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VOLUME 10 // ISSUE 4 JULY 13 // AUGUST 13 energybizmag.com
PEOPLE // ISSUES // STRATEGY // TECHNOLOGY
CUSTOMER TOUCH SOCIAL MEDIA & ALL THAT JAZZ ºº PUGET SOUND ENERGY ºº SALT RIVER PROJECT ºº SOUTHERN COMPANY
TELECOM TRANSFORMATIONS KNITTING IN RENEWABLES TAKING COMMAND OF TVA ºº CHAT WITH BILL JOHNSON
EUROPE’S CARBON COLLAPSE
AN E N E RGY C E NTR AL PU B LIC ATION
October 21–24 McCormick Place Chicago, Illinois USA
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JULY/AUGUST 2013
6 Illustration by Patrick Sullivan
47
14 Features
14
CUSTOMER TOUCH Armed with new technologies and tools, utilities are reaching out to their customers and forging a wholly new relationship. These efforts will evolve utilities’ business models. Are you ready for an entirely new approach to the electric business?
Departments O U R TA K E
4 Focus 5 Letters BUSINESS EDGE
Forum Coverage
SALT RIVER PROJECT 18 New Thinking in Customer Care
6 Capitalizing on Energy Efficiency
PUGET SOUND ENERGY
9 The Promise of Storage
SOUTHERN COMPANY
20 The Power to Do Right 21 Social Media Era
24 TELECOM TRANSFORMATIONS
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Robust telecommunications links far-flung assets and customers with utilities like never before. What changes are on the horizon? Who will own the customer relationship – and what will be the consequences?
SOUTHERN CALIFORNIA EDISON 27 Mastering Change
10 The Long View 13 Focus on Security T E C H N O LO GY F R O N T I E R
34 A Bright Future 36 The Little City that Could 37 Perfect Power 38 Toward a More Robust Grid INTRODUCING
30 KNITTING IN RENEWABLES
The Department of Energy is ready to unveil a new test facility in Golden, Colo., that will enable utilities to increase the share of renewables in their generation mix. Get ready for a more robust grid.
40 Taking Command of TVA/ Bill Johnson’s New Assignment LEGAL ARENA
43 Europe’s Carbon Collapse 45 Building Cap-and-Trade 2.0
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THE DEPARTMENT OF ENERGY senior official could barely contain himself. I had asked him how the world of electricity might look a decade out. Mark A. Johnson, program director of DOE’S Advanced Research Projects Agency – Energy, predicts the stealth game-changer may be a combination of a fuel cell and energy storage device about the size of a refrigerator. It will cost about $1,000, something a consumer can pop onto a credit card. It will fast become ubiquitous. Remember when computers were clunky and expensive, owned primarily by large businesses? Personal computers went mass market and undreamed-of applications and enterprises arose, the ARPA-E leader told me. The same thing will happen with energy when small-scale power generation and storage turns hundreds of billions of dollars of energy infrastructure on its head. Among other things, electric vehicles will then stream into our garages and onto our freeways. Out in Connecticut, Daniel Esty, commissioner of the state Department of Energy & Environmental Protection, is working to implement his governor’s plan to jumpstart deployment of microgrids with $15 million of initial funding. It is the state’s response to a series of devastating blizzards and hurricanes in the last two years that left hundreds of thousands of residents without power. I recently traveled to Oregon to moderate the opening plenary session of a conference on transactional energy, convened by the Gridwise Architecture Council. It explored the benefits of putting a price on electrons as they flit about the grid. The concept has the attention of Jon Wellinghoff, chairman of the Federal Energy 4 E N E RGYB I Z July/August 2013
Regulatory Commission, who spoke at the Portland gathering. I asked Wellinghoff about the pace of technological change coming to the power industry. How can utilities and other energy companies stay in the game? What businesses should they construct, and what business models should they be now testing? Wellinghoff, who will soon step down from his post, has his own questions. “How do we rationalize the whole system?” he asked. “Where is it moving?” Where Visit my blog at will technology take us — and energyblogs.com/ how do we get there withrosenberg. out leaving utilities and their For news and customers saddled with commentary drop billions of dollars of stranded by energybiz.com assets? Will new transmission be needed? Will new, large, centralized generation units be needed? “Maybe yes, maybe no,” the FERC chairman told me. So with ARPA-E pursuing game-changing devices, with the state of Connecticut actively promoting microgrids, and researchers in the Pacific Northwest and elsewhere looking at revolutionizing the economics of power transmission, how are folks laboring in our energy vineyards to keep their focus? For one thing, staying informed will be critical. You can help. We are now designing our editorial coverage for coming months, the webcasts we will be providing and a round of conferences we hope to establish on emerging issues vital to the future of your enterprise, as well as your career. What would you like us to focus on? Send me a note at editor@energybiz.com. New technology. New government policies. New economics. I asked Wellinghoff what should be our mission in coming months and years as a thought-leading information provider to the energy sector. “How to mesh it together,” he answered.
Martin Rosenberg, Editor-in-Chief editor@energybiz.com
» LETTERS I very much enjoyed reading your May/June issue. www.energybizmag.com EDITOR-IN-CHIEF Martin Rosenberg
mrosenberg@energycentral.com 303.228.4725 COPY EDITORS Don Bishop,
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One particular article that got my attention was the one written by Bob Shapard, the chief executive officer of Oncor.
www.me.sc.edu/nuclear. The paper is considered to be a work in progress. Comments to improve the document and determine a path forward would be welcome. Elwyn Roberts University of South Carolina Columbia, S.C.
His article, “Paying for the Future Grid – Furthering Electric Enhancements,” concisely and articulately In response to your blog, “Europe’s explained what the electric industry Carbon Collapse,” [www.energyhas been going through blogs.com/Rosenberg], in the last decades and industry complaints how it addressed the about high costs The capacity needed for resulted in over-allocaNuClear the nation’s growth. tion and there was PaTh no effective policy The article enabled review or open market Grid OutlOOk the reader to fully intervention mechaunderstand issues nism in place. associated with Honda Power & LigHt
Volume 10 // issue 3 may 13 // June 13 energybizmag.com
people // issues // strategy // technology
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2012 Eddie Gold Best magazine energy/utilities/engineering 2012 Eddie Silver Best Online Blog by B-to-B publication 2012 ASBPE Silver National Medal for Editorial Excellence
generation and how the industry is addressing the challenges associated with it. Most importantly, it explores the steps that need to be addressed in the future in regard to demand management, energy storage and smart grid. Keep up the good work. Amin T. Bishara Green Energies Enterprise Hurst, Texas
I was very impressed with what Gen. Jim Jones said in your interview, “Energy Policy, Energy Security,” [May/June]. I am 100 percent supportive of his approach. I came to the same conclusion in a paper I presented at the University of South Carolina during National Engineers Week and was well received. It can be downloaded from the University of South Carolina’s Nuclear Engineering webpage:
To contribute to the Letters column, please email your submission to editor@energybiz.com.
With the transformation to a lower-carbon economy being easier, cheaper and quicker than policy-makers thought a decade ago, and with the economy weakening in large parts of Europe, the EU is awash with carbon credits. A recession is a good time to retire old and presumably less energy-efficient capital stock and it is a good time to invest in new energy-efficient infrastructure. It would be easy to fix. Lower the EU’s carbon cap, require a minimum price at auctions, use the money raised from the EU emissions trading scheme as well as from general taxation to buy up cheap credits on the open market and disallow credits from dubious projects. Then, ensure that the right institutional framework is put in place for adaptive management of the policy and regulatory framework so that it works better in future. R. Andreas Kraemer Ecologic Institute Berlin energybiz.com E N E RGYB I Z 5
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Capitalizing on Energy Efficiency THE NEXT GREEN FUEL // BY RICHARD SCHLESINGER UNQUESTIONABLY, THE POWER INDUSTRY needs to cut emissions, modernize the grid and increase capacity as the economy recovers and demand grows. The public conversation inevitably turns to renewable sources, substituting gas for coal, smart grid innovations and the ever-green topic of a nuclear renaissance. Often lost in the discussion is the topic of efficiency. When the public thinks about energy efficiency, it generally thinks about improving home insulation and switching to more efficient appliances and lighting. Numerous government programs, mostly in the form of incentives, are designed to encourage taking those steps. Utilities generally participate to some extent, often through education programs and, in the case of central HVAC systems, incentives. Smart meters have also received considerable attention. Their deployment continues and is accelerating in some areas. But the real payback awaits the broad availability of appliances that can communicate with the grid, and these are unlikely to be deployed in large numbers for years. Some programs using smart meters are in place that allow utilities to control central heating and cooling systems, cycling them or adjusting thermostats in exchange for pricing incentives. However, they are not widely deployed, even in areas where smart meters are installed. They have sometimes met with customer resistance, mainly over privacy concerns. Most of the pilot programs to manage demand are on the residential side. Dealing with large-scale commercial or industrial customers can be challenging for a utility, which may not have the industry-specific knowledge to identify likely areas where efficiencies can be realized or the technical expertise to implement them. Increasingly, utilities are turning to outside firms that specialize in identifying and implementing energy efficiency in such industries. AEP Texas, for instance, is experimenting with a load management program directed at agricultural 6 E N E RGYB I Z July/August 2013
customers, specifically targeting large-scale agricultural irrigation. “Agricultural and irrigation pumping customers haven’t participated in any of our demandresponse programs, so this is an attempt to target them,” said Billy G. Berny, manager of energy efficiency and demand response for AEP Texas. An outside implementer will install hardware and software to remotely manage a participating customer’s pumping system. When ERCOT, the Energy Reliability Council of Texas, predicts a high peakdemand day, the implementer will notify the customer that it will need to curtail its pumping system at a given time for a certain period. AEP will then monitor usage and pay the implementer, who will pass some of the savings to the end user. A similar efficiency program targets small commercial facilities, those with peak summer demand of less than 100 kilowatts, such as convenience stores and retail facilities. Open, as the program is known, works with outside specialists and contractors to identify areas such as lighting, insulation and refrigeration, that are good candidates for improving energy efficiency. Another program, SCORE/CitySmart, targets K-12 schools and city government electric distribution customers and provides the expertise to help them benchmark current usage, create an energy master plan, identify and evaluate opportunities for energy efficiency measures and monitor savings in usage. AEP Texas uses CLEAR Result Consulting to implement the program. The demand response approach to energy efficiency generally requires the active participation of end users, but distribution companies have alternatives that don’t depend on customer participation. Control-
Agricultural and irrigation pumping customers haven’t participated ... this is an attempt to target them.
ling voltage levels and reactive power — Volt-VAR — is fundamental to all electric transmission. AEP, along with a number of other utilities and distribution companies, is running Volt-VAR demonstration projects to see how effective active management of Volt-VAR can be in increasing efficiency. “One of the neat things that differentiates this from some of the other energy efficiency programs is this doesn’t require a decision by the customer,” said Tom Weaver, AEP’s manager PJM SUPPLIES of distribution system planning. “If PJM Interconnection they’re on a system where Volt-VAR said it will have adequate optimization is applied, they’re going power supplies to meet an anticipated to participate, and they’re probably peak power demand not even going to know it.” of 155,533 megawatts this summer. Providing slightly lower voltage, but PJM serves 60 million always within the regulatory standard people in 13 states. of 114 volts to 126 volts, lowers power consumption without compromising the performance of electrical devices. Motors, in fact, actually perform more efficiently at 115 volts than they do at 120 volts. Controlling the reactive power, the VAR factor, contributes additional efficiency, especially on circuits with heavy motor loads. “It’s particularly effective because everyone on the system
participates and everybody’s service remains intact. The customer’s air conditioner runs as much as they want. There’s no change in the thermostat. We’re not asking for behavioral change,” Weaver explained. Important advances in energy efficiency are also being achieved on the transmission end. The Bonneville Power Administration is the federal agency based in the Pacific Northwest that markets wholesale power and operates and maintains about three-fourths of the high-power transmission in its service territory. Part of its mandate is to encourage renewable sources and promote energy efficiency. BPA took the lead in developing what has come to be known as WISP, the Western Interconnection Synchrophasor Program, which has nothing to do with beaming people instantly from one coast to the other. Rather, it uses GPS and advanced sensors to track fluctuations in voltage, currency, angles and other aspects of current to identify oscillation or voltage issues almost instantaneously. Where the old technology scanned the system two to four times per second, WISP scans it 60 times to 100 times per second. “This helps enormously with renewables being connected to the system,” said Larry Bekkedahl, senior vice president for transmission. “Changes are very energybiz.com E N E RGYB I Z 7
» BUSINESS EDGE rapid and monitoring performance of the equipment becomes much more critical. It allows us to integrate renewables better and have better information on the dynamic ratings and capacity of the system.” In addition to making it much easier and safer to integrate renewables, the system allows operators to see a disturbance developing at its earliest stages and respond to prevent cascading failures that can lead to widespread outages, as occurred in the Southwest in 2011. BPA is also leveraging advances in the telecommunications networks by deploying an operational multigigabit Ethernet transport (OMET) system. OMET provides thousands of times greater bandwidth than what’s available in the fiber network today, which Bekkedahl sees as a huge advantage for the industry. Without replacing the existing fiber, which would be enormously expensive, OMET permits communication among relays at a microsecond level, which, again, protects the system from catastrophic failure. He expects the system to be fully deployed by 2017. While OMET and WISP are at the cutting edge of technological advances, BPA also came up with a seemingly low-tech innovation. BPA engineer Len Custer developed a high-temperature shunt technology that increases the maximum operating temperature of transmission lines from 100° C to greater than 200°. This enables more transmission capacity, power flow and load integration on existing transmission lines without replacing a single wire. Custer designed the technology and submitted it to the Electric Power Research Institute, which then verified it with 10 other utilities across the nation. EPRI is working on a broad spectrum of new technologies to increase energy efficiency. Revis James, director of EPRI’s Generation R&D Sector, points to the broad spectrum of EPRI research on increasing efficiency in every stage of the power process, from generation to end-use distribution. “You can’t pinpoint one factor as the dominant focus of research right
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now,” he said. “We’re doing research to design materials for pipes and pumps, for instance, that can function at higher temperatures and pressures to create larger differentials that would yield greater efficiency, but it’s a long-term process. We’re also looking for ways to cool steam more effectively, which again would yield greater efficiency, particularly for coal and nuclear plants, which account for 50 to 60 percent of our capacity, so there’s a big bang for the buck there.” Cooling technology, according to James, is further advanced than materials research, and is already in place in some plants. At the end of the line, integration of distributed energy generation and storage will play a major role in increasing overall energy efficiency. But this area, too, is in the basic-research phase. “There are two fundamental parameters,” James said. “One is how much energy you can store. The other, which is just as important, is how fast you can discharge the energy you’ve stored and then recharge it. There are numerous approaches: compressing air, using hydro storage, and employing batteries. The home run would be a very efficient battery technology so you could develop scalable storage. But that’s a material science and basic physics issue. And that’s going to take some time.” Time and money. The business case for energy efficiency is complex. It’s easy to see the case for cutting generating costs. But when it comes to cutting demand or increasing transmission efficiency, the profit motive generally won’t suffice. Utilities are driven to improve efficiency as much by regulatory demands for increased efficiency and the mandated move toward renewable sources as they are by the possibility of increasing profits or cutting the need to invest in increased capacity. As AEP’s Tom Weaver noted, the biggest drivers are meeting requirements that some states have and taking advantage of incentives some states offer for increased efficiency. He believes that the need for increased capacity can be slowed, but he doubts that any currently available techniques for increased efficiency will forestall the need for increased capacity or significantly cut capital costs.
The home run would be a very, very efficient battery technology so you could develop scalable storage.
The Promise of Storage STATUS AND CURRENT DEVELOPMENT // BY MICHAEL KINTNER-MEYER THE ELECTRICITY GENERATION and delivery system is the only utility with virtually no storage. Take the water, natural gas supply or the crude oil systems on the other hand — they all have storage capability to even out the temporal mismatch between when the resource is produced and consumed. Only the electric grid has the property of just-in-time production. Generation has to follow the load. Each time we turn on an appliance, a power plant somewhere needs to work harder to provide the additional power that we demand. Only a small amount of the electricity generation, about 2 percent, goes through energy storage systems, all of which are pumped hydroelectric storage. This just-in-time production may be changing, however. The recent growth in variable generation from renewable resources in the United States and Europe, primarily wind and solar photovoltaic capacity, has drawn new attention to storage technologies. While most of the interest has been in storage systems based on electrochemical principles — batteries, there also are new innovative designs in mechanical devices such as flywheels or novel compressed air technologies for use aboveground, belowground in porous media or caverns, or even on the sea floor. All of these nascent technologies are inspired by the need to provide more flexibility to the grid to accommodate the increasing volatility in the supply of electricity from the new, intermittent resources. The U.S. Department of Energy has provided fundamental and applied research funding to advance storage technology and drive down its cost. Furthermore, the American Reinvestment and Recovery Act has enabled the launch of 16 grid-connected demonstration projects. These projects are expected to provide valuable data and lessons learned about how to site energy storage technologies, how to control them and how to estimate the true cost of their ownership.
Meanwhile, international competition does not sit idly by. At a recent Energy Storage World Forum in Berlin, experts from the vendor and user communities came together to discuss storage technologies and various business models to get them some market traction. One of the market barriers is the high cost of storage compared with a combustion turbine, today’s typical approach to providing grid flexibility. However, unlike combustion turbines, storage technologies respond fast — a feature well appreciated by grid operators but rarely compensated in competitive wholesale market structures. The Federal Energy Regulatory Commission Order No. 755 has addressed the fast response of energy storage and calls upon Independent System Operators to provide market structures that will honor the precise and fast response of energy storage following the instructions of the ISO for regulation services. The Midwest Independent Transmission System Operator and PJM Interconnection have implemented payment schedules for regulation services that are based on the power movement that is requested of a resource every four seconds. The movement in the power output, also called mileage of a resource, is the basis for payment. So, the more and faster a grid asset moves, the more mileage is covered in any given period and the more compensation the asset earns. PJM offers a fast regulation services market where the baseline resets every five minutes. This means that any given resource participating in this market receives instructions to move from an operating point of charge and discharge such that the deviations from the operating point net out over this period to energy neutrality. This market is ideally suited to fast-responding assets that do not have large energy storage capability, which plays favorably into the energy storage market and demand response market. Storage systems do not have to have long energy storage capabilities. A storage that can hold the rated power capacity for 20 minutes is often sufficient to satisfy the requirements for this market. Likewise, demand energybiz.com E N E RGYB I Z 9
response resources, such as thermostatic reset of residential and commercial buildings or variable charging of electric water heaters, can easily provide these services as well. The ARRA federal stimulus funds have injected significant capital into the deployment of promising storage technologies. The question remains whether this is sufficient or if some kind of market incentive program is required to stimulate investment in storage deployment. The state of California has taken one potential approach with AB2455. Legislators are contemplating policy that would require adding a minimum storage capacity for any new renewable deployment. The California Public Utility Commission is deliberating about what will provide fair stimulation of storage into California’s electricity system. The CPUC’s decision is expected to be published by October. The Germans have taken another approach. On May 1, the German government began offering a tax credit of 30 percent of the cost of distributed energy storage that meets certain requirements. First, the energy storage must be electrically tied to a photovol-
taic system. It must also have an interface to distribution system operators for remote control of the energy storage and it must have a communication interface to the battery system to allow aging batteries to be replaced without replacing the entire storage system. Other requirements place a total cap of 30 kilowatts on each PV/battery system. The motivation for this market incentive program stems from the fact that Germany’s growth in PV installations has been so large that voltage regulation issues have been noticed in the distribution system. Distributed storage collocated with PV installations, primarily on rooftops, is a mitigation strategy to compensate for the large swings in the output caused by cloud cover. Nascent technologies have been subsidized in the past. It remains to be seen whether the German approach will achieve the intended outcome. Certainly, the U.S. and international vendor communities will be following and monitoring the effectiveness of this stimulus, ready to watch and learn. Michael Kintner-Meyer is staff scientist at Pacific Northwest National Laboratory.
The Long View LEADERSHIP AT COBB EMC // BY MIKE SMITH WHEN THOSE OF US in the utility industry think of utilities in Georgia, we might naturally be drawn to Southern Company and its Georgia Power operating company. Those are fine organizations, no doubt, but in the shadows of large investor-owned utilities, Cobb Electric Membership Cooperative has carved out a place for itself among thought-leading utilities by embracing innovation and by taking a laserlike focus on serving customers, or members, as is the case for electric co-ops. As Cobb EMC hits its 75-year mark in serving communities in suburban Atlanta, we spoke with David Johnson, Cobb EMC’s chief operating officer, and he shed light on what makes Cobb EMC and its people tick. He has been at Cobb EMC for 26 years and has worked in different areas at the utility. His stops along 10 E N E RGYB I Z July/August 2013
the path to becoming COO included roles in marketing, customer operations and power supply. With just under 200,000 metered customers, Cobb EMC is among the largest co-ops in the United States. “We really are all about our members, and like Cobb EMC is one of the host other utilities we see a tanutilities for Utility Analytics gible increase in customer Week, Sept. 23–25 in Atlanta. expectations in this iPhone For more information, visit www.utilityanalyticsweek.com era,” Johnson said. “A lot of the expectations involve the availability of information at a very high speed. To this end, we have recently made online payment and outage reporting available, as well as hourly energy usage data for our members on our website.” Johnson further explained that with Georgia being a regulated
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market, Cobb EMC does not compete for customers, except in commercial and industrial markets. Nevertheless, Cobb EMC competes for customer satisfaction. Johnson explained that Cobb EMC continually focuses on the perceptions of the company held by members. The utility’s board of directors holds the Cobb EMC team accountable for continually monitoring and improving customer satisfaction metrics. In addition to addressing customer service challenges, the fact that Cobb EMC’s service area is in the southeastern United States where thunderstorms are a part of everyday life means that managing outages is also part of what makes or breaks a utility in this region. Leaders at Cobb EMC have taken an aggressive, innovative approach using advanced distribution technology as a critical piece of managing the distribution grid. The utility has deployed over 650 fault detection, isolation and restoration switches across its service territory, reducing the number of outages and how long they last. Referring to these improvements, Johnson said, “Our System Average Interruption Duration Index and Customer Average Interruption Duration Index ratings are among the best in the industry. It’s something that we have to deal with, but we have been very proactive in using available technologies to improve our reliability. By the way, in addition to storm outages, we also have to manage squirrel-generated outages. Over some periods they account for up to 40 percent of our outages.” Johnson added that over time, the utility also has been building more of its distribution system underground, with over half of it now underground. One highlight at Cobb EMC is the adoption of renewable energy. In acknowledging a utility’s 12 E N E RGYB I Z July/August 2013
opportunity to show some environmental stewardship leadership, Cobb EMC’s leadership is also prepared to meet future regulatory requirements. Even though Georgia has no renewable portfolio standard for utilities operating in the state, the Cobb EMC leadership decided to include renewables in the utility’s generation portfolio, including biomass, solar and hydro. In the future, the Cobb EMC team N.M. URANIUM will emphasize leveraging a higher A Canadian and return on investment from what it Japanese company plans to develop what spends on smart meters. One feature it says will be the that the co-op soon will offer is a prelargest uranium mine in the country. payment option with a goal of having Roca Honda Resources, at least 10 percent of its members the developer, says engaged in the prepay program. A it could generate $2.2 billion in revenue second benefit is the use of smart over the life of the mine. meter data for several analytics-centric The New Mexico project is under review by the applications. Cobb EMC has begun U.S. Forest Service, monitoring critical information such as according to the Albuquerque Journal. voltages, power interruptions and “hot sockets” (high temperature readings within the meter base) down to the meter level, affording more proactive customer management. Johnson also indicated that the co-op sees the smart meter data as providing an opportunity for improved system modeling and design. From its humble beginnings as a part of FDR’s New Deal to its current position as an innovation and customer service leader, Cobb EMC continues to build its legacy of service in Georgia. Mike Smith is vice president of the Utility Analytics Institute, a division of Energy Central, publisher of EnergyBiz.
Focus on Security GLOBAL ENERGY LEADERS HEAD TO KOREA // BY CHRISTOPH FREI THE THEME OF THE World Energy Congress this year is “Securing Tomorrow’s Energy Today.” But perhaps it would be more accurate to say that the Congress will discuss whether we are at the tipping point when it comes to global energy trends. That is because there are so many issues reaching a critical stage in transition. Oil prices of course continue to fluctuate, but in addition we are seeing a delinking of oil and gas prices, massive dynamism in the price of renewables, huge uncertainty about the future of CO2 prices, and increasing concern with issues related to the energy-food-water nexus. In addition, we are at a crucial point in negotiations regarding the CO2 price and, linked to that, whether to use carbon capture and storage. United States and European oil and gas markets are in the process of delinking, and we are at a critical moment where Asian markets may follow that development, driven by the ongoing shale gas revolution. In Germany and other markets with large renewable shares, there are major debates calling for new market frameworks capable of delivering needed reserve EDITOR’S NOTE and storage capacities to avoid Christoph Frei submitted future blackouts. The pressure to his commentary at the end subsidies and the need for request of EnergyBiz, outlining the overa cleaner energy infrastructure arching issues to be calls for new financing models. discussed at the triennial Also, we are facing the need World Energy Congress that will convene in to strengthen global institutions Daegu, South Korea, supervising nuclear safety, in October. We asked technology collaboration or green him why U.S. executives should attend. trade, and more broadly the integration of China and other major developing countries into global energy institutions. Governments once delegated all energy issues to energy ministers. Now, finding solutions to pressing energy challenges has become a priority for prime ministers and presidents.
For example, President Barack Obama’s meeting in May with South Korean President Park Geun-hye ended with an agreement to collaborate on shale gas, methane hydrates and smart grids. The implications are far-reaching. Shale gas and methane hydrates fuel East Asia’s dream of delinking oil and gas prices. America and Korea are innovation hubs, and Asia will be a massive market for smart grids and related technology. In all, 60 energy ministers, including those from China, Russia, India, Saudi Arabia, the UAE, Iraq, Malaysia and Indonesia, and delegates from 140 countries will be in Korea to discuss these critical changes and developments in the energy sector, many of which require government leadership and private sector rethinking. They will discuss critical alternative paths of development based on WEC’s World Energy Scenarios, which provide a forecast of energy trends until 2050 based on inputs from leading energy producers and consumers, including the United States and China. They will also debate new opportunities and challenges on the basis of WEC’s World Energy Resources survey, and share experiences and best practices in dealing with the Energy Trilemma, which defines the critical policy challenges for all countries. That is, how to balance the need for energy security with environmental concerns and equal and affordable access for all. The world energy map is being redrawn. Given the shift in global demand to Asia, the location for the World Energy Congress this year is all the more appropriate. Asian energy officials and executives tell me they are keen to meet with energy leaders from North America about the new global energy revolution as they figure how it will impact their own energy mix and associated policy and business decision-making. Clearly, the participation of American executives in the World Energy Congress in Korea is essential in pointing the way ahead in how the world can deal with sustainable energy issues. I hope to see you there. Christoph Frei is the secretary-general of the World Energy Council. energybiz.com E N E RGYB I Z 13
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Customer Touch
Social Media and All That Jazz By Paul Korzeniowski FACEBOOK HAS MORE THAN
1 billion users and Twitter has
approximately 600 million. Utilities recognize that these communication channels offer them great ways to communicate with and to provide service to their consumers. “Social media allows better communication with customers and the ability to be proactive in addressing customer service issues,” said Justin Snyder, the national brand manager for Oasis Energy, which supplies electricity and natural gas to residential and business customers in New York, Pennsylvania, Maryland and Illinois.
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Increasingly, social media communication, which takes many forms, has a contact center focus. In fact, DMG Consulting, which specializes in contact center issues, expects that within five years, social media will become the primary channel that consumers use to contact utilities. How should utilities prepare themselves for this dramatic change? The first step to understand what happens on social networking sites. Harris Interactive found that 34 percent of Americans have used social media sites to rant or rave about a product, company or brand. Thus, it is important that utilities engage with customers via these channels. Pacific Gas and Electric, which delivers gas and electric services to approximately 15 million people throughout a 70,000-square-mile service area in northern and central California, has more than 8,600 customers accessing its Facebook pages. National Grid, which provides gas and electric services to more than 7 million consumers in Massachusetts, New York and Rhode Island, has set up separate Facebook accounts for each state. Twitter is also becoming a popular communication channel. “Our CIO tweets about changes in how we use technology,” said Dustin Hoffman, manager, social media and digital strategy at PG&E. In addition, the company tweets information about various news events. In some cases, these communications involve customer service issues, such as someone complaining about a bill or talking about a service problem. At PG&E, such communications land in the corporate communications department and then are forwarded to the firm’s contact center. Other utilities have eliminated the middleman and send all social media customer interactions directly to the contact center. Employees respond to the social media content, thanking customers who rave about their service and routing service complaints to the appropriate individuals for action. The social media tools are also used to service customers proactively. When outages occur, contact centers are 16 E N E RGYB I Z July/August 2013
often swamped with calls and sometimes have trouble providing information to consumers in a timely manner. Utilities such as Arizona Public Service, Duke Energy and FirstEnergy have taken to Twitter to notify customers about problems, offer tips, and outline when the problems may be addressed. In addition, when temperatures rise and energy networks become overwhelmed, utilities use Facebook and Twitter to urge customers to conserve energy and help avoid energy delivery strains and possible network blackouts. While the new communication channels can benefit utilities, their use presents various challenges. First, it raises a utility’s expenses. Typically, the software itself is not a barrier. “There are a lot of free social media tools,” said PG&E’s Hoffman. But finding funding for the manpower needed to engage with customers on social networks is difficult in these tight economic times. Also, the communication channel may not be robust enough to handle all interactions. Utilities may not feel comfortable using the system to address network adds, moves and changes. Employees may resist using this option. “Some traditional companies find social media to be concerning because they don’t always have control of the conversation,” said Oasis Energy’s Snyder. “The dialogue can be public and mistakes are often amplified.” Bad news can travel quickly in cyberspace, so utilities need to be sure that they are able to quickly respond to any Internet wildfires. Social media has provided utilities with a new way to engage with customers and improve contact center performance. As with any emerging business process, there will be bumps along the road as energy companies adopt it. However, its integration into the call center seems inevitable. “Social media isn’t going anywhere, and usage is only going to increase,” concluded Oasis Energy’s Snyder. “Over the long term, customer service on social media will become the norm.”
Over the long term, customer service on social media will become the norm.
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CUSTOMER TOUCH
New Thinking in Customer Care STAFFED W ITH V ISION BY MICHAEL LOWE UTILITIES MANAGE A COMPLEX customer service equation.
We must serve all. We cannot choose which market segments we would like to serve, nor can customers choose their utility provider, at least for distribution services. Moreover, our customers are becoming increasingly heterogeneous and find a service philosophy of one size fits all increasingly dissatisfying. As customers encounter exemplary service from advanced companies in other industries, they expect more from their utility. Our industry must continue to move from customer-facing policies and processes that focus on utility convenience and cost minimization to those that favor the customer. Why should a utility invest in providing outstanding service? Salt River Project has found that outstanding service boosts customer satisfaction, increases utility credibility in the community and helps to increase acceptance of necessary price increases and the siting of generation and transmission facilities. Outstanding service is also a substantial source of pride for employees throughout the utility. SRP has embraced evolving customer expectations with a strong customer service mission to extend its industry lead in satisfaction and loyalty. And, it has established an overarching customer service vision to serve as a guiding light for its efforts. Customers will find doing business with SRP to be rewarding, easy and pleasant. Innovative and cost-effective services inform its customers, enhance their convenience, and help them to conserve money and resources. SRP builds durable relationships by addressing the unique needs of its customers. Tightly integrated operations provide reliable delivery of water and power and consistently accurate and timely service. To implement this vision, SRP seeks to know its customers well. The utility collects an enormous amount of data about its customers for predictive analytics and utilization in the design of programs, business processes and customer 18 E N E RGYB I Z July/August 2013
communications. As SRP learns more about its customers, it begins to anticipate their needs and desires and to recommend appropriate programs, products and services to them. Our industry is making progress in this regard, but it is generally behind other industries. SRP strives to provide customers with targeted options, such as options with respect to price plans, payment methods and bill due dates. Almost 28 percent of its residential customers are served by rates that vary by time of day. With this program, customers better control their consumption and are rewarded with typical bill savings of 4 to 8 percent per year. Such savings increase customer perceptions of value. To overcome fears, customers are offered a money-back guarantee to try the program. If their first three bills on the time-of-day plan are higher than they would have been on the standard plan, the customer can request to move back to the standard plan and will receive a refund for any overages paid. Time-of-use participation has also increased as SRP has developed price plans with fewer on-peak hours, as few as three hours per day. SRP benefits from an improved capacity factor. Another 16 percent of SRP’s residential customers have selected prepaid electric service, the largest program of its kind in North America. In ongoing surveys, almost 95 percent of SRP’s prepay customers report that they use electricity more wisely, and almost 90 percent report that they prefer prepay to traditional monthly billing. The typical customer buys power once a week during the winter season and twice a week
during the summer season and reduces their energy consumption by 12 percent. The vast majority of the purchases are made with cash. Purchases are heaviest between 5 p.m. and 6 p.m. on Fridays, presumably after customers receive their weekly pay. Thus, prepay is a tool to help customers manage their electric costs to stay within their budgets. SRP embraces customer expectations for service any time and any place and seeks to provide that service with consistency through time and across service channels. Its phone center is now staffed to handle service calls every day at all hours. Last year, SRP answered almost 3 million phone calls, 90 percent of them within 30 seconds. As more customers access their online account information from tablets and smartphones, more and more of SRP’s web pages incorporate responsive design. The same information is displayed on any screen size, but it is automatically formatted for easy viewing on a smartphone, tablet or PC. Rather than simply react to customer requests online and on the phone, SRP proactively communicates via text message and email to customers in known outage areas, letting them know that the utility is aware of the outage and providing information about the size and cause of the outage as well as the expected restoration time. Every night, every smart meter in the system is queried, and every customer has the ability to view daily usage the next morning on a secure My Account webpage on the SRP website. Field research did not uncover a customer desire to view daily consumption figures. Instead, customers expressed a desire for help in managing their electric bills. As a further convenience, customers may subscribe to weekly emails and text messages that estimate the next electric bill based on month-to-date consumption. As a result, no customer should be surprised when they open their electric bill. Further, opportunities are rapidly evolving to leverage social media to deliver customer services such as the timely provision of outage information. Business processes supporting customer service are carefully evaluated and modeled for simplicity and customer convenience, not utility convenience. Words are counted and managed in interactive voice response menus because customers consider the time spent wading through IVR menus as time spent on hold to speak to a customer service representative. Mouse clicks are counted for on-screen self-service options. Credit policies are screened for friendliness. Finally, business processes are compared across service delivery channels to ensure a consistent customer experience. To the extent
Front-line employees must be able to solve complex issues...
possible, a common background engine is used to drive the cross-channel services. For example, SRP’s email and text messaging services rely on accurate phone numbers and email addresses. With the proliferation of mobile devices, a customer now has multiple such contacts, and these may change with frequency. A customer may change these on line through the My Account web access, or a customer service representative may make a change during a telephone conversation. To maintain consistency, SRP is developing a common relational data table, accessed from both the website and from the customer information system, to store the contact information and the subscriptions to the various communication offerings. The traditional customer service function at SRP has been expanded to encompass the distribution function. Virtually any activity that touches the customer is now tightly managed under the service umbrella. Distribution design and construction processes are being reworked to reduce cycle times and to improve communication of status to the customer. With the focus on customer communication, distribution operations and the call center work more closely than ever before, such that twice as many customers now rate SRP highly for the provision of outage information. Given heightened customer expectations and the growing complexity of utility customer service, customer service can no longer be viewed as the realm of a call center tucked away in a corner of the utility. Rather, it must be staffed with strong, visionary leaders who are technology-savvy, able to interpret customer research and able to develop a strong working relationship with employees. Front-line employees must be able to solve complex issues, add value for customers and build relationships. All must share a passion for delighting the customer. Michael Lowe is associate general manager and chief customer executive, Salt River Project. energybiz.com E N E RGYB I Z 19
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The Power to Do Right STAY ING UP TO SPEED W ITH SE ATTLE’S BEST CUSTOMER SERV ICE COMPANIES BY PHIL BUSSEY
about legendary customer service from companies like Amazon.com, Starbucks and Nordstrom. At first blush, it may seem like those lessons do not apply to the utility industry. After all, we have a product that everyone needs and historically there has been no other game in town. Think again. Unless technological innovation suddenly sputters to a halt and consumers grow content with the status quo, the energy industry will experience dramatic change in the coming years. This includes everything from consumers going off grid via distributed generation, to widespread adoption of energy-saving smart devices and services, to carbon policies that will alter the way our society produces and consumes energy. Exactly how all this plays out remains to be seen. But this much is certain: The utilities with strong, responsive and positive customer relationships will be the ones best positioned to survive — and even thrive — during this transformation. As Jeff Bezos, the Amazon chief executive officer, put it in his 2013 letter to shareholders, “Proactively delighting customers earns trust, which earns more business from those customers, even in new business arenas.” At Puget Sound Energy, we have embarked on a longterm, enterprise-wide effort to more closely engage with our customers and bring them added value. Above all, we are striving to build greater satisfaction among our customers and to instill greater trust that Puget Sound Energy is trying to do right by them each and every day. In the Seattle area, the expectations are particularly high. We are home to Starbucks, Amazon and Nordstrom, and we are a tech center surrounded by industry giants — Microsoft, Boeing and Google, just to name a few. The plus side is that we can learn a lot from these industry leaders and their tech-savvy customer base. WE ALL HEAR STORIES
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The first step is investing in technology. At Puget Sound Energy, we recently launched new customer information, outage management and geospatial information systems. Although these are basic tools for any utility, our goal is to take them to the next level. Taking a page from Amazon, we intend to deliver not only what customers need but to anticipate and provide what they might also want. This could be a text notification about an upcoming storm and suggestions on how to get prepared. Or it could be a community event in their neighborhood or an energy-saving program. The second step is to become more responsive to a public that is becoming ever more digitally mobile and attuned to sending and receiving information through social media. Customers have significantly less patience and an exponentially bigger reach. Meeting their demands requires a social media-first approach. Consider, for example, a Nordstrom customer who may shop at 10 a.m. or at 10 p.m. If the customer has a question, the customer can speak with a customer service agent on social media or through live chat. Whether you are selling shoes or selling kilowatts, wouldn’t you rather be the one to respond to your customer? If not, their friends are likely to fill in the gap, at your own risk. Puget Sound Energy took a social media-first approach when some of our customers received two bills in one month for the same address. It was not a mistake. The bills covered different periods as we transitioned to a new billing system. Unfortuntaely, we did not clearly communicate this specific situation to customers in advance of the change. When we
The utilities with strong, responsive and positive customer relationships will be the ones best positioned to survive — and even thrive.
realized the problem, we apologized and explained what happened on Facebook and Twitter. And you know what? Many of the comments were positive. Customers appreciated our honesty. A few even thanked us for our hard work and willingness to own our actions. The third step is educating our employees. Everyone at the company needs to be an ambassador of your products and services, regardless of where they serve. Think of this as the upsell you might have experienced in your favorite coffee shop. You went in for a drip coffee and ended up with a premium roast coffee and the pastry of the day, all because the barista told you how the two perfectly complement each other. You could argue the utility industry is vastly more complex and that we live in a world of subject matter experts. Unfortunately, our customers don’t see the difference
and they don’t care to see it, either. They expect to communicate with a subject matter expert on the issue of importance regardless of whom they interact with at the company. At Puget Sound Energy, creating an exceptional experience for our customers and building a trusted relationship is just as valuable to our business as maintaining our existing infrastructure or investing in new products or services. Coming from a tech center like Seattle, I can assure you that new alternative energy sources and tools for managing its use will be here sooner rather than later. Puget Sound Energy will be ready with competitive products and services and will earn our customers’ confidence that we can deliver it in a safe, reliable and cost-effective manner. Phil Bussey is senior vice president and chief customer officer, Puget Sound Energy.
Social Media Era INTEGR ATING COMMUNICATIONS BY KIM GREENE
struck the Northeast in November 2012, many turned to social media to capture the devastation, share stories of perseverance and keep friends and family informed. As those directly affected shared their experiences through Facebook, the storm’s impact on electric service received the second-most mentions of any topic, falling only behind the phrase, “We are OK.” When the lights went out in the Superdome during Super Bowl XLVII, fans took to Twitter to the tune of 231,500 tweets per minute. This spike in activity eclipsed the evening’s highest-ranking on-the-field action by more than 46,000 tweets per minute. These recent, high-profile events illustrate how Americans are increasingly turning to social media channels to comWHEN HURRICANE SANDY
municate, and — when the discussion involves the disruption of electric service — the reaction can be swift and widespread. Electric utilities must meet customers in this expanding arena by integrating social media into their business communications. Southern Company’s utilities strive to put a face on the company in every community they serve and social media is helping achieve this goal. In recent years, utilities across America have charted their social media courses with an emphasis on finding the best ways to interact with customers in a 21st-century environment. Across the Southern Company system, utilities are identifying and adopting best practices in an effort to communicate with customers in new and innovative ways to make the communities we serve better off because we are there. In Alabama, Florida, Georgia and Mississippi, energybiz.com E N E RGYB I Z 21
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the company’s utilities are interacting with thousands of customers through a variety of social media platforms, with Twitter and Facebook leading the way. As was the case following Hurricane Sandy, Southern Company’s utilities have found an increased customer interest in social media interaction after severe storms. Following the April 2011 tornadoes that devastated portions of Alabama, in addition to sharing outage and safety information through Twitter, Alabama Power posted pictures of crews performing restoration work in the field. Not only did this help educate the public about the scope of the storm, soon customers began using smartphones to send their own pictures and videos to the company through Twitter. In some cases, customers without power used their smartphones to sign up for new Twitter accounts for the sole purpose of communicating with Alabama Power. The utility nearly doubled its Twitter followers in the days following the storm and was able to keep customers constantly informed during the crisis through social media. A study conducted by JD Power in 2012 found that consumers who are interacting with companies for service via social media are generally satisfied with the experience — a testament to the efforts of companies already engaging in this manner. However, the fact that companies are communicating through social media isn’t enough. Southern Company’s utilities not only post content of general interest to customers and monitor messages received directly, but also seek to identify and respond to customer feedback voiced through social media. Although responsibility for social media typically exists with a communications department, both Georgia Power and Alabama Power have adjusted their models to include customer service professionals. For example, through a pilot program initiated in 2012, Georgia Power is directly connecting customers with customer service professionals — improving the utility’s ability to quickly and directly address concerns communicated through social media. To enhance customer education through the use of social media, the utility has also posted a series of how-to
The utility is committed to answering virtually any question customers may pose through social media.
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videos to its YouTube channel to help customers use energy more efficiently. Recognizing that social media outreach can go a long way toward building a company’s brand, Southern Company’s utilities are expanding the social media conversation to include more than customer service. Gulf Power is going beyond energy efficiency and storm-related communications to include community involvement messages. The utility is committed to answering virtually any question customers may pose through social media, whether the question is of a general nature or customer service-related. In its Northwest Florida service territory, Gulf Power has found Facebook to be a particularly effective tool for engaging with customers. From recognizing outstanding achievements by local schools to generating conversations around upcoming events, Gulf Power’s social media posts demonstrate that the company is ingrained in the fabric of the local community. Mississippi Power also highlights community partnerships through social media. The utility’s “Renew Our Rivers” Facebook page details award-winning environmental efforts for customers and the public. Mississippi Power also promotes safety messages. One of the most-viewed videos on the utility’s YouTube channel emphasizes the dangers of texting and driving. These messages are aligned with Mississippi Power’s commitment to its customers and community. As social media continues to evolve, so must the ways in which companies communicate with customers. Utilities should integrate social media into communications strategies while not abandoning traditional channels that some customers prefer. Phone conversations with customer service professionals remain critical to address many specific concerns, and broader communications such as bill inserts remain important to providing detailed information with the general customer audience. To ensure a utility’s continued success in a changing communications field, a robust and deliberate social media strategy must be part of the communication equation. In order to maintain a connection with customers and communities, it is no longer sufficient to merely listen to the social media conversation. Today’s electric utility customers want — and expect — active and timely engagement. Kim Greene is president and CEO, Southern Company Services.
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Telecom Transformations CUSTOMER OW NERSHIP – A PRIORITY FOR UTILITIES? BY HOWARD A. SCOTT
the cellular communications industry has quietly wooed utility companies, gradually becoming the de-facto providers for many of utilities’ communication needs. In June 2007, the late Steve Jobs introduced the iPhone and set off a race to develop millions of applications, many offered for free. To access our favorite apps, we pay the carriers for this service, not Apple or Google or the app developers, and this makes us the carrier’s customer. The wireless industry now claims that a key part of the carriers’ growth in 2012 was for machine-to-machine — or M2M — services. One of their major targets is the electric utility industry. To continue their meteoric growth, they need to provide more services in this sector, and this could change how the utility relates to its customers. OVER THE PAST DECADE
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Many utilities have fiber-optic networks to which they try to attach everything, but the stealth winner has been cellular. Electric utilities widely use cellular communications to monitor substation automation, reclosers, microgrids, EV tracking and more. In almost every instance, these applications operate as silos. The methods used to manage reclosers are often different than the ones to serve microgrids or outage management. Within the same utility, these are often governed by different contracts and may even have different tariffs. This is frustrating for the carriers and the utilities. The obvious next step is to develop common plans for all of these applications. This common-sense development ideally suits the goals of the carriers who want to provide more M2M services to utilities. The carriers’ new focus is on smart metering applications. Mesh applications can have gaps in their
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coverage, and cellular is the most popular technology to fill the gaps. Almost all mesh systems use cellular for AMI backhaul. Many utilities remotely read their C&I meters via cellular. We are also beginning to see some smart metering projects where cellular is the primary technology. It is clearly ideal for utilities with large non-contiguous areas or with very low density of users such as Texas-New Mexico Power. We are also seeing utilities that believe they have a better business case such as Consumers Energy. Though this is not the case for all utilities, some are beginning to make this claim, and it is likely that others will follow. For cellular carriers, revenue per user was a major barrier to M2M communications. Investment firms based stock prices on RPU. A decade ago, M2M would have reduced RPU, and stock prices would have fallen. In those days, the typical user got their mobile phone from the cellular carrier, used it primarily for voice and received individual bills. M2M customers are different. They rarely use phones, send data – not voice – at off-peak hours in the middle of the night, are large companies with thousands or more users, and normally send data in small packets, but they do this a massive number of times. Most importantly, this data is usually sent over underused cellular channels, so the revenue is incremental at almost no cost. To capture M2M, cellular providers needed a different accounting model. Each of the major carriers recognized this need and gradually introduced competitively priced M2M services that are tracked separately from the RPU of their phone users. At the same time, the cost of mobile chip sets 26 E N E RGYB I Z July/August 2013
dropped significantly. This allowed cellular meters to also be attractively priced. There are several challenges yet to be resolved. Utilities want products that last 20 years as did the carriers in the years before cellphones. However, since the first cellphone was introduced, a major technology change has occurred roughly every 10 years. Many utilities worry that this will lead to stranded investments. There is also a long history of cellphone companies not treating utilities as a priority customer. Carriers must work extra hard to win their confidence. Many utilities have become comfortable with mesh technologies. Mesh has limitations that cellular can resolve, but most mesh installations are relatively new and won’t be changed for years to come. Cellular is not the only alternative to mesh. These are several good radio frequency and powerline carrier alternatives that have the same widespread coverage of cellular. Unlike cellular, these alternatives are mature products with good track records. Cellular is likely to see an increased market share, but mesh and the RF/PLC alternatives are not disappearing anytime soon. Already a smartphone app is providing prepay electricity in the United States by controlling a smart meter’s remote disconnect switch based on money in an account. Does this mean the customer belongs to the utility, the app provider, the carrier, or all of them? The consumer probably does not care; they only want the apps. It is likely that many other third parties will also develop apps to help consumers better manage their energy usage. Utilities will have difficulty saying no to this, especially if it helps the consumer. In all fairness, the carriers have not yet targeted our customers in competition with us. However, this is inevitable as they aggressively try to grow market share while utilities increasingly sell off their competitive businesses and primarily focus on delivering service. Utilities have to make some strategic decisions. Is customer ownership an important part of their business model in the future? Does this matter for distribution utilities? What about the competitive energy providers — are they weakened if the customer also belongs to the carrier? And ultimately, what business model best serves the consumer and enables America to stay competitive in the world marketplace?
Utilities want products that last 20 years as did the carriers in the years before cellphones.
Howard A. Scott is managing director at Cognyst Advisors.
Mastering Change MOV ING BEYOND SILOS BY DOUG KIM
of great change. Advances in technology are presenting exciting new possibilities, but also some serious challenges for the electric utility industry. Large utilities such as Southern California Edison are managing increasingly complex systems as the smart grid evolves and cyber-attacks have become a very real and growing concern. With all these considerations the utility’s communication needs are rapidly changing as well. Variable renewable generation, energy storage and new types of electronic loads are increasingly being interconnected to the transmission and distribution grid, driving the need for reliable and secure communications to manage grid operations. SCE uses a wide variety of communications networks including fiber, microwave, satellite and radio. Some of these networks are public commercial networks and others are operated privately by SCE for transTHESE ARE TIMES
mission and distribution applications such as supervisory control and data acquisition, automating assets, monitoring the health of assets, remote meter reading, customer communications and workforce communications. When it comes to utility operations there are two areas where telecommunications play an active role: field force operations and distribution system operations. SCE uses wireless communications to provide voice and data to the company’s field crews for enhanced safety, improved responsiveness to outages and meeting compliance obligations. Many of these applications use public cell data and voice systems, but SCE still maintains a licensed mobile radio system to voice dispatch its crews under emergency conditions. Electrical system operations have been increasingly automated starting with reductions in staffed substations. This application of automation requires improved communications to maintain safety and reliability. In the transmission system, fiber-optic communications are increasingly being energybiz.com E N E RGYB I Z 27
T E L E C O M T R A N S F O R M AT I O N S
run to substations. The use of this extra communications capability is needed to support substation automation enhancements as well as the additional communications being routed through the substation for monitoring and controlling the distribution system. For distribution system operations, SCE has primarily used wireless telecom to remotely control and monitor field equipment, analyze system status and measure loads on circuits. Because obtaining scarce licensed radio spectrum in Southern California is extremely difficult, the utility has relied on unlicensed radio communications for this task. Starting in the late 1980s, SCE implemented a wireless distribution automation system that utilizes a mesh packet switching radio network. This system is still in use today, but cannot keep pace with the need for distribution communications to support advanced distribution protection systems that require low latency radio to shorten the duration of outages and minimize the number of impacted customers. SCE is analyzing new radio systems it believes will increase its communications bandwidth and reduce message latency on the system. Utilities require a wide range of communications to continue providing highly reliable service to its customers. SCE uses both private and public communications networks to meet this need. The choice of which type of network to use is usually based on this simple test: Is this communications function required for SCE to respond quickly during emergency conditions? If the answer is yes, SCE will rely on a private radio network for this function. Experience has proven that public wireless networks are not always accessible under these conditions. As it turns out, many utility functions do not need this kind of reliability, and public radio networks are commonly used. The primary application of public wireless networks is for remote meter reading, routine field force communications and non-critical equipment monitoring. SCE continually monitors advancements in the communications industry and leverages new technologies wherever it satisfies a business need. The use of wireless communications systems in the utility arena presents some important security considerations. The risks are significant and measures must be taken to address the growing threat of cyber-attacks on these interconnected systems to prevent intrusions and interference with operation of the transmission and distribution systems. The security
landscape is constantly changing, and measures considered adequate today could be compromised tomorrow. This calls for a critical redesign of the entire security system. Matching a utility’s needs with the appropriate communications network is important — it helps to minimize costs and provide the appropriate level of service to the customer. When each communications network is managed separately, however, the desired level of security cannot be ensured. SCE prefers moving from siloed network security and management to a centralized system across the entire network.
The security landscape is constantly changing, and measures considered adequate today could be compromised tomorrow.
28 E N E RGYB I Z July/August 2013
SCE believes this solution (based on the military’s lessons learned) is going to provide the greatest security. In addition, SCE favors utilizing industry best practices and standards to mitigate cybersecurity risks. History has shown that it is extremely difficult to foresee what will happen far into the future, and with communications technologies evolving at an accelerated rate even near-term predictions can be ambiguous. We do know that mobile telecommunications capabilities will continue to expand to the point where almost unlimited communications will be available at any location. This will help free up restrictions on the use of video and data that presently influence a utility’s protocol options and the type of information it can securely access. At the same time, significant changes will take place in how utilities use communications technologies in their operations, and utility field workers will require new tools with greater bandwidth to help them better serve the customer. SCE will continue to meet these challenges by thoroughly assessing all communications and cybersecurity options before moving forward to ensure its customers receive safe, reliable service. Doug Kim is director of advanced technology at Southern California Edison.
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Knitting in Renewables TEST DR IV ING OUR ENERGY FUTUR E BY DAVID DANIELSON
IMAGINE YOUR HOME generating all the power your fam-
ily needs, independent of the grid. Imagine no blackouts — ever again. Imagine your home trading energy with the grid, making you money every step of the way. And imagine fueling up your electric vehicle with solar power for a cost equivalent to $1 per gallon gasoline harvested right from the roof over your head. A new research facility is open for business that will allow us to test, demonstrate and develop the best energy future we can imagine. The Energy Systems Integration Facility on the campus of the Department of Energy’s National Renewable Energy Laboratory in Golden, Colo., will help transform the way we use the electric grid to power our homes, offices, stores and vehicles with America’s ever-widening array of renewable and conventional energy resources. At the new 182,500-square-foot ESIF complex, researchers are already busy working to address the challenges related to grid interconnection of distributed energy systems such as rooftop solar, wind power, electric vehicles and smart buildings. This unique user facility, which represents a $135 million investment with another $20 million requested in the president’s 2014 fiscal year budget, welcomes researchers from 30 E N E RGYB I Z July/August 2013
industry and academia to work side-by-side with NREL scientists to modernize America’s energy systems. It offers industrial partners the chance to experiment with new technologies on an interactive power grid that operates at utility scale, working out all of the kinks as they seek to deploy devices on a smarter energy grid and in smarter energy homes. And it will allow investors to make financial decisions with greater confidence in the clean energy technologies that are rapidly making their way to the marketplace. The United States is moving into an era of utilizing higher concentrations of renewable energy and distributed energy resources linked to the electric grid. Utility operators and equipment vendors aren’t sure exactly how boosting the use of renewables will affect the control strategies and operations of their current systems. ESIF offers utility executives and other decisionmakers a place to develop new technologies in a safe and controlled research environment before they’re loaded onto the actual grid. Equipped with a set of first-of-a-kind leading-edge resources under one roof, ESIF will help our partners investigate how to optimize the grid to upload and download energy from rooftop solar and wind, electric vehicles, bat-
David Danielson and his staff tour the Energy Systems Integration Facility in Golden, Colo. Photographs by Dannis Schroeder of the National Renewable Energy Laboratory.
teries in our homes and on the grid. Our partners will have the latest power electronics controls, which are, in effect, the routers for the modern grid. A century ago, when big power plants were being built to accommodate central station power, it was hard to envision how distributed generation — power generated in our neighborhoods and in our homes — would ever be connected to the grid. But that is the world we’re stepping into now, with cost-competitive solar power, fuel cells, batteries, smart appliances and electric vehicles just around the corner. The grid now needs to evolve to accommodate the benefits of distributed energy technologies, including the renewables that diversify our nation’s energy portfolio and boost our energy security. We’re rapidly approaching a time when we will no longer be limited by the economics of many of our clean energy
Imagine your home trading energy with the grid, making you money every step of the way.
technologies, but rather by the ability of our electricity grid to accommodate the onboarding of these new technologies. ESIF is the nation’s first dedicated facility that can conduct integrated utility-scale research, development and testing of the components and strategies needed to safely move clean, renewable energy technologies onto the electrical grid at the speed and scale required to meet our national goals. It will help utilities and vendors to determine how to effectively integrate these technologies with the grid, and it will demonstrate how to do so at a scale necessary to achieve significant energy, economic and environmental benefits. ESIF is a place for public-private partnerships, where vendors and operators can try out new ideas, new technologies, and new architectures in a setting that enables exploration and discovery. We can’t yet anticipate the nearly infinite number of combinations of technologies and devices that will interact in a smarter electric grid. But we know America’s best innovators are hard at work. Most of the 200 researchers who will call ESIF home have moved into their new offices and a grand opening event is set for August. During the early planning stages energybiz.com E N E RGYB I Z 31
David Danielson, center, reviews the future layout of the Energy Systems Integration Facility.
of ESIF, the Energy Department and NREL sponsored open workshops to solicit input from energy stakeholders and potential partners on what was needed for the facility. We listened and designed the facility to have the tools and expertise needed to investigate the complexity of energy systems in a precise way and to understand with confidence how systems will react when put into the real world. Capabilities will be at a 1-megawatt scale, allowing researchers and manufacturers to conduct integration tests at full power and actual load levels in real-time simulations. ESIF also houses a high-performance computer with petascale computing capability (1 million billion calculations per second) that makes it the world’s largest computing capability dedicated solely to renewable energy and energy efficiency research. It affords unprecedented large-scale modeling and simulation of materials, properties, processes and fully integrated systems that would otherwise be too dangerous, too expensive or even impossible to study. ESIF’s unique and sophisticated data analysis and visualization system will also allow 32 E N E RGYB I Z July/August 2013
researchers and NREL partners to visualize complex systems and operations in a virtual reality environment. The national laboratory system, including NREL, provides industry, universities and other government agencies opportunities to leverage federal scientists’ world-class knowledge and expertise. Working with outside organizations is the key to accelerating clean energy technologies into the market. Utilities and vendors can work in ESIF and develop technology partnerships. They can leverage lab expertise through cooperative research and development agreements or work-for-others agreements. Private businesses can partner with ESIF and still keep their proprietary rights through nondisclosure agreements. Whether providing space for private business or offering unique capabilities for university, utility or government researchers, ESIF is the place where the American energy community will go to test drive the future of our electric grid. I can only imagine where this will take us. David Danielson is the U.S. Department of Energy assistant secretary for the Office of Energy Efficiency and Renewable Energy.
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» TECHNOLOGY FRONTIER
A Bright Future BALANCING COSTS AND BENEFITS // BY STEVEN MALNIGHT DO YOU REMEMBER when it was an oddity to see solar panels on a rooftop in your neighborhood? Or when most people thought solar was an unproven and expensive gadget that would cost you more than it was worth? We do. And each time we reach a new milestone in solar development we celebrate the vision and perseverance every Californian has shared for a cleaner energy future. We recently announced that our California Solar Initiative program was fully subscribed three years ahead of expectations. Pacific Gas and Electric’s history with solar power began decades ago with small test farms where we first learned how to integrate the electricity produced by solar panels into a mostly conventionally powered electric grid. Today, we are the top utility in the nation for installed solar, with a large utility-owned solar portfolio and a significant supply from third-party-owned projects. We have more than 85,000 customers who have solar on their homes or businesses and enjoy the benefits of net energy metering – EDITOR’S NOTE NEM – which allows Pacific Gas & Electric electric meters to spin was recently ranked as a leader in deploying backward when a new solar power by customer’s rooftop the Solar Electric solar or other renewable Power Association. generator produces more energy than their home or business is using at that moment. How we got here is a lesson in cooperation between utilities, their customers, market players, regulators and lawmakers. In 2002, the legislature passed AB 58, which expanded the net metering cap from 0.1 percent to 0.5 percent of system peak demand, and SB1078, which created the initial California Renewables Portfolio Standard. 34 E N E RGYB I Z July/August 2013
PG&E has since supported numerous efforts that have strengthened and expanded California’s renewable goals. In 2006, PG&E supported the legislation that established the California Solar Initiative, which included expanding the net-energy-metering cap from .5 percent to 2.5 percent. We unilaterally filed to increase the cap to 3.5 percent in 2010, and supported legislation that raised it to 5 percent in 2010. These programs and subsidies have increased the popularity of solar to the point where the cost of the panels has dropped 30 percent in the past seven years and the industry has demonstrated strong growth. The subsidies have also helped the solar industry develop innovative financing models to allow even more customers to enjoy the benefits of solar. As net energy metering has grown, we’ve supported studying the program to understand what changes now need to be made to reflect the maturity of solar and protect all customers, not just those who install solar. We applaud the recent California Public Utilities Commission and legislative determination to do exactly that and look forward to working with them and the solar community to build a sustainable path forward. For PG&E, studying net energy metering is not about protecting profits. It’s about protecting all of our customers. For California’s investor-owned utilities, our profit is not tied to the amount of electricity we sell. It’s a fact, however, that customers with solar and net energy metering don’t pay their share to support the grid and cover the costs of social programs that are then shifted to customers without the ability to go solar. In some cases, NEM customers pay almost nothing toward programs such as California Alternate Rates for Energy, which helps our neighbors in need with lowered electric rates, or to maintain the grid they will rely on when the sun is not shining. The solar industry has a vision where every rooftop has solar, and it’s available even to customers who rent their homes. If that bold vision becomes reality,
virtually no customer would be paying a fair share for the power grid, even though all customers would rely on it for power when the sun went down. That’s why we believe in studying NEM programs. With appropriate changes, we believe that solar will be a vital part of California’s clean energy future, benefiting all customers. PG&E is expecting that close to BIOMASS DEMO 40 percent of the renewable energy Xcel Energy is asking that it will provide its customers in Colorado regulators to 2020 will be in the form of solar power. ratify a biomass project to generate electricity, That hasn’t stopped some solar advoaccording to the cates who say that PG&E’s drive for Associated Press. a sustainable rooftop solar market is The project would target beetle-infested an attack on their business model. trees. Xcel said it would The solar industry wants to keep the like to enter a 10-year agreement to purchase status quo. power from a proposed We believe, however, that just as it’s 2-megawatt facility. possible to do the right thing the right way, some ideas do the right things the wrong way. The policies that have helped solar grow in popularity were never intended to be permanent, and it’s time to move forward. The right way to move forward is to begin making the necessary changes to ensure that solar customers
are compensated for the value they provide the grid, and pay for the valuable services they receive from the grid, rather than shifting these costs to customers who have elected to not install solar. This ensures fair treatment for all of our customers and sustainable growth for solar over the long term. As renewable resources and distributed generation grows, we will continue to redefine what it means to be a modern electric utility. At PG&E, we are excited about that future. While our business will change over time, we will continue to keep our customers in the front of our minds and work hard every day to provide them with safe, reliable, affordable and clean energy. Steven Malnight is vice president for customer energy solutions at Pacific Gas and Electric.
Gatherings// Technology Frontier Aug. 13-15
Electric Vehicle Grid Integration
Chicago
Aug. 25-29
Solar Energy & Technology
San Diego
For more information about these and other events, please visit www.energycentral.com/events.
energybiz.com E N E RGYB I Z 35
» TECHNOLOGY FRONTIER
The Little City that Could OHIO TOWN EMERGES AS SOLAR LEADER // BY PATRICK MCGOWAN THE CITY OF ST. MARYS, OHIO, established an electric distribution system in 1892 and has provided high-quality electricity services to its residents and businesses for over 120 years. At times during the history of the electricity department, the city has had the ability to generate some of its power with a combustion turbine generator. However, the city currently purchases the power needed on a daily basis through contracts with major power-producing facilities. We work to get the best prices that we can for our customers by collaborating with other municipalities. As a member of American Municipal Power, we can more easily control our costs to keep our rates to our customers as low as possible while also increasing the reliability of our service. Our membership in AMP gives us the ability to choose from a variety of sources for our power supply. Years ago, coal-fired plants produced the majority of power in the United States. The passage of the Clean Air Act and its amendments has led EDITOR’S NOTE to changes in power The city of St. Mary’s, generation technolOhio, recently ranked as a leader in installed solar ogy that have moved power per customer by us all away from that the Solar Electric old standard. City ofPower Association. ficials have agreed that diversifying the power portfolio to include renewable energy resources is imperative for many reasons. Not only should we be responsible in our treatment of environmental resources and reduce pollutants emitted through power generation, but we must also deliver quality services in a cost-effective manner and protect the financial future of the city. Rather than limit our purchase of power to a few sources or depend on market purchases too heavily, we must spread our risk among a number of suppliers of clean energy. As a result, St. Marys recently added a contract for wind power to its portfolio. In nearby Van Wert, Ohio, construction on a large wind farm was completed early 36 E N E RGYB I Z July/August 2013
in 2012. A few months later, the city entered into an agreement to purchase a portion of its power from that project. We also signed contracts to purchase power from hydroelectric plants that are under construction, further shifting our dependence on coalfired power generation to renewable energy resources. Additionally, the city purchases power from a clean coal plant that employs state-of-the-art control technology. When AMP offered an opportunity to participate in a new solar project, city officials were interested in joining not only for the chance to again expand our portfolio, but also for the possibility of locating a solar array on city-owned property. Although construction of such a site has been indefinitely postponed, the city has added another renewable energy resource consistent with its goals. The recent construction of a 3.5-megawatt solar array in a town 90 minutes away from St. Marys gave us the opportunity to enter into a COMPRESSED AIR contract to purchase solar power, further Porous rocks in the Northwest could be reducing our dependence on fossil fuels. used to store excess I feel that it is important to have a wind energy – in the form of compressed diverse energy portfolio embracing more air – to meet the green-friendly technologies, including solar. energy needs of 85,000 homes, according to the After working professionally to reduce Department of Energy. coal-fired power plant emissions, I understand the benefits that solar brings our environment. Solar energy makes sense environmentally and should always be considered, provided that the cost remains competitive with other energy sources. In the future, the city will continue to focus on opportunities to purchase power that is generated from renewable energy resources, and we will continue to explore the possibility of constructing a solar array in our city. The terrain and abundance of sunshine in our region of Ohio makes St. Marys a good location for an effective solar array, and we will continue to seek opportunities that will allow us to reap the benefits from such a project and to further reduce emissions from power generation for our customers. Patrick McGowan is mayor of St. Marys, Ohio.
Perfect Power EMPOWERING INDUSTRY STAKEHOLDERS // BY JOHN KELLY THE ELECTRICITY SECTOR faces gamechanging conditions that include shifting industry trends, changing customer demands and surprising entrants from entrepreneurial innovators. Observers agree that these conditions foreshadow a seismic industry transformation. The transformation is driven by higher expectations from industry customers, regulators and politicians who demand more reliable, secure, cost-effective and environmentally sustainable services. How will industry leaders prepare their organizations for this impending transformation? When restructuring affected telecommunications and other markets, Motorola and General Electric created Six Sigma to prepare employees to embrace change and succeed in the face of inevitable market transformation. Inspired by the positive effect of Six Sigma improvement processes and the U.S. Green Building Council’s leadership in energy and environmental design (LEED) certification and professional accreditation programs, the Perfect Power Institute (PPI) developed PEER, a methodology for assessing performance, designing improvements and making the financial case for investment. PEER stands for Performance Excellence in Electricity Renewal. The program helps industry professionals produce higher levels of performance, including grids that are safer, better for the environment, more robust and more efficient. PEER is the first comprehensive, industry-reviewed program of its kind establishing much-needed performance criteria and design tools to empower industry stakeholders. PEER draws from nearly a decade of research, collaboration and international benchmarking conducted by the Galvin Electricity Initiative and PPI. Development of the program metrics included a rigorous review process that engaged a diverse set of stakeholders facilitated by PPI in collaboration with Underwriters Laboratories. Additionally, the program is being piloted at demonstration sites throughout the
United States, such as university campuses, municipalities, power contracting and building developments, in order to refine metrics and implementation. The program addresses four areas of performance: energy efficiency and environment; reliability, power quality and safety; enabling customer action; and operational effectiveness. The program serves as the foundation to a series of educational courses, professional certifications and resources that enable industry participants to quantify performance objectives, measure and track progress to stated goals, identify wasted resources and provide an investment path to justify improvements. PEER is a vital tool for leaders interested in embedding continuous improvement processes and a focus on performance-based outcomes in their organizations, industry professionals pursuing indispensable skills for managing the evolving grid, or other stakeholders interested in better understanding the needs and changes transforming the industry. In addition, the program can be used as a design guideline and performance tracking system for local smart grid plans or a microgrid approach to the electricity grid. The microgrid approach divides the bulk grid into smaller, customer-focused minigrids that communicate and work together to provide services to each other as well as the larger, bulk electricity grid. A utility in Denmark piloting such an approach calls the smaller grid units “cells.” The utility is interconnecting the cells through the use of an innovative cell net controller. PPI is working with a U.S. utility to apply the program and the same approach to a city. PPI aspires to continuously engage industry stakeholders to improve the program, build a dynamic resource of innovative industry practices and cultivate a community of like-minded, leading-edge professionals. A cooperative effort can support organizations in embracing the looming changes, move the transformation in the direction of desired outcomes and dramatically improve electricity system performance. John F. Kelly is executive director at Perfect Power Institute. energybiz.com E N E RGYB I Z 37
» TECHNOLOGY FRONTIER
Toward a More Robust Grid GRID SUPPORT FOR EVS // BY CHRIS DEPCIK THE CURRENT ELECTRICAL GRID cannot maintain the rising energy demand of the digital age without the construction of new power plants. It is estimated that by 2015, around 60 percent of the total electrical load will be from chip technologies and automated manufacturing versus 10 percent of the total in the 1990s. This increasing need requires upgrading a large number of components within the aging energy infrastructure. Furthermore, with the advent and commercialization of electric vehicles, energy demand has the capacity to climb dramatically. For example, a study from Oak Ridge National Laboratory finds that charging EVs after work could require around 160 new power plants. The purpose of the current electrical grid is to keep the lights on. It is a centrally planned and controlled system with relatively little flexibility to fluctuate with energy demand. As a result, a wholesale revision of the electrical grid into an intelligent communication pathway is required in order to ensure U.S. energy security. Moreover, this system must integrate the onset of EV technology, allowing for the transfer of energy and information between the vehicle fleet and the grid. The interaction between EVs and the grid happens in a decentralized manner through the local infrastructure. Instead of allowing the one-way charging of EVs as a localized sink, EVs could act as an energy storage medium. Most are familiar with this avenue via the smart grid, which involves the decentralization of energy production and storage, and two-way communication from end users or appliances and the energy network. Energy production can be decentralized by incorporating renewable energy as distributed generation via home or local solar panels, wind turbines and other forms. Localized storage can be developed through part-time use of EV battery packs as storage banks coupled with renewable generation and conversion into other usable forms. Furthermore, since buildings consume 39 percent of the nation’s energy, integration of EVs into structures provides for savings opportunities beyond just the macroscopic 38 E N E RGYB I Z July/August 2013
power plant level. As a result, it is important to research smart buildings and EVs in a combined manner. Some of the original efforts in this area include the utilization of a Toyota Prius as a backup generator. More recently, the Fukushima incident highlighted the need to integrate EVs into the building infrastructure for potential energy independence through vehicle-to-grid interaction. However, few universities have the capability to research and study the economics, energy, and environmental impacts of this combination of renewable energy, grid dependency and vehicles. With the help of a new University of Kansas research and teaching facility, Chris Depcik works with a student on an EV. the KU EcoHawks Photo courtesy of Chris Depcik. sustainable automotive energy infrastructure initiative will explore smart grid pathways and produce future strategists and technologists. Two student-built EVs will be integrated with the LEED Platinum-rated building fitted with 10 kilowatthours of solar photovoltaic panels. Other renewable energy projects, such as shrouded wind turbines and compressed air energy storage, will feed into the knowledge base of the program. The integration of biofuels and vehicle modeling will provide predictive simulations of driving range, well-to-wheel emissions and the economics of charging. The new facility will further the exploration of the cyclical use of EVs to supply power to buildings and determine the effects on residential and industrial consumers. Chris Depcik is assistant professor of mechanical engineering at the University of Kansas.
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» INTRODUCING
Taking Command of TVA BILL JOHNSON’S NEW ASSIGNMENT // BY MARTIN ROSENBERG Bill Johnson says it has been seamless — his unexpected move from an investor-owned utility to the federally owned Tennessee Valley Authority — and he now feels at home.
He no doubt is relieved to be out of the headlines generated by his unexpected departure one year ago from Duke Energy on the eve of his scheduled assumption of the job of chief executive after Duke acquired Progress Energy. Johnson became the head of Progress in 2007. Now he oversees TVA, which provides power to 9 million people in seven Southeast states. The agency is on the leading edge of development of new modular nuclear reactor technology. Meanwhile, it continues to deal with the consequences of a disastrous ash spill in 2008. Johnson recently discussed his new assignment and the future of TVA with EnergyBiz. His edited comments follow.
JOHNSON
I’d say I am home.
Do you have anything to say on the challenges that Duke faces as it migrates to new leadership? ENERGYBIZ
JOHNSON
I wish them well.
You have responsibility for a government-owned entity that serves 9 million people. How does that differ from QUICK working for a utility owned FACTS by investors? ENERGYBIZ
TVA
I couldn’t be more delighted to be here. I’m a person who doesn’t look backward very much. I look forward. An unusual series of events transpired and I ended up in a great place.
It’s a little different, Revenue // $11.2 billion but not as much as you might think. And the main difference is Employees // 12,762 who is the ultimate stakeholder. Generation includes: In the utility, you’re working to > 11 fossil plants > 3 nuclear plants repay your investors and reward > 29 hydro plants your shareholders. Here, the > 16 solar energy sites ultimate goal is serving the Transmission // 16,000 miles public. The mechanics of the business are pretty similar. The governance is different, and obviously the ultimate beneficiary is a lot different.
If the board of directors of Duke called tomorrow and said “come home,” what would you say?
ENERGYBIZ Does it still make sense for the government to own TVA now that one of its core missions — to electrify a region — has been accomplished?
ENERGYBIZ Less than two years ago, you were set to lead Duke Energy after it joined forces with Progress Energy. How do you feel about how things have worked out for you? JOHNSON
ENERGYBIZ
40 E N E RGYB I Z July/August 2013
JOHNSON
We have no debt that the government is liable for, and no indebtedness to the government.
Bill Johnson, center, at a TVA fossil-fueled plant. Photo by Cletus Mitchell courtesy of TVA.
We were created to electrify, but we also were created for a number of other reasons that are equally important – flood control, agricultural revival, economic development, industrial development and environmental stewardship. So there’s a much broader mission historically and today than just electrification. The inquiry ought to be, “What’s in the best interest of the public that we serve?” We do not get any appropriations. We get no monetary help from the government. In fact, we are a net cash flow positive contributor to the government. So we don’t lean on the taxpayers. The inquiry here ought to be, “Is there a better way to serve those 9 million people?” JOHNSON
How much money does TVA currently owe the United States? ENERGYBIZ
Essentially none. There was about $1 billion of appropriations on the power side that ended in 1959. Since 1959, we’ve paid back almost all of that plus interest, about $3.6 billion. There’s a couple hundred million remaining, which after this year will remain as the government’s permanent equity in TVA. But essentially, we have no debt that the government is liable for, and no indebtedness to the government. JOHNSON
Like many utilities, you are reducing your coal-powered generation. ENERGYBIZ
TVA started out essentially as a hydro system as we manage the Tennessee River. After the hydro system was developed, we got into coal, and for a long time we were coal-centric. For many years, 55 percent of the energy came out of coal. That’s been decreasing in the last couple of years. Today, 41 percent of our energy comes from coal. A couple of years ago, we entered into an agreement with the Environmental Protection Agency as part of a consent decree that will require us to retire 18 units by 2017. That’s about 2,700 megawatts of coal generation. We have also built or acquired about 9,000 megawatts of combined-cycle gas over the last couple of years. JOHNSON
ENERGYBIZ
What will TVA’s generation mix be?
By 2023, it will be about 35 percent nuclear, 30 to 35 percent coal, 20 percent gas, and then the rest hydro and renewables. JOHNSON
Turning to nuclear, Watts Bar Unit 2 is scheduled to be completed in 1.5 years. ENERGYBIZ
energybiz.com E N E RGYB I Z 41
» INTRODUCING Watts Bar 2 was started and then stopped for many years. We are completing the construction. JOHNSON
But the technology is older than the Westinghouse AP1000. How can you justify bringing this older technology into production? ENERGYBIZ
JOHNSON It’s sound technology. A lot of these reactors are in use around the country. For TVA, it was a cheaper option to complete it rather than start with a new plant. The estimated cost to complete it was $4 billion to $4.5 billion. On a per-megawatt basis and safety basis, it seemed like a really good option.
You are also testing development of small modular reactors. ENERGYBIZ
Part of our mission by law is innovation in energy technology. So the small modular reactor to us is nuclear innovation and technology. We are in a consortium or partnership with B&W called mPower, and we have qualified with the Department of Energy for funding. It is a cost-sharing arrangement. We are the first people out of the box on this, closely aligned with the DOE and industry to see how this concept works. JOHNSON
ENERGYBIZ JOHNSON
The SMR will be operational around 2022?
Yes.
ENERGYBIZ Your investment is $12 million. What are Babcock & Wilcox and the DOE putting into this effort?
The DOE has committed to provide $150 million over five years. Babcock & Wilcox has invested more than $300 million in its modular reactor effort, mPower, since 2008. JOHNSON
ENERGYBIZ Critics of small modular reactors say they require the security and safety of a large unit without the scale to help underwrite and reduce the cost.
The answer to those questions is unknown, and that’s part of what we will find out during the licensing process. Of course the advantage of the smaller size is you can build them quicker. It takes a much smaller footprint. And the capital risk is much smaller. So instead of spending $6 billion for a plant, you’re spending a billion. JOHNSON
ENERGYBIZ Where does TVA stand with the Kingston ash spill clean up and what lessons were learned there?
That was a terrible event, a catastrophe. So we are learning a lot of lessons from that. We’re JOHNSON
42 E N E RGYB I Z July/August 2013
doing a tremendous job in cleaning it up. We will be done sometime in 2015 or maybe a little before then. If you went to the site today, there are many parts of it where you would not be able to tell that anything ever happened. So the cleanup effort is doing a really good job. It’s a $1 billion effort. ENERGYBIZ
And what lessons have you learned
from this? JOHNSON Impoundment stability. We need to pay a lot of attention to any kind of impoundments we have – water impoundments, ash impoundments – if you have a capability for a spill, you need to pay attention and take care of it. ENERGYBIZ You mentioned earlier your role as an energy technology innovator. What’s being done on the renewables and energy efficiency front? JOHNSON We have an integrated resource plan that was done in 2011. We are going to update it again starting later this year. But under the current IRP, we said we’d like to have 1,500 to 2,500 megawatts of renewables by 2020. And we’re at about 1,600 megawatts today of renewable, not counting the hydro. We have about 1,500 megawatts of wind, most of which is in the Midwest, but some here in Tennessee. We have a good-sized solar program, with 73 megawatts installed and 57 megawatts approved for development.
We’re a wholesaler for the most part. We distribute to 155 local power companies that do the distribution. So we have been working with them to implement energy efficiency plans and demand reduction plans. We also have 55 direct-serve, large industrial government installations. We’ve done a lot of work on energy efficiency there. We’re doing as much in this part of the country as anybody in energy efficiency and demand response. JOHNSON
ENERGYBIZ How would you describe the corporate culture at TVA and what changes are ahead? JOHNSON The people here are exceptionally committed to the mission and the history of TVA. You would not find a more dedicated bunch of people than you would find here. There is almost a family atmosphere here that used to exist in corporate America until the early ’90s. Our sales have declined over the last couple of years and revenue is down, so we’re going to have to become a lot more efficient. That’s going to be the cultural challenge coming up.
» LEGAL ARENA
Europe’s Carbon Collapse THE WRONG MEASURE? // BY TONY WHITE DECARBONIZATION IS FORCING this generation to pay more to sustain its current standard of living, but future generations are likely to benefit. Environmentalists argue that decarbonization will create an industrial revolution, but such an optimistic outlook is ill-founded. Previous industrial revolutions created a swathe of new goods and services that quickly became indispensable. Early adopters were willing to pay high prices for the first new services that helped finance the innovation and capacity building required for the mass production and resultant fall in prices. Decarbonization will not be like that. It will only allow us to enjoy our current consumption of goods and services, such as illumination, mobility and comfort, but without emitting CO2. This suggests that the price to be paid for decarbonization cannot be large, especially during times of economic hard-
ship and when society is not convinced that there is a need to decarbonize. So, is the European Union Emissions Trading Scheme the right mechanism to bring about decarbonization, given the current state of affairs? Investment in decarbonizing projects in Europe on the basis of CO2 costs alone has been nonexistent during the EU ETS. Furthermore, although Europe’s own carbon emissions have been falling, it has continued to import goods from outside the EU, so that if account is taken of the carbon emissions caused by the manufacture of Europe’s purchases overseas, overall emissions have risen by some 10 percent since the scheme started. So what went wrong? The answer is nothing. The market is working perfectly. Prices are low because the economic downturn after the Lehman Brothers collapse led to CO2 emissions being far below the level energybiz.com E N E RGYB I Z 43
» LEGAL ARENA anticipated in 2008 when the caps were set; so the market created by the EU ETS recognized that there is no value in restricting the emission of a further ton of CO2. The scheme is working exactly as it should. The question is whether it is a market fit for purpose. The choice of a cap and trade system to curb emissions was based on the belief that markets will always deliver the low-cost solution. The logic went that if governments want to curb CO2 emissions, governments should choose the level of carbon emissions permitted but industry should decide how to get there. One particular attraction of such a scheme, to governments at least, is that the marTEXAS ket determines the price level TRANSMISSION for emission allowances, so The Texas Public politicians cannot be blamed. Utility Commission has approved Electric Although this sounds very Transmission Texas’ simple and sensible, it ignores plans to build a $318 million, 345-kilovolt an important feature of markets. transmission line from Markets do not always deliver Laredo to the Rio Grande Valley. the lowest cost solutions. In The 156-mile line is reality, markets deliver projects considered vital to grid reliability. that are the easiest to finance. In the case of the EU ETS, allowance prices are determined by price differentials between coal and gas coupled with variations in economic activity. Investors in such volatile markets will be dependent on these prices to make their expected returns. As such, they will tend to avoid technologies that are capital intensive and involve long lead times. Or, to put it another way, they will only invest when the returns are sufficiently large to compensate for the risks. This implies they will need customers to pay a high price for decarbonization. A market should have been designed so that decarbonizing projects with the lowest lifetime costs would also be the easiest to finance. Price certainty should have been a key factor in determining the market’s
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design. The obvious answer would be to introduce a fixed price on emissions. Those responsible for the various carbon trading schemes around the world have belatedly started to recognize this feature of investment. The UK government has tried to introduce a floor to the carbon price. Similar schemes are proposed for Australia and California. A fixed price would be simpler, though for presentational reasons governments try to avoid the use of the word “tax.” Two objections are often raised against a tax. First, what is the appropriate level? Is it not better to use the market to discover the appropriate price? Second, investors will be concerned that a subsequent government would abolish the tax. The first objection is fair. In an ideal world, the tax would be set at a level based on the cost to future generations of emitting CO2 today. This is impossible to determine, so almost any figure would suffice. However, it is no less robust than the price currently set in the EU ETS. The current prices of gas and coal, and hence the allowance price, have no bearing on the cost to future generations of global warming caused by today’s emissions. The level of the tax could therefore be set according to judgments of affordability and this leads to the second question. Would such a tax be sustainable in the sense that it would not be repealed by a subsequent government? In this regard, Australia has led the way by directly linking the introduction of its carbon trading scheme with a reduction in income tax. Subsequent governments will be loath to abolish the carbon tax if it means that income taxes would be raised as a direct consequence. Government officials do not like having their hands tied in this way, but this is a small price to pay for a scheme that would reduce the price customers have to pay for decarbonization. Perhaps the only way to get the market to decarbonize effectively is to regard a carbon tax simply as a means of raising government revenue. It could be seen as preferable to the current practice of taxing employment or profits, activities that governments should wish to encourage.
They will need customers to pay a high price for decarbonization.
Tony White is a European energy expert who has worked for utilities, banks, government, real estate and small technology companies.
Building Cap-and-Trade 2.0 CALIFORNIA’S NEW MARKET // BY MARY NICHOLS DESPITE CLAIMS TO THE CONTRARY, the European Union Emissions Trading Scheme is not dead by any means. It will survive, but in the meantime the international community must keep moving forward with other efforts to reduce greenhouse gas emissions. Fortunately, California has been able to learn from the pioneering efforts in Europe, and as a result the state is poised to be a major player in the effort to fight climate change. The reason for Calfornia’s leadership role in the international arena is clear. Efforts to reduce carbon emissions have moved from the national level to more vigorous advances at the so-called subnational level — states and provinces within national jurisdictions. Why are subnationals leading the way? States and provinces are more nimble than the national units that operate within the often cumbersome United Nations
climate framework. Yet these smaller jurisdictions are large enough to establish meaningful models for nations to follow. California, after all, is the ninthlargest economy on the planet. In California’s case, we must act. California is already seeing the effects of climate change on its water supply, and Californians are experiencing warmer days and fewer cold nights, rising sea levels, and longer and more severe fire seasons. Our response to this climate crisis is Assembly Bill 32, the Global Warming Solutions Act. Under that law, we developed a plan that includes a wide range of complementary programs, including our own emissions trading program, as a key element that effectively puts a price on carbon. We have already held three successful auctions. There is a vibrant secondary market, and we are poised to begin approving offsets from sectors not under the cap. One good reason for the success of this program is the fact that we followed, and where necessary energybiz.com E N E RGYB I Z 45
» LEGAL ARENA improved on, Europe’s emissions trading scheme. In particular, the EU ETS provided a number of important lessons on the design of an effective capand-trade program, including the need for effective mandatory emissions reporting and verification, a reserve floor price, an allowance allocation system that rewards the most efficient producers, and effective market enforcement. California’s cap-and-trade program is designed to deliver emission reductions while addressing the
specific needs of California’s industrial and energy generation sectors. Because of the way our linkage process works, any future partners will have that same ability to build a program that keeps central focus on those reductions and their needs but built around a shared platform that tracks allowances and offsets. We have worked with Quebec for nearly five years in developing our respective programs and see linkage with the province’s cap-and-trade program as an excellent opportunity to advance greenhouse gas reduction efforts using the next-generation international model. California’s Mandatory Reporting Rule requires each facility to report annual greenhouse gas emissions. These reports are then verified by independent, Air Resources Board-trained, third-party verifiers, as well as audits by ARB staff. This is the most stringent reporting mechanism in the world. For the first two years of California’s cap-and-trade program, industry receives 90 percent of carbon allowances free to help with the transition to a market that puts a price on carbon. Free allocations decline after that. Covered facilities can purchase allowances to cover the remaining 10 percent of emissions at quarterly state auctions. In this way, the covered industries set the price they’re willing to pay for 46 E N E RGYB I Z March/April 2013
carbon, but no one can pay less than the reserve (floor) price, set originally at $10, and rising thereafter annually by 5 percent (plus an annual adjustment to accommodate the rate of inflation) to support investment in clean technology. Electric utilities receive allowances free, and then must sell them at state auctions to build a fund to protect their ratepayers from costs of complying with cap-and-trade. Under California’s program, allowance allocations are based on production, not emissions, with facilities rated against a benchmark for each sector, rewarding the most efficient facilities. This avoids an initial miscalculation made for the EU ETS in which free allowances were allocated based on past greenhouse gas emissions leading the windfall profits, which rewarded the heaviest emitters at the expense of consumers. California has also developed the world’s most stringent protocols and verification system for approving carbon offsets. Air Resources Board protocols will ensure that credited emission reductions are real, additional, quantifiable, permanent, verifiable and enforceable. Projects must be listed with an approved registry and verified by independent, third-parties trained by the ARB to ensure the accuracy of the accounting and the offsets generated by each project. Air Resources Board staff then does a separate review of that assessment before allowing the offsets to be registered as compliance grade. Projects must also be renewed NRG SETTLES regularly and undergo the same NRG Energy said that verification and approval steps it has settled lawsuits with New Jersey and before being relisted. Connecticut centered We are all in this together. In on two coal burning units in Mt. Bethel, Pa. remarks to Tsinghua University in The states had Beijing recently, Gov. Jerry Brown alleged that the units did not comply with said, “We’re in one world. We’ve got the federal Clean Air one big problem and we’ll all have to Act. NRG agreed to stop using coal at the work on it. And what’s beautiful and 570-megawatt facility exciting about climate change is no by June 2014. one group can solve the problem — not the United States, not California, not Japan, not China — we all have to do it. This is a great unifier.” Greenhouse gas emission reductions will continue under the EU ETS and while the countries of the European Union will maneuver through rough waters at present, a new model for fighting climate change is setting sail in North America. You might call it cap-and-trade 2.0. Mary D. Nichols is chairman of the California Air Resources Board.
» FINAL TAKE
Dominic and Kristel Johnson stand by their solar-powered ice cream delivery truck. Photos courtesy of Dominic Johnson.
Solar-Powered Ice Cream TUCSON’S ANSWER TO BLISTERING SUMMERS // BY DOMINIC JOHNSON IT’S NOT ALWAYS easy being “green.” Four years ago while sitting in my living room, I heard the familiar sound of calliope music blasting “Jingle Bells” even though it was July. A dark, dirty van drove by, and I thought of my two young daughters, and an idea occurred to me for a non-creepy ice cream truck. I began brainstorming and came up with the idea of using a 1920s Ford Model T delivery truck as an ice cream truck.
After a lot of persuasion, my wife, Kristel, reluctantly handed me $1,000 withdrawn from our children’s college fund. I raced across town and purchased a 1927 chassis for a Ford Model T. It was in a pile of parts. When I got home I did not let Kristel see them until I made them resemble a car. “I thought you were buying a car,” she said. Because the parts did not include a motor or transmission, we decided to use electric power. It was the energybiz.com E N E RGYB I Z 47
» FINAL TAKE
A look under the electric vehicle’s hood.
perfect option because an ice cream truck does not need to drive very far or very fast. Our green thinking did not stop there. We equipped the roof with thinfilm solar modules donated by Global Solar Energy of Tucson, Ariz. The modules charge two deep-cycle lead-acid batteries that run a 12-volt freezer made by SunDanzer, another Tucson company. The truck runs on a 72-volt power pack consisting of 12 6-volt leadacid batteries. It charges from any 110-volt outlet. We now have two trucks in our fleet with more in the works. With our current battery systems, we have a 30-mile range with a top speed of 40 miles per hour, perfect for our application. Our 100 percent electric and solar power use gains us a lot of great coverage. We were even featured on National Geographic’s website. Going green turned out to be part of our identity and success. When we started our business, we thought our trucks would travel the streets like any other ice cream trucks. But we discovered that we had more than a cute idea; we had a brand. The majority of our vending from the trucks is from catering weddings, private parties and corporate events. The truck is the trademark for Isabella’s Ice Cream. In addition, we have two trademarks and a patent pending for our unique pint container, which is designed to conserve energy. Our product stands out from other ice cream on the shelf in its cubically 48 E N E RGYB I Z July/August 2013
shaped pint container that packs perfectly inside of a box, eliminating airflow and keeping the ice cream colder for a longer period. Stores like it because the containers don’t waste an inch of valuable shelf space. We are moving into a larger facility to ramp up our pint production. As we grow, our commitment is to be green and practical. We have already started building our first 1920s delivery truck for delivering pints to grocery stores. We intend to power the original motor with clean-burning propane and power the freezer with solar energy or propane gas. Dominic and Kristel Johnson own Isabella’s Ice Cream in Tucson, Ariz.
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