Reid has also taken a thoughtful and purposeful approach to smart grid security and is building bridges between operational technology and information technology.”

It has been an award-filled year for Nuttall and OGE. He was also recently recognized by CIO magazine in its list of Top 100 CIOs. Nuttall said he felt humbled by the KITE win and that he accepted the award on behalf of his team and the entire utility.

We would like to thank our Knowledge Utility Executive Summit Sponsors for supporting this exclusive summit.

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Offshore Wind Choppy COMPLEX ISSUES SHAPE PROGRESS // BY WILLIAM OPALKA

THE WATERS FOR OFFSHORE WIND DEVELOPMENT

seemed relatively calm in late 2011, but that was only on the surface.

Without a headline announcement — think Google buying into a transmission project — the offshore wind industry may seem inactive, or at least too quiet. That’s hardly the case.

The first federal lease for offshore wind in federal waters was announced over a year ago. Secretary of the Interior Ken Salazar said in October that the second lease was imminent. That made some ripples, but nothing tsunami-like as the one that was granted to Cape Wind in Massachusetts in late 2010.

“There were a lot of milestones achieved and it has been a big year in terms of developing offshore wind,” said Chris Long, manager, offshore wind and siting policy for the American Wind Energy Association. “Just since February, Secretary of the Interior Ken Salazar and Energy Secretary Steven Chu unveiled their coordinated strategic plan to pursue the deployment of 10 gigawatts of offshore wind by 2020 and 54 gigawatts by 2030.”

To that end, the federal government unveiled its “Smart from the Start” initiative to expedite offshore development.

Until a year ago, developers were looking at a seven-year time frame for permitting. And that was before potential opponents petitioned the courts.

Reviews have evolved into a site assessment, combining simultaneous environmental and resource studies, which is a major driver in shortening the process.

Under the program, NRG Bluewater Wind won the exclusive rights to negotiate with the federal government to build an offshore wind farm off the Delaware coast. Those negotiations are ongoing and Salazar hinted they would be 30 E N E RGYB I Z January/February 2012

completed soon. Lease areas have also been identified off New Jersey, Maryland and Virginia, with Salazar suggesting five could be negotiated over the next year.

That’s the prime area for the Atlantic Wind Connection, a proposed transmission backbone that could serve up to 7 gigawatts of wind in the Mid-Atlantic region. That generated additional buzz when Google said it was one of the original investors in the project.

The biggest issue for the wind industry for both offshore and land-based wind remains a stable tax policy. With energy incentives under increased scrutiny in Congress, that could be problematic.

“For offshore wind, that means the long-term extension of the investment tax credit,” said AWEA’s Long.

With a development time horizon of several years, the usual approach of wind incentives with a time horizon doesn’t work. So, with wind-friendly senators, the industry has changed its approach to embrace an open-ended ITC with a cap of 3,000 megawatts.

Sen. Thomas Carper, D-Del., and Sen. Olympia Snowe, R-Maine, introduced the Incentivizing Offshore Wind Act. When a developer is awarded a tax credit, it will have five years to install the offshore wind facility. Federal regulation of offshore wind development took another step forward during the year with the release of a draft environmental assessment. The Department of Energy is funding a broad study that will assess the most promising sites for high offshore wind production along all of the U.S. coastal regions.

It has been a big year in terms of developing offshore wind.

“We’ll do some investigations to see what the potential issues are,” said John Daniel, senior principal consultant, ABB, and the principal investigator and overall coordinator of the project.

A technical investigation would be needed to consider whether individual wind farms would be better served by one or two connection points or if a backbone of several hundred miles in length should service multiple sites. And could there be a “ring structure” of connections that could function as its own grid in the event of outages or other issues at one or more points of the backbone?

That project team is expected to provide its final report and recommendations to the Department of Energy in September 2013, which would be in plenty of time for developers to tap into its recommendations.

In Rhode Island, Deepwater Wind survived a court challenge to its power contract with National Grid for its demonstration project off Block Island. Last summer, the state supreme court ruled an agreement at above-market rates was valid. Deepwater is developing a project for several hundred megawatts farther offshore.

The New York Power Authority abandoned its planned 100-megawatt project in Lake Erie when it determined that project costs were too high.

And the first offshore wind project in the United States, Cape Wind in Massachusetts, enters its tenth year of development under yet another cloud. The Department of Interior approved its construction plan, paving the way for the installation of turbines. But a federal appeals court late in the year vacated a “determination of no hazard” granted by the Federal Aviation Administration that had said the site posed no threat to communications to an air base on Cape Cod. “We really don’t see it as a setback,” said a Cape Wind spokesman, Mark Rodgers. “The court determined that when the FAA wrote up their determination they left out things. They could have included a lot more in the document to make it much more robust and persuasive to the judge.”

Cape Wind also has yet to resolve its lack of customers for one-half of its output, thwarting project financing. A quick fix would be a contract with Massachusetts utility NSTAR, but that has not been settled. And that reluctance to purchase offshore wind generation has delayed approval of NSTAR’s proposed merger with Northeast Utilities.

Rodgers said the company’s goal remains that construction could start at the end of this year. energybiz.com E N E RGYB I Z 31

Promoting an Energy Storage Hub INDUSTRY REACTS TO FEDERAL INITIATIVE // BY KATHERINE HAMILTON the U.S. Department of Energy held a public information meeting in the Washington, D.C., suburbs to introduce the newly formed Battery and Energy Storage Hub and take formal comments and questions from their stakeholders. The meeting came after DOE had submitted its 2012 federal fiscal year budget request of $34 million for the hub and after the House and the Senate put $20 million into the 2012 energy and water appropriations bill for the Hub. The gathering came a bit late in the process, but seemed to be a rallying cry for stakeholder support around one of Energy Secretary Steven Chu’s top priorities.

A series of DOE program managers from the programs involved — ARPA-E, Office of Electricity, Basic Energy Sciences and Transportation — explained the hub concept and their vision of aligning similar programs and research goals under one umbrella. It is a lofty goal that seeks to break down the entrenched stovepipes that have existed since the beginning of DOE time. Later in the day, the public could comment or ask questions live or in writing through the webcast.

Universities, research centers, nonprofit trade groups, and private companies participated in the conference. Experts stressed that the hub provides strong links to regulators and utilities so that state policymakers can help direct and support the goals of the hub. Universities suggested that tracking partnerships and R&D needs would help research partners, including national labs and universities, work together on the program. Industry members recommended building in the ability for small businesses and manufacturers to participate in the hub. Many attendees mentioned the need for more definition and clear targets on the grid storage side because the vehicle piece seemed more fleshed out. Interestingly, comments and questions from very different sectors were fairly similar and consistent.

ON A CRISP OCTOBER DAY,

32 E N E RGYB I Z January/February 2012

One of the key benefits of the concept of the hub is the efficiencies that will result from increased communication and connectivity in R&D. The same problem will not be worked on separately by different researchers. By leveraging experts cohesively in all of these offices, as they have planned, the DOE should achieve better results with less overlapping effort. These efficiencies as well as goals, metrics and accomplishments should be tracked and that information made readily available to all stakeholders, including policymakers and the general public.

It is also critical that the research goals of the hub are defined by metrics that support long-term national interests and public policy rather than political messages. Programs that had political support, such as the Partnership for a New Generation of Vehicle, have died when a new administration came into the White House. An enormous quantity of powerful and productive research was buried along with those programs. For example, instead of making the goal of battery research and development “one million electric cars on the road by 2015,” the goal could be tied to metrics such as barrels of gallons of imported oil reduced, or percentage of increased grid reliability, or tons of greenhouse gas emissions lowered, or even transferability of research to manufacturing and jobs.

Disconnecting the R&D goals from political messaging will allow for that research to have life beyond any one administration. Research is by nature long term. Our political cycle seems incredibly short by comparison. By ensuring that research metrics support longer-term public policy goals, and then communicating progress toward these goals to policymakers, it will be easier to make the case for continued funding by Congress as smart public policy. If we come together on those goals the DOE will have a great deal of stakeholder involvement and support. We want the Battery and Energy Storage Hub, which is conceptually a nucleus for collaborative R&D, to achieve real-life success that benefits all taxpayers for generations to come.

Katherine Hamilton is a director at Quinn Gillespie & Associates and serves as policy director for the Electricity Storage Association.

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Using knowledge to shape the future 2011 Itron Users’ ConferenCe sharpens the foCUs R u s s Va n o s

“The world is watching what we are doing in

North America. So we have a responsibility here.”

With those words, Russ Vanos, Itron’s vice president of corporate marketing and communications, welcomed the more than 700 utility customers from 14 countries and 120 partners to the 2011 Itron Users’ Conference.

For two days in mid-September, The Phoenician Resort in Scottsdale, Arizona, was the site of intense focus and collaboration by utility representatives and Itron partners – including more than 270 firsttime attendees – as they shared new information and experience designed around the conference’s theme: FOCUS. As Itron Users’ Advisory Board 2011 Chairperson William R. Cloutier, Jr., told attendees in his welcome letter: “Turning the smart grid, energy, water and environmental goals of our world into reality will require the focus of industry leaders to collaboratively improve, standardize and implement technology solutions.” Let’s listen in on some of those discussions, spread over 150 breakout sessions and literally thousands 34 E N E RGYB I Z January/February 2012

of conversations that went on over two days throughout the conference center.

Setting the stage for shaping the future “We’re bombarded with 3,000 new pieces of information every day,” Vanos told the standing-room-only audience in the opening general session. Endless streams of data available to us all make honing in and truly focusing on the important pieces difficult. This year’s conference was designed to help attendees do just that. “We want you to really focus on one aspect of the future while you’re here,” Vanos said.

In setting the stage for the keynote speakers and conference sessions to

follow, Vanos shared his thoughts on why a renewed focus on resource management is critical to ensuring sustainable energy and water delivery for generations to come. “The way the world manages energy and water will shape this century,” he said. “This is Itron’s vision. Our mission is to provide critical knowledge to empower the world’s utilities to responsibly manage both energy and water.”

Knowledge, Vanos said, is critical to optimizing and managing precious resources. “Every vendor is talking about data and information. Only a couple are talking about knowledge,” he said. “For us, it’s really about taking knowledge and helping you shape your future.”

Itron’s specific areas of focus include:

starts with you. Tell us what you like about Itron, but more importantly, tell us what you’re having trouble with.”

The return of LeRoy Nosbaum to the helm at the end of August wasn’t the only change Itron made this year. Early in 2011, the company began its own process of refocusing and honing in on the important pieces. Part of that process included centering its energy activities under Philip Mezey, who is now president and chief operating officer of Itron’s global energy group, and Marcel Regnier, now president and chief operating officer of Itron’s global water group. And at the Itron Users’ Conference in Scottsdale, activities were carefully planned to give participants the opportunity to focus on what is important to them and their businesses, with numerous concurrent sessions tailored to both water and energy, as well as the technologies that connect them both.

Getting electricity right, and water’s rising tide The first morning’s keynote speakers talked about changing trends in energy and water. Jesse Berst, managing director of GlobalSmartEnergy, detailed the reasons why Electricity 2.0 is the biggest opportunity of the century: “We are reinventing electricity, and reinventing the consumer.”

A full 40 percent of today’s patents are related to electricity and how it is delivered, Berst said. “We are reinventing how we create energy that doesn’t steal from the future, and we are reinventing what we’re using it for. Grid 1.0 is not keeping pace: it was invented in the age of Edison, designed in the age of Eisenhower, and installed in the age of Nixon,” he said.

The new grid, or Electricity 2.0, is borrowing from lessons learned already from other industries in order to provide a grid that is more observable, much more controllable and self-healing.

As electricity customers evolve, the industry must evolve with them. “The new consumer is very engaged. The passive ratepayer is disappearing at a rapid rate,” Berst said. “The new consumer demands control and expects choice.

We’ve moved into this world of choice in all aspects of our lives. And the new consumer wants actionable insight.

We have entered the Electricity Economy, Berst said. In fact, 2008 statistics showed that 60 percent of our economy is now dependent upon electricity, compared to only 20 percent in 2005. “We’ve got to recognize that, and we’ve got to rethink the role of electricity and power ... There’s nothing more important than getting electricity right. The choices we make now

energybiz.com E N E RGYB I Z 35

special RepoRt sponsoRed by itRon

simplified and tailored solutions, interoperability, relationships with customers and partners, and a global reach that is supported by water and energy groups.

“We believe you cannot have interoperability without partners and innovation,” Vanos said, “and tailored solutions are essential in order to fit different needs.”

Cloutier, manager of smart grid interoperability standards for DTE Energy, pointed out that change is occurring as we speak, and it will be focus that inevitably defines who, and which companies, will be on top of the changes.

“Our industry has entered into a time of unprecedented change and innovation,” he said. “Remember, the difference between average and successful is focus.”

LeRoy Nosbaum, who returned to Itron as president and chief executive officer only 19 days earlier to lead the company through the unprecedented industry change Cloutier spoke of, explained his return with a short story. “The rancher’s field grows best when it is blessed with the feet of the rancher,” he said. “That’s an awful lot like the work of a CEO ... so I’m back.”

Nosbaum discussed the theme of the conference in terms he became more familiar with during his 20-month retirement hiatus. “Catching a 23-inch brown trout isn’t easy. It takes a lot of patience; it takes incredible focus; it takes being quick to react; and often it’s not in comfortable conditions. If you think about it, it’s a lot like work,” he said.

“We are more than a meter company.

We are more than a software company.

We are more than a solutions company. At Itron, we do all those things,” Nosbaum said. “The whole is more than the sum of its parts, and that whole is knowedge to shape your future.”

Focus is also a matter of looking at what’s working, what’s not, and changing in order to work even more effectively. Nosbaum told participants Itron is concentrating in the coming year on being as good as Itron can be, developing products that meet customers’ needs and delivering on that promise. “We need to be more customer-intimate than ever before,” he said. “You are key. Our business

will influence and set our path for many years to come. We’re going to be rewriting the rules in the next couple of years – shouldn’t you be a part of the dialogue?”

Berst asked users’ conference participants.

Ned Breslin, Water for People’s CEO and director of international programs, spoke in his keynote comments about “the rising tide” in the water industry, and in particular about Water for People’s new initiative, Everyone and Forever, to improve water and sanitation throughout the world. “Africa, Asia and Latin America are littered with broken water lines, broken dreams, broken promises ... old philanthropy,” he said. “Keeping water flowing is a tremendous challenge.”

To combat that, the new initiative is focused on simple outcomes – one area at a time, keeping water flowing to every family, every school, every clinic within the specifically identified area.

Water meters in these areas create the opportunities for knowledge management, Breslin said. “Quantities, consumption, leakage, waste and tariffs – they all are now knowns, and creating that environment where knowledge is power,” he said. To that end, Itron has committed $365,000 to Water for People, “not only money, but also the skills set to transform the world,” according to Breslin.

Using technology to drive innovation, knowledege The second day’s keynote focused on enterprise social technology. Author Scott Klososky told conference participants that technology has become an “X Factor” in today’s world. “Technology is hanging the world more than we understand,” Klososky said. “Social technology is just another part of the toolbox that people can reach into, and leverage to win.”

The skill of leadership is changing, he told the crowd. New leadership skills include the ability to make good technology decisions, the ability to look into the future accurately and accurately predict future trends, and the recognition of cultural change, both internal and external.

“There are solid fundamentals behind why Web 2.0 has become such a powerful 36 E N E RGYB I Z January/February 2012

force so quickly,” Klososky said. From “frictionless” communication, user-generated content such as YouTube, crowd sourcing and the “rivers of information” now available, to maintaining one’s online reputation and gaining customer intelligence, the socialization of the Web has brought a whole new score of tools and dynamics to be considered.

“We have to start looking at mobile devices as what they really are – our outboard brains,” he said. “They store our memories. We don’t have to memorize things anymore, we just have to remember where things are.

They solve problems. And they access knowledge.” With this in mind, the companies who want to be better connected to their consumers l eRoy nosbaum will provide mobile apps for both employees and customers, as but one example. shoulders with case studies, and differing “Every organization makes a choice. perspectives shared the floor across water, Either you are teaching your competielectricity and gas, allowing attendees to tors or your competitors are teaching concentrate on those issues and knowledge you. The difference is market share or they were most keen to learn more about. customer satisfaction. Technology is Let’s take a peek at a few just the palette. These are tools you can of those sessions. use to be creative and innovative, if you pull them out and use them,” he said.

Connecting the consumer

Connecting the links Following each morning’s keynote sessions, concurrent breakout sessions offered more than 150 opportunities for conference participants to hone their focus. From advanced data collection and analytics to consumer engagement and demand response, from metering and control technologies and smart grid to utility operations and best practices, there was a lot from which to choose. Recognizing there are no one-size-fits-all solutions, the conference advisory board didn’t attempt to prepare a one-size-fits-all conference curriculum.

Instead, technology solutions rubbed

A number of sessions examined differing perspectives on the smart consumer, a key component drawing increased attention.

A lively discussion comparing two different perspectives on smart grid evolution and adoption drew intense interest from conference participants. John Kelly, executive director of the Galvin Electricity Initiative, proposed that redefining quality in the age of the smart grid means looking at consumers as true partners in the transformation.

Kelly says it’s a four-legged equation: » reliability and power quality » energy efficiency

» cost efficiency There are three systems within the smart grid, he said: the supply system, the delivery system, and the consumer-involved system. “The system we have now is very linear. One failure can take out an entire neighborhood,” Kelly noted. “We're advocating for more of a community microgrid approach. If you build it, one city at a time, reliability goes up 60 to 70 percent. Then you have, and can employ, distributed generation with consumers fully engaged.”

Craig Boice of the Boice Dunham Group pointed out that while we think we control the smart grid, it is actually evolving around us. “The key part of smart grid is that we're all becoming new people in it.

The technology is telling us what's possible, who we're going to become,” he said. “Motivation without technology is futile; technology without motivation is an embarrassment ... or a rate case.”

We are becoming the smart grid – it's making us as much as we are making it, Boice said. “Our industry for the next 30 years is more about the generation, movement and care of information than it is about energy,” he said. “Balancing automation, choice, recognition, fun and engagement is the key skill in technology design.”

Another session discussed “What Consumer Want, What They Think.”

Farrell Cox, smart meter deployment manager at San Diego Gas and Electric (SDG&E) and a 32-year veteran of the utility, spoke of his early field days installing gas meters, and compared it with today's experience. Indeed, SDG&E's deployment statistics today are impressive: » Total installed smart meters (to Sept. 11, 2011): 2,204,605 • 1,344,787 electric • 859,821 gas • 64,083 remaining to be installed Farrell offered three processes to help deliver a positive customer experience.

The first, he said, is to focus on quality every step of the way. Second: Always take

a customer-centric view, including the consideration of seasonal timing when scheduling deployment. Finally, ensure you can provide good answers to tough questions about Big Brother, RF emissions, data privacy, meter and billing accuracy, and the potential lag in perceived consumer benefits of their new smart meter.

In the same session, Sharon Allan, a partner at Accenture, shared the results of her firm's global study of what customers want from their utility providers. “People have come to expect electricity, water and gas as if it's the air we breathe,” she said. “A majority of folks say price is a major factor, and 73 percent said they'd be willing to purchase electricity from someone other than their service provider.” But intrinsic value is also important, offering the customer a product that's simple, individually tailored, easy and fun. Overall, said Allan, “There is a trend towards the gradual democratization of energy generation: many of the utility's consumers are about to become its business partners. This will introduce a host of new complexities around billing, customer support and field maintenance.”

Connecting the technology As Itron's onsite Knowledge Center so visibly confirmed, connected technologies and services are critical to growth, and to knowledge attained from what technology can do and can tell us. The Knowledge Center – a large area at the conference that displayed all of Itron's solutions – clearly demonstrated the end-to-end connectivity of the Itron hardware, software and processes for water, electricity and gas.

LeRoy Nosbaum's opening-session reminder that “We're more than a meter company” was exemplified as participants moved through the room, from solution to solution, learning more about the new tools and intricacies – and the connectivity and interoperability of the solutions – from Itron specialists at each of 38 stations throughout the conference’s two days.

Adjacent to the Knowledge Center, Itron showcased its eight premier conference sponsors. And in the next room, the Partner Pavilion included booths by 22 Itron partners. This is the highest number of partners

ever to attend the conference, speaking to both the interoperability of Itron’s solutions and underscoring the company’s desire to truly give its customers choices.

Technology and process were at play throughout many of the concurrent sessions, as well. In one, Itron's Larry Eggleston and Mike Burns compared and contrasted advanced data collection versus smart grid in a Top 10 fashion enjoyed by session attendees. While Eggleston discussed the abilities advanced data collection provided, Burns took the smart grid side. And what is the ultimate choice? Well, as expected, it turns out that there is no one-size-fitsall answer. Some utilities are finding that advanced data collection solutions completely fulfill their needs, from water to gas to electricity, while others need more. As Eggleston noted, “What can you afford?

What do you want to pay for? There are a lot of similarities, and one doesn't preclude the other. Smart grid is very electricity-centric today, but it's all continuing to change.”

Meanwhile, Itron's Thomas Butler offered up the latest in smart metering for water in another session. “Smart metering has arrived in the water metering market,” he explained. “Smaller utilities are the initial adopters of residential static meters, while larger utilities have adopted commercial and industrial static meters. Integrated intelligence, communication and system monitoring are on their way. Everything is expected to be done by or with the meter in the future.” As meters transition and traditional mechanical meters are being replaced, new adaptations and technologies are being implemented. These include alternate meter materials, new metering technologies, improved/extended meter accuracies and battery life, and bundled solutions within one package. “We think the market is becoming one,” Butler said.

“Manufacturers will begin to combine all solutions and we will continue to see a rise in increased technological attributes.”

Itron/Cisco alliance making great strides High on attendees' minds was an expected update on the progress of the Itron/Cisco Alliance over the past year, and energybiz.com E N E RGYB I Z 37

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» environmental improvement

the companies didn't disappoint. “Open the Grid: An Update on the Itron/Cisco Alliance” generated keen interest as Cisco's Felix Davis and Itron's Tom Wilson covered the ground travelled so far. The companies' alliance is introducing technologies that will open the grid, thereby enabling a multi-application, IPv6 network which ensures security and interoperability from the physical to application layer, essentially shaping the architecture of the modern grid. The strategic

principles upon which is it focused include: » True open standards-based and interoperable

» Modular and future-proof, yet mindful of existing assets » Scalable enterprise-class management

» Multi-service architecture » Comprehensive end-to-end security, bringing some unique characteristics to security » Supports distribution of application intelligence over time

The alliance now has in place fully functioning systems in both companies’ facilities, and it is already doing deployments under nondisclosure agreements.

The open standards-based, interoperable, multi-service architecture is

European Community (EC) mandating

IntervIew wIth Itron’S PhIlIP Mezey

a change? That is a significant driver.”

creating sustainable energy opportunities DIversIty anD InteroperabIlIty are key

Mandated change has proven to be a significant smart grid deployment factor not only in Texas and California but also in Ontario in recent years. But for a region the size of the EC to do so is momentous within the industry.

But what about the severely weakened economy, not only in the United States, but in several European countries, as well?

“The utilities are one of the most predictable, long-term thinking and profitable markets out there. They’re the best com-

The global reach of the 2011 Itron Users’ Conference was a perfect setting in which to speak to Philip Mezey, president and chief operating officer for Itron’s global energy segment, about Itron’s own global focus.

Mezey, who joined Itron in 2003, has served the company in a number of capacities over the intervening years, including senior vice president and chief operating officer for Itron North America, group vice president and general manager, and 38 E N E RGYB I Z January/February 2012

senior vice president for software solutions. He feels looking globally at deployments, rather than maintaining a purely North American focus, is imperative.

Itron’s forward-looking global focus “There is a financial reality to the fact that North America is a very attractive market,” he said. “But nonetheless, what better driver do you need than the

munity to sell to in difficult economic times, and they have, typically, at least five-year planning windows. And so I think they will be the least disrupted from economic cycles,” Mezey said. “Therefore, I believe that these projects will proceed in Western Europe, specifically. Will they slide possibly to the right as a result of delays? Sure, that’s possible. Large, highly politicized projects are inherently a little difficult to predict, but the outcomes are fairly certain, which are that the projects will proceed.”

and planning impacts, inverter control and monitoring, intermittent power, harmonics, and protection (including reverse power

Connecting the edges

flow, islanding, switching impact, system

Photovoltaics (PVs) and electric vehicles (EVs, or PEVs) both touch the consumer base, either directly or indirectly, as well.

Each was addressed in sessions of their own, with updates on existing architecture, effects on the delivery system, and lessons learned to date. Itron’s Chuck Hornbrook and Percy Haralson, senior manager of Southern California Edison’s (SCE’s) field technologies group, spoke to the customerside meter effects of PV on the delivery system for California. “What is happening in California will replicated across other states.

My thought is that by 2012, there will be well over 100,000 solar installations on the customer side of the meter,” Hornbrook said.

Haralson discussed SCE’s experience with PV. Issues at the distribution level, he said, include voltage regulation, operation

stability, fault current impact on breakers,

learning from global markets Mezey believes our industry has a lot to learn from other markets globally.

The European markets and several other markets around the world, he says, are more standards-driven and have a higher demand for interoperability. As well, their competitive processes are different from those faced in North America.

“That prepares us for a future in which, through globalization and the desire on our customers’ parts to drive us to open standards specifically, in order to increase competition amongst the suppliers and the market,” he said.

Having the advantage of being able to see the dynamics of markets that are currently different but also clearly changing offers an important industry lesson, Mezey feels, that a company such as Itron, with such a global reach, can learn from. As an industry, he said, “We must learn how to differentiate ourselves and improve ourselves as companies, to deal with the sorts of competitive pressures

and more). It’s a complicated equation,

the utilities themselves will have to collect the fuel taxes, and how the low carbon fuel standards will be implemented.

What, indeed, is the utility’s role as it becomes a transportation fuel provider?

but with a 33-percent renewables port-

taking the focus home again

folio standard mandated in California, PV

At the end of the two days, participants convened one final time to pull it all together. It had been an exciting two days of information sharing, and the room was abuzz with one-on-one discussions as utility representatives from around the world came back together to share, table to table, person to person, what they had learned.

The experience was aptly summed up by Itron’s Russ Vanos in a few brief words: “I hope that, over the last couple of days, all of you were able to focus a bit, and that we gave you the opportunity to take something back home that you didn’t have when you got here.” Of that, there can be no doubt.

is definitely a large part of the solution.

Chris Chen, San Diego Gas & Electric’s market development manager, electric vehicles and smart grid, discussed the adoption of electric vehicles (EVs) within SDG&E’s territory, and the questions being raised as adoption progresses. The EV adoption curve has been slower than expected in San Diego, he noted, and automakers are making commitments to plug-in Evs, but keeping their options open in other areas such as fuel cells, compressed natural gas, flex-fuel and non-plug-in hybrids, as well.

As EVs begin to roll out in the state, questions have also arisen regarding whether

that we experience in other parts of the world here in North America.”

This strategic, forward-looking view of the world market was an important factor in Itron’s acquisition of its international group, Mezey pointed out. “We recognized that we would need to step beyond the North American market in order to continue to grow, and that by having a global metering platform that we were then present in the markets that were going to experience a significant upgrade of technology,” he said.

“That is, in fact, coming to pass in Western Europe, Brazil, and several points of Asia, so I think that there is going to be a very exciting story to tell over the next five years.”

Diversifying to meet demand Because it is a lead player in the smart meter market, it’s easy to make the mistake of thinking of Itron as a meter company. But it’s so much more.

“We are not a single-sector player, and we understand that to serve the industry, and to cross-pollinate and get these interesting ideas, that being geographically

diversified, and being diversified across electric, gas, water and heat – and small, medium and large utilities – is, in fact, what we think is the correct way to approach the industry,” Mezey said. “And clearly, that gives us an advantage, because there aren’t that many players who are structured that way, but we honestly believe it.”

the continuing evolution of the smart grid Just as the demand for diversity of products, and an overall understanding of utility needs, increases, so too does the landscape change in terms of smart meter deployments. With both economic and regulatory environments changing, what analysts predicted a few years ago with regard to smart meter deployments is rapidly being revised. Mezey said a new sector phenomenon will be revealed once North American analysts finish updating their numbers to reflect the new reality.

What will fundamentally drive the sector forward, he said, is having standard, lowenergybiz.com E N E RGYB I Z 39

special RepoRt sponsoRed by itRon

seen to be a definitive win-win for the industry, straight across the board.

cost solutions available. “The industry’s paradigm of doing complete implementations will still happen in some other places, but I think it’s more logical that implementations become more selective and more pragmatic,” Mezey noted. “By this, I mean that they must be self-funding in that they must demonstrate their returns during the initial implementation to fund the continued implementation.

“So I really think we need to focus on a much more systematic and pragmatic implementation style, and make sure that the products and services that we bring to the marketplace return value as they are deployed.”

And part of that returned value may well be in the new data initial implementations are now providing utilities, which can better inform their continuing implementation plans. Here, too, Itron is moving forward in anticipation of what its customers will most need.

opening the analytics toolbox Part of that returned value may be found in one of Itron’s newest offerings.

Data analytics is a topic being keenly investigated by leading utilities in their efforts to increase their efforts across the

board on their customers’ behalf. Itron believes that focused analytics can be an extremely powerful tool for utilities.

“One of the best functions that analytics should deliver is as a focus engine or a targeting engine in which you use the data that we have available to us through our meter data management system to analyze that data,” Mezey said. “Even at the level of monthly reads, you can look into that data as a targeting engine for those customers who are most likely to respond to demand notices, or price response, or those circuits which have the greatest energy imbalance – which may be a source of theft – or distribution automation.

“You can then use a data-driven approach to target specific technologies to specific places to generate targeted business value,” he added. “If we are able to work with our customers to build a repetitive model, not just to do the first project, but to agree to a methodology – analyze, implement, verify results, pick the next project, analyze, implement, verify results – then that kind of framework is going to be very powerful for us.”

Indeed, as energy utilities across the country are grasping the importance of the volumes of data they are now collecting, and deciding what to do with

it, and what they want to know first, the data analytics sector will continue to grow in importance as a new toolbox with which to drive both reliability and consumer satisfaction, just as it has been used in other industries in the past.

translating learning to consumer benefits As data is examined, and will soon be used to drive more consumer-centric approaches for utilities, it’s still imperative to address current consumer concerns. We have done a lot of work in the past year in monitoring customer concerns, and in trying to understand and work with our customers on thoughtful responses to those concerns. It is our belief that, while there are consumers who are concerned, we feel the industry will more forward strongly,” Mezey said.

“I think the industry could do a better job at discussing Smart metering and smart grid benefits,” he added.

“Communication plays a key role in addressing concerns about these deployments.”

IntervIew wIth Itron’S MarCel reGnIer

Giving power to the people Marcel Regnier was named president and chief

operating officer of Itron’s global water segment in March 2011. In this capacity, he is responsible for all aspects of Itron’s water business around the world. Regnier joined Itron in April 2007 with the acquisition of Actaris, and was named senior vice president and chief operating officer of Itron International in April 2008.

Between sessions at the 2011 Itron Users’ Conference, Regnier sat down for a one-on-one discussion about the similarities and differences inherent in smart electricity and smart water. Here, we share portions of that discussion.

40 E N E RGYB I Z January/February 2012

on water and electricity convergence Water is a very special ingredient in life.

Water is vital. And water availability is at the heart of sustainability – it has become very scarce in many countries in the world.

Too, water is a capital-intensive industry, and energy-intensive. The needs of the water and energy industries are converging: improving efficiency, reducing cost, saving labor, and focus on the customer.

on the importance of storage Electricity has a big challenge. It can’t be stored, which is creating extremely fast decision-making. Here is an example from my former energy job, Ile de la Reunion, in the French Islands. It’s a subsidiary of the EDF group, and it’s on an island. On an island you have to meet the demand, not more, not less.

And those islands are massively invested in renewables. They already have hydro, but they have also invested in solar and wind, and the capacity of renewables is quite consistent. The problem they have is demand response – a very sophisticated word for a very easy problem: this is what I need, this is what I have, if I don’t match it, I have a real

problem.

Itron has provided an electric system based on ion metering and GPS communication application software that allows the utility to know on a real-time basis what’s the energy produced by renewables. Legislation and good sense both dictate that renewables should not be beyond 30 percent. For what reason? Because in 20 minutes, the capacity of renewables can drop by 30 or 40 percent for a very simple reason: when it rains, there is no solar power. And what do you do then?

It’s a real problem. So you have those very challenging issues with electricity.

You don’t have that with water. The most advanced water companies have forecasting systems that, based on statistics and climate, do forecasting of water demand.

I especially have in mind the city of Paris, which has one of the most advanced water production plants on earth. So they do that.

But they can store water. They have huge storage capabilities, providing mediumand long-term demand response. They do that, but they have time. However, they have another problem, which is very critical to the city of Paris: the quality of the water.

So there are a few differences, but a lot of similarities. The water distribution system will move into smart data, automation, capturing data, processing data, and turning data into decision-making, adding value to ensure our future.

on helping the consumer In Mumbai, a developing country, we are in the process of providing advanced metering technologies and automatic meter reading systems to the the Mumbai utility.

Mumbai, with 20 million people, is huge.

The main goal of the project is for the utility to reduce theft and waste of water. And the waste of water was estimated at 50 million litres, or 15 million gallons, per day.

Misuse means you go through all that effort for nothing.

They used to put meters – well, really a piece of pipe, not a measuring device – on water there. At Itron we are providing the meters, we are providing the RF system. It is a very reliable, robust system, and they’re still using it to detect leaks and theft. What

we are providing to the city of Mumbai will allow them to use the water saved to be able to distribute to more people, because there are still a lot of people in Mumbai that don’t even have water yet. And we are working locally: we have a strong presence in India, we manufacture in India, and we have a team working in India.

Another project we are working on is with the public utility board in Singapore.

They are in a completely different situation: Singapore is a very advanced, modern, clean city. Its issue is that it uses almost all desalinization, which is costly. So they are targeted to move from 150 liters of water used per day per person – which I think is about half of what the average American utilizes – to 100 litres per day per person, and they have initiated significant programs focused on their customers in order to educate them.

We are installing a pilot of Itron’s twoway fixed-network solution, with very, very accurate, sensitive meters that really can measure very low flows. Then they can detect the leaks, they can detect the flow profile in every apartment, and they can bring that data back to the consumers to say, “Look, this is what you use.”

By providing smart solutions, you give power to the people. Our solution will give the utility of Singapore the power to reach that goal. Fifty litres per day is only two liters per hour. That’s a really small leak, almost a drop. It can be a leaky tap, typically a toilet.

So by detecting leaks, by conserving water, they can pay less.

That’s another example that, by the combination of very accurate, low-flow capability of meters and the network, and the analysis, the intelligence on the data, you provide real value to the water company and the people. That’s what LeRoy said this morning. We do more than meters, more than communications, more than software.

We are doing everything, and we use that to generate actionable data. That’s where I think Itron is unique. And another thing which I think is very specific to our company, and not specific to water: we love the business that we are in, all of us. We are passionate about it, and it is not only me.

energybiz.com E N E RGYB I Z 41

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As electricity is moving from 1.0 to 2.0, I think water has to do exactly the same thing. I would split it into two categories. The first is just providing water to the people who don’t have it today, providing potable water networks. In the most developed countries, the challenge is really to move the water distribution network into a smart network, or “smart grid.” We usually don’t use that word for water, because the grid is typically an electricity term, but it’s basically the same – to be able to deploy across the entire chain from pumping of water all the way through bringing back the water to earth afterwards. To have a system that will have real-time control of everything that is going on, and utilize that data to optimize the use of water, and reduce costs, is huge.

The challenge is to build a a network of networks – the same idea as smart grid – that will bring to the utility the capability to optimize operations, minimize the use of water, protect the resource and help the consumer save money. The water ecosystem will become smart. It will utilize sensors – metering sensors, pressure sensors, lead detection sensors, temperature sensors, and perhaps even quality sensors – all across the grid, the nextwork, in order to optimize and protect the resource, and to not only give to the consumers almost real-time information about their usage, but send alerts immediately should they have a water leak detected inside their home.

» TECHNOLOGY FRONTIER The Nanotechnology Revolution THE PROMISE OF NEW MATERIALS PROCESSING // BY PAUL KORZENIOWSKI TRANSISTORS, BIOTECHNOLOGY AND PLASTIC — throughout history, revolutionary technical advances have emerged and changed how businesses operate. Nanotechnology, which dramatically alters the way that materials are put together, is emerging as the latest entrant on that list. “Nanotechnology has the potential to be the most revolutionary development in this century,” said Jack W. Plunkett, the chief executive officer of Plunkett Research. It has the potential to revolutionize how materials are constructed and enable suppliers to deliver items that cost less, are environmentally safe, and are stronger and lighter than steel.

Nanotechnology is expected to have a major impact on the energy industry. Once manufacturing techniques have matured, utilities will have new ways to capture, store and transfer energy. For example, the technology may be used to conduct energy more efficiently. In addition, it has the potential to enable energy producers to address the storage challenges that hydrogen and solar energy now present.

However, nanotechnology faces some significant hurdles. “The infrastructure needed to deliver new revolutionary nanotechnology products has to be put in place,” explained Jeremy Warren, the chief executive officer of NanoSight, which makes nanoparticle analyzers.

Nanotechnology is the manipulation of materials on an atomic and molecular scale, which is much smaller than traditional manufacturing.

The technology started off in the academic research area in the mid-1980s. While research there continues, commercial applications of nanotechnology have made their way into the marketplace. Established in 2005, the Project on Emerging Nanotechnologies, a partnership between the Woodrow Wilson International Center for Scholars and the Pew Charitable Trusts, has identified more than 1,000 products that now rely on nanotechnology.

For instance, nanotechnology has increased the electricity generated by windmills. An epoxy containing carbon nanotubes is being used to make windmill blades. The use of nanotube-filled epoxy makes the blades stronger and lighter, resulting in increased amounts of electricity generated by each windmill.

42 E N E RGYB I Z January/February 2012

The new material manufacturing technique has the potential to impact the energy industry in many other ways. For example, batteries have been one area of focus. Energy companies are incessantly working to extend the life, shrink the size and expand the storage capacity of batteries. Nanotechnology has the potential to dramatically extend – perhaps by a factor of as much as 100 – the life of traditional lithium batteries.

In addition, the technology could enable energy companies to store hydrogen and solar energy more efficiently. To date, energy companies have struggled trying to find ways to house excess energy, and nanotechnology may do a better job than traditional approaches.

New materials that conduct energy more efficiently are also in development. Once EV PROMISE delivered, the new wiring may be 100 A pad on the ground could enable electric times more efficient than traditional cabling. vehicle owners to But the emerging revolutionary technolrecharge their cars wirelessly, according ogy faces many challenges. An infrastructo the Financial Mail. ture capable of supporting the building of Millions of parking spaces could be these new materials must be constructed. converted to use the Businesses need to develop new manufactechnology, which uses a magnetic field turing processes and systems to work to recharge the vehicles. the materials. New tools are needed in Designer Arup, which sold the technology order that the products can be tested, to Qualcomm, said it so quality is ensured. works like an electric toothbrush.

One significant concern is the safety of the new materials. “The nanotechnology industry is working on developing tests, so companies can determine whether or not any of the new materials are carcinogenic,” Warren, of NanoSight, said.

In 2011, the United States, the European Union and Japan each invested more than $1 billion in various nanotechnology initiatives. The private sector is also digging into its pockets. As a result, market research firm RNCOS projects that more than $30 billion will be invested in nanotechnology research in 2013.

However, the process of putting all of the different elements in place is expected to span many years, and how it will unfold is unclear. “One uncertainty is whether or not investors will have the patience necessary so the nanotechnology industry takes shape,” Warren said.

On the Fusion Front ITER TRANSITIONS TO DEVELOPMENT STAGE // BY SALVATORE SALAMONE DESPITE NUMEROUS DELAYS and the looming threat of budget cuts due to the poor global economy, the International Thermonuclear Experimental Reactor, an international project to prove the viability of fusion as an energy source, has reached a new stage in its development.

“We are poised to transition from design work into fabrication,” said William Cahill, federal project director at the U.S. Department of Energy’s Office of Science. Cahill’s comment came after a fairly positive review of U.S. ITER efforts was performed by the DOE’s office of project assessment.

The shift from design to production is evident from recent funding. Over the years, U.S. ITER has awarded more than $260 million in contracts, including 90 major FUTUREGEN UPDATE contracts totaling more than $103 million.

The FutureGen Alliance Much of that funding was for preliminary is in talks to buy a part of research and design work on various elean Ameren generation facility in Illinois to ments of the fusion reactor and supporting continue to develop infrastructure. In late 2011, funding was clean coal technology, according to the specifically for development. For example, Associated Press.

AREVA Federal Services was awarded Ameren has ended its agreement with the $13.2 million for the fabrication of five drain FutureGen effort, which tanks for the ITER cooling water system. is backed by $1 billion in federal stimulus funds.

In another effort, the University of FutureGen said its new Tennessee magnet development lab began coal generating plant construction of a full-scale, wooden mock-up is still expected to be operating in 2016. of a single ITER central solenoid electromagnet module along with all of the associated support structure and interfaces. Even in today’s age of computer design, the wooden mock-up will be used to ensure that engineers and technicians have adequate access to assemble, inspect and maintain central solenoid components in a tight work space. “Experiencing the module at scale gives a better feel of how the design will work,” said Madhu Madhukar, associate professor for mechanical, aerospace and biomedical engineering at the University of Tennessee, Knoxville.

“The mock-up can also help staff identify problems that may arise during construction and installation.”

Work at and around the ITER site in southern France is also picking up. At the heart of the facility is the threebuilding Tokamak Complex, one of which will house the

Workers prepare the excavated pit that will house the ITER fusion reactor.

Source: ITER

reactor. This complex is being built in a seismic isolation pit with a concrete base and 493 seismic pads to shield the reactor. Last year, excavation of the reactor’s site was completed and workers began to pour the building’s foundation and install the pads.

In November, work started on the installation of the pylons that will carry 400-kilovolt power lines to the facility. The ITER headquarters building that will include offices for 500 people, meeting rooms and a footbridge to the ITER control room is scheduled to be completed this summer.

Even with all of this activity, the first experiment in the fusion reactor might be pushed back a year to 2020 due to consequences from last year’s earthquake in Japan. Facilities in Japan that were carrying out work on the conductor to be placed in the reactor’s central solenoid were damaged and some work was delayed.

Gatherings// Technology Frontier Feb. 23-25

Photovoltaic Industry Expo

Beijing

Feb. 27-29

ARPA-E Energy Innovation

Washington

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

energybiz.com E N E RGYB I Z 43

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• CRO Perspective: Handle the roller coaster risk of federal regulation.

• CFO Perspective: Satisfy investors and receive higher rates from regulators.

• CIO Perspective: Navigate through vendor hype to pinpoint technologies that will deliver improved ROI.

Navigating Risk and Opportunities

Anthony Earley, Chairman, President and CEO of Pacific Gas & Electric

Thomas Farrell Chairman, President and CEO of Dominion Resources

Joseph Rigby CEO of Pepco Holdings

John Rowe Chairman and CEO of Exelon

Robert Shapard Chairman and CEO of Oncor

Susan Story President and CEO of Southern Company Services

Plus, the popular CEO panel session returns: hear top industry CEO’s discuss how they navigate and prioritize the issues brought to them by CIOs, CFOs and CROs.

Register online now at

www.EnergyBizForum.com

March 19-21, 2012, Washington, DC Ritz-Carlton, Pentagon City

» INTRODUCING

Taking on

China

SOLARWORLD’S GORDON BRINSER // BY MARTIN ROSENBERG The trade dispute between China and America over solar power is heating up. Leading

the battle on this side of the Pacific is SolarWorld, one of a handful of companies that asked the U.S. Department of Commerce to investigate whether Chinese manufacturers have dumped solar panels in America at prices below their costs.

SolarWorld Industries America, a subsidiary of SolarWorld of Germany, employs 3,300 and has claimed to be the largest solar manufacturer in the United States for 35 years. The German subsidiary’s Oregon campus can make 500 megawatts of photovoltaics a year.

To better understand the future of solar power in America and around the world, EnergyBiz recently interviewed Gordon Brinser, president of SolarWorld Industries America. The comments of the 45-yearold executive, edited for style and length, follow.

46 E N E RGYB I Z January/February 2012

Why have you reached the breaking point as far as China’s solar sector subsidies?

ENERGYBIZ

We can compete on a global basis with anybody, anywhere, anytime, and we can do it so long as they compete using legal business practices. What really brought us to this point was looking at the U.S. industry as a whole and saying, “Hey, we’ve had seven bankruptcies or downsizings in the last 18 months.” It’s clear that China intends to gut it and own it and really wipe out the industry here in the United States.

BRINSER

ENERGYBIZ Subsidies have been an integral part of getting solar power launched. What is unique about China’s approach?

BRINSER China’s approach is to use subsidies directed at the manufacturer and the subsidies are highly illegal because they are very focused on exporting those products into other markets. When you talk about the subsidies being used in Europe and the United States, the focus is on the consumer getting the subsidy or the tax credit. It’s legal under World

We can compete on a global basis with anybody, anywhere, anytime, and we can do it so long as they compete using legal business practices.

Trade Organization laws whereas the one the Chinese are using is not legal. The Chinese industry is using its domestic manufacturing, then they ship products over here and then they are getting the benefit of the consumer-based incentive also.

ENERGYBIZ The Chinese manufacturers have contributed to a steep decline in solar costs for installers. Is that bad?

I’d say the low prices are really very artificial out there in the market. It’s not a sustainable model for them to continue to dump product below their cost.

BRINSER

ENERGYBIZ So your argument would be that doing this drives competitors out of business, which will lead to higher prices?

The prices will increase when the market returns to normal because they are currently manipulated to artificially low prices. If you want to talk about solar power being a renewable, sustainable source of energy, look at the environmental safety and labor BRINSER

standards that we adhere to in order to manufacture in the United States. The Chinese industry is not held accountable for those same environmental standards.

So ask yourself — low cost at what cost? Is the entire carbon footprint then changed by shipping panels on large ships overseas? What’s the total cost?

ENERGYBIZ

What is at stake for utilities in America?

It is critical for the utilities to have a domestic supply chain that they can rely on and work with over time to make sure that the solar products and supply are secure. What is also critical for them are local jobs and local businesses. If the U.S. industry is wiped out, they may be dependent upon a foreign source of the renewable energy. Where are they going to buy their solar panels and what if the export practices from the Chinese industry change and those prices do start going up because there is no competition in the United States to hold them accountable?

BRINSER

ENERGYBIZ Have any U.S. utilities expressed interest in your battle? energybiz.com E N E RGYB I Z 47

» INTRODUCING We have not heard from them either in opposition or support.

BRINSER

When might there be a ruling on this and how long is this issue going to take to play out?

ENERGYBIZ

The next ruling on this should occur sometime in late March. It’s what they call the preliminary determination as to whether there will be any type of actions taken by the Department of Commerce. Then several months after that there would be the final determination of the final placement of any type of tariffs. There is a provision within the law that allows the tariff also to be retroactive.

BRINSER

ENERGYBIZ Why is it that none of your allies in this battle choose to be publically identified?

Does that handicap your fight in any way?

BRINSER It doesn’t handicap our fight. Many of these companies have a broad spectrum of businesses that they may be involved with. They are concerned about retaliation from the Chinese industry. We were trying to move as quickly as possible to get the petitions filed so we were focusing most on the legal and the business issues. But I expect they will come out with their identities. They hadn’t by the time we filed the petition.

What is the relative importance of solar panel price and quality to the solar market?

ENERGYBIZ

BRINSER We have a high-quality and reliable product. What we are facing here is really an illegal business practice in the Chinese industry. So if they were competing legally, then that is not a big issue.

But when it is illegal and they are dumping product, it’s not a sustainable model.

For those who support steady expansion of solar power generation, what is at stake in this trade dispute?

ENERGYBIZ

BRINSER Having a strong domestic industry in the United States will drive innovation and that innovation will be able to continue to drive cost down over time.

We have been able to show incremental cost reductions over the last several years and improvements in our efficiency, quality and reliability over the years. If the solar manufacturers go away, then the industry goes

48 E N E RGYB I Z January/February 2012

away, whether that’s glass manufacturers or paste manufacturers. All the suppliers that we rely on to help us continue to go down this path of innovation for better, faster, more cost-effective products will be affected.

Competition from the Chinese in recent years has driven the cost of solar modules down by half. If you prevail in this case that you are mounting, would solar costs rise dramatically?

ENERGYBIZ

BRINSER We are confusing cost and price. The cost of the solar manufacturing has been driven down through various innovations. The equipment has improved and the technology has improved and that has driven down a lot of the cost. The pricing has been driven down by the illegal subsidies and dumping from the Chinese solar products. If this is really an open market, it will correct itself and find the right price.

ENERGYBIZ What is your best estimate of solar prices in the United States two years from now?

BRINSER

I don’t know where to start to guess.

Let me put it a different way. If prices have fallen by half, what share of that decline was caused by China’s unfair trade practices?

ENERGYBIZ

BRINSER

A very significant share.

So there will be a major price impact if you prevail?

ENERGYBIZ

Once you have a legal open market, then the prices will find that natural balance. Whether it is through a traditional consolidation or whatever else occurs in the market, pricing is going to find its natural level. You will see upward pricing pressure only because it is a false price at this point because of the dumping.

BRINSER

ENERGYBIZ

What we are facing here is really an illegal business practice in the Chinese industry.

Why launch this effort now?

If you look at the number of bankruptcies and downsizing that has occurred in the last 18 months, it becomes apparent that we had to do something fairly quickly. We started this process in the springtime.

BRINSER

» METRICS

energybiz.com E N E RGYB I Z 49

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» LEGAL ARENA Shaping California’s Smart Grid EMPLOYING THE BEST COMPUTER TECHNOLOGY // BY S. JULIO FRIEDMANN THE NATION’S POWER SECTOR is facing unprecedented changes, ranging from high levels of intermittent loading from renewable portfolio standards to complex cyber-security threats. New technology options, such as bulk electricity storage and plug-in electric vehicles, further complicate matters for power companies and ratepayers. State and federal policy changes require changes to the power system, which may ultimately increase cost and decrease service reliability. Shale gas is changing the fabric of the energy business, inverting pipeline flows and investment norms. In addition, water, wind and solar resources and heat storms will affect investments and operations as our understanding of global climate change matures.

Nowhere are these challenges more evident than in California, where the state has adopted many environmental and energy policy goals, including:

» Reducing greenhouse gas emissions to 1990 levels by 2020 and to 20 percent of 1990 levels by 2050

» Requiring mandatory smart grid deployment by 2012, totaling over 16 million smart meters

» Increasing energy efficiency programs, targeting additional reductions of 5,000 to 8,000 megawatts of peak electricity demand

» Meeting 33 percent of electricity sales with renewables, which will require about 20,000 additional megawatts of intermittent wind and solar resources

» Using distributed generation technologies, including the California Solar Initiative and Small Generator Incentive Program, targeting an additional 5,000 megawatts of solar photovoltaic supplies and combined heat and power plants

» Retiring, replacing or mitigating once-through cooling power plants, which could affect more than 16,000 megawatts of thermal resources by 2020 52 E N E RGYB I Z January/February 2012

» Increasing the use of cost-effective digital information and control technology to improve grid reliability, security and efficiency The California Clean Energy Plan not only provides environmental benefits and introduces new energy sources, but also presents new challenges to be addressed while meeting the requirements for low electricity rates, high grid reliability and stability.

To address these challenges, Pacific Gas and Electric, Southern California Edison, and San Diego Gas and Electric filed an application with the California Public Utilities Commission this summer, to request funding for a five-year research and development agreement called the “California Energy Systems for the 21st Century (CES-21).” The three investor-owned utilties are partnering with Lawrence Livermore National Laboratory to provide advanced computational and analytical capabilities, and new tools and platforms for workforce training.

The proposal focuses on four areas: resource planning, operations, security and workforce preparedness, all to be approved by a governing board. The CPUC application includes use cases to illustrate the likely scope and scale of CES-21 initiatives. Given the DUKE RATES breadth of the systems involved, even small State regulatory improvements could save hundreds of hearings are under way to decide the fate of millions of dollars annually.

Duke Energy’s proposed With CES-21, new or augmented 7.2 percent rate hike in North Carolina. The hike computational tools must balance reliability, is planned for February, costs and regulatory limitations, as well as according to the Associated Press. transmission capabilities, economic use of supply, demand-side resources, distributed generation, and storage under uncertain system and market conditions.

California’s Clean Energy Plan requires a more responsive and flexible grid. CES-21 proposes developing flexible metrics and standards to guide planning and operating California’s electric grid in a future in which a large portion of the state’s electric supply will be provided by resources with little or no operating flexibility. This effort would build on efforts by the

North American Electric Reliability Corp., the Western Electricity Coordinating Council, the California ISO and others.

As the grid is becoming more interconnected and complex, the cyber-security threats are also becoming more sophisticated, well-funded and persistent than ever. CES-21 will help the IOUs, regulators and other stakeholders anticipate cyber-security risks, influence standards, and develop next-generation tools and methodologies to protect the grid from evolving and increasingly complex threats.

A key operational issue facing utilities is the ability to manage intermittent resources effectively while utilizing grid assets efficiently. The increasing number of intermittent resources make rapid, accurate stability analysis more critical than ever. System operators study and monitor the strength of the system for future events such as line maintenance, generator outages, real-time monitoring and post-event analysis. Using the tremendous amount of system data that is created, processed and analyzed, the application team aims to develop methods to increase the analytical capabilities of the investor-owned utilities to monitor and control the bulk-power system.

For a given demand scenario and configuration, today’s gas system simulators calculate resulting pressures and flows throughout the system. These models are computationally intensive and require a significant amount of time and resources to run. The proposed plan is to build and enable tools to run hundreds or thousands of hydraulic scenarios within a day, improving the functionality, speed and abilities of the natural gas modeling platforms and the existing hydraulics code.

Accessing and applying high-performance computing is central to the plan, which will employ some of the fastest and most powerful computers in the world and the teams to operate them. They will run grid operations and planning models at much higher resolution and with increased complexity, faster and in greater numbers than ever before.

Although traditional desktop simulations work well for a variety of analyses and applications, the computing capabilities of Lawrence Livermore could provide a quantum leap in the IOUs’ ability to analyze more data faster. The sheer volume of data the IOUs are confronting is dramatically increasing, and advanced

metering infrastructure projects have already increased data volumes by several orders of magnitude, from only 12 data points of energy usage per year to 35,040 data points per customer per year for 20 million customers. The issues confronted by the industry are also growing in complexity and require more computationally complex and XCEL SEEKS expensive models. High-perforFUNDS mance computing will significantly Xcel is seeking a $142 million boost reduce the time to run simulations in its Colorado rates, and will help the IOUs better according to the Associated Press. respond to today’s business The revenue is needed and regulatory demands. to cover a variety of costs, including This computational and modelhigher taxes and ing power will provide unprecbeetle-damaged trees threatening power lines. edented insight into synergies, vulnerabilities and opportunities in the grid. Although it will enable those most vested in its operation to make smarter decisions, the main beneficiaries will be the ratepayers. Over the next 10 years, this advanced computational and analytical approach will save billions of dollars in investments, network efficiencies and crisis management.

As the United States grapples with the same issues as California, we imagine these tools in use nationwide. According to Richard O’Neill, the chief economist of the Federal Energy Regulatory Commission, “New software and improved models created in the CES-21 partnership could result in a return on investment of 1,000 when tools are applied nationally.”

The team looks forward to expanding current efforts to develop tools and approaches that utilities and agencies can use.

Dr. S. Julio Friedmann is carbon management program leader at the Lawrence Livermore National Laboratory.

Gatherings//Legal Eagle March 12-13 European Smart Grid Cyber Security

London

March 19-20 Wall Street Green Summit

New York

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

energybiz.com E N E RGYB I Z 53

» LEGAL ARENA Rebranding Solar GETTING PAST SOLYNDRA // BY RUSS CHOMA

[

]

LAST FALL, WHEN SOLYNDRA letting the politicians who support them COLLAPSED, it left many Demorun wild. President Barack Obama’s crats and the White House red-faced. promise of 5 million new green jobs, And regardless of what investigations which sounded so uplifting at the time, WASHINGTON of the solar company ultimately find, the something that could really motivate company failure was red meat for Republicans. Never voters, is now one of the phrases that Republicans turn mind the arguments made by Democrats that the loan back on their Democratic opponents. Solyndra was guarantee program that had been so lucrative for the arguably a case of setting expectations too high — it solar company was designed to help risky ventures, was heralded as a success even before anyone knew or that Solyndra’s $535 million guarantee was just a if it could be, and when the chance of failure that everysmall fraction of the total program. It just looked bad, one tuned in to the industry and the government loan and politically speaking, that’s more than enough. program knew was possible, happened, it stung badly.

As enthusiastically as the Democrats hailed the There is an opportunity in the post-Solyndra era, company as a symbol of solar’s success at creating Tom Kimbis, the Solar Energy Industry Association’s jobs and innovative product in the market during vice president of strategy and external affairs, said. good times, the Republicans are railing against solar “We have to make sure we don’t throw the baby out in bad times. with the bathwater. Just because we have one or even Solyndra is now a dirty word on Capitol Hill. a handful of companies fail isn’t indicative of the overall “Solyndra’s failure is evidence of the folly of subsiindustry,” Kimbis said. “Nor would it be fair to look at the dizing green energy combined with the folly of politiindustry through the lens of one particularly successful cians’ handpicking winners and losers in the market,” company. It’s a diverse and competitive industry.” declares a report written by the House Committee Discussing the possibility of incentives drying up on Oversight and Government Reform, typifying or federal policy turning against solar, Kimbis readily acRepublican commentary on the company. knowledged how tough it might be but emphasized that So now, whatever the merits of the specific the most successful industries had hard times before accusations about Solyndra may be, the company’s they became some of the most profitable. And his pubbad name is being used to smear all of solar. lic message focused on life after government subsidies.

“This is not the time to be in the headlines,” one “I see solar today as going through something green energy lobbyist said, complaining about just how very similar to what the telecom industry or what the hard it has become to make the case for solar on Capipersonal computer went through,” he said. “We’re in tol Hill. It’s not the time, because key government incen- a transformative phase.” tives for solar are expiring, and the American manufacJesse Jenkins, director of energy policy at the turing industry is in the early stages of a trade war with Breakthrough Institute, a think tank that focuses on Chinese manufacturers. Strong support from politicians pushing innovation and new technology to solve major would be important on these issues in any atmosphere, energy and climate problems, believes the time is right but especially so in these bitter, partisan days. to reset the message on solar. Kill the idea that solar So how can the solar industry get help this time, is an industry perpetually in need of support, he said. without a bottomless reserve of money built up from “I think what the industry has to do is really get decades of successful business? Be realistic about clear in the messaging to policymakers that they’re where the industry is, and get focused on life after not asking for open-ended, unending subsidies,” he subsidies and how to get there as quickly as possible, said. “They need to say, ‘Here’s a road map; we’re several people said. going to execute, a real, credible plan. We need help In the past, the green world — not just energy — has to get us through this road map, and here’s the policy been guilty of setting very high expectations and then to get there.’”

INSIDE

54 E N E RGYB I Z January/February 2012

Rates Rise Before New Nuclear Plants PAYING FOR THE RENAISSANCE // BY PAMELA COYLE IF THE UNITED STATES is to see a nuclear power renaissance, rate increases in many states will kick in long before the plants are operational. For utility customers in Georgia, South Carolina and Florida they already have.

Georgia Power, part of Southern Co., announced a monthly increase of 57 cents for the average customer beginning January 2012 for financing two additional nuclear reactors at Plant Vogtle near Augusta. The first such increase, $3.73, took effect in January 2011.

In Florida, the Public Service Commission in October unanimously agreed that Florida Power & Light customers must pay $196 million in 2012. Starting Jan. 1, 2012, a typical 1,000-kilowatt-hour residential customer will pay $1.87 extra each month for improvements at the utility’s existing St. Lucie Plant and planning and licensing costs for two new reactors at the Turkey Point plant.

Another rate increase later in 2012 is expected for South Carolina Electric & Gas Company and stateowned Santee Cooper. The joint project aims to build two new units at the Virgil C. Summer Nuclear Station and received a 1.1 percent rate increase in 2009 to start recovering financing costs.

None of these new projects has final regulatory approval — the Nuclear Regulatory Commission may license the new Vogtle reactors by the end of 2011, making them the first new U.S. nuclear construction in 30 years — but all are using mechanisms designed to spread the massive costs of such ventures over a longer period of time.

These new projects inch forward in a regulatory environment that incorporates some painful lessons from the past. Contracts for nuclear construction now attempt to segment some risks, such as a spike in the price of steel, that are truly unavoidable, while design work and site construction expenses are subject to better oversight mechanisms during the building phase, said Marc Chupka, a principal with the Brattle Group.

In Georgia, for example, Southern, the lead partner in the $14 billion project, makes monthly expense reports and submits to a state regulatory cost review every six months. Additionally, the company pays for

an independent expert who monitors the project and reports to the commission.

“That’s a big change,” said Bill Edge, spokesman for the Georgia Public Utilities Commission. “We have independent monitoring so the commission has a handle on costs as we go along and are not surprised six years down the line.”

Allowing utilities to recover costs for Construction Work in Progress strikes a middle ground that allows up-front customer rate increases to mitigate the big rate shock that typically comes with a new nuclear plant in use, Chupka said. However, CWIP recovery does involve some degree of approval before the final costs are known, which some contend might limit the incentives to control costs.

“The goal of better risk sharing and CWIP in rate base is to avoid radically bad and surprising outcomes,” he said. “It used to be that a utility could only recoup costs if a plant was in use and useful.

CWIP is a departure.”

And it’s a departure with loud critics. Florida’s state consumer advocate warned that the true costs of the Turkey Point reactors aren’t known but recognized state regulators’ hands were tied. If FPL decides not to build them, for example, no refund will be due to customers.

For states without such provisions in place before the Fukushima disaster, the climate for allowing pre-construction cost recovery has cooled. In June, the Iowa Legislature adjourned without passing a bill backed by MidAmerican Energy that would have allowed advance rate increases before construction – even if the projects were not completed.

In April, just weeks after the meltdown in Japan, the Missouri Senate killed a bill that would have allowed a coalition of utility companies to charge customers $40 million for the cost of an early site permit for a second nuclear reactor at Ameren’s Callaway County plant.

Duke Energy wanted total planning expenses for two new reactors at its $11 billion Lee plant in South Carolina of $459 million through the end of 2013.

In August, The North Carolina Utility Commission slashed the company’s request for pre-construction spending to be passed on to ratepayers to $120 million total for the next three years. energybiz.com E N E RGYB I Z 55

» FINAL TAKE Pylons as Art TRANSFORMING TRANSMISSION // BY ERIK BYSTRUP TO SURVIVE, modern man requires electricity. Electricity to work, to cook and to play.

It is a paradox that we cannot imagine living without electricity, while we at the same time do not accept the power pylon as a part of our cultural landscape.

They dominate the landscape with visual noise.

Power pylons perform a vital function. Nevertheless, most people regard them as a threat. They are perceived as messengers of electricity, high voltage and danger. To some, they even symbolize the growing pollution from modern civilization. All of these perceptions have, over time, become synonymous with the power pylon.

Should we not try to create overhead transmission lines that dignify the power pylon and restore it as a worthy part of the landscape? We could let the appearance of the lines radiate the hope and possibilities we see in sustainable power production.

Transmission grids across the world all face great challenges as we reorganize energy production to increase the use of renewable sources. Almost all kinds of sustainable energy exploit the forces of nature. The wind turbine only turns when the wind blows, the photovoltaic cells rely on unobstructed solar rays, and the hydroelectric power plants run at full speed when the snow melts and water runs down the mountains.

We cannot avoid expanding the power grid if we want the capacity to move the energy to where it is needed, when it is needed, thus creating a reliable supply for everyone. It is this change in our electricity production and transmission grids that present a unique opportunity — the opportunity to make a difference in the landscape and create new pylons with a strong design profile, making power pylons an acceptable part of our present as well as our future.

My Danish studio, Bystrup Architects and Engineers, is designing and developing such new power pylons.

My company’s work in the field of overhead transmission lines began in 2001 when my studio won the competition for a new power pylon in Denmark.

The pylon was named the Design Pylon because the aesthetic appearance was the main point of focus. As 56 E N E RGYB I Z January/February 2012

a result of the competition, 80 Design Pylons were erected between the towns of Bramslev and Haverslev in Jutland. Working with technical installation from an aesthetic point of view did not turn out to be easy.

Several details would have been different if, in 2001, I had the experience and knowledge I have today.

You could call the Design Pylon an important first step in the evolution toward the power pylons of the future. Since the erection of the first pylons, my studio has specialized in developing new high-voltage power pylons.

My company’s office displays a nearly overwhelming number of designs built as 1:50 scale models. They are everywhere, and when you look in the archives of power pylons from the past 10 years, you enter a world of tower designs. Some have not been developed beyond initial sketches, while others are ready for production after they have been thoroughly refined and detailed technically as well as aesthetically. Essentially, they all answer the same questions. “What do we want from the power pylon? Is it a technical necessity, an object of design or a piece of land art?”

The answer lies somewhere in between. One of the challenges is to optimize the design according to the demands. An object as technically demanding as a power pylon needs to be more than pleasant to the eye, not only because faulty high-voltage design can have catastrophic results, but also because a wide range of technical demands must be met. For example, technical demands vary according to voltage, and as a result, design approaches can change. A power pylon designed for 400 kilovolts does not necessarily work at other voltages.

It is also important to take the configuration of the conductors into consideration when designing power pylons. Even though this step is often overlooked, the conductors have a significant visual presence with overhead transmission lines that stretch across the landscape. And the configuration of the conductors is as important as the design of the actual pylons.

The importance of conductor layout was examined in the Eagle Pylon project, a 2-by-400-kilovolt pylon

developed for Energinet.dk. Six hundred Eagle Pylons will be erected between the towns of Kassø and Tjele in Denmark. The relationship between the pylon design and the conductor layout was examined as the pylon was developed as a one-, two- and three-level design. All three variations were thoroughly examined before a final decision was made to erect the twolevel design because it was regarded as optimal in its relationship with the landscape.

Another important aspect of power pylon design is the choice of materials. Currently, industrial production offers far more options than was possible with traditional lattice towers. This advancement has made the use of far more materials possible, including materials that can be more effective in terms of erection speed and total cost.

The choice of materials can have a significant influence on the visual appearance of the new pylons.

That is one reason why the studio has been working with mirror-polished stainless steel that reflects the surroundings and that can create the illusion of an almost invisible pylon.

An example of a mirror-polished design is the Stealth Pylon. The Stealth Pylon design is part of the work that led to Eagle Pylon, and it was developed in parallel with the effort that produced the pylon that will be erected between the towns of Kassø and Tjele as an alternative that might be used with the entire length of the transmission line.

The Mirror Wall won first prize in the competition to design a landscape/art tower at Heia in Norway,

which also uses the reflection of the landscape on mirror-polished stainless steel. This pylon is a piece of land art, and it will be built as a one-of-a-kind pylon on a new transmission line in Norway.

The studio examined another material, fiber composite, because its insulating properties give rise to radical new possibilities in power pylon design. A fiber composite power pylon can be designed without traditional insulator chains because the pylon itself acts as one big insulator. The power pylon can be made visually clean and simple, thus minimizing its visual effect on the landscape.

Using the material correctly makes it possible to compress the power pylon and reduce its overall height, which is an important factor when looking at the appearance of the entire transmission line in the landscape. The lower pylons easily hide between forests and hills. The use of fiber composites as structural members in power pylons is new, but the technique is well known in the production of composite insulators.

Now is the time to create a contemporary pylon for modern life and adapt it to its surroundings. Let us create power pylons that remind us of the renewable energy that flows through the grid.

We owe it to the power pylon, the landscape and, not least, to ourselves.

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