EnergyBiz MayJun2012

SEN. DORGAN’S ENERGY THRILLER

VOLUME 9 // ISSUE 3 MAY 12 // JUNE 12 energybizmag.com

PEOPLE // ISSUES // STRATEGY // TECHNOLOGY

THE CAP PEEVEY: A MODEL FOR THE NATION

CO-OPS RISE TO NEW ERA PIONEERING ENERGY EFFICIENCY THE ENERGYBIZ LEADERSHIP FORUM 2012 KITE AWARD WINNERS ºº THOMAS F. FARRELL II ºº JOHN W. ROWE ºº CHESAPEAKE ENERGY

TEXAS RESEARCH POWER ºº CHAT WITH RAYMOND L. ORBACH

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

CHIEF OPERATING OFFICERS FACE NEW CHALLENGES

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Construction

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The Cap California once again lives up to its leading-edge reputation as it launches a bold new carbon cap-and-trade scheme.

16 A Model for the Nation

20 Co-ops Rise to New Challenges

The leaders of seven co-ops from around the nation assess the difficulties they face and new ways of dealing with them.

26 Pioneering Energy Efficiency

Natural gas generation may be surging but the focus on energy efficiency remains intense. We explore this trend and its significance from a variety of angles.

28 States Push Efficiency 30 Breaking Down Barriers 32 The Regulatory Push 33 An Urban Approach to Energy Frugality

O U R TA K E

A Place on the Front Lines

6 Letters BUSINESS EDGE

8 Leading in Disruptive Times >

EnergyBiz Kite Award Winners

10 Smart Grid and the Next Generation 11 Engineering Schools Must Gear Up 12 What Utilities Can learn from Retail T E C H N O LO GY F R O N T I E R

36 Targeting Coal Upgrades 38 Riding the Data Tsunami 40 Alaska Battery Breakthrough INTRODUCING

46 Texas Research Power/ Raymond L. Orbach METRICS

34 Reaching for Excellence

Chief operating officers are dealing with a new mix of generation, a new focus on reliability and increasing use of technology. The end game is achieving operational excellence.

Vol. 9, No. 3. Copyright 2012 by Energy Central. All rights reserved. Permission to reprint or quote excerpts granted by written request only.

EnergyBiz (ISSN 1554-0073 ) is published bimonthly by Energy Central, 2821 S. Parker Road, Suite 1105, Aurora, CO 80014. Periodical postage paid at Aurora, Colo., and additional mailing offices. Subscriptions are available by request. POSTMASTER: Send address changes to EnergyBiz, 2821 S. Parker Road, Suite 1105, Aurora, CO 80014. Customer service: (303) 782-5510. For change of address include old address as well as new address with both ZIP codes. Allow four to six weeks for change of address to become effective. Please include current mailing label when writing about your subscription.

2  E N E RGYB I Z  May/June 2012

50 Efficiency Jobs Mount/ Analytics Soar/Small Coal at Risk LEGAL ARENA

52 Unintended Consequences 54 Diversifying the Suppliers F I N A L TA K E

56 Blowout Thriller

We’ve

been

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Building the smartest grids in the World knowledge to shape your future

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» OUR TAKE A Place on the Front Lines HARNESSING DISRUPTION RAY ORBACH IS CREATING one of the nation’s pre-eminent energy research centers at the University of Texas in Austin. At our 2012 EnergyBiz Leadership Forum in Washington this spring, Ray ticked off some of the transformational energy technologies on the horizon.

The development of a $2,000 home gas compressor to power gas vehicles will roll back our dependence on the corner gas station and imported oil, he said.

Ray was the country’s first Undersecretary for Science in the U.S. Department of Energy and recruited Steven Chu to work in the agency’s lab complex. His views are explored in “Introducing,” in this issue.

Perhaps the justification for being upbeat about energy is best expressed by Amory Lovins in his new book, Reinventing Fire. Lovins writes: “The human species has begun the most important infrastructure shift in its history, melding energy with information technology and new ideas, blending technical with social breakthroughs, creating one astonishment after another and then merging them into still more. And this crucial next decade, even the next few years, is when most of the big bets will be placed.”

New Boeing 787s are 20 percent more fuel efficient than other similarly sized airplanes. Onshore wind is now less expensive than a new coal-fired power plant.

Solar power will be competitive with coal in For industry insights — three years, according and my blog — visit to one industry execuwww.energybiz.com. tive. In November and December, for the first time since 1978, coal generated less than 40 percent of our electricity.

A 100-pound, suitcase-sized transformer is under development that would do the work of today’s 8,000-pound transformers.

Some researchers are trying to alter tobacco leaves to improve on the manner in which algae produces oil.

Change — big time — is coming to our national and international energy complex.

True, there will be stumbles. At the recent Department of Energy ARPA-E conference in Washington, Bill Gates had an answer for those upset about the Solyndra federal subsidy controversy.

4 E N E RGYB I Z May/June 2012

“This is a complex set of technologies,” Gates said.

“We need thousands of companies to be trying this — innovation — to get to the 10 or 20 companies that will have real solutions.”

Gates wants the government to spend more — not less — on speeding up energy disruption and making sure that America leads the way. “It’s crazy how little we’re funding this energy stuff,” the sage of Microsoft said.

Bill Clinton, speaking at the ARPA-E gathering, encouraged utilities to promote public awareness of the energy revolution. “If every utility in America engaged — yes, it would make a big difference,” Clinton said. “We need to raise the intensity.”

Listening to all the speakers at the EnergyBiz Leadership Forum, it was evident that industry players at all levels — CEOs, risk officers, financial officers, information officers, customer relations managers — all feel a passion and intensity about the importance of their work, its challenges and its rewards.

As our Leadership Forum keynoter, Navy SEAL, humanitarian and Rhodes scholar Eric Greitens puts it, “I believe that for each of us, there is a place on the front lines.”

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

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» LETTERS In response to your March/ One quick example. I was chatting April cover story, “Harnesswith a friend of mine at a major ing Disruption,” I thought your read- investment bank and he said ers might like to know about the project financing is coming back work of the National Association of in the biofuels sector.

State Energy Officials (NASEO), Let’s keep up the positive mindset the only national nonprofit orand intention and continue to show ganization whose membership examples of real success – there includes the governor-designated are plenty of them. energy officials from each state and territory. NASEO Kimberly Kupiecki was formed by the Senior Vice President Edelman Silicon Valley states and through an San Mateo, Calif. agreement with the harnessing National Governors disrupTion Regarding your cover Association in 1986. story, “Harnessing The organization was Disruption” [March/ Masters of created to improve the data UNiverse April], we need to the effectiveness consider putting the and quality of state electric power and energy programs and energy industry back together in policies, provide policy input and fully functional vertical form, as it analysis, share successes among was before the federal government the states, and to be a repository decided to break and ruin it, startof information on issues of particuing back in 1979 via PURPA. lar concern to the states and their citizens. NASEO is an instrumenWe certainly cannot put it all back tality of the states and derives together, but some attempt can be basic funding from the states and made to undo much of the damage the federal government. that was — and continues to be — Members are senior officials from perpetrated upon an industry that the State and Territory Energy should have been left alone in the Offices, as well as affiliates from first place. the private and public sectors.

It’s a broken industry, that’s for Jim Ploger certain. Getting back to some Regional Coordinator form of fully functional vertical National Association integration as the industry was of State Energy Officials Topeka, Kan. originally designed would be a good start, if it’s not too late.

I had the opportunity to break into Dale M. Keith my hard copy issue of the March/ Stanley, Kan. April EnergyBiz and I have to say your editorial, “The Coming Bold Energy Plan,” was incredibly To contribute to the refreshing. We need to have and Letters column, please hold a vision of, as you say, a “bold email your submission energy plan” and a “bipartisan to editor@energybiz.com. future.” There has been so much Provide your name, address and daytime phone number. negativity and a sense of defeat, Letters may be edited and I think there is much to be for style and space. optimistic about.

Taming The Winds of mongolia

Volume 9 // issue 2 march 12 // april 12 energybizmag.com

people // issues // strategy // technology

getting the transmission highway Built

New ChalleNges, strategies

A ClEAn CoAl FuturE MAking ProgrEss

º a chat with Bill Johnson

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

6 E N E RGYB I Z May/June 2012

www.energybizmag.com EDITOR-IN-CHIEF Martin Rosenberg mrosenberg@energycentral.com 913.385.9909 CHIEF COPY EDITORS Meaghan Alfier,

Don Bishop, Martha Collins SENIOR CONTRIBUTORS

Barry Cassell bcassell@energycentral.com 804.466.0187 Carl Dombek cdombek@energycentral.com 970.236.6235 Rosy Lum rosy@energycentral.com 347.799.2802 Bill Opalka bopalka@energycentral.com 860.633.0090 Corina Rivera-Linares corina@energycentral.com 301.825.5618 FEATURE WRITERS Thomas Armistead, Steve Barlas,

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JOHN W. ROWE Former chairman and CEO, Exelon Lifetime Achievement Award

CHESAPEAKE ENERGY Energy Company of the Year Aubrey K. McClendon, chaiman and CEO

Photo by Dayna Smith

Photo by Dayna Smith

Photo courtesy of Chesapeake Energy

» BUSINESS EDGE

THOMAS F. FARRELL II Chairman, president and CEO, Dominion CEO of the Year

Leading in Disruptive Times ENERGYBIZ KITE AWARD WINNERS // BY RICHARD SCHLESINGER IN 1882, when Edison fired up the first power plant on Pearl Street in New York City, he had about 85 customers who forked out $5 for each and every kilowatt-hour. Electricity caught on, the price fell and the customer base grew.

Change is the name of the game.

But change like the industry faces today is unprecedented. The industry must change to meet the challenges of an aging — many would argue, decrepit — infrastructure, soaring capital requirements to update and replace it, environmental crises, stringent new EPA regulations, as yet undefined Dodd-Frank strictures, and technological innovations that are radically transforming the entire arc, from generation to end use.

Ironically, these sweeping changes come in the face of what looks like a total breakdown in attempts to form a coherent national energy policy and when some of the great leaders of recent years, including Mike Morris and John W. Rowe, are stepping down.

JOHN ROWE’s 27-year career as an energy industry CEO is emblematic of the kind of hardheaded 8 E N E RGYB I Z May/June 2012

leadership this environment demands. When nuclear energy was under a cloud and nuclear facilities could be had at bargain prices, Rowe invested and grew Exelon’s nuclear portfolio HARNESSING to 93 percent of its current DISRUPTION capacity. But it wasn’t just a Listen to a live webcast conversation with matter of finding under-priced Thomas F. Farrell II and assets. Most of the facilities Aubrey K. McClendon.

Rowe acquired were underThey will talk about what keeps them up nights — performing, and he set about and how they spend increasing their efficiency. their days implementing Thomas Kuhn, president cutting-edge strategies.

It will be held at noon ET of Edison Electric Institute, on May 17. notes that operations at many Register for free at of these plants had eroded www.energybiz.com/ because complacency webcasts/awardwinners had replaced vigilance and discipline. “John hired the right people and injected a sense of urgency and a drive for excellence that turned them around,” Kuhn said.

Rowe is known for his hands-on approach to management. As Kuhn puts it, “If the CEO is not driving the train, the organization won’t follow.” But successful as Rowe was in building Exelon’s nuclear capacity into a highly reliable and efficient engine to drive Exelon’s profits and stock performance, the nuclear renaissance people have been predicting is nowhere in sight, not because of the Fukushima disaster, but because of simple market forces. Nuclear today is just too expensive. So Rowe, Mr. Nuclear Energy, is now one of the most enthusiastic supporters of natural gas.

If John Rowe is the exemplar of the leader almost preternaturally attuned to a changing environment, Aubrey McClendon is the archetype of the leader who changes it. With an investment of $50,000, he and his partner, Tom Ward, founded CHESAPEAKE ENERGY in 1989. Twenty-three years later, Chesapeake is the second-largest producer of natural gas in the United States (ExxonMobil is number one). McClendon, more than anyone else, is responsible for unlocking the huge reserves of gas long known to be trapped in shale, but until recently deemed economically inaccessible. At the time he formed Chesapeake other companies were experimenting with horizontal drilling, but McClendon was the first to form a company defined by it.

McClendon says he didn’t set out to look for oil and gas. As he said: “Others had been doing that for over a century. Was I going to be smarter or luckier then they were? Instead, we embraced this new technology that could enable us to drill wells in areas where we knew the gas was in place, and that changed everything.” For him, for Chesapeake and for the power industry.

Hydraulic fracturing, or fracking, unlocked the vast reserves of natural gas that have transformed the industry. But McClendon’s vision goes beyond revolutionizing the power industry. He thinks the radically lower price of natural gas will transform transportation and manufacturing, as well. “In a nutshell, my goal is to help the country break the stranglehold that OPEC has on us. It will transform American foreign policy and invigorate our whole economy,” he said.

McClendon also believes the resulting low price of natural gas might spur the development of alternative sources, such as wind and solar, because economical gas-fired plants, which come on line quickly, are essential to supplement any interruptible energy source.

But the picture is perhaps more complex than he is willing to state. Although McClendon insists Chesapeake’s environmental record is “pristine,” fracking remains controversial and the regulatory environment

uncertain. And with dry gas now around $2.50 per million British thermal units, additional drilling becomes economically unfeasible. In fact, Chesapeake is drastically reducing its drilling activity until supply and demand come back into balance. “We can’t afford to drill new wells with gas at $2.50. But give us $4 or $5, which is still cheaper than coal, and we’ll drill all day long,” he said.

TOM F. FARRELL II, CEO of Dominion Resources and current chairman of EEI, does not see natural gas as a panacea for the power industry, nor does he believe it to be the solution to global warming. He notes that if all coal-fired plants were replaced with plants burning natural gas, by 2050 we’d be releasing as much greenhouse gasses as we are today.

Rather, he encourages an all-of-the-above approach: Dominion’s generation mix is over 40 percent coal, 40 percent nuclear, about 9 percent gas and about 3 percent renewables. But that’s not to say Farrell hasn’t positioned the company to exploit the recent boom in natural gas. After divesting the company of drilling operations, Farrell took the lead in acquiring Pittsburgh-based Consolidated Natural Gas Co., with its vast natural gas transmission, gathering and storage facilities. Today, Dominion operates the country’s largest natural gas storage system.

Farrell has shaped Dominion into a diversified company that’s both somewhat insulated from and that can take advantage of any number of unforeseeable forces that will buffet the power industry. Today, for instance, Farrell has positioned Dominion to export liquefied natural gas from the terminal it owns at Cove Point on the Chesapeake Bay. But the most formidable challenge, in his opinion, is the absence of a defined, national energy policy, without which it’s almost impossible to make wholly rational decisions about how to replace aging plants or add capacity for anticipated increased demand.

Gatherings//Business Edge June 3-6

Edison Electric Institute Annual Meeting

Orlando, Fla.

June 16-20

American Public Power Association Annual Meeting

Seattle

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

energybiz.com E N E RGYB I Z 9

» BUSINESS EDGE Smart Grid and the Next Generation RECRUITING AND TRAINING A NEW WORKFORCE // BY NOEL SCHULZ OVER THE LAST SEVERAL YEARS there have been two recurring themes in the power and energy community: an aging workforce with large numbers of retirements anticipated in the near future and the smart grid impact on the electrical delivery system. The merging of these two topics provides an opportunity for our industrial and educational groups to evaluate what the smart grid workforce for today’s and tomorrow’s power and energy challenges needs to be. It is critical to make sure we are not trying to drive a square peg into a round hole as we develop educational programs and professional development training to equip today’s workforce with the technical tools they need to solve our challenges.

Several efforts related to the workforce have focused on ensuring enough college students are entering the power area to fill needs. Although it is a critical issue, this is only part of the workforce challenge. The electric energy area is seeing an influx of mid-career engineers and executives without power backgrounds getting involved in smart grid-related issues. It is our opportunity to provide training to smooth their transition and help our industry meet the challenges ahead.

Today’s smart grid workforce pipeline has a very different look and requires our industry to develop new, innovative training and educational models. There still exists a group of traditionally trained power engineers coming from universities. However, universities are re-evaluating their power engineering curricula and updating classes and content to reflect the changes in the industry. The U.S. Department of Energy provided $100 million in the last several years for curricular updates and improvements.

Several efforts are under way to increase our pipeline of college students into power engineering fields.

The IEEE Power & Energy Society offers a variety of programs to introduce engineering students to power engineering careers. Each year several hundred students participate in student programs at IEEE PES conferences. In 2011, PES started a new program, PES Scholarship Plus, that provides scholarships and internship opportunities for students pursuing power degrees. These efforts are helping refill the pipeline.

10 E N E RGYB I Z May/June 2012

While the number of power engineering students has risen recently with the interest in renewable energy and smart grid topics, demand has also risen as a broader range of companies need power engineering expertise. Utilities are not only competing against each other and manufacturers, but also new players in the space, such as Oracle, Google, IBM and Microsoft, are hiring professionals with power backgrounds. Some companies cannot find enough formally trained power engineers for their needs. They have hired engineers from other areas of electrical engineering or other fields and are providing targeted training to bring them up to speed with power engineering principles.

In addition to the power system expertise, we need people trained in communications, controls, computer engineering and computer science topics to manage the integration and advancement of smart grid technologies within the electric grid. Although trained in their specific technical areas, some of these newer members of the power and energy workforce lack a depth of understanding of key principles of power engineering that differ from other places where they have applied their technical expertise.

For the good of the industry, it is imperative that we collaborate as a community to develop the training and professional education opportunities to create the workforce needed. While individual companies can develop these programs for their specific needs, a coordinated effort by the industry to do a needs assesment of the different training requirements and come together to develop programs that meet a broad range of needs will benefit the power and energy community across the board. In addition to content questions, we need to embrace new pedagogical methods for delivering information through webinars, chats, online courses and other advanced techniques.

Dr. Noel Schulz is professor of electrical and computer engineering at Kansas State University and president of the IEEE Power & Energy Society.

Engineering Schools Must Gear Up THE SMART GRID EDUCATION CRISIS // BY JOHN JANOWIAK THE ELECTRIC POWER INDUSTRY faces an impending workforce crisis. To industry observers, this statement has become trite from frequent repetition. The parallel crisis in the power engineering programs at our universities is less-discussed but just as critical.

Tragically, just when the industry is most in need of a new generation of power engineers trained in a broader array of technical subjects, engineering schools are ill-prepared to supply the need.

A period of relatively low investment by the industry has led to a generation gap in the workforce. It also created a parallel gap in the professorial ranks of power engineering programs at colleges and universities, and depressed interest in the field among students.

Like the electric power grid itself, power engineering programs at most universities have changed little over the past several decades. Sadly, the most significant change for many power engineering programs has been their elimination as the field has been eclipsed by other electrical engineering specialties such as electronics, computers, and communications. As power engineering professors retired, new faculty members were hired in fields that held greater potential for attracting students and funding.

NUCLEAR COSTS Compounding the educational crisis, Xcel Energy said that improvements at two the power industry will need more than nuclear plants mandated just replacements for retiring engineers by federal regulators could cost it $25 million to meet its challenges. Smart grid techto $50 million over a nologies offer the potential for utilities few years, according to a report in the St. Paul, to deliver electricity more efficiently and Minn., Pioneer Press. effectively by integrating information The orders are going and communication technologies into to nuclear operators around the country in the the next-generation grid. This requires wake of the Fukushima knowledge of topics outside the tranuclear accident a year ago. ditional power engineering curriculum including communications, sensor integration, policy, software development and security.

So what are the prospects for weathering this storm? We do see light on the horizon in the form of several efforts to attract new talent into the field of

power engineering, and others intended to bridge the workforce gaps in academia and industry by providing training in smart grid technologies to currently active professors and professionals.

In July of last year, the Electrical and Computer Engineering Department Heads Association, with support from the National Science Foundation, conducted a four-day summer program for 50 university educators to prepare them to teach an expanded curriculum in electric power engineering. The program drew on the remaining centers of excellence in North American universities to increase the number of professors capable of teaching the required topics for designing, developing and operating the next-generation power grid.

Student interest in power engineering is also on the rise, due in part to the field’s role in addressing green topics such as sustainability and renewable energy sources. Initiatives to encourage this interest include the National Science Foundation-funded Research Experiences for Undergraduates program at Texas A&M, which offers undergraduate students an opportunity to participate in ongoing research with faculty members. The program spans 10 weeks, involves undergraduate students from Texas A&M University as well as students from other colleges and universities, and focuses on research topics related to smart energy and smart systems.

Another example of an effort to draw students into the field is the Scholarship Plus Initiative launched by the IEEE Power & Energy Society in April 2011. Over 150 applications from more than 70 U.S. schools were received in June 2011 for more than $100,000 in scholarships. The association helps to publicize this program and similar ones through its online newsletter, The Source.

John Janowiak is executive director of the Electrical and Computer Engineering Department Heads Association and president of the International Engineering Consortium. energybiz.com  E N E RGYB I Z 11

» BUSINESS EDGE What Utilities Can Learn From Retail INSIGHTS ON THE DATA FRONT // BY MIKE WEBSTER TODAY, THE TERM BIG DATA draws a lot of attention from all industries, and retailers are among those that must glean insights in order to personalize offers and retain customers. Retail is detail.

Operating on razor-thin margins, retailers can no longer make business decisions based on transactional data alone. They are folding in a treasure trove of less-structured data stemming from blogs, social media, search, mobile applications and other customer touchpoints that can be mined for actionable information.

With companies in every industry now striving to engage more intimately with customers to gain greater insight into their behavior, buying patterns and needs, many of the lessons retailers have learned in the past few years are applicable for business leaders in other industries, as well.

Analyzing big data — including new types of data that companies haven’t analyzed before — provides a deeper level of insight into what customers are thinking and how the business operates. There is a significant benefit for utilities to gain by more carefully analyzing customer data. To mine this immense volume of data, utilities may require less-structured query tools. Those tools will have to function without disrupting ongoing operations and will FPL AND GAS have to return answers in Florida Power & Light near real time. is joining the natural gas revolution, and is Providing better, more perinvesting $3 billion in sonalized services based on new natural gas-fired generation in Rivera customer needs is good for Beach and Cape Canaveral, according customers. Consumer studto a report in the Palm ies consistently demonstrate Beach Post. that individuals of all ages are not only willing to share more information about their preferences, they expect companies to know more about them and tailor communications and services to meet their needs. Like their peers in financial services, 12 E N E RGYB I Z May/June 2012

health care and retail, utility providers will be required to improve the customer experience by providing better information, offering more choices and simply doing a better job of anticipating the needs of customers.

While companies are starting to realize the benefits from leveraging big data, they are also faced with new challenges that require different ways of thinking.

Key enablers for analyzing big data include tools for statistical and advanced analysis. These tools must be able to work with distributed data to perform analysis regardless of where the data resides, to scale as data volume grows, to deliver response times driven by changes in behavior and to automate decisions based on analytical models.

However, managing these vast quantities of data is only half the battle. Companies that want to truly benefit from big data must also integrate new types of information — such as the tremendous wealth of information generated from mobile devices — with traditional corporate data, and fit the insight they glean into their existing business processes and operations. Not only does this approach offer a more complete understanding of the business, it also builds on existing IT architectures instead of replacing them.

With this 360-degree view of its business, an enterprise can realize the insight it needs to improve processes. This insight has implications that go far beyond technology to organizational structures, hierarchies and a company’s ability to change, so enterprises are advised to take a phased approach to leveraging big data. Initial projects should be small in scope: Identify one set of desired data, capture it, explore new data-management techniques and determine integration points with existing data. Starting with pilot projects and building on successes will help a company realize the benefits of leveraging big data with minimal disruption to the business.

Like retail, utility providers will be required to improve the customer experience.

Mike Webster is senior vice president and general manager, Oracle Retail.

Helping Utilities Make Smart Solar Decisions

2012

Education • Market Intelligence • Solar Strategy

Whether your utility is just beginning to explore solar power or is experienced in integrating solar into your energy portfolio, the Solar Electric Power Association (SEPA) is committed to providing you with the unbiased information on solar technology and integration strategies, plus the one-on-one support you need to help build and manage a successful solar program. For information on the benefits of joining SEPA’s community of utility solar professionals, contact us at utilities@solarelectricpower.org.

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THE

CAP EMISSIONS PL AN GOES FORWAR D

BY AL SENIA

CALIFORNIA IS SET TO TAKE ANOTHER JAW-DROPPING ENERGY GAMBLE WITH THE IMPENDING INTRODUCTION OF THE NATION’S MOST AMBITIOUS CAPAND-TRADE SYSTEM, WHICH STATE ENERGY OFFICIALS BELIEVE WILL SIGNIFICANTLY REDUCE GREENHOUSE GAS EMISSIONS, BUT SKEPTICS FEAR WILL PLACE UPWARD PRESSURE ON ENERGY PRICES. The state that gained national notoriety with a botched effort to deregulate its energy industry more than a decade ago is now preparing to roll the dice again, this time with a comprehensive market-based effort to buy and sell pollution permits. The plan, which impacts emissions from 14 E N E RGYB I Z May/June 2012

the state’s 600 largest industrial facilities, including cement manufacturers, oil refineries and utility companies, dwarfs similar regimes already in effect in Europe and the northeastern United States. If successful, California’s effort could become a national model, although state officials insist

their primary focus is on significantly reducing greenhouse emissions, not necessarily setting an example for the rest of the country.

Plans call for the cap-and-trade system to begin operating in January, although the first auction of so-called energy “allowances” is scheduled for this August. Allowance futures already are trading on at least one private exchange. The cap-and-trade program is the central element of the Global Warming Solutions Act passed in 2006 by the state legislature and signed by then-Gov. Arnold Schwarzenegger, a Republican. Current Gov. Jerry Brown, a Democrat, also strongly backs the measure. Essentially, it requires major industries and manufacturers to reduce their carbon emissions to 1990 levels by 2020. In 2013 it covers refineries, cement plants and the electricity sector, and expands to the transportation fuel and residential and commercial natural gas sectors in 2015.

Even before it starts, cap and trade is generating intense controversy within the state. The California Air Resources Board is doling out free greenhouse gas “allowances” linked to each metric ton of greenhouse gas the 600 companies emit. Under the plan, starting in 2013 each electric power plant and industrial polluter will face a cap on carbon dioxide, methane and other emissions. They can use their free allowances or buy credits to offset this cap.

Unused allowances can be traded on an exchange. The free allowances will be distributed for three years and then be slowly phased out for most industries. The first auction of the allowances in August is expected to generate at least $1 billion in revenue, with more to follow next year. It is not at all clear what will happen to this money. Furthermore, the board rejected the advice of economists it consulted that suggested the state auction the allowances right from the beginning instead of handing them out free. State officials feared such a move would cause companies to pack up and leave the state, taking precious jobs with them.

“Our main goal here is emissions reduction, not money,” said David Clegern, a board spokesman. “We want to provide certainty for industry and cleaner air for California.

Those are what we are working toward.”

Maybe so, but the expected $1 billion is being coveted by all sides. And predictions are the amount will grow to at least $2 billion annually after 2015. A recent analysis from the legislative analysts office said the money generated from the credit auction could reach as high as $14 billion in some years. Gov. Brown aims to spend the revenue to partially fill a projected $9 billion budget deficit, utilizing it to offset some budgeted costs in such areas as sustainable infrastructure development, natural resources protection,

clean energy and low-cost transportation. He also suggests diverting some monies to the state’s general fund and has hinted the windfall will also be used to partially finance a controversial, expensive, high-speed rail line planned between Los Angeles and San Francisco. Many manufacturers view the cap-and-trade funds simply as a new tax that Brown cannot spend without legislative approval.

They want the money returned directly to the companies paying the higher pollution fees. Resolution of the dispute is probably a year and multiple legal challenges away.

Meanwhile, the state’s investor-owned utilities want the funds raised from their allowances to go back to customers who may well end up paying higher costs for power, especially as more expensive alternative energy replaces the much cheaper coal long favored by California power plants. The Public Utilities Commission is expected to decide the issue later this year, although the state legislature could intervene. The current system would force the utilities to consign their free allowances to the market, with the PUC overseeing dispersal of the allowance values.

California utility executives’ backing for the new capand-trade system is lukewarm at best. “We have been supportive of cap and trade, but there are a lot of implementation challenges that have to be resolved in a short period of time,” said Gary Stern, director of market strategy and resource planning for Southern California Edison. “There is a very limited time until i m p l e m e n t a t i o n .”

More significantly, Stern warned that if the PUC fails to allocate revenue from the free allowance auctions to flow back to customers, within several years utility bills are likely to climb. Customers will face higher costs from more expensive renewable energy, as well as the costs of the cap-and-trade program itself, a double whammy that could send utility bills soaring. Open trading could also cause the price of future allowances to rise sharply. “There should be more adequate controls in place to make sure the price doesn’t spike. They really haven’t done anything to counter the costs,” Stern said. He remains “cautiously optimistic” about the program.

There should be more adequate controls in place to make sure the price doesn’t spike.

energybiz.com E N E RGYB I Z 15

THE CAP

CARB’s Clegern noted that the cap-and-trade effort was never designed to offset the costs of the renewable energy requirements under the state law, in large part because utilities are not the state’s chief polluters. And the legislation establishing cap and trade allows the board to intervene should the auctions go awry. “We can set a floor for the auctions,” he said. “We can release more allowances to calm things down.” Even he admits, however, that the impact of futures trading in allowances is hard to predict. One complication is that the number of available allowances decreases annually by several percent, meaning industrial polluters will buy future allowances from a shrinking — and presumably increasingly more expensive — pool.

Mary Nichols, chairman of the board, said publicly that such controversies over cap and trade ignore the primary fact that establishing an economywide price on carbon “sends a crystal clear signal that we are serious about powering our economy with clean, less carbon-intensive technologies, and that investment and development of them will be rewarded.”

Another top utility executive in the state called the program “a mess” that could cause utility bills to increase. Such warnings bring back memories of California’s well-intentioned but poorly planned effort to deregulate energy markets more than a decade ago. When deregulation hit, chaos ensued as energy prices soared on the open market, rolling electricity blackouts enveloped the

state, utility bills spiked and political leaders were forced to quickly perform damage control.

It is unlikely that cap and trade will have such a dramatic and negative impact. But it could well pass the costs of the politicians’ desire to have California out in front of the green energy parade onto the ratepayers and industrial businesses by the end of the decade. Meanwhile, there is no shortage of controversy over cap and trade. Another hotly debated aspect of the program allows companies to offset 49 percent of the emissions they must reduce by investing in pollution reductions elsewhere such as tree-planting programs. These offsets, which basically reduce emissions from sources not connected to the caps, have sparked the rise of new offset businesses in the state and led environmental groups to question what is being included and excluded in the definition of “offset.”

Despite these issues, California seems intent on establishing a robust cap-and-trade system. There are similar programs in Europe and the northeastern United States, but California’s appears to improve upon those. For example, California’s plan allows offset credits to fill just 8 percent of a company’s compliance need, compared with 14 percent under the European Union program. And the caps under California’s plan are more difficult to meet than those established under the Regional Greenhouse Gas Initiative, RGGI, which links nine northeastern states under a cap-and-trade program.

A Model for the Nation LE AR NING FROM EUROPE’S MISTAK ES

BY MICHAEL R. PEEVEY

of a dramatically different new year in California, for it also marks the launch of California’s greenhouse gas cap-and-trade program established by then-Gov. Arnold Schwarzenegger and the state legislature in 2006. California has moved deliberately to ensure that our program will effectively reduce GHG emissions while avoiding any serious pitfalls. California is not the first state to implement a GHG cap-and-trade proJANUARY 1 WILL MARK THE START

16 E N E RGYB I Z May/June 2012

gram. The nine Northeastern member states of the Regional Greenhouse Gas Initiative, RGGI, claim that honor, and, of course, the European Union has had a cap-and-trade program for several years.

However, California will be the first state to implement an economywide cap, whereas RGGI’s program only covers electricity generation. Although the first two years of the California cap-and-trade program will be limited to large stationary

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THE CAP

sources, transportation fuels and all remaining natural gas not combusted at large stationary sources will be covered beginning in 2015. In my view, the legislature was wise to include all economic sectors in California’s cap. Besides the obvious advantage that the pool of potential reductions is larger, the economywide scope of our program should reduce emissions at a lower cost per ton because the greater number of end uses covered offers the possibility of cost-reducing innovations across a wider variety of technologies.

I believe California will serve as a successful model for other jurisdictions that are considering cap and trade. In particular, I would like to highlight our approach to allowance allocation in the electricity sector. We have benefitted from observing the implementation of cap and trade in the European Union, and we aim to avoid many of the mistakes that were made in their program. For example, in the EU’s program, allowances were allocated freely to electricity generators. Because generation in many European countries is unregulated, generators passed through the value of their allowances into their wholesale power bids. Those higher wholesale prices were passed on to consumers resulting in substantial windfall profits for unregulated generators, on the order of $1 billion per year in the United Kingdom alone, according to some estimates.

In California, where the wholesale markets are similarly deregulated, we have taken a much different path.

In designing California’s cap-and-trade program, the California Air Resources Board (CARB) largely adhered to a joint recommendation of the California Public Utilities Commission and the California Energy Commission, in which we recommended that CARB allocate electricity sector allowances to the utilities rather than the generators.

The investor-owned utilities, in turn, are required to auction their allowances on consignment in the board’s centralized auctions where they will be purchased by independent generators and other entities. In this way, the value of the allowances flows to the regulated utilities where the CPUC can ensure that this value is used to benefit customers rather than increase the profits of independent generators.

The determination of how to spend the auction revenues is the subject of an active proceeding at the CPUC. The stakes are substantial. The investor-owned electric utilities regulated by the CPUC will receive roughly 65 million allowances in 2013. If the auction clears at CARB’s floor price of a little over $10, more than $650 million dollars will pour into the utilities’ accounts from the allowance sales, with a similar increase expected in expenditures for purchased wholesale electricity. Futures for California allowances have been trading in a narrow range around $15, which, if accurate, would 18 E N E RGYB I Z May/June 2012

push the annual revenues flowing to the utilities closer to $1 billion. In absolute terms, this seems like a considerable sum, but CPUC staff estimates that even at $15 per metric ton, the impact on rates would be around half a cent per kilowatt-hour, an increase of 3 percent or less for California’s major electric utilities.

All of the parties in our proceeding have suggested directing most, if not all, of the GHG auction revenues back to ratepayers to mitigate the bill impacts from the increase in wholesale power prices, but they differ sharply over how it should be returned. The utilities and some other parties suggest returning revenues to all ratepayers by lowering rates.

Environmental groups support using some revenue for additional investments in energy efficiency and returning the remaining revenue primarily to households through equal lump-sum payments that will, in their view, better preserve the carbon price signal. The parties have presented various pros and cons for each approach, but both would effectively compensate customers for any increases in wholesale power prices that result from pricing GHG pollution.

Aside from questions about the allocation of allowances and resulting revenues, I am happy to observe that the capand-trade program is already beginning to have an impact on the generation market. California’s generation mix, particularly the investor-owned utilities’ portfolios, consists mostly of low- and zero-GHG resources. The only GHGintensive generation in the state is produced by a small number of facilities burning coal and petroleum coke. As a result of a CPUC decision issued in February, five petroleum coke units east of San Francisco will be retired several years ahead of schedule, with substantial local air quality benefits for an area with several nearby refineries. GWF Energy, the operator of those facilities, has stated that the expected cost of GHG compliance was a contributing factor in their decision to seek early retirement of those units. This is precisely the type of outcome that putting a price on pollution is intended to achieve.

Thus, California is forging ahead with a state-only capand-trade program. We believe it is a vital part of the suite of programs designed to radically reduce CO2 emissions by 80 percent below current levels by 2050. We hope our success in this effort will encourage other states and, most importantly, the federal government to adopt an economywide cap-and-trade program very soon.

Michael R. Peevey is president of the California Public Utilities Commission.

Co-ops Rise to

New Challenges SERV ING SM ALL AR E AS DOESN’T M AK E PROBLEMS SM ALLER

BY MARTIN ROSENBERG

EnergyBiz sat down with seven electric cooperative senior executives at a recent meeting of the National Rural Electric Cooperative Association to discuss their major challenges. Concerns included the distraction if not the disruptive effect of regulation, the effect of the economy on load growth and the effect of state requirements for the use of renewable energy to generate electricity. Attracting high-quality employees presents a challenge for a small co-op. A bright spot? The smart grid.

Comments were edited for length and style.

What unique challenges do you face?

ENERGYBIZ

Flathead Electric Cooperative in northwestern Montana serves from Glacier National Park to halfway down both sides of a freshwater lake with many seasonal residents and high-end, large houses. We serve SUGDEN

20 E N E RGYB I Z May/June 2012

PARTICIPANTS David Markham President/CEO Central Electric Cooperative Debra Cole General Manager HILCO Electric Cooperative William Freeman General Manager Clarke Electric Cooperative H. Wayne Wilkins CEO EnergyUnited Cooperative Ken Sugden General Manager Flathead Electric Cooperative David Spradlin General Manager Springer Electric Cooperative Jeanne Muntean General Manager/CEO Arrowhead Electric Cooperartive

61,000 accounts and have 47,000 members, mostly residential with some commercial and industrial customers involving wood products, an industry that has seen a large downturn in the last few years.

Our loads are growing very slowly. We are heavy into energy efficiency because of a regional power act passed in late 1980 that started the Bonneville Power Administration supporting their customers on conservation projects. We are aggressive with energy efficiency where the biggest bang for the buck is in commercial and industrial projects. If you can do one large energy efficiency project in a sawmill, you save much more than doing a lot of projects in residential customers.

The Central Electric Cooperative in central Oregon serves 32,000 customers in 5,300 square miles. We have an average system load of about 85 megawatts, and we peak in the winter at about 245 megawatts, so we’re a winter peaking utility.

Our state has a small-utility renewable portfolio standard for co-ops; it’s 5 percent MARKHAM

Left to right, H. Wayne Wilkins, CEO, Energy United; William Freeman, general manager, Clarke Electric Cooperative; Debra Cole, general manager, HILCO Electric Cooperative; Jeanne Muntean, general manager, CEO, Arrowhead Electric Cooperative; David Spradlin, general manager, Springer Electric Cooperative; David Markham, president & CEO, Central Electric Cooperative; and Ken Sugden, general manager, Flathead Electric Cooperative. Photos courtesy of Daniel James Ryan.

of your energy from renewable resources by 2025. For large utilities, it is 25 percent. An influx of data centers coming into our service territory could kick us into the large-utility standard. Only three new data centers could move us into the large-utility category with $15 million to $20 million extra in power costs because we would have to meet a higher standard.

These data centers don’t produce a lot of jobs. You may have 30, 40, 50 jobs in a data center that consumes 100 megawatts.

And from the standpoint of smart load growth it’s not the best type of load. We’re trying to get a legislative fix to the renewable portfolio standard so we can adjust to these large loads.

WILKINS Energy United in Statesville, N.C., has 120,000 electric meters, 28,000 propane meters and 6,000 customers of other services. We, too, have a renewable portfolio standard in North Carolina — about 10 percent. We have few natural ways of creating renewables, so our legislature capped it at 10 percent for electric co-ops, and we have to meet that by 2018. We found a lot of good wind reps; we’re able to bring in some of our needs from out of state so we’ve gone in and purchased a fair amount of wind. Solar, of course, is tanking — there’s a clause our in our state that says we have to have so much solar, we have to have so much swine-power generator — swine waste and power generated from poultry waste.

Springer Electric is in the northeast corner of New Mexico on the east slope of the Rocky Mountains, so SPRADLIN

we serve mostly plains into some mountain areas. We’re a small co-op, 3,000 meters, with two large industrial loads that account for 95 percent of our load; they are high-loadfactor loads. So it creates a unique situation for us in how we design our rates to make sure that we’re not relying just solely on them so that if something happens — their economies change and they go away — the rest of the system doesn’t see a big rate impact.

For a small co-op, it’s hard to keep people on staff to keep up with technology, so we’re doing everything that we can to attract quality people. We have a 5- to 10-year program of raising the wages. We just added a defined benefit plan.

Employees are very happy about that.

We have state energy efficiency standards so we’re really pushing energy efficiency. It’s kind of difficult. Our residential customers, on average, use 490 kilowatt-hours a month, so you go to people and say we want you to be more efficient, they ask, what do you want me to do, turn the refrigerator off?

We have distribution lines that extend to stock watering wells. When storms take lines down, offer to install solar instead of rebuilding the lines — and most ranchers are amenable to that.

At the eastern edge of the Rocky Mountains, you get high wind regimes. Many wind developers want to put in wind projects. The problem is limited transmission. energybiz.com E N E RGYB I Z 21

CO-OPS RISE TO NE W CH A LLENGES

Clockwise, from the left, Mark Johnson, vice president of EnergyBiz, Ken Sugden, David Markham, H. Wayne Wilkins, Martin Rosenberg, William Freeman, Debra Cole and David Spradlin.

Arrowhead Electric is in the far northeast part of Minnesota. We have 4,025 accounts. About 93 percent of our county is either federal or state land, surrounded by Lake Superior, the Canadian border, and Boundary Waters Canoe Area Wilderness. About 46 percent of our members are seasonal. Minnesota has a renewable energy standard — 25 percent by 2025. There’s a lot of wind. But we’ve found in the last few years that the wind contracts that our generation and transmission cooperative purchased are a lot more expensive than what they get through the Midwest Independent Transmission System Operator market. Last year, our G&T lost about $29 million, and, of course, that gets passed on in our rates. We probably have the highest rates in the state. The rates are our biggest challenge.

consumers per mile line. A couple of the counties we serve are the lowest-income counties in the state. Our consumers average less than 1,000 kilowatts a month.

We are lined up with a small G&T, Central Ohio Power Cooperative, and 40 percent of its energy comes from noncarbon-based power. So part from a nuclear plant, we have some wind contracts, we have just a little bit of WAPA, and so from that standpoint we think we’re in a pretty good position.

We are implementing a flat rate for the first time in the co-op’s history — 10 cents a kilowatt-hour. For most consumers it’s a reduction in rates, for some large users, it’s going to be an increase.

HILCO Electric Cooperative is in north central Texas. We serve five counties including Dallas County and a very rural southern territory, so our member base is diversified. We have 23,000 electric meters, 4,000 water customers and 3,000 propane customers.

We’ve had TWACS meters on our system since 2000.

We offer prepaid metering that hasn’t been real popular, although some members like it just for the benefit of not having to pay deposits or anything, so it’s starting to grow as our customer base changes.

I was surprised to see that smart grid penetration in the coop sector is much more advanced than the rest of the country — it’s 25 percent smart grid/advanced meter penetration versus an average of under 10 percent. To what extent is it actually making your operations more efficient?

MUNTEAN

COLE

Clarke Electric Cooperative serves 5,300 meters in eight counties south of Des Moines — fewer than three FREEMAN

22 E N E RGYB I Z May/June 2012

ENERGYBIZ

We saw benefits in customer satisfaction and reliability.

We had the availability to read meters and we really wanted more — for multiple reasons. One is that we think we can do a better job for members by having that FREEMAN

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CO-OPS RISE TO NE W CH A LLENGES

(Top left) Jeanne Muntean and David Spradlin. (Bottom left) William Freeman and Debra Cole. (Right) Ken Sudgen and David Markham.

information at our fingertips and understanding how they’re consuming energy and when. The other side of that is also efficiency on our part. We’ve got consumers who are over an hour away from the office, and for us if we’re rolling a truck on a problem that actually is a consumer problem.

With smart meters maybe we can help them with that so they can get an electrician or they can solve that problem for themselves.

Co-ops tend to serve more rural systems. In our case, you have meter readers driving a long way to read meters, and what we noticed in our accidents and safety meetings was that a lot of the incidents happened with meter readers out driving or walking around in somebody’s yard and slipping on something. So we’ve saved that way.

SUGDEN

WILKINS We saw benefits in customer satisfaction and reliability. Regarding customer satisfaction with daily readings we now post on our website, when the customer calls in it’s very easy to walk them through on a daily basis as to how they can resolve issues with their usage, so that’s been a tremendous benefit.

MARKHAM We’re about 50 percent deployed; we got in on the smart grid grant. We surveyed members before deploying and had a 74 percent positive response regarding deployment of smart meters. We received a 64 percent pos24 E N E RGYB I Z May/June 2012

itive response on demand/response programs as far as acceptance. The transition so far has been really pretty smooth.

ENERGYBIZ What is the most disruptive threat you face at your organization?

SUGDEN The most frustrating for us is reliability regulations. Regulatory requirements cost us probably $250,000 a year, and nothing on our system would affect the grid — our system could completely go out. But just the recordkeeping, the way we’ve had to change, the people we’ve had to hire to do whatever has to be done to keep from getting big fines from the Western Electric Coordinating Council is frustrating.

ENERGYBIZ

Any other issues?

We work really hard to make sure we have enough energy to serve our members through our G&T, which is owned by 16 other co-ops in Texas. When Texas experiences a shortage in energy, we’re forced into the rolling blackouts.

So that’s very frustrating to us.

COLE

WILKINS What are disruptive to us are some sweeping new regulations. When you get new Dodd-Frank regulations and many new environmental regulations coming out of the U.S. Environmental Protection Agency, there’s a tendency to broad-brush the co-ops into these things.

Although it may not be destructive, it’s clearly going to have a financial impact.

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Pioneering Energy Efficiency MOV ING AHE AD W ITH LESS GOV ER NMENT HELP

BY WILLIAM OPALKA

isn’t just compact fluorescent light bulbs, stingy appliances or deeper insulation. They still matter, but the industry is looking more to better home heating systems as well.

A few initiatives are under way to squeeze more juice out of existing power plants or to use generation more wisely.

And as the programs come at a cost, an equally valuable part of the effort is finding ways to leverage private money into the initiatives as utilities and state programs can’t bear the cost of more expenditures.

The imperative now is gaining efficiencies in an era of declining government support and when utilities are pulled in numerous other directions, to fund transmission, the smart grid, renewable energy and other competing interests.

At the current rate of utility demand side management, programs are saving about 112 million kilowatt-hours or equivalent to the usage of 10 million homes. Energy ENERGY EFFICIENCY

26 E N E RGYB I Z May/June 2012

efficiency saw a 21 percent jump in kilowatt-hours in 2010 over 2009. It doesn’t come for free. Utilities in 2010 spent about $4.8 billion, or a 28 percent increase from the previous year, in part due to the Obama economic stimulus programs.

On a smaller scale, the cost savings aren’t trivial either.

At CPS Energy in San Antonio, the municipal utility has embarked on an efficiency program that will shed 771 megawatts of load. “That’s like us decommissioning an old coal plant without having to build one to replace it,” said Michael Kotara, CPS’ senior vice president of power generation.

While high consumption states like Texas, California and those in the East seem the likeliest places for energy efficiency to find a home, the interest has spread coast to coast.

“The biggest growth is in the Midwest, and that’s notable as the Midwest always seemed to lag behind,” said Clark

Gellings, a fellow and former vice president at the Electric Power Research Institute.

This comes at an opportune time when EPRI has reengaged in national programs demonstrating cutting-edge technology, Gellings said. The research organization went around the world to view promising technologies that could be adapted to the U.S. market and had demonstrated viability in the marketplace. More than 40 U.S. utilities from coast to coast are participating.

“We have to get the electric utilities involved because of the typical uncertainty about the performance of these devices,” he said. “And if they have to get public utility commission approval, they’re not likely to get it without pretty rigorous data.”

Heat pump water heaters were in vogue for a time about 30 years ago, but high failure rates soured utilities on the technology. Japan has developed high-coefficient models with several hundred installations that have cut energy use for water heating at least by half.

Research has demonstrated that it is more efficient to transfer heat from the air and into a water tank via a heat pump than it is to heat water with an electrical heating element.

Testing of a direct current power system at a Duke Energy data center in Charlotte, N.C., showed preliminary results that the system uses 15 percent less energy than an alternating current power system.

Through this demonstration, it is expected that the Duke Energy data center should yield anywhere from 7 to 20 percent energy savings, depending on the vintage of the equipment compared. These figures could be doubled if you take into account the added energy savings realized by the decrease in cooling load.

Utilities and their energy efficiency partners have to find more creative ways to finance improvements, as budgets are stretched and support may be waning.

Thus, the tried-and-true investment strategy is to use other people’s money to fund projects. The Environmental Defense Fund is championing a program in California to get private capital into energy efficiency projects, to open up market forces to help solve the funding issues in as many creative ways as possible.

“Other people have a lot more money than the states and utilities do. And that means we won’t have as much pressure as we do now to do only the very, very best projects,” said Brad Copithorne, an energy and financial policy specialist with the Environmental Defense Fund.

The biggest growth is in the Midwest, and that’s notable as the Midwest always seemed to lag behind.

The concept is simple. Building owners and renters would be allowed to fund energy efficiency upgrades and renewable electricity generation projects with bank or other private loans that are repaid through their energy bills.

The program can work for single-family, multifamily and commercial buildings. The on-bill repayment can be structured for a variety of financing techniques, including loans, leases, energy service agreements and power purchase agreements.

There are several advantages to such a model. In work financed by ratepayers, properties owned by wealthier individuals or companies, like commercial real estate, would most likely be ineligible. But the elements for an effective program, large energy savings and a motivated owner, still exist.

“Utility programs may not get the market penetration that you’d want. We want to make this as open as possible and make it available to as many different types of vendors as can participate,” Copithorne said.

Experience in several states showed that prior models — energy audits and retrofits — weren’t as effective as first thought. What really moved efficiency forward was empowering smaller contractors who were performing emergency repairs or piggybacking existing sales.

Similar programs are already in development in New York and Pennsylvania. In North Carolina, Self-Help, based in Durham, will use a $5.5 million loan and grant from Bank of America, combined with other resources, to offer $15 million in energy loans in Charlotte, Atlanta and six other cities.

In Charlotte, the money will be targeted at retrofits of commercial, community and multifamily buildings, especially those in economically distressed areas. The energy loans will range from small microloans, such as loans made to day care centers in need of low-flow toilets and more efficient lighting, to multimillion-dollar deals to renovate charter schools.

The economic slowdown and falling power prices due to cheaper natural gas have weakened the short-term financial case for efficiency.

That means it’s not all smooth sailing for efficiency, even with innovative financing programs. Some states are seeing the effort as an unnecessary expense and utilities in some cases are scaling back newer programs.

The Nevada Public Utilities Commission is considering elimination or reduction of energy efficiency programs offered by NV Energy because of their high cost.

BILL OPALKA

RenewablesBiz editor-in-chief bopalka@energycentral.com 860.633.0090 energybiz.com E N E RGYB I Z 27

PIONEERING ENERGY EFFICIENCY

States Push Efficiency LE ADING BY E X AMPLE

BY CORINA RIVERA-LINARES

are looking to lead by example on energy efficiency through proposed legislative measures.

According to House Bill 179 and Senate Bill 153, Pennsylvania “should lead by example in adopting, implementing and promoting energy efficiency and in using renewable, locally produced biofuels and bioenergy.”

The legislation calls for the state Department of General Services to establish an energy efficiency savings target for all state buildings. The target is to attain a 20 percent reduction in energy use in all state buildings by the end of 2013, and 30 percent by 2017, when compared with energy use and energy purchases for the fiscal year ending June 30, 2008.

Maryland is also looking to promote energy efficiency.

House Bill 1088 establishes an energy efficiency on-bill financing program for residential and commercial customers in the state to encourage utility customers to make energy efficiency improvements to residential and commercial properties through low- or no-interest loans repaid directly to a utility on a utility bill.

The Maryland Energy Administration and the state Public Service Commission must collaborate to ensure that implementation methods best serve the program’s underlying purpose.

A utility company must participate in the program by extending a loan to a qualifying residential or commercial customer for an energy efficiency upgrade. The note also said that a residential or commercial customer may obtain a loan for an energy efficiency upgrade if, for instance, the upgrade’s cost does not exceed $25,000 for a residential customer or $50,000 for a commercial customer.

STATES LIKE PENNSYLVANIA

... should lead by example in adopting, implementing and promoting energy efficiency and in using renewable, locally produced biofuels and bioenergy.

28 E N E RGYB I Z May/June 2012

The EmPower Maryland Energy Efficiency Act of 2008 established the state goal of achieving a 15 percent reduction in per capita electricity consumption and peak demand by the end of 2015. In December 2011, the PSC authorized certain utilities to begin transitioning into the next three-year phase of EmPower Maryland. The PSC’s position, stated in its order, is that the availability of financing has been a significant barrier to participation in many of the utility’s EmPower Maryland programs.

Various states have considered on-bill financing as an incentive for energy efficiency installations. New York became the first state to pass a statewide on-bill financing program in 2011, and others, including Colorado and Hawaii, have shown interest.

The bill identifies two sources of potential funding for the program, the EmPower Maryland surcharge and the Jane E. Lawton Conservation Loan Program.

Another state looking into energy efficiency is New Jersey.

One bill requires the state Board of Public Utilities to establish an energy efficiency leadership awards program, which is to recognize annually three state agencies, departments, divisions, institutions or offices that develop and implement innovative programs that result in a measurable reduction in overall energy usage.

According to the bill, the program is to recognize outstanding achievements in the conservation and efficient use of energy and water, use of new and emerging energy technologies, use of innovative strategies and best practices to reduce energy usage, and use of renewable energy sources.

CORINA RIVERA-LINARES

Senior Analyst, TransmissionHub corina@energycentral.com 301.825.5618

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energybiz.com E N E RGYB I Z 29

PIONEERING ENERGY EFFICIENCY

Breaking Down Barriers ADVANCING ENERGY EFFICIENCY

BY JOHN RADGOWSKI

to turning in old refrigerators, demand-side energy efficiency programs have been around for years. These programs often require customers to change their behaviors or make large purchases that are not always affordable to all customer classes. As a result, the lack of program adoption tends to leave utilities falling short of their energy savings objectives.

That’s not to say that all efficiency programs are unsuccessful; many succeed, but they generally involve costly customer education initiatives that eat into overall program savings.

To be fair, these programs have their merits and each of us should do our part to be more efficient in how we use energy. But what about utilities? What are they doing to be more efficient? Sure, utilities are rolling out advanced meters, helping to enable additional demand-side programs. However, what efficiency programs are utilities adopting, and which of their behaviors are they changing to be more efficient on their side of the meter?

Enter grid-side efficiency.

In order to comply with ANSI standards, utilities must supply voltage within a prescribed band at the customer meter. This band ensures the customer’s appliances, lights and gadgets all operate the way they were designed to operate. However, because utilities do not know the actual voltage at the meter, they need to play it safe and typically stay within the upper part of the band. While this approach helps ensure that gadgets run properly, this also results in excess energy being supplied to the home. This excess energy results in energy waste, the cost of which shows up on the customer bill. For decades, utilities have built detailed models and have created complex forecasts to control voltage more precisely. However, without knowing the actual customer voltage, they still deliver more energy than is required.

Enter advanced metering infrastructure, or AMI, which provides several benefits to customers, including advanced FROM CAULKING WINDOWS

30 E N E RGYB I Z May/June 2012

outage management and automated meter reading. However, most important and often overlooked is the ability for the utility to know the voltage at each customer meter.

This single piece of new data from smart meters gives the utility the information it needs to deliver voltage more precisely, saving customers as much as 4 percent in energy costs without the need to change their behaviors. To put things in perspective, if U.S. electricity consumers reduced their energy usage by 4 percent, this would equate to 150 million megawatt-hours of energy saved per year. This is the equivalent energy provided by 28,000 wind turbines or 62 million tons of coal — more than enough energy to power all of Connecticut, Delaware, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont. Furthermore, gridside efficiency programs are compatible with demand-side programs, allowing both the customer and the utility to do their part in being more efficient and saving energy.

Why haven’t utilities been quick to adopt this new approach? Some haven’t made the connection between the new voltage capability provided by AMI and grid-side efficiency, and those that have often face regulatory obstacles that make it difficult to implement energy efficiency programs that yield such significant savings. Because energy efficiency programs are often mandated, this leaves many utilities opting for less cost-effective demand-side programs that do not provide the same sustainable and significant benefits provided by gridside efficiency — again, requiring the customers to accept inconveniences or change their behaviors. New technologies bring new information and new ways of looking at solving old problems. However, we must also continue to evolve our existing rules and regulations that govern efficiency programs and evaluate their effectiveness if we are to take advantage of these powerful tools.

John Radgowski is chief technologist at Dominion Voltage.

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PIONEERING ENERGY EFFICIENCY

The Regulatory Push THE FOCUS OF THE W HITE HOUSE WORK ING GROUP

BY COLETTE HONORABLE

across the country are encouraged about the impact of energy efficiency and the potential of the smart grid. Anything we can do to lower costs, improve safety and reliability, and improve the system will help our nation become stronger and more resilient. Our colleagues in all 50 states are implementing new programs and innovative policies to bolster the stability and efficiency of the system in order to fulfill these objectives.

Through the National Association of Regulatory Utility Commissioners regulators are sharing best practices, implementing new policies and working with partners at the federal level.

One of our highest priorities is ensuring that we can modernize our electrical system in a way that does not overburden consumers. Regulators must ensure that any costs that consumers bear are fair, just and reasonable. This means progress will come at a deliberate pace, ensuring that utilities can prove that their investments will truly benefit consumers. If not for this crucial regulatory function, consumers’ utility bills would skyrocket and the utilities would not be held accountable for providing essential services.

The regulatory compact requires cooperation and partnership among all parties, particularly between federal and state governments. NARUC has always been viewed as an important liaison between Congress, the White House and the states, but this partnership has grown considerably over the last several years.

The Obama administration has made modernizing the electricity system a prominent priority, and we’ve established several working groups, most notably the Smart Grid Working Group, to formally interact with the various federal agencies involved in grid modernization.

NARUC’s Smart Grid Working Group worked closely with the White House and participated in the rollout of its report, “A Policy Framework for the 21st Century Grid: Enabling Our Secure Future.” The report contained four pillars for grid modernization: smart-grid investments, MANY STATE UTILITY REGULATORS

32 E N E RGYB I Z May/June 2012

innovation in the electric sector, consumer empowerment and securing the grid.

This interaction has led to an ongoing dialogue with the White House on numerous electricity issues, including the recently introduced Green Button Initiative program, which seeks to provide consumers with data about their electricity usage in a standardized form. NARUC has not taken a formal position on the Green Button itself, but NARUC has asserted that customers should have access to their own data. And many of our members are encouraging their regulated utilities to participate in the program. Early on, California regulators took the lead on this initiative.

On the energy efficiency front, NARUC and our members have worked with the State and Local Energy Efficiency Action Network to further energy efficiency efforts across government lines. The partnership is facilitated by the Department of Energy and the Environmental Protection Agency. It brings together federal, state and local governments, along with utilities and other stakeholders, to advance energy efficiency activities.

Following the National Action Plan on Energy Efficiency, many stakeholders and regulators look to the Network for continued best practices on implementing successful energy efficiency programs.

In Arkansas, we are taking these issues to heart. After two years of “quick start” energy efficiency programs, Arkansas has initiated comprehensive energy efficiency programs, which require utilities to meet rising energy savings targets over three years beginning this year. At the same time, our commission has approved recovery of lost contribution to fixed costs for participating utilities, and in the near future endeavors to address the issue of allowing performance incentives for those utilities that have developed programs that exceed the yearly goals.

Colette Honorable is chairman of the Arkansas Public Service Commission and serves on the National Association of Regulatory Utility Commission/White House Smart Grid Working Group.

An Urban Approach to Energy Frugality R ICH ECONOMIC OPPORTUNITIES

BY PHIL BOMRAD

has been used for peaking purposes, with generators running for only a few hours on select hot summer days. With the recent abundance of natural gas driving prices down, these plants are being dispatched more throughout the year. This is good news for consumers who will enjoy lower energy prices as a result of low gas prices. But what does this mean for energy efficiency technologies?

With energy prices falling, the payback period for many energy efficiency technologies is becoming longer and more difficult to justify. However, there are opportunities for significant cost reductions in managing peak load, whose cost is largely unaffected by the natural gas prices.

Source pricing is only a small part of the price of electricity. The major factor causing price volatility in the energy market is demand, especially in our country’s urban centers.

The reasoning behind this is two-fold. First, environmental constraints preclude local electric generation. For example, Chicago recently announced that by 2014, two coal-fired power plants located within city limits will be taken off line.

Even with the improved environmental performance of gaspowered plants, there are geographical obstacles that prevent the construction of new power plants in densely populated urban centers like New York City.

Second, imported electricity congests the grid and triggers high and volatile electric prices. Rising demand growth in these urban centers causes significant transmission congestion, drives energy prices way up during on-peak hours, and threatens electric system reliability as suppliers and grid operators try to keep up with growing demand.

Consumers in these cities need technologies that enable them to avoid higher-priced hours, and grid operators need programs that enable consumers to shift peak load in order to improve grid reliability while avoiding the cost to upgrade transmission and distribution infrastructure.

TRADITIONALLY, NATURAL GAS-FIRED POWER

Price-responsive and energy-storage technologies, in particular, will drive energy efficiency in urban centers from now on.

Among price-responsive technologies is the smart grid.

With the smart grid, consumers have the ability to decide when and how to use energy by responding to hourly energy market prices. However, they lack the means to fully benefit from this opportunity. There is a need for automated, scalable energy optimization technologies that can help consumers strategize energy consumption based on cost. As more consumers adopt price-responsive technologies, they will also help to improve grid reliability by reducing energy consumption during times of highest grid strain.

Energy storage technologies are equally important. While demand is responsible for driving prices up during the day, lack of demand at night drives prices extremely low. Consumers need technologies that enable them to take advantage of these prices. For example, building operators use ice plants in large buildings to freeze water at night when energy prices are low, and then use that ice to cool the building during the day. This reduces the amount of energy they need to purchase during peak hours. In the future, emerging technologies that are not capital-intensive, like thermal mass control, will become increasingly attractive.

Energy efficiency will not lose momentum due to falling energy prices. But there will be a noticeable shift from energy efficiency technologies that simply reduce energy consumption to technologies that also address peak demand.

While hourly prices continue to go down, there still exists a great disparity between on-peak and off-peak prices. Consumers need to recognize the rich economic opportunity that exists in this disparity and employ technologies that enable them to translate this opportunity to their bottom lines.

Phil Bomrad is president and chief operating officer of Clean Urban Energy. energybiz.com  E N E RGYB I Z 33

CHIEF OPERATING OFFICERS FACE NEW CHALLENGES

Reaching for Excellence NEW APPROACHES // BY THOMAS ARMISTEAD IN THE BROADEST TERMS, electric utilities are doing what they have always done — generating electricity and delivering it to customers.

But changes have occurred in the generation mix, the transmission sector’s reliability enforcement, and technology among other things, said four utility chief operating officers EnergyBiz asked to talk about their jobs.

“Renewable energy is the political and policy challenge of the day for Bonneville,” said Anita J. Decker, COO of Portland, Ore.-based Bonneville Power Administration. The agency doesn’t own generation, but with 4,000 megawatts of wind capacity available, BPA has “more wind in our balancing authority than any other agency in the United States,” she said.

“Hydro is usually a good complement for wind, but when there’s a lot of snowmelt, we have more power than demand, so we have to limit generation.” Last winter’s abundant snowpack has filled the reservoirs, and the agency has had to order the wind farms to limit production, angering their private owners.

Change has been constant at ITC Holdings in Novi, Mich., an independent transmission company. The biggest changes have been in the mandatory North American Electric Reliability Corp. reliability standards, which have included compliance requirements and critical infrastructure protection standards, said COO Jon E. Jipping. Compliance became a major factor in 2007, when NERC became the continent’s reliability organization with enforcement power.

Where once the grid was integrated in the system of a utility company, which was the grid’s customer, it must now serve a variety of customers, such as wind farms and other private power projects, so there is a greater focus on the customer. “We do extensive stakeholder outreach, so they better understand the needs of the transmission grid and how we will go about meeting their needs,” Jipping said.

Bob Powers became COO of American Electric Power Company, in Columbus, Ohio, only in Novem34 E N E RGYB I Z May/June 2012

ber 2011, so he has not experienced a change in his functions, but he said the federal regulations, the price of natural gas and “the sluggish economic recovery, particularly in the commercial sector,” are driving changes in the industry. He sees the “need to have a deep dialog with the regulators,” so they will understand what responding to the drivers will require.

When new regulations are issued that affect operations, they usually result in costs that trigger a ratechange request, Powers said. There is “tension and pressure when the EPA issues new requirements” that will cost. He has to be the go-between to explain the cost impacts to the regulatory commissions. “That can NEW CHALLENGES get a little testy,” he said.

FOR OPERATING THE Research and developUTILITY ENTERPRISE ment is another difficult topic Listen to the provocative insights of chief operating with regulators. Last July, AEP officers from around the halted construction of an intenation, noon ET on June 21. grated gasification combinedRegister for the free cycle pilot plant with carbon webcast at www.energybiz.com/ capture and storage after webcasts/utilityoperations the costs rose and the state regulators in Virginia and West Virginia refused to allow cost recovery, but Powers expressed concern that the industry does not more urgently pursue research and development. There has been little investment in research in the United States because regulators don’t want to pay for it, he said.

The Southern Company, in Atlanta, has a research program in fossil fuels and especially coal at its E.C. Gaston plant in Wilsonville, Ala. Southern also operates the National Carbon Capture Center for the U.S. Department of Energy and a number of other industry partners there. “That’s a very important part of our business,” said Anthony Topazi, COO. Topazi’s position itself is a sign of the change to which Southern is adapting. The company created the COO position four years ago in a drive for functional, systemwide improvements to capture synergies

among the nuclear, fossil-fueled, hydroelectric and transmission segments of the company, and the largest program of generation construction in the country, totaling $20 billion. “We want to make sure we have a focused approach to federal policy and regulatory activities,” he said.

Southern Company has four operating companies, three of which are regulated and the fourth unregulated. The search for functional improvements grew from the effort to capture functional synergies among those companies, Topazi said. One example of synergy is the nuclear industry’s Corrective Action Program, a performance program aimed at eliminating human errors in the operation of nuclear plants. When something goes wrong in a nuclear plant, the program takes the form of a deep dive for root-cause analysis followed by actions to ensure that the entire fleet benefits from the lessons learned. As COO, Topazi ensures the program’s approach is applied across the different companies in all appropriate operations.

The low price of natural gas is driving the generation industry to increase the use of that fuel, said Revis James, director of generation research and development at the Electric Power Research Institute, in Palo Alto, Calif. Combustion-turbine combined-cycle plants are becoming more attractive, but cycling them in response to fluctuating load is costly. The growing

use of renewable energy with intermittent availability requires increased operational flexibility for utilities, using coal and nuclear energy for baseload, combined cycles for peaking and simple-cycle plants for spinning reserve. The complexity of the generation mix also requires utilities to devise strategies for operating, for example, to build more simple-cycle plants or to cycle selected plants to follow load.

Operating officers are looking for ways to get more efficiency from both new and existing plants, prompting research into materials that can operate safely at higher process temperatures and pressures, James said. Another approach is to evaluate whether efficiency goals can be better met by upgrading existing plants or building new ones. “A lot of people are looking at that,” he said.

“Nuclear energy is the most expensive of the major generation technologies out there,” said James. Nuclear plants have a high capacity factor, but very high frontend costs. The Fukushima accident has raised concern about whether the perceived risk is worth it, he said, but the economics of the plants built in the 1970s and ’80s have been “pretty good,” operating with a high capacity factor for a long time. “I think you’ll see continued nuclear power,” he concluded. However, when the extended licenses begin to expire in the 2030s, there will be a large need for replacement plants, he said. energybiz.com E N E RGYB I Z 35

» TECHNOLOGY FRONTIER

Targeting Coal Upgrades WORRYING ABOUT EPA REVIEW // BY BARRY CASSELL DRIVING UP THE EFFICIENCY of aging coal-fired power plants is a key priority for some power generators as they look to get several positive bangs for their bucks, including reduced CO2 emissions per unit of electricity generated.

Power plants, like automobile engines, lose efficiency as they wear. But other factors figure into this power-loss equation, like add-on air emissions controls that require electricity to operate them, which siphons off a certain amount of plant generation capacity. This phenomenon isn’t called parasitic load for nothing. With new U.S. Environmental Protection Agency rules forcing power generators to hang more power-leaching emissions control equipment on their surviving coal plants, getting back at least some of that lost capacity has become a higher priority.

An official at a utility that is not doing any major upgrade projects pointed out that one reason not to do them is that they could trigger EPA’s new source review requirements, which effectively mandate major emissions cuts at a plant that has undergone extensive upgrades. The official, who works at a Midwest utility that has seen sagging power demand in a slack 36 E N E RGYB I Z May/June 2012

economy, said another reason not to do such projects is that power prices and demand don’t justify expensive coal plant upgrades right now, particularly if that plant is in danger of shutting over the next few years due to new EPA air rules.

Indiana-based Vectren is a prime example of a company looking to drive higher efficiency out of coal-fired units. Vectren’s Southern Indiana Gas and Electric unit, also known as Vectren South, has a matter before the Indiana Utility Regulatory Commission for approval of a dense pack upgrade for its Brown plant.

Wayne Games, vice president of power supply at Vectren South, pointed out in January testimony that opponents have contended that the commission approval of the dense pack project would be inconsistent with prior commission orders and that the dense pack technology is not an advanced technology that increases the efficiency of existing energy production of generating plants that are fueled primarily by coal or gases from coal from the Illinois Basin.

Games said one piece of evidence that the dense pack system is advanced technology designed to improve plant efficiency under Indiana law is that the

EPA has already, for purposes of forcing utilities to reduce greenhouse gas emissions, determined it qualifies as best available control technology.

A fact sheet from dense pack system maker General Electric lists features of the technology including “advanced” aerodynamic buckets and nozzles and ”advanced” sealing techniques.

The GE dense pack technology the company is installing is the latest technology improvement available for retrofit into existing units like Brown Units 1–2, Games added. Vectren South has been assured

by GE that the Brown dense packs received all the technology advancements available at the time of the purchase order.

Brown is a four-unit, 650-megawatt plant located on the northern bank of the Ohio River. Each of Brown’s two coal-fired units has a nameplate capacity of 245 megawatts. There are also two gas turbine units at Brown.

The dense pack project consists of the installation of advanced dense pack turbine technology on Brown Unit 1 during its turbine overhaul outage scheduled for 2012 and on Brown Unit 2 during its turbine overhaul outage schedHAWAII uled for 2013. Currently, Brown’s baselGEOTHERMAL Ormat Technologies oad unit turbines consist of an opposedplans to start drilling flow, high-pressure and reheat turbine test geothermal wells in Maui as early as next rotor. Since 2000, GE has developed year, according to a improved technology that optimizes steam report in the Honolulu Star-Advertiser. flow and improves steam path efficiency.

Studies suggest The dense pack technology reduces that a promising site aerodynamic-profile losses and reduces could support a 35-megawatt facility. secondary-flow losses. The redesign also has advanced clearance control to minimize leakage losses. Based on the demonstrated improved efficiency at Vectren South’s Warrick Unit 4 since its dense pack installation, as well as general GE data, the dense packs at Brown will provide major improvements in efficiency, resulting in a reduction of emissions of all pollutants and lower fuel expense.

The project will improve unit operational efficiency by about 5 percent, Vectren told the commission.

PacifiCorp, which operates a number of coal plants in states like Utah and Wyoming, has also put a priority on power plant efficiency projects. In a Jan. 31 update to its integrated resource plan filed in 2011 at the Utah Public Service Commission, PacifiCorp said it will continue to pursue economic plant upgrade projects — such as turbine system improvements and retrofits —

and unit availability improvements to lower operating costs and help meet the company’s future CO2 and other environmental compliance requirements.

The integrated resource plan update noted that PacifiCorp successfully completed dense pack coal plant turbine upgrade projects scheduled for 2011 and 2012, totaling 31 megawatts. It plans to complete the remaining turbine upgrade projects by 2021, totaling an incremental 34.2 megawatts, subject to continuing review of project economics. PacifiCorp also plans to meet its updated aggregate coal plant net heat rate improvement goal of 478 British thermal units per kilowatt-hour by 2019.

For the next IRP, PacifiCorp told the Utah commission it plans to complete a study of cost-effective and reliable production efficiency opportunities at generating facilities where the company has sole ownership of the facility. The resource opportunities identified will be modeled against competing demand and supplyside resources in the next IRP. Those selected will be targeted for completion by 2015 provided plant outages are not required.

Another area of efficiency has to do with the heat value of a plant’s coal supply. Many power plants in the eastern United States were converted years ago from their designs to use bituminous coal to instead use low-sulfur, sub-bituminous coal from the Powder River Basin in order to meet clean-air needs. In the process, many of those plants’ generating capacities were derated because their infrastructures couldn’t handle the extra volume of PRB coal needed to equal the heat value of the original bituminous coal. Now, with new SO2 scrubbers installed or being installed on many of those plants, power generators can, if that is the cheapest fuel.

BARRY CASSELL

Chief Analyst, Coal Sector bcassell@energycentral.com 804.466.0187

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energybiz.com E N E RGYB I Z 37

» TECHNOLOGY FRONTIER Riding the Data Tsunami THE UTILITY ANALYTICS VALUE CURVE // BY MIKE SMITH THE LAST DECADE has seen North American utilities invest billions of dollars in smart grid and smart meter systems that are changing decadesold business practices. One result of these investments is the onslaught of data masses never before seen in utilities. While this creates some challenges, the opportunities in leveraging this data via analyticsbased applications and processes are enormous.

Over the last six months at the Utility Analytics Institute, www.utilityanalytics.com, we have conducted over 200 interviews with utility analytics professionals and analytics solution-providers. Institute staff has also been conducting a series of surveys with over 300 responses from utility analytics professionals. These interviews and survey data have shed a fair amount of light on the current state of utility analytics and, perhaps more importantly, where analytics are headed in the utility industry.

One development rooted in this research is the emergence of a path that utilities are on as they move toward realizing significant value from their recent investments in smart grid and smart meter technologies.

In essence, this path takes them from being virtually overwhelmed by the wave of data that these systems generate to, ultimately, improving or even transforming their businesses with data- and analytics-centric applications and processes. There are seven steps across two main phases along this path.

In the first of the two phases, the foundation phase, utilities are moving from basic data management — not a trivial task in the current environment — to basic forms of reporting and business intelligence. Arguably, many utilities are in this phase today. The steps are as follows: OMG! // Borrowing from the current pop lexicon, the OMG! step is all about utilities transitioning from celebrating their smart grid/metering accomplishments to the realization of the data generation and its implications.

Data Fortress // In the data fortress, the data is stored, secured and made available to the groups and individuals who need it to perform their basic job functions.

Basic Reporting // In this step, utilities begin to pull data to answer “What happened?” questions, but this step is generally heavily manual and ad hoc with 38 E N E RGYB I Z May/June 2012

limited presentation capabilities. We sometimes call this the “Hey, can you get me a report on that?” step.

Business Intelligence // Executive dashboards are what come to mind for most people in this step, but what is important here as we move along this path is the development of automated processes that populate and update the dashboard and that improve information presentation for improved decision support.

The second phase, the advanced phase, is characterized by the predictive nature of analytics and utility staffs’ ability to use this characteristic to improve and transform their business. Over the next two to three years, we expect to see many utilities moving deep into this phase. Its steps are as follows: Predictive // Leveraging historic data and sophisticated statistical models and algorithms, predictive analytics equips utility managers with the ability to predict and anticipate operating conditions, enabling better planning and modeling.

This is reflected across numerous busiACCELERATE ness operations — for example, the ability PLUG-INS to model customer behavior for demand Car companies, utilities and environmentalists response program design or improved are embracing plans to asset maintenance processes driven by speed up adoption of plug-in electric vehicles, condition-based monitoring or reliabilityaccording to a report by centered maintenance.

EERE Network News.

Execution // With the predictive ability Nearly 18,000 of the vehicles were sold of analytics, utility managers will start to last year. incorporate analytics-based processes into their day-to-day business processes. One noticeable outcome will be the velocity with which utilities put data to work.

Business transformation // Utilities have realized the holy grail in their movement along the path from grappling with data to using said data to transform their business.

Utilities are in the midst of a fundamental business change and improvement driven by a recognition that their investments in smart grid/metering systems have unlocked a treasure trove of value buried in that mountain of data.

MIKE SMITH

Vice President, Utility Analytics Institute msmith@energycentral.com 916.458.6204

» TECHNOLOGY FRONTIER Alaska Battery Breakthrough GOING LARGE // BY SALVATORE SALAMONE ALASKA IS HOME to the largest battery energy storage system in the world and has one utility in the Arctic Circle leveraging battery storage to buffer the variability of wind-generated electricity.

While utilities and grid operators have long viewed battery energy storage systems as highly desirable, few large-scale deployments have taken place due to the costs of the systems. But the conditions for some utilities and operators in Alaska make the systems essential.

A prime example is the Golden Valley Electric Association and its Battery Energy Storage System.

The cooperative operates and maintains 3,151 miles of transmission and distribution lines and 35 substations. It also operates six generating facilities, has 296 megawatts of capacity, and serves Fairbanks, Healy and Delta Junction.

It draws power from a variety of Anchorage-based and other generation facilities connected to an Intertie. If one of these generators or the association’s own generators lose power, an outage can occur for some of Golden Valley’s customers.

To boost system reliability, the association turned to its battery storage system. BESS uses 13,760 nickel-cadmium battery cells from the Swedish company Saft. The system was designed and supplied by the ABB Group. When a generator drops off, the system can provide up to 27 megawatts of power for 15 minutes. That is roughly the time needed to fire up another power plant. The system can also provide more electricity for shorter periods. For example, in one test, the system delivered 46 megawatts for five minutes.

The system is filling the need for improved reliability.

Tim DeVries, project manager for the association, said, “We anticipated a 60 percent reduction in outages and we’re exceeding that.” He noted that in Alaska, where winter temperatures drop below minus 50 degrees F, preventing such outages can be a matter of life and death.

In 2010, the system handled 40 outages. In another year, the system kicked in to mitigate problems in 82 outages. Golden Valley claims it achieved 99.98 percent reliability in 2011, when, on average, 40 E N E RGYB I Z May/June 2012

Workers install batteries on racks for the Golden Valley Electric Association’s battery energy storage system in Fairbanks, one of the largest facilities of its kind. It can provide 27 megawatts of power for 15 minutes. The co-op this fall will determine whether the battery system, completed in 2003, has the capability to regulate wind. Photo courtesy of Alaska Photographics and Golden Valley Electric Association

customers experienced less than two hours without power during the entire year.

There are certainly other utilities currently using batteries to ride out short-term outages and power fluctuations. American Electric Power uses large-scale sodium sulfur batteries from NGK Insulators of Japan and has 6 megawatts worth of capacity deployed

throughout its system. AEP’s goal is to have 25 megawatts of battery capacity in place by the end of the decade.

And there are other notable battery installations around the world. A battery system in Puerto Rico is currently being used to stabilize the frequency of electric power on the island. That system can produce up to 20 megawatts of power for 15 minutes.

While these battery systems are used to handle fluctuations and short-term disruptions, many utilities and grid operators including Golden Valley are considering such systems to help address power generation fluctuations when wind energy is added to the mix.

The Kotzebue Electric Association is located 30 miles above the Arctic Circle and currently generates 1.1 megawatts of electricity from wind. That

We anticipated a 60 percent reduction in outages and we’re exceeding that.

represents about 40 percent of the association’s total capacity. The remainder is produced by diesel generators. This year, the group will significantly boost its wind production capabilities by adding new turbines.

The total wind generation capacity will then be roughly 2.9 megawatts, which is more than 100 percent of the system’s average load.

The electricity generation variability in a system of this size can be very large. To buffer energy in peak production times, Kotzebue Electric will rely on a zinc-bromide flow battery system from Premium Power. The battery system, called TransFlow 2000, stores excess power generated in peak production times and can deliver one-half megawatt of power for at least four hours.

This capability will allow Kotzebue Electric to use the wind energy more efficiently. “We’ll be taking wind in when the loads are low and storing that in the battery to be used later, to time-shift it to the peaking times of the day so we can keep diesel engines off line,” said Kotzebue Electric Association General Manager Brad Reeve.

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11:55I Z 41 AM energybiz.com 4/9/12 E N E RGYB

The Third Smart Grid Wave Tracing the Next Wave of Smart Grid Functionality and Its Effects on Integrated Demand Side Management Programs

I

t is an exciting time to be working in the electricity market. New forms of communication and digital networks are revolutionizing the way utility executives think, converse, gather information, form partnerships and political connections and even raise capital. New network tools are emerging daily, ranging from self-healing networks that restore power within seconds rather than hours to automated distribution systems that use new network sensors and load profile data to dispatch new

42  E N E RGYB I Z  May/June 2012

forms of distributed generation, demand response and storage.

The smart grid has spurred a set of new policy initiatives that seek to integrate and manage the impacts of energy efficiency, demand response and renewable energy programs within more sophisticated planning models and cost-effectiveness frameworks.

Smart grid platforms and analytics software are being used to support more targeted efforts to encourage and

empower customers to participate in DSM programs. Through a combination of investments in distributed generation, network sensors and smart data clouds, utilities can empower customers who choose to make the effort to manage their energy usage and more importantly, reclaim the vital sense of control over their energy expenditures.

Figure 1 illustrates the implicit and explicit interaction between DSM program design and smart grid

THOUG HT LE AD E RS H I P - S P ON SOR E D BY ITRON

The Co-Evolution of DSM Programs and Smart Grid Designs

Figure 1

development over the last thirty years.

It is not clear whether the development in the DSM industry stimulated succeeding waves of innovation in the smart grid sphere or vice versa.

Looking back at the first wave in the mid-1980s, mobile Advanced Meter Reading (AMR) companies began to experiment with a variety of twoway communication networks. Their goal was to reduce utility costs by automating the collection of meter usage data and increasing the use of enhanced sensor networks to help quickly restore service to customers.

At the same time, DSM programs that focused on not only reducing annual energy usage but shifting consumption to low cost periods and maximizing usage of network assets were deployed.

During the second wave, the ability of smart grids to collect data at granular time increments and send prices between customers and network operators spurred the development of real-time pricing, automated demand response systems and a complex system

THOUG HT LE AD E RSH I P - S P ON SOR E D BY ITRON

of support networks, including data warehouses. Analytical routines enabled utilities to access and target specific customer segments and match them with the optimal price, technology, service and reliability options.

The promise of being able to monitor consumption and send prices in realtime stimulated utility DSM programs to begin to experiment with automated demand response programs and other forms of economic dispatch. With these programs, network price or emergency signals could be integrated with energy management systems to either reduce load during high cost periods or minimize electricity usage over a month or year. Exploration of ancillary services and the value of DSM options began in 2005 when usage data could be picked up in intervals of 30 seconds as opposed to 30 minutes. Business cases used to support smart grid investments suggested that anywhere from 30 to 60 percent of the benefits associated with smart grids would come from demand response programs for load drops

and interactive feedback technologies, which encourage more energy efficiency investments and conservation behaviors.

The second wave of smart grid applications also encouraged utility managers to achieve costs savings, improve system and network planning and increase customer satisfaction by breaking down the silos between different utility departments such as customer service, billing, distribution and transmission line planning, generation procurement and business planning. Wave two functionalities presented opportunities for utility program mangers to make integrated DSM programs more effective by reducing delivery and marketing costs while increasing their effectiveness of administering public policy programs ranging from energy efficiency programs to distributed generation sources coupled with new forms of storage.

Today, with the advent of the third wave of the smart grid evolution, load aggregators have begun to develop software that deciphers the capability of individual customers to reduce load in response to price or rebate signals based on past performance confirmed by network sensors. The software uses this information to decide which buildings or customers to call and how much load drop to request to ensure system stability. The smart grid has begun to evolve into a rudimentary form of artificial intelligence at the distribution level. Automated distribution systems can now proactively manage network operations to ensure stability and minimize the need to import high cost energy from outside of the network system during peak hours. Automated distribution systems are likely to have the ability to dispatch local generation resources, arrange for storage and

energybiz.com  E N E RGYB I Z 43

Key Definitions INTEGRATED SMART GRID A highly desirable, perhaps even mythical, energy market future

reduce loads and congestion by sending price signals and or simple cash offers to key network nodes.

where customers or load and generator nodes have access to sophisticated analytical tools that are “always on.” The integrated smart grid will manage and dispatch a mix of centralized and distributed generation and storage technologies using pricing signals, knowledge of prior energy use patterns and system reliability information that is provided by the network on a real-time basis.

DSM PROGRAMS Demand-side management (DSM) programs were originally conceived as a public policy initiative to provide more options to consumers to manage their energy use on the customer side of the meter. These programs have evolved from simple energy savings tips in the late 1980s to sophisticated audit programs that provide estimates of the costs and benefits of investing in energy efficiency programs, demand response control systems, storage facilities and onsite generation.

INTEGRATED DSM (IDSM) PROGRAM Integration is the end result of two decades of DSM program evolution.

This integration ranges from simple rebates to the provision of sophisticated audits that, in theory, can develop and recommend a customized mix of efficiency, demand response and onsite generation options that maximize value for individual customers. Integration refers to a process conceived by regulators and economists as a means to ensure that customers are made aware of all cost-effective energy efficiency technologies, control systems and onsite or community generation options.

44 E N E RGYB I Z May/June 2012

The Future is Now What does the recent convergence of both of these two seemingly unrelated trends in technology and policy evolution say about how the electricity market may evolve over the next fifty years? In one sentence, the development of this new network system is likely to have the same order of magnitude effect on civilization that the development of the macro high speed transmission grid did in the 20th century. These new network tools will allow sophisticated utilities to segment customers based on usage patterns and essentially negotiate prices for new services delivered rather than using the traditional business model associated with a return on capital for investments in transmission and distribution. If Google and Amazon can segment users based on past patterns of customer usage, why not utilities?

In the future, network operators may decide to use their sensor networks inside and outside of building structures to promote energy efficiency investments that minimize both usage and network congestion based on data exchanged between machines. Potential energy savings plans would then be developed by a real-time interaction of network sensors, cost-effectiveness analytics and pattern recognition tools and then presented to the human building manager for approval.

The growth of energy efficiency and demand response DSM programs during the 1990s stimulated the creation of different silos of DSM managers within utility organizations and corresponding regulatory silos.

These ranged from energy audit specialists to resource planning economists who claimed the ability to predict future system costs within plus or minus five percent using elaborate computer models.

In the future, the smart grid will likely support four functions traditionally performed by DSM consultants: top down evaluation of DSM program effects using GIS tools and preprogrammed tools to determine baseline customer usage; usage of resource planning models to support network expansion; delivery of customer-focused efficiency and control apps designed to reduce overall network congestion and customer bills; and support for dispatching and managing new distribution generation forms at the community level. All four techniques are currently being explored in California using smart grid functionality to pursue integrated DSM options.

Utility executives hoping to catch the first wave of sensor-driven IDSM might want to carefully monitor developments on the West Coast. In this region, they will find the first attempts to use smart grids to carefully manage the interplay of intermittent renewable generation and the rapid penetration of electric vehicles that will soon require large load pockets and storage facilities at the local level.

California’s Move toward IDSM Smart grid investments made by leading utilities across the country have already laid the foundation to transform current utility practices in planning, targeting and evaluation of four separate public policy program silos: energy efficiency, demand response, dynamic pricing and renewable programs. As the foundation solidified

THOUG HT LE AD E RS H I P - S P ON SOR E D BY ITRON

and all three of California’s investorowned utilities (IOU) neared the end of the initial meter deployment phase, the California Public Utilities Commission (CPUC) called for the development of more integrated DSM programs in its most recent policy decision.

In its Energy Efficiency Strategic Plan, the CPUC set the goal to “deliver integrated DSM options that include efficiency, demand response, energy

management and self generation measures, through coordinated marketing and regulatory integration.”

The plan called on the utilities and the PUC to strive to break down regulatory, marketing and program silos commonly associated with the different DSM options.

The plan calls for all DSM options to be offered in a unified fashion with coordinated marketing and, preferably, a single point of contact. The utilities are asked to offer integrated audits that incorporate recommendations on all DSM options and applicable measures.

Integrated pilots are promoted as the best short-term approach to promote integration and to inform future program designs. Technologies,

THOUG HT LE AD E RSH I P - S P ON SOR E D BY ITRON

including information systems that facilitate multiple DSM options, are also high priority objectives. The intent of the CPUC decision was to help customers leverage all available DSM offerings to maximize their energy savings and minimize transaction costs, confusion and monetary costs.

The California IOUs have begun the process of providing their customers with integrated solutions. Utility

account representatives for large commercial and industrial customers are providing their customers with integrated solutions that span multiple energy efficiency, demand response, pricing and distributed generation programs. These larger customers are being presented with a coordinated approach that provides a single point of information and application.

Expanding integration to small commercial and residential customers is the next challenge. Combining integrated audits and technology enabled by the smart meter installations with a statewide integrated marketing campaign will help smaller customers leverage all DSM options to maximize their energy savings.

The pursuit of integrated DSM programs has the potential to increase local benefits, further tapping wholesale revenues. For example, with electric vehicles and vehicle-to-grid services, utilities could increase system loadfactors and reduce average costs. With the IDSM approach, generation may be used to balance the grid and meet load in one moment, while in the next moment the load may be altered to balance generation. Storage in a number of forms provides frequency regulation and can be rapidly shifted to provide voltage correction or instructed energy (load-following).

Utilities looking to capitalize on these trends, or just stay on top of the next wave of smart grid evolution, have various ways they can get involved.

First, they could consider joining the collaborative research efforts now underway in the Western United States focused on integrating renewable distributed generation and electric vehicles as storage nodes. Or perhaps they could fund research designed to integrate artificial intelligence functions with new forms of distributed automation controls. Finally, they could decide to develop new strategies to increase the profitability of storage, distributed generation and sensor controls for regulated utilities The future of IDSM is promising.

Bringing together energy efficiency, demand response, dynamic pricing and renewable programs, IDSM will enable utilities to create more reliable and stable systems and realize the full benefits of the smart grid.

Mike Messenger is a senior principal energy consultant at Itron. He specializes in the design and evaluation of energy efficiency and demand response programs and the development of policy frameworks and funding to support them.

energybiz.com E N E RGYB I Z 45

» INTRODUCING

Texas Research Power ORBACH BUILDS A RESEARCH INSTITUTE // BY MARTIN ROSENBERG Raymond L. Orbach’s energy campus goes beyond just the engineering department. It harnesses the resources of many of the schools on the University of Texas at Austin campus to foster a diversified approach toward solving energy issues. The former Department of Energy undersecretary for science — the department’s first chief scientist — is out to build the preeminent center of energy research and development. Orbach addressed the 2012 EnergyBiz Leadership Forum in Washington this spring.

A robust 78, he is passionate about his new calling as director of the school’s Energy Institute. EnergyBiz recently talked with Orbach to discuss energy trends and his goals for the center. The conversation, edited for style and length, follows.

For our readers who may not be familiar with your center, the Energy Institute at the University of Texas, tell me what you think differentiates the institute from other academic centers dedicated to energy research?

ENERGYBIZ

ORBACH Well, first of all, we’re at an energy campus.

We have “energy” written in large letters over almost every department on the campus. Our energy institute is not housed in the engineering college but rather reports directly to the president of the university.

The concept is that we will bring together all of the resources of the campus to deal with energy issues.

Our model is good policy based on good science. We bring together not just the engineers and scientists, but also faculty from many other schools and colleges, which all have a role to play in the energy area. Our job is to make maximum use of their resources for energy issues.

ENERGYBIZ

Do you interface at all with utilities?

Yes, all the time. We do that either directly through ERCOT, which manages the electric grid for about 85 percent of Texas; LCRA, which provides wholesale electricity to cities and co-ops; or Bluebonnet Electric Cooperative, and many more. We’re more ORBACH

46 E N E RGYB I Z May/June 2012

on the research side, but our research is related to solving problems in the industry, such as developing cyber security.

ENERGYBIZ What are you most excited about in terms of the research under your purview that may be underappreciated or little known?

ORBACH The opportunities for energy security that currently are in our hands, or about to be in our hands — it’s a very exciting time in the energy world. We have the ability to develop new sources of energy for our country and also to work with others on a global scale to make sure that we have sources available for our needs.

ENERGYBIZ Will we see viable commercial fusion reactors in our lifetime?

ORBACH It depends on how young you are. The international research agreement the United States signed said that we would support the concept of moving electricity into the grid from a fusion power reactor by 2050. We did not say that there would be a commercial power plant by 2050; but rather a fusion device to put electricity into the grid. And the reason is that there’s a scale-up issue — but we don’t think it’s impossible to be developed. We worked on

Photo courtesy of Marsha Miller, The University of Texas @ Austin

a timetable for the European Union for the next step here, and then what’s called DEMO, which would be the demonstration power plant that would test very large components that a true power plant would actually have to manufacture and operate.

I understand you’ve done some work lately on the potential environmental threat — real, and what’s imagined — from fracking.

ENERGYBIZ

ORBACH We just made a presentation at the American Association for the Advancement of Science annual meeting in Vancouver, British Columbia. The bottom line of the presentation is that the violations and problems that hydraulic fracturing has experienced are really no different on the regulatory side than from conventional drilling. If you have good structures for regulation for conventional drilling, you will have good structures for regulation of hydraulic fracturing. We found no evidence of how hydraulic fracturing itself affects the water table, and we found that the violations that had occurred are predominantly surface and air issues that we can deal with — it’s not like trying to deal with something 10,000 feet down.

There’s been some debate lately about the magnitude of this resource. What do you think ENERGYBIZ

about the magnitude of gas and oil resources that are going to be recovered from fracking?

Nobody knows. It’s one thing to know that there’s gas in the shale, it’s another thing to know how much is recoverable. People could make any estimate they’d like; our view is that the amount of gas and oil that is now accessible through production is gamechanging. We have a very great possibility of being able to produce as much oil as we have produced so far.

ORBACH

There’s a substantial amount of natural gas available, and the big problem is that it’s being produced more rapidly than it’s being used. At some point the demand will catch up with the production, but right now the production has increased much faster than demand.

What do you think the implications of that are for the future of other technologies, such as nuclear power and cleaner coal?

ENERGYBIZ

Well, take dirty coal, if you want to use that phrase. It is now undercut, in Texas, anyway, by the low price of natural gas. The cost of low-emission coal from the Powder River Basin in Wyoming is now too expensive relative to natural gas-fired power plants. I think natural gas is going to give everybody a real competitive situation, but the real issue is CO2.

ORBACH

energybiz.com E N E RGYB I Z 47

» INTRODUCING Natural gas combined cycle power plants produce about a third of the CO2 that conventional coal-fired power plants produce for the same amount of power. I doubt that natural gas will replace all coal, but I’m just pointing out that on the way to reductions required by 2050, natural gas is a tremendous step forward.

ENERGYBIZ Is there a danger that it’s going to be so seductive that we won’t be doing the research we need to in terms of nuclear and coal technology?

Yes. It’s absolutely a danger and we’ve got to be very careful. It is very important we keep the research going on solar and wind. We’re very much involved in capturing CO2 from coal-fired power plants.

We’re working with LCRA, a wholesale electricity supplier, and NRG Energy, which produces the electricity.

We’ve come up with a way of carbon capture and storage that’s much cheaper than conventional carbon capture and storage.

ORBACH

Our method has a very different structure than conventional CCS. Instead of injecting gas into an aquifer down at 10,000 feet, we pull the aquifer up to the surface and inject at the surface. The first effect is that you can use the geothermal heat from the aquifer to offset the cost of capture. The other effect is that many of these aquifers are methane-saturated, so when you inject CO2, methane is pushed out. If you’re trying to pump a gas into the aquifer at a depth of 10,000 feet, like with conventional CCS, you build up a back-pressure sufficiently high that you can no longer inject after six months have passed. By injecting at the surface, one is using gravity to assist injection into the aquifer. Water is incompressible, so you have a closed loop of water, with no back pressure.

If the DOE provides some funding opportunities, is this technology something that you’d like to see demonstrated in Texas?

ENERGYBIZ

Absolutely. We don’t want them to pay for it right now; what we want is for them to pay for an engineering study that would simulate the cost. We want to know what the cost would be for a utility to implement this process.

ORBACH

I understand you’re doing some large-scale storage studies. What technology would you approach?

ENERGYBIZ

ORBACH A battery that operates at room temperature, with water primarily, and that is inexpensive and

48 E N E RGYB I Z May/June 2012

safe to operate. John Goodenough has come up with new electrolytes that he thinks will enable flow batteries to store large amounts of electrical energy. I don’t think that today’s conventional batteries will ever be cost-effective at baseload levels. A gigawatt implies really large-scale power storage, and a flow battery seems to be the only opportunity.

ENERGYBIZ

Is it an updated version of flow batteries?

ORBACH No, the conventional flow battery operates at a very high temperature and is very expensive.

We’re looking at a room-temperature, water-based, inexpensive and safe flow battery.

How far do you think those are from being tested and possibly proven viable?

ENERGYBIZ

Well, nobody can answer that question. It’s really a materials issue. Goodenough has been able to get the connectivity of the solid electrolyte high enough, but it allows both protons and the lithium to flow, and that’s a problem.

ORBACH

We’ve come up with a way of carbon capture and storage that’s much cheaper than conventional carbon capture and storage.

According to some estimates, utilities between now and 2030 stand to invest $1.4 trillion in generation and transmission, distribution, energy storage and renewables. Do you think energy may well spark the future of our economic recovery in this country?

ENERGYBIZ

ORBACH It’s happening already. Our natural gas is less than $2.50 per million British thermal units. If you go to Europe you’re looking at prices of $12 to $15 per million BTU. And that means that our chemical companies can use natural gas for their products and be at a competitive advantage because the price of natural gas is so low.

ENERGYBIZ What’s the vision that you and the president of the university have in terms of what the University of Texas will become on the energy front?

We like to see ourselves as the energy campus of the United States. I’d love to see the University of Texas using all its resources to give our country energy security.

ORBACH

HARNESSING DISRUPTION

CONGRATULATIONS to our newest EnergyBiz KITE award winners

Navigating Risk and Opportunities

who led the way in 2011 through knowledge, innovation, technology and excellence: >> Thomas F. Farrell, II

Chairman, President and Chief Executive Officer Dominion

CEO OF ThE YEar

>> John W. rowe

Chairman and Chief Executive Officer Exelon Corporation

LIFETIME aChIEVEMENT aWarD

>> Chesapeake Energy ENErgY COMpaNY OF ThE YEar

Ed gray The KITE Awards were sponsored by:

Thomas F. Farrell, II

Vice President, Chairman, President and Regulatory Affairs Chief Executive Officer Elster Dominion Sponsor of CEO of the Year awards Ceremony

John W. rowe

Tom price

Martin rosenberg

Chairman and Chief Executive Officer Exelon Corporation Lifetime achievement

Senior Vice President – Corporate Development & Government Relations Chesapeake Energy Energy Company of the Year

Editor-in-Chief EnergyBiz Magazine host of awards

We would also like to thank the partners and sponsors who made the EnergyBiz Leadership Forum a success:

Partners

Sponsors

EnergyBiz Leadership Forum was brought to you by:

» METRICS Energy Efficiency Employers (% Hiring)

2011

EFFICIENCY JOBS MOUNT

2012

A rebounding economy means more work in jobs promoting energy efficiency, according to a recent survey by the Association of Energy Services Professionals.

“Energy efficiency continues to be a bright spot on the employment horizon,” said Meg Matt, association president and CEO. “Driven by cost and environmental concerns, awareness of demand-side management is a true economic engine.”

62.1% 59.4%

Source: The Association of Energy Services Professionals

ANALYTICS SOAR

Public Owned Utility

Investor-owned Utility (Millions)

$1,000

Utility spending on information analytics is expected to rocket from $500 million to $2 billion annually in five years, according to a recent study, the “Annual Market Outlook & Forecast,” by the Utility Analytics Institute, a division of Energy Central, parent of EnergyBiz. Mike Smith, vice president of the institute, said, “Every day utilities are learning new ways that analytics are improving or even transforming their organizations, from new asset management practices to new ways to engage customers, and more.”

$800 $600 $400 $200

Source: Utility Analytics Institute

$0

25

megawatts

2011

2013

2014

2015

2016

Alaska Systems Coordinating Council

SMALL COAL AT RISK

North American Electric Reliability Corp. Regions Coal Generation Threatened

4,557 megawatts

Midwest Reliability Organization

662

megawatts

1,687 megawatts

Western Electricity Coordinating Council

1,178 megawatts

Northeast Power Coordinating Council

16,891 Southwest Power Pool

megawatts

16,419 megawatts

50 E N E RGYB I Z May/June 2012

2012

ReliabilityFirst

SERC Reliability Corp

Close to 40,000 megawatts worth of small coal-fired generating plants predominantly in the East, South and Midwest are at risk and may be shut down as a result of tightening federal emissions regulations and the abundant supply and low cost of natural gas, according to ScottMadden. Total coal generation amounts to about 315,000 megawatts, according to federal figures.

The firm, using data compiled by Ventyx, identified generation plans for units under 250 megawatts in size, built before 1970 and lacking sulfur dioxide emissions controls.

Source: Ventyx and ScottMadden

7

November 12-14, 2012 Houston, TX

Relationships Exchange

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Request your invitation at

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Sponsored by:

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Host Utilities:

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» LEGAL ARENA

Unintended Consequences RENEWABLE PORTFOLIO STANDARDS COULD COST OREGON JOBS // BY DAVID MARKHAM WHEN THE OREGON LEGISLATURE passed the renewable portfolio standard in 2007, it didn’t foresee that large, energy-hungry data centers would soon become the state’s newest industry. Their development is booming in the state — thanks to attractive tax breaks, some of the lowest electricity rates in the country and climatologic conditions that help reduce energy use. These factors present a highly attractive environment for facilities costing up to $1 billion each. This promising development, however, is combining with the 5-year-old RPS to create a conflict born of unintended consequences.

Central Electric Cooperative is working with several data centers seeking to build facilities near Prineville in Crook County. With an unemployment rate hovering around 15 percent, this offers the welcome promise of hundreds of construction jobs and dozens of permanent positions paying family wages. But the data centers also could dramatically — and disproportionately — increase rates for consumers of the state’s small, consumer-owned utilities.

52 E N E RGYB I Z May/June 2012

Oregon’s RPS draws clear distinctions between the state’s large, investor-owned utilities and the smaller, consumer-owned cooperatives like Central Electric. Pacific Power and Portland General Electric serve nearly 74 percent of the state’s 1.9 million electric meters and must obtain 25 percent of their power from renewable resources by 2025. Central Electric, with only 32,000 meters spread across 5,300 square miles, is categorized as a small utility and its renewable requirement for the same period is set at 5 percent. That is the same level for all small Oregon co-ops, provided their electricity sales remain proportional to the total STORM ANSWERS of all electricity sold in the state.

Puget Sound Energy has explained to The emergence of the data center state regulators its industry is changing several cooperatives’ responses to a major storm in January that profiles, including Central Electric’s. With led to 478,000 outages a potential combined load of 180 megaaffecting more than 40 percent of its watts, the Crook County data centers customers, according could quickly triple the cooperative’s averto a report in The Olympian. age system load of 80 megawatts, which has seen a decline over the past four years. These data centers would push the cooperative into the same RPS classification as the state’s two largest investor-owned utilities. Central Electric

These upcoming events will get you started.

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July 24-26, 2012

December, 2012

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» LEGAL ARENA would then have to begin compliance with the RPS well ahead of its current schedule, creating millions of dollars in additional power costs.

The co-op has been preparing since 2007 to comply with the 5 percent RPS requirement. Through a partnership with 11 other cooperatives, Central Electric owns a landfill gas-to-electricity generating facility and is invested in a pilot program that soon will launch the Northwest’s first wave-power project. In today’s economic climate, these actions are viewed as a hardship by many cooperative members, especially because almost all of Central Electric’s electricity is carbon-free hydroelectricity from the Bonneville Power Administration, which curiously does not count as renewable energy in Oregon’s RPS. Under today’s applications, we do not have reasonableness of law because the large utilities have much bigger consumer bases over which to spread renewable energy’s additional and substantially higher costs. The original RPS categories reflected cooperatives’ much smaller percentage of the state’s total energy load. Also, co-ops do not have the benefit of

tax exemptions and deferrals or the other financial management tools at the disposal of large investorowned utilities to help them meet the mandates.

Without a change in the RPS, Central Electric and other similarly affected cooperatives face two alternatives: Pass millions of dollars of additional power costs on to the existing consumers or pass them on to the data centers. Either way, the end result is significantly higher electric rates for someone.

Oregon has conflicting policies that could wipe out its aggressive efforts to attract these data centers to the state. With jobs evaporating, homes being lost and companies going bankrupt, the Oregon legislature needs to correct this inequity. If not, there are 18 states that don’t have an RPS and their electricity rates could give them a competitive advantage that leaves Oregon still searching for an economic recovery and those much needed jobs in a state that has one of the highest unemployment rates in the nation.

David Markham is president and chief executive of Central Electric Cooperative in Redmond, Ore.

Diversifying the Suppliers A LONG COMMITMENT // BY LORI MURPHY LEE THE DISTRICT OF COLUMBIA PUBLIC SERVICE COMMISSION has a long-standing commitment to supplier diversity. On March 5, 1991, District commissioners entered into a memorandum of understanding with the electric, telecommunications and natural gas utilities, namely, Pepco, Verizon and Washington Gas & Light. The agreement was well thought out and encouraged the utilities to take all the necessary and reasonable steps to ensure that minority business enterprises and protected-class businesses had the maximum opportunity to compete for and perform contracts 54 E N E RGYB I Z May/June 2012

consistent with reasonable and competitive procurement practices.

Over 20 years later the commission revised and expanded the agreement to better align the provisions with District of Columbia law regarding local, small and disadvantaged enterprises to ensure that women, minority and service-disabled veterans, as well as notfor-profit entities have fair opportunities to participate in and compete for contracts and subcontracts with public utilities. The revised agreement not only encourages diversity in the marketplace in product and service categories in which there has been low utilization of diverse suppliers but also fosters the entry into the marketplace of local, small and disadvantaged D.C.-based business enterprises into all professional services, including but not limited to:

legal, financial, public relations and government affairs as well as technical.

In the District of Columbia, small businesses face the challenges of an urban environment with limited and expensive real estate that is rapidly being developed as the population density increases. In contrast, the District has an unusually high concentration of women and minority professionals.

Based on the District’s unique composition OPT OUT I felt it especially important that the revised San Diego Gas & agreement expand the emphasis on Electric and Southern California Edison professional services. consumers will be The National Association of Regulatory allowed to have their smart meters removed Utility Commissioners’ utility marketplace starting this month, access subcommittee was established to according to a report in the North County Times. place a national focus on supplier diversity.

They can then get their The subcommittee, under the leadership of old analog meters back for a fee.

Harold Williams, a Maryland state regulator, seeks to educate state commissioners and utilities on the added benefits of procuring services from underutilized diverse businesses.

The District of Columbia is among a handful of jurisdictions that has taken measures to highlight the importance of supplier diversity in the utility industry.

The Maryland Public Service Commission is a leader in supplier diversity and in 2008 initiated a public conference, known as PC16, resulting in the signing of a voluntary memorandum of understanding between the Maryland Public Service Commission and 18 Maryland utility companies. Annually, the Maryland Commission holds a Supplier Diversity Hearing to allow public utilities to report on their procurement efforts with diverse suppliers. In 1986, the California Legislature enacted a statute detailing its findings about the economic benefits of women, minority and disabled veterans business enterprises.

Subsequently, in 1988, the California Public Utility Commission adopted an order establishing criteria for determining eligibility of those diverse suppliers and developing an outreach program to inform and recruit them for procurement opportunities. California has one of the most extensive programs having been mandated by law.

In April 2011, the Missouri Public Service Commission expressed its interest in supplier diversity by opening a voluntary docket to allow interested parties to comment on “benefits regulated utility companies might reap, and the concerns they might face, when seeking to procure goods and services from diverse suppliers.”

Although each state commission may approach supplier diversity differently, the inclusion of minority, women and service-disabled veteran professionals in business must be a priority. The world population grows exponentially more diverse each year. This means that the utility’s customer base will change in the same manner, as utilities provide essential services. A utility that focuses on diversity and reflects that diversity in its business practices will naturally reflect the diversity of its customer base. This will allow that utility to be more in tune with the needs and wants of its customers and ultimately to be better able to serve them. In expanding the number of qualified applicants for procurement opportunities the level of competition will increase, and as a regulator I see this as a benefit to both the utilities’ ratepayers and shareholders.

Diversity makes good business sense.

Lori Muphy Lee is a member of the District of Columbia Public Service Commission.

Gatherings// Legal Arena June 5-7

Hydro Licensing & Compliance

Seattle

July 22-25

National Association of Regulatory Utility Commissioners

Portland, Ore.

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

energybiz.com E N E RGYB I Z 55

» FINAL TAKE Blowout Thriller A VISION OF CRISIS // BY SEN. BYRON DORGAN DURING THE END OF MY LAST TERM in the U.S. Senate, I received a call from Mel Berger, my book agent at William Morris in New York who worked with me to find a publisher for my first two books. He told me that a publisher approached him and asked about my availability to co-author a two-book series on the subject of energy called eco thrillers. He said this publisher is very interested in renewable and clean Former Sen. Byron Dorgan and novelist David Hagberg energy and believes have written the first of that new and interesta two-book series of ing ideas can be introenergy eco thrillers.

Dorgan, 70, represented duced through fiction.

North Dakota in Congress When my agent for 30 years and served called about the reas chairman of the Senate Energy Subcommittee. quest, I was intrigued Dorgan spoke at the but not all that anxious 2012 EnergyBiz Leadership to start another writing Forum this spring. project. But then I met both the publisher and the proposed co-author, David Hagberg, and I was excited. I knew that writing a novel could be not only an interesting project, but also another way to stimulate some creative thinking about a better energy policy for our country.

Although our book is fiction, I know that there is ongoing research in the field of energy that is truly stranger than fiction. For example, there are researchers now working to find a way to create liquid fuel out of thin air.

Others are working on creating bacteria that will turn underground coal seams into liquid fuel. Our inspiration for our book came from those researchers who are out there right now discovering our energy future.

So David Hagberg and I went to work on a plot evaluating what might happen if we were right on the edge of creating a new, nearly inexhaustible source of energy that costs very little. Who would try to stop it?

How? Why? And that’s when the shooting starts.

A wild-eyed posse comitatus gun for hire, Barry Eagan, and his hand-picked team are determined to destroy the project and the people involved in it. A young local newspaper reporter senses that something is wrong. And her instincts are right, but nearly 56 E N E RGYB I Z May/June 2012

end up getting her killed. A war hero who came home to be elected county sheriff finds himself in the middle of violence and intrigue that stretches from the Oval Office of the White House, to the Pentagon, to Wall Street, to Venezuela, Cuba and beyond.

This book is going to make people think. From the moment we wake up in the morning until we go to bed again at night, we use energy all day long and in every way take it for granted, assuming it will always be available. The plain fact is our appetite for oil ends up sending a mountain of American dollars overseas. In addition to making us vulnerable and dependent on others for the energy we need, enough of our petrodollars end up spilling from the barrel to fund robust terrorist organizations that want to destroy our country.

That danger, coupled with the threat to our climate from CO2 emissions, means that the search for ways to replace a portion of the oil we import is an urgent search that must continue.

» ADVERTISER INDEX Company

Page

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Day & Zimmerman

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5

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EnergyBiz Leadership Forum

49

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GenerationHub

inside back cover

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GP Power

17

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HR Green

31

www.hrgreen.com

Itron

3, 42–45

www.itron.com

Kema

back cover

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Knowledge Summit 2012

51

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Pike

29

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Quanta Services

inside front cover

www.quantaservices.com

SEPA

13

www.solarelectricpower.org/ membership

Solar Power International

41

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Structure

19

www.thestructuregroup.com

TransForum

53

transmissionhub.com/transforum

UTC Power

23

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Verizon

25

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