EnergyBiz JanFeb2013

VOLUME 10 // ISSUE 1 JANUARY 13 // FEBRUARY 13 energybizmag.com

GAMING REGULATION

PEOPLE // ISSUES // STRATEGY // TECHNOLOGY

THE

BUSINESS OF SMART GRID ºº INNOVATIONS WORLDWIDE

NEW DIRECTIONS IN ENERGY POLICY

GAS CHANGES EVERYTHING ºº CEO DIALOG

THE CYBER SECURITY BALANCING ACT

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

Telvent is now Schneider Electric.

Secure. Flexible. Efficient.

By adopting the Schneider Electric brand, we are able to build upon its consistent identity and reputation as a global solutions leader. You can expect the exact same world-class solutions and industry-leading customer service that you have come to rely on each day.

In addition, we will be able to deliver to you new business enhancements and stronger solution offerings made possible through the combination of our technologies, knowledge, and other unique synergies and collective strengths.

While our brand has changed, our focus remains the same: to help you meet your greatest challenges, while ensuring a sustainable world for future generations.

Learn more about our exciting new brand.

Visit www.schneider-electric.com. ©2012 Schneider Electric. All Rights Reserved. Schneider Electric is a trademark owned by Schneider Electric Industries SAS or its affiliated companies.

All other trademarks are property of their respective owners. • www.schneider-electric.com • Tel: 1 866 537 1091

Together, we offer…

More than 22.4 billion euros in annual sales Over 130,000 dedicated employees worldwide A committed presence in more than 100 countries

JANUARY/FEBRUARY 2013

10

44

34 Features

52 Departments O U R TA K E

10

THE BUSINESS OF SMART GRID Tens of billions of dollars in smart grid investments have been made. Now utilities turn to monetizing those assets through new business strategies.

13 15 16 17

4 A Fresh Start 6 Letters BUSINESS EDGE

7 A Revolutionary Approach

Getting an Edge International Innovations Amazing Jeju Island Dutch Island Embraces Cloud Power

to Clean Coal

9 Transmission into the Caribbean T E C H N O LO GY F R O N T I E R

29 The Cyber Security Balancing Act 32 Growing the Microgrid Market 34 Computational Muscle

18

New Directions in Energy Policy

INTRODUCING

How will President Barack Obama leave his mark on national energy policy? Two powerful leaders in Congress offer their views.

44 Mastering Transformation/

20 Building a Bipartisan Energy Future 22 Ending Gridlock

47 Coal Generation Soars in China

Thomas Farrell METRICS

and India/Power Construction Soars LEGAL ARENA

24 Gas Changes Everything

Natural gas is front and center in the remarkable remaking of America’s energy sector. Natural gas CEOs assess what is happening and what will transpire in the years ahead.

Vol. 10, No. 1. Copyright 2013 by Energy Central. All rights reserved. Permission to reprint or quote excerpts granted by written request only.

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

2 E N E RGYB I Z January/February 2013

50 REITs for Renewables 52 Federal Energy Regulatory Commission Debate

52 Point/Enforcement Resolve

53 Counterpoint/Reforming FERC

55 Carbon Tax Revisited F I N A L TA K E

56 Gaming Regulation

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» OUR TAKE A Fresh Start CONGRESS POISED TO ACT CONGRESS IS POISED to craft new farreaching energy policy in the coming months.

There is remarkable good will in both the Senate and the House, combined with a feeling of urgency.

As one leader put it, our current energy laws were all written prior to the transformative development of vast shale resources. This is propelling us toward a much-improved strategic position tied to abundant domestic supplies of natural gas and oil.

At the same time, unprecedented low natural gas prices may be driving us to become over-dependent on that resource, harming the development of nuclear power, clean coal and renewables.

Leaders in Congress have been meeting informally for several months now to discuss policies that will make sense.

I recently had a fascinating half-hour conversation with Sen. Ron Wyden (D-Ore.), poised to assume the chairmanship of the U.S. Senate Committee on Energy & Natural Resources. Wyden and I crossed paths decades ago in Portland, Ore., when I was a fledgling journalist and he was a newly minted lawyer advocating for the elderly.

Recently, he has developed a reputation as a uniquely bipartisan lawmaker. He is a Democrat who was willing to work with Wisconsin’s Rep. Paul Ryan, the conservative Republican vice presidential candidate this year, on new approaches to health care.

Wyden believes now is the time to forge far-sighted, intelligent national energy policies. “Elections, Marty, are ultimately about renewal, about making a fresh start,” he said.

“There is a lot of interest in building a bipartisan coalition, a coherent, modern energy policy.”

In recent months, he has spent lots of 4 E N E RGYB I Z January/February 2013

time talking with and traveling to visit Republican and Democrat colleagues to better understand the issues and opportunities they face on the energy front.

Rep. Ed Whitfield (R-Ky.), the chairman of the House Subcommittee on Energy and Power, said during a recent EnergyBiz videocast from Washington that he has a good relationship with Wyden, and plans to be meeting with him in the near future to find common ground. “I don’t think it’s beneficial for everybody to just continue to sit around and fight nonstop,” Whitfield said.

It is a sad commentary of our times that such a selfevident statement has to be made by one of our national leaders. But given the recent epic failures of Congress to tackle meaningful issues, it is a starting point.

To better understand where Wyden and Whitfield are coming from — and where they may be headed — we are pleased to present in this issue our interview with the Oregon senator and excerpts from the Kentucky congressman’s videocast in this issue.

The broad issues and opportunities they outline will be probed further at the EnergyBiz Leadership Forum in Washington, March 18-19. One session of our conference will focus on the coming shift in national policy. For further details about our conference, “Strategies for a Radically New Utility Universe,” please visit www.energybizforum.com.

Also at our forum, Gen. Jim Jones, former national security adviser to President Barack Obama, will discuss the broad economic and strategic importance of crafting a wise national energy policy.

If Congress is indeed willing to advance a national energy policy, what is the responsibility of utilities, energy companies, informed observers and energy users to help guide the process?

If we expect our leaders to be open to compromise, we, too, must be willing to give as well as take.

There may be compelling logic to an “all of the above” energy strategy, but it will require considerable good will and trust from everyone in the energy world.

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

Utility Analytics Forecast for 2013:

Analytics initiatives and spending will increase • 64% of utilities are engaged in a grid optimization analytics initiative*

A shortage of qualified analytics professionals will continue to be a major challenge for utilities

Data integration will become a bigger focus as analytics initiatives mature

How are you preparing for what’s ahead?

• 73% of utilities are engaged in a customer analytics project* *Utility Analytics Institute Best Practices Report, September 2012

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» LETTERS I write in response to ongoing coverage in EnergyBiz on the need for new transmission.

A state legislator initiative has resulted in the Interstate Electric Transmission Line Siting Compact, developed through the Council of State Governments’ National Center for Interstate Compacts.

This multiple-stakeholder collaboration is designed to help overcome some of the difficulties of constructing interstate highvoltage transmission lines to meet renewable energy objectives. That goal will be accomplished by state legislative actions to establish similar rules, procedures and time frames for filing applications and determining whether a proposed electric transmission line’s siting application will be approved.

When implemented, the compact process will save utilities and electricity customers substantial sums by standardizing and streamlining the decision-making process, while preserving consumer protections.

Too often, priorities between states and national and regional electric energy interests do not align. The compact is designed to address this discord that has contributed to an underdeveloped and overstressed transmission system.

When adopted by state legislatures, the compact will provide a mechanism to balance competing

To contribute to the Letters column, please email your submission to editor@energybiz.com.

interests of stakeholders, within and between states, by providing formal means through which to resolve differences of opinion and policy priorities. The compact creates a national structure under which states may cooperate on a regional basis to facilitate siting of interstate transmission lines.

The compact lets states retain sovereignty, simplifies the application process, streamlines review, minimizes delays and creates a forum for federal agencies and tribes to become part of the siting review process simultaneously with states.

A series of educational webinars highlighting the importance of the compact will be open to all interested parties.

The compact represents an example of state legislators helping federal, state and private-sector interests benefit consumers by addressing impediments to responsible energy policies in a collaborative manner.

Rep. Tom Sloan Kansas House of Representatives Lawrence, Kan.

www.energybizmag.com EDITOR-IN-CHIEF Martin Rosenberg mrosenberg@energycentral.com 303.228.4725 CHIEF COPY EDITORS Don Bishop,

Martha Collins, Meaghan Shaw SENIOR CONTRIBUTORS

Wayne Barber wbarber@energycentral.com 703.651.2166 Barry Cassell bcassell@energycentral.com 804.466.0187 Carl Dombek cdombek@energycentral.com 970.236.6235 Rosy Lum rosy@energycentral.com 347.799.2802 Corina Rivera-Linares corina@energycentral.com 301.825.5618 FEATURE WRITERS Thomas Armistead, Steve Barlas,

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

Jana Koehn, Ken Maness, Todd Hagen, Eric Swanson sales@energycentral.com 800.459.2233 ADVERTISING COORDINATOR

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» BUSINESS EDGE

A Revolutionary Approach to Clean Coal A DISRUPTIVE TECHNOLOGY // BY BILL BROWN

THERE WAS A TIME when venture capital funds did not exist, and NET Power, a thermodynamic cycle technology, shows that — at least in some cases — technology development can be accelerated by avoiding venture capital and moving straight to partnerships with leading corporations.

In late 2010, the NET Power technology was at a developmental crossroads. We knew we had invented a majorly disruptive power generation technology. In an industry where technologies are either cheap or clean — but not both — NET Power is exceptional. It generates electricity from fossil fuels at a cost that is competitive with the cheapest current systems and it produces zero air emissions. It is truly cheap and clean.

To commercialize this new technology, though, we needed to raise money and a build a development team. New companies traditionally pursue venture capital at this stage. But large industrial technologies like NET Power do not fit the current venture capital model, which focuses on committing smaller sums of money to a greater number of companies and realizing returns within a smaller window. The resources we needed went beyond just financial capital.

Other companies seek government funding. We put NET Power in front of the U.S. Department of Energy’s National Energy Technology Laboratory, which reviewed the technology intensely. But the DOE had recently deployed all of its funding dedicated to fossil fuel technologies and was not in a position to fund NET Power.

In the process of vetting our technology, we had begun working with large industrial energy companies.

The exciting promise and potential impact of NET Power enabled us to attract the attention of some of the industry’s leading power generators, manufacturers and engineering firms.

Traditionally, corporations such as these have been unfairly maligned for being poor innovators. There probably is some truth to the fact that many large companies struggle to develop truly disruptive innovation in-house. Certainly, technologies can be ignored, or even killed, because of the sacred-cow problem in which careers are staked to the success of an internal technology, or because of incentives that reward risk-averse behavior. But the highest levels of management at these companies seek ways to be disruptive while still focusing on their cash cows.

We began to see these firms as innovation partners — something much more than just potential customers or suppliers. They offered a tremendous array of resources and skills that we didn’t possess internally and could not have gained from traditional financing sources. It became increasingly clear that they could play an essential role in fostering NET Power’s development. And in NET Power, they saw a technology that could provide a strategic, long-term GOOGLE WIND benefit to their businesses. There Google is investing was much each side could gain $75 million in a wind from working together. farm 130 miles from Council Bluffs, Iowa, Ultimately, in June 2011, the according to a report by namesake company formed to the Associated Press.

Google estimates its develop the technology, NET renewables investments Power, launched a joint developexceed $990 million. ment partnership with three of the initially identified innovation partners – The Shaw Group, Toshiba and Exelon. The partnership serves as a model for large industrial innovation in how it blends the unique skills of an agile, innovative technology development company with the resources and experience of leading players in the industry.

The technology we are commercializing can revolutionize the power industry. NET Power is based on a novel, oxyfuel, supercritical CO2 cycle. It is highly energybiz.com E N E RGYB I Z 7

» BUSINESS EDGE efficient – competitive with current natural gas combined cycle plants – and low-cost. At the same time, it produces zero atmospheric emissions.

The approach we used to develop NET Power highlights the value that firms such as ours can add to the world of corporate innovation. For example, we chose to design a new cycle from the ground up as opposed to developing further improvements to the natural gas or coal power systems that industry has focused on for decades. Why did we decide to start from scratch? Our guiding principle was that to provide a true energy solution that is capable of making a global impact, we needed to develop a technology that overcomes the clean-or-cheap barrier. It would have to be both.

Trying to cook up that type of solution using the same technology menu would be inherently flawed.

In order to capture carbon from current power cycles, you must alter the system to make it do something outside of its originally designed intent. This means adding processes and equipment, which reduces efficiency and adds costs. By their very nature, these approaches will lead to more expensive electricity.

This was a nonstarter for us.

Stepping back, we envisioned what we wanted from a fossil fuel power plant and we designed toward that end. We elected to use oxyfuel combustion to clean up our combustion byproducts, and we made the system a high-pressure, closed loop to give us greater control over those byproducts. We avoided using a steam Rankine cycle because it is inefficient.

Most importantly, we looked into the thermodynamic properties of CO2 and discovered that, if used as a working fluid under the right conditions, it could overcome the inefficiencies of steam cycles.

NET Power should not be thought of in the same way as carbon-capture technologies because it inherently produces a high-pressure, high-quality

Gatherings//Business Edge Feb. 26-27

European American Solar Deployment

Atlanta

March 18-19

EnergyBiz Leadership Forum

Washington

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

8 E N E RGYB I Z January/February 2013

stream of pipeline-ready CO2 as a function of how the cycle operates; thus, it cannot help but eliminate atmospheric carbon emissions. Because of this, our baseline cost of electricity comparison examines NET Power with 100 percent CO2 capture and no hidden value for CO2 against competing technologies operating without carbon capture. This keeps us honest to our original goal.

The advantages are clear, and the impact this development program can have is far-reaching.

For electricity generators, NET Power fully aligns the clean option with the economic option, without having to rely on market-distorting interventions like a carbon tax. The strictest environmental standards can be affordably met. The permitting process can become streamlined. In the United States and abroad, abundant domestic fuels can continue to be utilized — all while offering low-cost electricity to consumers.

NET Power can drive similarly important changes in the oil industry, both in the United States and abroad.

Around 84 billion barrels of oil remain stranded in mature U.S. oilfields, but they are recoverable through enhanced oil recovery, which requires high-quality, high-pressure CO2. Unfortunately, companies cannot get access to enough CO2 at affordable prices because the cost of capturing it from power plants using current technologies is too high. NET Power changes this dynamic by enabling electricity generators to provide low-cost CO2 to the enhanced oil recovery market, adding huge economic value to their power plants while storing carbon dioxide that otherwise would have been emitted to the atmosphere.

The partnership we’ve created to commercialize this technology provides a clear path to success.

Each participant brings its own unique capabilities and assets to the program. NET Power’s team has a deep understanding of the technology, engineering creativity, and an occasional stubborn refusal to accept the industry status quo. Shaw, Toshiba and Exelon are exceptional corporations with tremendous strengths and abilities, including industry-leading know-how, deep subject-area expertise; capital and highly skilled employees. By aligning all of these resources behind NET Power and unwaveringly holding to our principle to build something that is not just better, but also cheaper, our team will deliver a disruptive technology to the power industry that gives our world a brighter future.

Bill Brown is the CEO and co-founder of NET Power and a professor at Duke Law School.

Transmission into the Caribbean EXPANSION OF THE NORTH AMERICAN GRID // BY ALAIN ASTACIO THERE IS A VERY LARGE GAP between North America and the Caribbean with regard to kilowatt-hour per capita consumption. This metric is frequently used by international organizations to evaluate levels of development of nation states. The higher the degree to which those kilowatt-hours produced originate from endogenous or renewable energy sources, the more potential there is for energy independence, climate protection and social development. This is a result of various political, economic and social fundamentals. For example, petroleum-fired generation is less than 1 percent of Florida’s power source, yet for a sample of Caribbean countries it is the absolute majority.

There is a clear opportunity to integrate the supply capacity of North America to the Greater Antilles.

These Caribbean countries cannot structurally bridge the gap by themselves primarily because of the lack of natural resources, no economies of scale, and capital limitations. It is also true that these small markets COAL CLOSING as potential export destinations are An estimated too small to represent any threats 18 percent of America’s coal generation plants to price fluctuations in North cannot be economically America. Instead, there is an evident upgraded, according to a report by the Union of business opportunity where both Concerned Scientists. sides clearly win.

The cost of To put matters in perspective, environmental upgrades would make the coal this opportunity represents less than power more expensive 1 percent of the U.S. electric market than electricity generated by gas or size, yet it represents 25 million conwind, according to the sumers, approximately 8 percent of Minneapolis Star Tribune. the U.S. population. In addition, few political analysts take into account the degree to which the United States’ national security may be strengthened by having neighbors with

improved quality of life. These islands can improve their GDPs through more economically competitive industries and services such as tourism, agriculture and manufacturing, thereby reducing migration pressures, regional organized crime, civil unrest, undemocratic regimes, disease and destitution. It is also important to mention that few new investments are being made in competitive power generation in recent years in places like the Dominican Republic, yet with demand growth trends, physical electric blackouts are a potential possibility.

An unparalleled opportunity for electric regional integration can take place in the immediate future, should the North American transmission grid be expanded into the Caribbean through submarine transmission cables.

Nexant and the World Bank prepared a report in 2010 that contains very useful data with regard to submarine cable technical feasibility analyses for the Caribbean. The gross savings that could be derived from the use of submarine cable could be used by Caribbean governments in matters related to non-technical losses, deteriorating equipment, load shedding, inadequate tariff levels and inadequate subsidy systems.

A public/private partnership of no more than a handful of subject matter experts may be assembled in the future along with multilateral agency support to develop a more comprehensive proposal. If this initiative is approached properly and seriously, the region as a whole is likely to benefit.

There is a clear opportunity to integrate the supply capacity of North America to the Greater Antilles.

Alain Astacio is energy committee member, AMCHAM Dominican Republic. energybiz.com E N E RGYB I Z 9

The Business of Smart Grid Cutting Demand, Bonding With Customers have gradually been put in place from utilities investing billions of dollars to make their networks more intelligent. Consequently, a growing number of energy companies now have increased visA Preview of ibility into their generation the EnergyBiz and distribution systems Leadership Forum and a clear communication March 18-19 channel to their customwww.energybizforum.com ers. So, now what? That question is being raised in many utility boardrooms, and a variety of straightforward and a few unexpected answers are emerging.

As evidence of smart grid’s potential, Lee Krevat, director of the smart grid initiative at Sempra Energy, created a list of 64 smart grid-related projects, ranging from reducing consumer demand to fueling electric cars, spawned in the last few years. “Typically, utilities start THE SMART GRID BUILDING BLOCKS

10 E N E RGYB I Z January/February 2013

with the most obvious smart grid applications and work their way to the more exotic ones,” noted Carol Stimmel, research director at Pike Research, a part of Navigant’s energy practice.

One obvious change centers on how utilities deal with the often tedious process of customer moves, adds and changes. Historically, whenever a consumer wanted to move into or out of a home, utilities had to dispatch a truck and employees and manually change the system, a process that spanned hours or days. With the smart grid, they can instantly make the switch after entering a few commands.

Another benefit is using the new intelligent infrastructure to decrease energy use during peak periods. Such applications are possible because utilities now see energy consumption in real time rather than at historical intervals. They are able to make adjustments as needed, whether decreasing demand or increasing production.

Illustration by Jason Bays

By Paul Korzeniowski

energybiz.com E N E RGYB I Z 11

THE BUSINESS OF SM A RT GRID

Sempra deployed 1.4 million electric meters and 850,000 gas meters to track its energy use and has developed incentives so customers curtail their energy use during peak periods. The company offers consumers rebates ranging from 75 cents to $1.25 a kilowatt when they lower their power usage. “The rebate program enabled us to reduce consumptions by 25 megawatts,” stated Krevat.

Con Edison teamed with ThinkEco to put a novel twist on that idea. They created a smart grid application that tempers air-conditioner use. The companies have added modlets, plug-in smart outlets that can be controlled by a special thermostat, to 10,000 New York City window air conditioners. Customers can remotely set the temperature and turn the A/C on or off via a smartphone or a PC browser. In addition, they can establish thresholds, so their air conditioners will turn on and off automatically as temperatures rise or fall. The program reduced demand by MONETIZING 5 megawatts, which is SMART GRID enough energy to power 5,000 homes, according Executives will discuss to Con Edison. the steps they are taking “With smart grid, to earn returns on their utilities gain visibility smart grid investments on Jan. 24 at 11 a.m. ET. into the performance of their power distribution Register for the network and equipfree webcast at ment,” noted Jeffrey www.energybiz.com/ Roark, senior project monetizing manager, smart-grid economics at Electric Power Research Institute. Much like consumer home meters, transformer maintenance had been manpower-intensive.

Utilities often had to send technicians to examine how well the systems were performing. By adding intelligence to these devices, they can now monitor their operation remotely.

For instance, Con Edison has 20,000 transformers underground and had virtually zero visibility into their performance historically. “Now, we have a clear view into our transformers so we can see their voltage as well as oil levels and take proactive measures, if necessary,” stated Aubrey Braz, vice president for smart grid technology at Con Edison. By identifying and fixing problems more quickly, utilities keep power not only flowing but also performing 12 E N E RGYB I Z January/February 2013

With smart grid, utilities gain visibility into the performance of their power distribution network and equipment.

at peak levels. A glitch in a key component, like a transformer, can cascade and negatively impact — and even bring down — other elements on the grid.

While such applications represent the industry’s low-hanging fruit, a cornucopia of other possible changes are now possible. Once utilities deploy hundreds of thousands or millions of smart meters, they face the formidable task of collecting the huge volume of data generated by intelligent devices on the smart grid and determining how to take advantage of all the data. They want to transform the raw data into useful information that will streamline their business processes and improve their business decisions. They will need to build software applications, called analytics, which correlate the oodles of information into clear business objectives.

One area of emphasis is customer care. With data analytics, utilities can slice and dice information to gain a better understanding of customer behavior and preferences. For instance, they can determine the impact of green energy programs on customer behavior.

Yet utilities face challenges in transforming these projects into new services. Funding can be a bugaboo. “About half of the funding for our smart meter program came from the stimulus program,” noted Fred Boyle, CFO at Pepco Holdings. However, that funding is drawing to a close, so utilities will need to work with their local public utility commissions and develop business plans that illustrate benefits to consumers as well as the utilities themselves.

A lot of progress has been made in putting the smart grid in place, and energy providers are now starting to determine how to maximize those investments. While a number of uses have emerged, even more are expected as they better understand just what the smart grid offers.

GETTING AN EDGE

GR ID EFFICIENCY PAY BACK FOR SM ART METERS

BY MARY C. DOSWELL

have now become commonplace in many parts of the United States. Approximately 33 percent of all U.S. households now have a smart meter installed. California and Texas have led these efforts with many other states expected to follow suit.

The business drivers for these deployments are typically the same, such as lower meterreading costs, improved outage and restoration management, and reduced truck rolls.

These operational savings have been proven time and time again and there is little doubt that a portion of the return on smart metering investments for these functions will be monetized by the utility.

What is less clear — and where some of the smart metering business cases start to differ — is how the utility benefits the customer. Some would argue that by simply giving the customer real-time access to smart meter data via an in-home display, cellphone, or the Internet, customers will modify their behavior to reduce consumption or take advantage of lower pricing periods brought about by special time-of-day-based pricing programs. Or better yet, customers would let the utility control the temperature or shut off equipment in the home or business during a peak event.

The main issue with both of these demand-side management approaches is that the customer participation rate is hard to predict and typically extremely low in parts ADVANCED DEPLOYMENTS OF SMART METERS

of the country where electricity costs are still relatively low, such as the Midwest and portions of the East Coast.

Realizing this, Dominion, one of the nation’s largest producers and transporters of energy based in Richmond, Va., is taking a different approach.

As Dominion builds its business case for smart metering, a large emphasis is placed on grid efficiency, meaning applications that minimize the losses on the existing distribution grid infrastructure. The richness, quality and frequency of data coming out of today’s modern smart metering platforms is phenomenal. Data once only available at the substation is now available at every metering point in real time. This opens the door for lots of grid efficiency applications.

Dominion has chosen to pursue conservation voltage reduction as one of the first grid efficiency applications EDITOR’S NOTE that leverages this Mary C. Doswell will be speaking at the EnergyBiz new data. CVR is a Leadership Forum. technique some utiliwww.energybizforum.com ties have been experimenting with for the past 30 years. It is a method of operating the distribution system in the lower part of the allowable voltage band. energybiz.com E N E RGYB I Z 13

THE BUSINESS OF SM A RT GRID

For example, in the United States, the voltage at every household outlet is a nominal 120 volts. The utility is allowed to operate the system in a band that ranges from 114 to 126 volts. Simply delivering voltage to every home in the lower part of this band – 114 to 118 volts – will result in significant energy savings, mostly for the consumer.

The previous methods of implementing CVR have been very basic and consist of monitoring voltage at fixed points on the grid, on the primary side of the distribution transformer.

Over the past four years, Dominion has worked on building and patenting a commercial product called EDGE that redefines how CVR is implemented. EDGE leverages the smart metering investment by reading voltage alarms on every meter in the system, then dynamically choosing what meters to monitor in real time to optimize the voltage delivered to each customer. Because the monitoring is done at customer sites through smart metering, the accuracy and the savings are more significant than in more conventional methods.

The EDGE technology has been deployed on 37 distribution circuits at Dominion Virginia Power, the retail electric utility of Dominion. The savings on some circuits have ranged from $250,000 to $300,000 on an annual basis, and 90 percent of these savings go directly to the customer. By optimizing the voltage delivered to every customer, appliances, TVs, lights and other customer loads all run more 14 E N E RGYB I Z January/February 2013

efficiently, resulting in a lower utility bill for the customer without requiring any behavioral changes.

Because of this success of the deployment of EDGE, Dominion has created a wholly owned subsidiary called DVI to market and sell the product to other utilities all over the world. DVI has partnered with some of the leading smart metering and systems integration companies in the industry to market, sell and deploy EDGE. These companies include Landis+Gyr, Elster, Silver Spring Networks and Lockheed Martin. DVI envisions a day where every utility is considering deploying a smart metering system that includes EDGE as one of the key grid efficiency applications that helps make the business case.

Because the opportunity is so large for the consumer to monetize the smart metering investment without a behavioral impact, the regulatory community will embrace the EDGE application, leading to an accelerated adoption of the technology. DVI is currently targeting those states that are actively deploying smart meters and that have energy efficiency goals that can be fulfilled through the deployment of EDGE. REINVENTING THE International opportunity for UTILITY BUSINESS EDGE is significant. By 2020, For a further discussion more than 237 million smart on how utilities are tying meters will be deployed across together innovations in Europe and almost 90 peroperations, customer data and telecom, listen to our cent of the installed electricity webcast on Feb. 21, noon ET. meters in Western Europe will Please register for the be smart, according to a recent free webcast at report from Pike Research. www.energybiz.com/ This, combined with the Energy change.

Efficiency Directive recently approved by the European Commission that is targeting 20 percent energy savings through energy efficiency, sets the stage for the deployment of grid-side efficiency technologies. DVI will be working with utilities in the United Kingdom and other parts of Europe to pursue these opportunities.

Smart metering is truly a breakthrough technology that enables many applications and value streams. Implemented properly, and in conjunction with a grid-side efficiency program using a technology such as EDGE, both the utility and its customers will monetize the benefits.

Mary C. Doswell is senior vice president of alternative energy solutions at Dominion Resources and lead executive for DVI.

International Innovations SM ART GR ID IN THE UNITED K INGDOM AND AUSTR ALI A

BY GARGI CHAKRABARTY

in the United Kingdom and Australia are looking to further monetize the smart grid by rolling out a slew of next generation “smart” products and services. Advanced meter infrastructure is in place and yielding benefits in terms of load control and outage management enabled by two-way communication between the grid and customers.

In the United Kingdom, Centrica-owned British Gas, which already has installed more than 400,000 smart meters, is rolling out several new products.

“In terms of smart products there are three things that we’re pushing in a big way at the moment: smart meters; Remote Heating Control, a cloud-based heating control system; and Safe and Secure, a cloud-based security and safety product,” said Alistair Cohen, emerging technology analyst at British Gas. For instance, the advanced smart meters that British Gas began rolling out this summer come with a stylish touch-screen display showing household energy usage. Customers will be able to compare their gas and electricity use by the hour, day, week and year. They will also be able to set their own energy targets and a traffic light system will warn households when they are using large amounts of electricity.

Similarly, Remote Heating Control and the Safe and Secure home monitoring system are intended to help customers efficiently manage their heating and home security needs with minimum effort.

“The challenge for any market around the world is: How can you deliver a consumer-focused proposition that helps people to understand their energy consumption and take action to reduce?” asked David Goadby, retail general manager at Sydney-based Australian Power and Gas, a retail ELECTRIC SERVICE PROVIDERS

Origin Smart is a groundbreaking new web portal that gives control to consumers.

electric provider. On a side note, Houston-based Entrust Energy, a retail company started by some key shareholders of Australian Power and Gas, is looking to expand its footprint in the United States.

In Australia, the state of Victoria has led the rollout of smart meters, with more than a million meters installed.

Although network owners initially led the rollout, retailers such as Australian Power and Gas are jumping into the fray with new smart products — competing with incumbents like Origin Energy for market share.

“Origin has to date had the highest-profile launch and is rumored to have invested significantly in the platforms involved,” Goadby said. “We will be entering this space across the next six months.”

This fall, Origin launched an online portal called Origin Smart that lets their customers in Victoria see their home electricity usage, updated every half hour.

“Origin Smart is a groundbreaking new web portal that gives control to consumers, allowing them to see how much energy they are using and predict the cost of future bills,” Frank Calabria, Origin’s CEO for energy markets, said. “It also provides line of sight into the impact of energy efficiency activities in the home, for the first time providing consumers with the tools to manage their bills.”

Retailers who compete against incumbents in deregulated markets believe they are better positioned to lead the smart product evolution.

In the United States, Texas — the nation’s biggest deregulated market — appears to be leading when it comes to adoption of smart products, said Taff Tschamler, senior vice president at Conn.-based North American Power, a retailer.

Retailers in the state have led other states when it comes to not only AMI but also the launch of smart thermostats, peak pricing products and prepaid cards.

“The reality is that the easiest way for people to save money, especially if they have never switched previously, is by changing from their traditional incumbent supplier,” Goadby said. energybiz.com E N E RGYB I Z 15

THE BUSINESS OF SM A RT GRID

Amazing Jeju Island KOR E A’S SM ART GR ID TEST

BY RA DONG-CHAE SOUTH KOREA IS SIMILAR IN SIZE to the state of Indiana.

Although physically connected to the Asian landmass, it is separated from China and Russia by North Korea, a rival state with which it has no ties. As a result, South Korea can be seen conceptually as an island that has no grid connections to other countries.

The government-owned electric power monopoly, KEPCO – Korea Power – is responsible for the entire country’s electricity system. Geographical and political circumstances present an opportunity for experimentation, which can promote change and innovation.

The central government selected the smart grid as a core infrastructure element for green growth after being recognized as a leading smart grid country at the G8 summit in Italy in 2009. Since then, the government has planned a test project to verify the technology and initiate commercialization.

The project is on Jeju, an island off the country’s south coast, and it focuses on five sectors: smart places, smart transportation, smart renewables, smart power and smart electric services, which are the key elements of the national road map for smart grids. Some 2,465 billion won or $2.26 billion has been injected into the project by 12 consortia consisting of 168 companies and the government.

KEPCO has been promoting the Electric IT Project to prepare for the future of electric grids since 2005, well before the smart grid project was launched. An intelligent distribution management system was developed and is now being applied in Jeju. KEPCO has participated in all five sectors of the Jeju project and is testing core technology and developing business models. The company has covered all of the sub-elements of the project operated by different consortia by building an operation platform and operation management system at an operation center.

Separately, we started in September to operate a micro grid, independently supplying electricity using renewable energy and electricity storage devices on Gapado, a small island next to Jeju. Gapado is a carbon-free island with a 16 E N E RGYB I Z January/February 2013

high-technology electrical operating system, and it is a case study for proving micro grids.

South Korea started smart grid testing later than others in the consortia, but under the leadership of KEPCO, each consortium has been making progress. Completion of technology verification and selection of business models is set for May 2013. All approved technologies and business models will be applied to seven of the country’s largest cities beginning in 2014. The program will be expanded to others before 2021, when the testing project will be completed. South Korea aims to become the first smart grid country in the world by 2030.

Smart grids represent a futuristic technology that eliminates the boundaries of the electricity industry while at the same time being green and thereby helping us to tackle climate change. This technology requires cooperation and joint research from each country and industry sector. KEPCO has undertaken technical cooperation activities with ENEL Italy and is exchanging smart grid experts with DONG energy in Denmark as well as running a working group with AESIEAP – East Asian and Western Pacific electricity companies.

The new experiments and smart grid testing by South Korea and KEPCO will be a driving force in global leadership in the field. In developing its plans to this end, the government has been inspired by the U.S. example where the Department of Energy has supported various businesses to supply and test homegrown smart grid technology, while also allowing companies to test the smart grid externally.

KEPCO is ready to share its knowledge and technology with the American electricity industry at events such as the 22nd World Energy Congress, which will take place in Daegu, South Korea, in October 2013, and I believe the exchange of experience in smart grid testing will benefit both countries.

South Korea aims to be the first smart grid country in the world by 2030.

Ra Dong-Chae is head of the smart grid department at KEPCO.

Landscape of the island of Texel, the Netherlands.

Dutch Island Embraces Cloud Power SM ART GR ID INNOVATION

BY BRENDAN DE GRAAF

in Texel, an island in the Netherlands, started a green energy company named TexelEnergie. At that time it was the first local sustainable energy company in Holland. The founders wanted to operate without profit, with results that inure to the benefit of the local economy, so they formed a cooperative.

Shareholders get a discount on the energy they buy and also have a vote in the annual general meeting. The goal was reducing energy consumption and producing sustainable power.

The island of Texel has 13,500 inhabitants and 6,000 households, of which 3,000 are members of TexelEnergie. The number of members is still growing. Over a million tourists visit the island every year, and 76 million kilowatt-hours of electricity and 21 million cubic meters of gas are consumed annually.

At first TexelEnergie only delivered green power to the island people, but in the second year it started to both deliver gas and produce sustainable power using solar roof panels.

Solar panels are an increasingly familiar sight on the island, IN 2007, LOCAL PEOPLE

with the surface area having doubled in the past five years to 10,000 square meters.

TexelEnergie joined the national smart grid project, supported by the Dutch Ministry of Economic Affairs, Agriculture and Innovation. Due to the isolated location and ideal environmental factors, Texel is designated as one of the test areas. Smart meters are currently being installed on Texel, and by this month over 10,000 connections will be operational.

By harnessing the power of smart grid technology, TexelEnergie enables clients to save energy and gain a competitive advantage. Raising public support and making sure people are aware of what is going on is a big part of this project, as many were concerned about the effects on their habitat and tourism. A particular point of interest on the island is wind energy, which is currently just a small part of the energy input.

Besides gaining renewable energy from solar roof panels and wind, TexelEnergie is working on the realization of a giant biomass stove for a particular area, “residential 99,” in the Den Burg district of Texel.

At the same time, another project on bio fermentation is being rolled out in Noorden, a town in South Holland.

Brendan de Graaf is director of TexelEnergie. energybiz.com E N E RGYB I Z 17

New Directions in National Energy SK EPTICISM ABOUT BIG INITIATIV ES

BY THOMAS ARMISTEAD ENERGY POLICY WAS A MAJOR ISSUE

in the 2012 election, with President Barack Obama and

Gov. Mitt Romney tussling over regulation of carbon emissions, oil and gas development, the stalled Keystone XL pipeline, support for renewable energy and green jobs. The president’s re-election now appears to have provided some needed clarity to questions about the direction national energy policy might take. Both the president and his opponent asserted that the 2012 election presented Americans with the clearest possible choice between two different philosophies of government, and the Democrats emerged the winners. But the election results also raised caution flags.

18 E N E RGYB I Z January/February 2013

n Policy On one hand, the president’s modest three-point margin of victory and his party’s incremental gains in both houses of Congress breathed new life into the call for action to counter global climate change and for a future increasingly fueled by renewable energy and low-emission technologies. On the other, the continued Republican control in the House of Representatives signaled a desire for caution in making the changes, while a slight reduction in Tea Party representation expressed a desire for greater flexibility and compromise.

After dealing with the immediate, lowering threat posed by the nation’s daunting fiscal crisis, the president and Congress will have to determine the nature and outlines of an energy policy, and that will be no easy task. The United States doesn’t have an energy policy, said Robert Rosner, co-director of the Energy Policy Institute at the University of Chicago, only an inconsistent collection of policies, developed in response to the politics of the moment. They promote both renewable energy and fossil fuels, without emphasis on either one or direction for the long term. That doesn’t bother Ken Green, a resident scholar at the American Enterprise Institute. The country doesn’t need an energy policy, he said; market forces should dictate which energy sources are developed. And as for a carbon-emissions policy, climate change is a real issue, but only a modest threat, he said. He sees no benefit for the United States in adopting a climate-change policy.

But climate change may be the key issue in formulating energy policy. After the warmest 12-month period since measurement began in 1895, which included drought that parched 64 percent of the United States, the costliest wildfire in Colorado history, and the one-two punch by Superstorm Sandy and early winter storm Athena in the Northeast, scientists increasingly are warning that the weather fits the pattern anticipated as the likely result of global climate change.

Almost all climate scientists blame the rising levels of greenhouse gases — primarily carbon dioxide — produced mostly by human activity for the phenomenon. Energy use

is the principal source of carbon emissions, and energy policy must be the tool for reducing them, many say. In his victory speech, Obama called for protecting the nation’s children from “the destructive power of a warming planet,” suggesting that he is ready to re-engage on an issue that stalled in the face of determined Republican opposition in his first term.

Current energy policy is “working to increase energy supply, but also is raising public concerns about what it would mean to increase North American energy production and increasing concern about climate change,” said Clark Miller, senior sustainability scientist at Arizona State University’s Global Institute of Sustainability. Energy and climate rank lower on people’s priority lists, but dealing with climate change is the most urgent need in energy policy, said Jack Riggs, senior fellow at the Aspen Institute. In Congress they say, “If a problem seems intractable, put more issues on the table” to create bargaining chips, he said. “If you have enough people who really want something in a legislative package, there can be something for everybody in that.” If thinking is done on climate in the next Congress, it might be done in the context of a budget deal, he said.

Few sources thought the president would be able to pass major energy legislation like the energy policy acts of 2005 and 2007. He would have to achieve what he could indirectly, using tax credits and focusing on narrow goals like promoting renewable energy. “It’s really hard to get a big package” because there is too much division in Congress to support grand policy approaches, said Marchant Wentworth, deputy legislative representative of the Climate and Energy Program at the Union of Concerned Scientists. But National Energy Policy Institute President Tony Knowles proposed setting a technology-neutral clean-energy standard to be achieved by a certain date and letting industry find the path to achieve it. As an example, he suggested generating 80 percent of the country’s electricity using fuels with zero carbon emissions by 2035. “That’s a policy that can work very cost-effectively to reduce CO2 and other pollutants,” he said. “The market is actually going in that direction right now.” energybiz.com E N E RGYB I Z 19

N AT I O N A L E N E R G Y P O L I C Y

Building a Bipartisan Energy Future A CON V ERSATION W ITH OR EGON’S SEN. RON W Y DEN

BY MARTIN ROSENBERG

ENERGYBIZ As you prepare to assume the chairmanship of the U.S. Senate Committee on Energy and Natural Resources, what are your priorities when it comes to the generation of electricity and national energy policy?

WYDEN I’m talking with Democrats and Republicans on the committee about how the country modernizes its energy policy. The last major legislation was some time ago, actually 2007. A lot has changed, particularly with natural gas.

Natural gas is a strategic asset. It’s important to have a discussion about how to really tap its full potential. I want to make sure that the United States has a broad portfolio of energy options. It seems to me what works in one region of the country isn’t going to work everywhere.

Some speculate that you’re likely to be less fossil fuel-oriented than the past chairman of the Energy and Natural Resources Committee, Sen. Jeff Bingaman (D-N.M.). Is that true?

ENERGYBIZ

Natural gas is the cleanest fossil fuel by 50 percent. It is hugely important for American industry, steel and chemicals, paper, and food processing. I’m going to do everything I can to make sure the United States has a broad portfolio of energy options. In transportation, I’d like to look at all of those alternatives — natural gas, biofuel, electricity.

WYDEN

20 E N E RGYB I Z January/February 2013

ENERGYBIZ What issues surround the natural gas revolution?

WYDEN There is going to be a host of issues to work through. The fracking question will be one. The question of methane emissions will be one. But I’m upbeat about the potential. The first things you look at are various technological fixes.

ENERGYBIZ Should we continue to subsidize wind and solar?

It is going to be a challenge. It will have to be part of the discussion about tax reform. I’m also on the Senate Finance Committee that writes the tax laws. You’re certainly going to see the fiscal and political pressures squeeze a lot of the discussion about incentives for energy development.

WYDEN

You’ve developed a reputation for trying to innovate on bipartisan approaches to policy. Do you see any grand deals on the energy front?

ENERGYBIZ

On issue after issue, I spend a lot of time trying to bring Democrats and Republicans together.

Sen. Lisa Murkowski of Alaska, the ranking Republican on the energy committee, and I have been talking for some time about the possibility.

WYDEN

Do you think a carbon tax might be a part of the mix?

ENERGYBIZ

Senators Ron Wyden and Lisa Murkowski speak with an employee, left, at a natural gas drilling platform in Alaska recently.

Photo courtesy of Sen. Murkowski

WYDEN Most objective observers would say that’s a pretty big lift. I believe that the globe is getting hotter. The science drives home support for that. Storms are getting more frequent and more severe. You ought to be looking to bring Democrats and Republicans together on approaches.

ENERGYBIZ What’s your view on the future of nuclear power?

WYDEN I went to Fukushima, Japan, a few months ago. I believe I’m the only member of Congress who has been able to actually see the Fukushima Daiichi nuclear reactor facility. It has spent fuel rods and spent fuel poles, particularly at Unit 4. If you have more earthquakes and tsunamis, this could trigger a serious situation. The facility’s proximity to the Pacific coast concerns me.

Do you think small modular nuclear units are promising?

ENERGYBIZ

There are some opportunities there. It’s something I’m going to spend significant time looking at.

WYDEN

ENERGYBIZ

What about the future of coal?

WYDEN The electric utility industry is significantly moving to natural gas rather than coal. As a result, CO2 emissions in the United States have fallen to a 20-year low. That doesn’t mean that the United States does not continue to use coal. There are new coal technologies, like gasification, that are coming online that certainly ought to be looked at.

They can convert emissions into profitable products. CO2 can be sold for enhanced oil recovery. Nitrogen can be sold to make fertilizer. Sulfur can be captured and sold to the chemical industry.

ENERGYBIZ Do you think we should have a national energy policy?

I do. It is something I do feel strongly about.

This is the time to take a fresh look at a lot of issues.

You haven’t asked me about Solyndra. I’m going to do a thorough review of federal loan policies. All the loans and grants are dumped into one bucket. In other words, Solyndra goes in there with some promising, small, fresh, innovative approach. I’m going to look thoroughly at how to redo that, to go to a system more on the basis of risk and reward. There will be bipartisan interest in that.

I don’t think we’ve tapped some of the opportunities, particularly in terms of geothermal power and hydro power.

WYDEN

ENERGYBIZ How closely do you intend to work with energy utilities in terms of coming up with policies?

WYDEN

Very closely.

How important will energy issues be to the Obama administration in the next four years?

ENERGYBIZ

WYDEN

Energy will be way up on the priorities list.

ENERGYBIZ How will our energy economy change in the next few years?

WYDEN Early on, I want us to lay out exactly how creating more high-skill, high-wage jobs, and a modern, coherent energy policy are two sides of the same coin. Elections, Marty, are ultimately about renewal, about making a fresh start. There is a lot of interest in building a bipartisan coalition and a coherent, modern energy policy. energybiz.com E N E RGYB I Z 21

N AT I O N A L E N E R G Y P O L I C Y

Ending Gridlock COOPER ATING ON ENERGY POLICY

BY REP. ED WHITFIELD IN THIS NEW CONGRESS,

the elections are behind us. We have two choices. We can pass our legislation on the House side, but it’s probably not going to be taken up in the Senate. And in the Senate, they pass their legislation and maybe it will be taken up in the House, or maybe it won’t.

I asked my staff to set up some appointments with Sens. Ron Wyden (D-Ore.), Lisa Murkowski (R-Alaska), and other senators who are focusing on energy issues.

Rep. Fred Upton (R-Mich.), and I would like to sit down and talk to them to see if there are some areas that we can try to reach some agreement on and move forward.

EDITOR’S NOTE I don’t think it benefits This article is extracted anyone for everybody to from remarks made by sit around and fight nonRep. Ed Whitfield at the stop. We understand that EnergyBiz Executive Briefing in Washington there are some strong on Nov. 16. philosophical differences, For more on the but in some areas relating briefing, visit to efficiency, permitting www.energybiz.com/ briefing. and infrastructure development for the electrical grid and for pipelines, there are some areas on which we in the House can work with the Senate.

I have a good personal relationship with Ron Wyden.

I look forward to sitting down with him and some of the other senators to explore some of these areas.

I’m not even going to try to guess what’s going to happen on the tax issue. You may have read about the negotiations with the White House and the leadership in the Congress.

There is a strong sentiment among many members of the House that if we’re going to get rid of benefits for any industry, let’s just get rid of benefits for all industries. You have a $16 trillion federal debt, and you have companies like Google, for example, that have amassed a lot of cash by taking advantage of production tax credits for wind projects.

I’m getting ready to visit the three cleanest coal-burning plants in America, one in North Carolina, one in Tampa, Fla., and one in Texarkana, Ark. Our baseload is still going to have to be natural gas, coal and nuclear generation.

22 E N E RGYB I Z January/February 2013

I hope that we can reach some agreement on the disposal of nuclear waste, because we have an unresolved issue relating to the Yucca Mountain Nuclear Waste Repository.

We spent billions of dollars on the repository. The federal government had the responsibility to take possession of nuclear waste from 104 power plants. That’s a glaring problem that we face.

We are committed to not perpetuate gridlock. But at the same time, I don’t think you’re going to see either side of the aisle just giving up on basic principles.

Energy is a key component if we’re going to stimulate our economy and create jobs. Energy has to play to key role in that. And anything that we can do to create a more balanced approach on permitting and regulations, so as to not to create obstacles to economic growth — all America will certainly benefit from that.

Ed Whitfield (R-Ky.), is chairman of the U.S. House Subcommittee on Energy and Power.

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Gas

Changes Everything CEOs DISCUSS ROBUST GROW TH AHE AD

BY MARTIN ROSENBERG

THE RAPID AND SIGNIFICANT INCREASE

in America’s natural gas resources is profoundly reshaping the energy sector – from the cost of home heating to our strategies for generating electricity. National security is enhanced, and greenhouse gas emissions are being curbed.

EnergyBiz recently traveled to Boston to sit down with leading gas utility chief executive officers at an American Gas Association gathering to get their views on the ongoing gas revolution. In the words of one of those executives, a “whole new paradigm” has been created.

Their comments, edited for style and length, follow.

How do you America’s gas revolution?

ENERGYBIZ

view

It solidifies for our customer base the opportunities we’ve provided over the last 100 years by building out our gas infrastructure.

LAROSSA

24 E N E RGYB I Z January/February 2013

PARTICIPANTS Ralph LaRossa President & Chief Operating Officer PSE&G Christopher P. Johns President PG&E John W. Somerhalder II Chairman, President & Chief Executive Officer AGL Resources Gregg S. Kantor President & Chief Executive Officer NW Natural Ronald W. Jibson Chairman, President & Chief Executive Officer Questar Carl Chapman Chairman, President & Chief Executive Officer Vectren

JOHNS It’s a great opportunity for our customers because we pass on the direct cost of gas. It gives us an opportunity to reinvest in infrastructure without having a big impact on rates with the decreases in the commodity costs.

We’re investing in things that are good for our customers, for the states, for economic development, and for reliability of service. We were investing a lot of dollars in natural gas storage. Now, with the lower prices and lower volatility, we don’t have a capital requirement there.

SOMERHALDER

We’ve invested a lot of money in taking out bare steel pipes and making improvements in the safety of our pipelines in big ways. Our rates for this winter will be about what they were in the winter of 2004.

So it’s created opportunities to make investments in the infrastructure to improve public safety. We are trying to figure out how to KANTOR

Left to right: Christopher P. Johns, John W. Somerhalder II, Ronald W. Jibson, Gregg S. Kantor, Carl Chapman and Ralph LaRossa.

Photos by Galina Wasserman

lock in these lower rates long-term. Our state commission allowed us to buy a working interest in a gas field, put it into the rate base and allow our customers to capture the benefits of those rates long-term.

It has totally created a whole new paradigm for us.

JIBSON

We are employing more people than we’ve ever employed ...

CHAPMAN In addition to our utility, we own two pipeline contractors — one in distribution and one in transmission. We are employing more people than we’ve ever employed in either business right now.

Recently, natural gas generation surpassed coal-fired generation.

ENERGYBIZ

SOMERHALDER

In April, that occurred.

Are there enough pipelines to move this stuff around the country, or are we going to do a massive build out of new infrastructure as this gas revolution proceeds?

ENERGYBIZ

LAROSSA We have a program just for our company of $250 million per year on infrastructure, which we tie directly to 500 additional jobs. The northwest and northeast quadrants of the country are where the first focus needs to be placed on some additional pipeline capacity.

JIBSON There is substantial pipeline capacity to move production out of the Rockies. It’s allowed for a lot more production that can move in both directions.

KANTOR In the Northwest, we’ve got one pipeline that was built in 1957 serving all of our major metropolitan areas, and we are on the edge now. The gas infrastructure that we built didn’t anticipate that we were going to end up with the amount of electric generation that we’re going to see in 10 to 15 years, 20 years.

In California, even as we look well out into the future and consider how many gas-fired power plants will be needed, we still see that there are adequate pipeline resources to help the state.

JOHNS

SOMERHALDER If you look at the majority of the country, a lot of infrastructures have been built. A lot of storage has been built over the last 10 years. Many regions

energybiz.com E N E RGYB I Z 25

G AS CH A NGES E V ERY THING

of the country are in very good shape, but there are regional pockets.

CHAPMAN

There are those in MISO who are concerned.

What future do you see for fuel cells and distributed power generation?

ENERGYBIZ

We are still quite a ways away from a commercial fuel cell that you can see making a big penetration into the marketplace. There is a lot of work going on, and a lot of companies are exploring it. But I still think it is a little bit beyond the horizon for us.

KANTOR

We are participating in pilot projects with fuel cells to take a look at where they are and what the benefits will be to customers down the road.

JOHNS

LAROSSA

There will be a lot of other competition, whether it comes to fruition through batteries or other forms of storage that make it to the market faster than fuel cells.

JOHNS

ENERGYBIZ

What is the future of gas-powered

transport?

JIBSON We need to be doing a lot more with transportation. If you look across the world, the United States is behind the rest of the world in the use of natural gas for transportation. But we saw real movement in this area in all classes of vehicles during the past year. The real gamechanger has been both on the passenger side and on the large truck side. New engines for large trucks offer up to 30 percent fuel savings.

SOMERHALDER We have a material shift that’s occurring, and it starts with engine manufacturers. Today, about 40 percent of the trash trucks are ordered as compressed natural gas vehicles. About 17 percent of the buses are ordered as compressed natural gas.

JOHNS

JOHNS Electric vehicles are coming on strong, but we do have the advantage of the low price of natural gas.

ENERGYBIZ How does the gas industry view smart meters?

We’ve got probably the largest deployment of smart meters now both on our electric and gas side, and we’ve got 4.5 million gas customers, of which I think over 90 percent now have smart meters. Customers can go online and see their usage on the gas side just like they do on the electric side on an hour-by-hour increment. In that way, we communicate energy-saving tips to them. In California, we have energy efficiency goals that are not just about electricity.

JOHNS

26 E N E RGYB I Z January/February 2013

SOMERHALDER

We have them on gas, too. We have targets every year that are supposed to offset demand or reduce demand on the gas side of the business just like we do on the electric side.

As we start to see more efficient appliances come into the home, some of the older systems in New Jersey will have to be upgraded. We may even need to upgrade the size of some mains out in the street so we can deliver the quality and quantity of gas needed to run those appliances efficiently.

LAROSSA

CHAPMAN We’ve been in major efficiency programs for five years, and we are very focused on helping our customers reduce their bills.

ENERGYBIZ

KANTOR

Do we need a national energy policy?

If you look at the policies that exist right now on energy, they are fragmented and often conflict with one another. It isn’t that hard to develop a national energy strategy. People will agree on what the priorities should be.

Obtaining agreement on how you reach the goals is a little more difficult. But what we’re aiming at is affordable, reliable and clean energy.

KANTOR

Energy policy has to be based on facts, and it has to be based on allowing the market to work.

JIBSON

ENERGYBIZ What are your top concerns looking to the future?

JIBSON

CHAPMAN The biggest concern is all of the increases that the customers are going to experience. We’re not the only industry that is looking at an aging infrastructure — so are electric, water and wastewater utilities. Customers are facing very large increases.

JIBSON Future regulation and tax laws will impact our businesses going forward. In our industry, we keep safety as our number one priority.

Employee safety is number one on my list.

Number two, however, is the concern that the nation and my company won’t be able to take advantage of the opportunities that are out there, given this revolution in supply.

KANTOR

SOMERHALDER Environmental regulations could make us too dependent on renewables and natural gas. We still need a balanced portfolio.

CHAPMAN

JOHNS We need to modernize the pipeline system; we need to constantly focus on making sure it is safe and we have to figure out a way to do that without causing big problems with customers’ rates. That, to me, is a big challenge. energybiz.com E N E RGYB I Z 27

G AS CH A NGES E V ERY THING

We have a low-cost product that we’ve been delivering safely and reliably for upward of 100 years, for some companies. Now, we just have to deliver. We have to make sure the system is safe and that we don’t leave ourselves open for some sort of an attack on the system itself.

LAROSSA

How do you view the challenges of aging infrastructure and cyber-security threats?

ENERGYBIZ

I constantly challenge myself and our company about that. When you think back a lot of the infrastructure that we have today was built in the post-World War II era. It is an aging infrastructure that we have, not unlike the roads and bridges that are in the United States. That doesn’t mean that the pipe is unsafe. But it does mean we need to modernize it. That is going to take time and it is going to take money to do. Everybody says, “yes you need to do that,” but nobody necessarily wants to pay for it. We’ve got to get people aligned around the fact that we need to modernize JOHNS

the pipeline system. We’ve got to figure out a way to do that without causing big problems on customers’ rates.

We have a low-cost product that we’ve been delivering safely and reliably for upward of 100 years ...

There is a whole different world around cyber security and safety, and that is something that I look at lot at. We need a good alignment with the government on how do we get information from and to each other on what are the attacks, what are the vulnerabilities, what are the risks. Are there opportunities to cause disruptions in the operations themselves? We’ve got a lot of things in motion as an industry and it is something that I know we are all going to focus on a lot more. We will have to continually move quickly because in the technology world all of those exposures move very rapidly.

Proud Sponsor of the 2012 EnergyBiz Leadership Forum Roundtable

O

racle Utilities delivers proven software applications that help utilities of all types and sizes increase customer satisfaction and improve operational efficiency. Oracle integrates customer care and billing, network management, work and asset management, mobile workforce management and meter data management with our industry-leading enterprise applications, business intelligence tools, middleware, database technologies, servers and storage. We enable customers to adapt more nimbly to market deregulation, meet ever-evolving customer demands and deliver on environmental conservation commitments. Oracle helps utilities prepare for smart metering and smart grid initiatives that enhance efficiency and provide critical intelligence metrics that can help drive more-informed energy and water usage decisions for consumers and businesses.

Visit www.oracle.com/goto/utilities

28 E N E RGYB I Z January/February 2013

» TECHNOLOGY FRONTIER

The Cyber Security Balancing Act PARTNERING BETWEEN BUSINESS AND IT // BY H. CHRISTINE RICHARDS OPTIMAL CYBER SECURITY requires partnering between business and IT to achieve shared goals.

The 2012 Knowledge Utility Executive Summit in Houston gathered senior leaders in customer service and information technology from top investor-owned, municipally owned and cooperatively owned utilities for two days of collaboration around the most pressing topics for utility executives. We brought a few of those executives together for a roundtable session on two key topics facing them today — cyber security and analytics. Their comments, edited for style and length, follow.

One big topic we’ve heard about at this year’s event is cyber security. What can businesses and IT do to ensure that cyber security works now and into the future?

How can utilities successfully balance business and security needs?

ENERGYBIZ

PARTICIPANTS Gary Hayes CIO & VP of Information Technology CenterPoint Energy Gregory Knight Division Vice President, Customer Service CenterPoint Energy Matt Lampe Chief Information Officer Los Angeles Department of Water & Power Marlene Murphy-Roach Vice President of Customer Relationships JEA

MURPHY-ROACH That was a give and take, because we had to convince the security team to use a capture that everyone can read. We compromised on a CAPTCHA that was maybe not quite as secure as our security team would have loved, but it certainly met the requirement. You could see our customer satisfaction on the web tick back up once we went live.

There are other solutions than using a CAPTCHA, but when we set up our new website this year, we spent a lot more time security testing it than we would have two years ago. Before, nobody did deep analysis of the websites. That is a difference we’re seeing, and it’s probably a good one.

LAMPE

I think Marlene makes a great point. I have encountered the same issue with my security team. When they would go to meetings to resolve an application issue or for a possible purchase and the client would ask for a feature that compromised security, they would tell them no. Well, the answer can’t be no. They have to solve the problem. It’s a tug and pull.

ROTH

We rolled out our new Dawn Roth General Manager, ITS website to raise customer satisfaction, Colorado Springs Utilities bring in new technology and make it Jim Schinski prettier. And $5.5 million later, our Vice President & CIO customer satisfaction was lower on PPL HAYES We’re good at solving and the web than it was before we redeisolating problems. We’ve run this grid. signed it. You know why? Because of a And if it has a fault, we isolate it, segment it, control CAPTCHA that was put in that no one could figure out. it, and then we restore it. We minimize the damage We had to go back and ask for a simpler CAPTCHA. to the rest of it and our mentality is built around that ROTH How do you balance that with a need for security? premise. These are the principles that need to be MURPHY-ROACH

energybiz.com E N E RGYB I Z 29

HAYES

KNIGHT

applied. I think sometimes we forget what our core is.

And this is one of our core competencies.

We keep focusing on the technology side because in some ways, it’s easier. But I really think this is a people issue. I think cross-industry information sharing is a people issue, and the biggest risk is the internal risk, whether it’s malicious or not.

ROTH

SCHINSKI It’s a cultural thing. I have to say now, having spent 20 years in a place like Lockheed Martin, they drum it into you from the day that you get your clearance. Security is an everyday thing.

ENERGYBIZ Another big topic at this summit is analytics. To move toward more advanced analytics, there’s partnering that must go on between business and IT. Since we have those two groups in the room, I wanted to talk about that partnership.

Let’s start on the business side. What are you looking for with customer analytics?

LAMPE

want. But sometimes it’s not until I see the data that I think, well, I should have also asked for this and this. IT has to figure out how to make it, and somehow we’ve got to figure out how to make the process simpler.

LAMPE We’ve also added tremendous amounts of complexity to the systems, because we want them to do all these things. Approaches have gotten better, but there is still a lot of work needed. A lot of people still want to see reports. And the mindsets of looking at reports versus looking at data are very, very different. We waste a huge amount of time building reports, but business users just glance at them and put them down. They don’t use them to make decisions. The chunk of time that was spent on that report could have been spent much more productively. We should start out with some sort of bare minimums and let ourselves discover what we need to know.

Everything. Maybe it’s because with customer operations, it’s a widget operation. It’s like a manufacturing business in some ways, and that’s how you can look at it. You have to know every little detail to effectively run an efficient operation. Our big challenge as business folks is to figure out what we really want to know so that we can help IT narrow the scope. Also, how do we pace ourselves? If you think you need to know everything today, you have to remember that you will learn more. So start with what you really need, and then be selective about how you scale that up.

I think part of it is that we know we need analytics badly, but we don’t know what we need beyond that. Another part of the problem is that we’ve isolated this segment called “analytics,” but it’s not just about analytics. It’s about the real world now moving in real time for us. We have complex event processing with information coming through cellphones, websites, customer calls and meters in the field. You then use analytics to interpret complex event processes, and then you need to have actionable steps and actionable components that react to that. So if you don’t look at it in that context, then really what does analytics do in the middle by itself?

I think one challenge is that we want to analyze the data. We want to have system information. With business folks, we think we know what we

When I was at MISO, we adopted a data warehouse appliance, and the technology gave the market engineers information and data on a more

KNIGHT

MURPHY-ROACH

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HAYES

SCHINSKI

Photos by Kathleen Davis

» TECHNOLOGY FRONTIER

MURPHY-ROACH

ROTH

timely basis. There’s this whole study on speed of thought, and if it’s quicker or slower. What we found is that the engineers were asking better questions because they were getting responses from the data sets in minutes that used to take days. It’s kind of like when architects build a campus, there’s a theory that you never put your sidewalks in until you see actually where people trod. We found out the same thing with

SCHINSKI

regard to analytics. We didn’t know what we were going to get out of this. What we knew is that the speed of thought and the questions people ask take us down different paths.

H. CHRISTINE RICHARDS

Director of Knowledge Services, Energy Central crichards@energycentral.com 720.363.6531

Proud Sponsor of the 2012 EnergyBiz Leadership Forum Roundtable

O

racle Utilities delivers proven software applications that help utilities of all types and sizes increase customer satisfaction and improve operational efficiency. Oracle integrates customer care and billing, network management, work and asset management, mobile workforce management and meter data management with our industry-leading enterprise applications, business intelligence tools, middleware, database technologies, servers and storage. We enable customers to adapt more nimbly to market deregulation, meet ever-evolving customer demands and deliver on environmental conservation commitments. Oracle helps utilities prepare for smart metering and smart grid initiatives that enhance efficiency and provide critical intelligence metrics that can help drive more-informed energy and water usage decisions for consumers and businesses.

Visit www.oracle.com/goto/utilities

energybiz.com E N E RGYB I Z 31

» TECHNOLOGY FRONTIER

Growing the Microgrid Market WILL THEY THREATEN UTILITIES? // BY TERRY MOHN MOST OF US in the electric energy sector in the developed world tend to think of electricity as a basic human right, with instant availability at any hour. We are accustomed to having affordable, reliable electric service that’s provided by highly interconnected power systems. Now we are moving toward more efficient service as a result of smart control of transmission and distribution systems, with smart metering offering new consumer services. For nearly a century, our prosperity and economic growth have depended on availability of reliable and affordable electricity.

Access to electric energy is an “indispensable element of sustainable human development,” according to the International Energy Agency. Without access to modern, commercial energy, poor countries can be trapped in a vicious circle of poverty, social instability 32 E N E RGYB I Z January/February 2013

and underdevelopment. About 1.6 billion people – some 25 percent of the world’s 6 billion-plus population – have no access to electricity.

Focusing on achieving safer and more equitable societies can expand economic opportunities for those living in such substandard conditions and the companies that can provide them with assistance.

The best way to achieve these interlinked goals may well be through deployment of microgrids.

A microgrid is a system appropriate for community use. It is a composition of technologies including generation, storage, load management that depends on automation and energy efficiency.

The energy market in the United States is going through an evolution. New wind farms and solar farms have been contracted by major utilities to address increased energy requirements in California. Many wind advocates argue large-scale storage is the answer, but initial analysis has shown large-scale, bulk storage of electrical energy is problematic and expensive. An equally important concern is the construction

of large-scale, long-distance transmission power lines to move power from remote bulk renewable resources into the urban areas that comprise the load centers.

We will soon see the emergence of economically viable electric distribution and operation systems occurring that are veiled to the utility. These are the microgrids of the future.

As the developing world solves its energy access problem using microgrids, the technicians specializing in them will eye this growing domestic market opportunity. Microgrids perform complex systemcontrol functions, such as dynamically adding or removing new energy resources without modification of existing components; automating demand response; autonomous and self-healing operations; connecting to or isolating from the transmission grid in a seamless fashion; and managing reactive and active power according to the changing need of the loads. This is the very nature and operation of large utilities. They do this work every day, but not with respect to customer-owned assets.

Individual microgrids can be viewed as cells that network to form a collaborative power system.

Each cell addresses a local focus, yet is available to support adjacent cells with power generation for the purpose of demand response or failure recovery. The adjacent cell concept presents an opportunity for each microgrid operator to generate revenue by bidding excess generation capability into the wholesale energy market or potentially by collaborating directly with a neighboring cell.

A new service model will come, providing control to manage power stability by analyzing and orchestrating voltage level consistency, voltage frequency stability and the underlying power signal phase relationships.

Providing control to manage the microgrid digital infrastructure and its associated distributed energy generation, storage and loads requires analyzing a broad set of operational parameters and system-wide state variables. These parameters include dynamic price and performance attributes of the distributed energy generation, as well as information reflecting the energy consumption, cost, and environmental and reliability desires of the distributed loads.

As national renewable energy integration efforts expand that are similar to the efforts described, tech-

Utilities must consider owning and operating consumer distribution assets ...

nology deployments of large-penetration microgrids will mutually support each other across many states to meet their goals more economically and with less risk.

A new utility business model must evolve in response to microgrid emergence. Central renewable generation has a limited future if large-scale, costeffective storage isn’t found soon. That model embraces utility-owned microgrids.

Utilities must consider owning and operating consumer distribution assets, rather than allowing them to emerge invisibly to the grid.

The call for dynamic and distributed control methodologies, not only within microgrids but also across multiple networked microgrids, presents new technical challenges along with expanding economic opportunities. Energy production by distributed resources can provide stabilizing effects for the national power grid. However, integrating the management and control of distributed resources into large-scale renewable energy markets suggests that end-to-end control systems are needed to manage the assets in real time. Cell-based and network-based microgrids will evolve, creating an entirely new market for energy production and consumption. Achieving this modern power system goal will depend on existing state incentives but require the utility to consider its role.

If microgrids are entirely owned by others, not utilities, the utility market will shrink.

Consumer ownership of renewable energy, electric vehicle storage and Internet-controlled building automation will force the utility to consider its role in the future. As microgrid development matures to address the energy poverty problems for developing countries, the domestic market will be seen as fertile soil for new opGEOTHERMAL GRANT portunities. Microgrids will be U.S. Geothermal owned by the consumer, comreceived a $10.7 million federal grant for its San pletely invisible to the utility.

Emidio geothermal unit.

The utility will note reduction The plant is expected in demand, day by day. Who to generate as much as 75,000 megawatt-hours will pay the asset costs? What of power annually. will happen to electric rates?

Which utilities will survive? A natural evolution toward microgrid deployment either owned by consumers or by utilities will result, each by their own accord. Remaining relevant in this future is up to the utility.

Terry Mohn is CEO of General MicroGrids. energybiz.com  E N E RGYB I Z 33

» TECHNOLOGY FRONTIER Computational Muscle SPURRING INNOVATION // BY SALVATORE SALAMONE LAWRENCE LIVERMORE National Laboratory has started an incubator program with the goal of accelerating the development of innovative energy technologies. Dubbed the hpc4energy Incubator, the program allows selected participants to tap the lab’s research expertise and use some of the world’s highest performance computing systems.

“By bringing together industry’s entrepreneurial know-how and the national labs’ science and technology, we aim to establish a model for energy technology innovation,” said Tomas Diaz de la Rubia, Livermore Lab deputy director for science and technology. “The national labs offer access to some of the world’s most powerful supercomputers as well as the expertise required to apply them to the development of innovative solutions to the country’s energy challenges.”

The comments came last year when the lab announced the companies chosen to participate in the incubator program. About 30 companies applied and six, whose proposals covered a wide range of applications, were selected. The companies are GE Energy Consulting, GE Global Research, ISO New England, Robert Bosch, Potter Drilling and United Technologies Research Center.

What is striking about this list of companies is their range in size and the diversity of the problems they hope to address. Potter Drilling has 19 employees, ISO New England has 530 employees, and GE Energy has more than 100,000 employees. Yet, all have technology under development or in current use that potentially could benefit from the lab’s highperformance computing resources.

As for the problems to be addressed, there is an equally large variation ranging from exploration to grid

Gatherings// Technology Frontier Feb. 27-28

Tight & Shale Gas Summit

Istanbul

March 5-7

Military Energy Alternatives

Washington

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

34 E N E RGYB I Z January/February 2013

New computer aids energy innovations. Photo courtesy of Lawrence Livermore National Laboratory

operational planning, along with some work related to improving energy efficiency.

For example, Potter Drilling’s business focuses on the development of hard-rock drilling technologies associated with what are called enhanced or engineered geothermal systems. The company’s tools and systems development has relied on an iterative design-optimization cycle, with long cycle times and high costs. The approach also offered few ways to optimize or predict performance outside of the specific test conditions. Partnering with the lab in the incubator program, the company hopes to speed development of new tools and systems, as well as get a better understanding of the phenomena of thermal

spallation, which can have a great impact on the success of a drilling effort.

Focusing on a different area, GE Energy partnered with the lab to help expand the use of its Concorda positive-sequence load-flow software, which lets power system planners perform AC and DC steady-state power flow and dynamics analysis.

NREL GLASS Such planning tools today simulate The National Renewable Energy Laboratory systems that are much larger and in Golden, Colo., has more complex than those of just a few installed new glass windows that are years ago. Additionally, the growing electronically tintable incorporation of renewable technoloon two buildings. gies and more pervasive control techThe glass can reduce a building’s cooling nology are driving planning engineers load by 20 percent to analyze an increasing number of and HVAC needs by 30 percent, according scenarios and system models, all to its manufacturer, requiring much more detailed analySAGE Electrochromics. sis. As a result, the computational demands to simulate such large systems have exceeded the available processor performance. Through the

incubator program, GE Energy will be able to run the software on more powerful computing systems, allowing the company to model extremely large systems, many times the size of those currently simulated.

The other four projects will use the incubator program to enhance the performance of scheduling and real-time operations tools for a provider’s grid, improve building systems models to enable significant energysaving retrofits, boost simulations of advanced internal combustion engines, and help refine simulations that aid in the development of new fuel injectors.

The incubator’s formation builds on past collaborative efforts with the industry. That work sought to demonstrate the benefits of incorporating highperformance computer modeling and simulation into energy-related technology development. For instance, the lab has worked with several domestic oil companies to develop an advanced reservoir-monitoring technology that reduces or eliminates the need for numerous observation wells, improves well recovery, and reduces failure risk.

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For more information or a free demonstration of AURORAxmp for qualified prospects, call 1-208-255-3900, email info@epis.com, or visit our website at www.epis.com.

energybiz.com E N E RGYB I Z 35

Putting Knowledge to Work Industry connects to solve real challenges at Itron Utility Week 2012

I

n virtually all areas of life, there are “doers” and there are leaders.

Doers are important but without leaders, change – if it happens at all – happens slowly. Leaders actively move the ball down the field.

Itron is such a leader.

That leadership was evident during Itron Utility Week 2012. Under the theme of “Putting Knowledge to Work,” the 31st annual gathering held Oct.

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22-25 in San Antonio was attended by more than 1,000 people who met in more than 140 sessions to discuss, learn, share best practices and technology experiences, and to network.

Utility representatives would also learn more about Itron’s core strength: empowering utilities with the critical knowledge they need to responsibly measure, manage, and analyze energy and water. Finally, they would learn how the industry, working collaboratively

with partners and customers, can solve the challenges it faces.

And those challenges are significant.

World demand for clean water and electricity is on the rise as the world’s population continues to grow and is expected to exceed 8 billion by 2025.

“As an industry, we are in the midst of tremendous change,” LeRoy Nosbaum, Itron’s president and CEO, acknowledged at the conference’s opening ses-

Thoug hT le ad e rs h i p - sp on sor e d by iTron

sion. “Increasing regulations, changing customer expectations and relations, increased resource demands and funding issues all are challenging and, to some degree, colliding with each other.”

Mandates and compliance are among the common issues not limited to a particular political jurisdiction, Nosbaum noted.

“In Europe, EU mandates and government regulations are shaping smart metering across the continent. 20-20-20 [legislation that aims to ensure the EU meets its climate and energy targets for 2020] is putting pressure on EU countries to roll out smart meters,” Nosbaum continued.

While many of the challenges are common to the entire industry, different areas of the world face challenges that are unique to each area, he said.

In China, where a large number of people have only recently become connected to electricity, challenges include providing reliable service and accurate measurement of usage. Those challenges are driving adoption of state-of-the-art metering systems, including smart meters.

In Latin America, challenges include non-technical losses – energy theft – that accounts for serious energy and revenue loss. “Detecting diversions and tampers is critical,” Nosbaum said.

“In Australia, there’s a huge push for water conservation and management to address drought,” he said. “And, like energy utilities, water utilities face the need to modernize aging infrastructure in a slow economy.”

In Africa, basic infrastructure is driving investment in technology to improve economies for the future.

Thoug hT le ad e rsh i p - s p on sor e d by iTron

In the U.S., many utilities are implementing new technologies in an effort to lower operational cost while improving reliability and customer service.

The need for total solutions is constantly growing as the world faces energy and water challenges. Itron’s total solutions – which revolve around its products for electricity, gas and water – allow its customers to measure, manage, and analyze the commodities they deliver to their customers.

Itron’s comprehensive solutions that enable measurement include smart meters to measure and telemetry to transmit the data to utilities’ control rooms. To manage that data, Itron provides software, networks, and related services, while analysis tools include analytics, forecasting, and consulting.

Engaging consumers with energy saving and cost reducing technology Smart meters have the ability to provide end-use customers with information that could enable them to more effectively manage their use of these vital commodities.

One way to encourage more efficient use of electricity is to give customers the information they need to encourage the shifting of some of their electric use to off-peak times. While time-ofuse rates, which have not been widely adopted in North America, would provide additional incentive, coupling today’s smart meters with information available from third-party home automation vendors can still provide consumers valuable information that will enable them to better manage their

electric use and, in many cases, lower their bills.

Linda Warner, Itron’s senior product market manager for consumer experience, knows that first-hand.

“I’ve got this personal thing that I test everything we offer in my own house before I go out and talk about it,” she said.

Warner said the home automation system she is currently using has provided some eye-opening information about how she had been using her appliances.

“Behaviors need to change. Like you don’t get up in the morning and iron one shirt. If you saw what it takes to heat up an iron – and I’ll bet a lot of people do that – it’s amazing. So you just have to iron for an hour or so and get it all done at once, and it’ll reduce your monthly bill,” she said. “I began testing how I used things and, over the course of two years, I was able to reduce my utility bill $50 a month.”

Through her home automation system, she was able to measure her electricity use, then put her knowledge to work.

Coupling home automation systems with a smart phone can provide welcome flexibility, as shared by the customer who told Warner, “I love being able to control my thermostat from my phone; it’s like walking around with my thermostat in my pocket.”

In addition to providing the flexibility to more effectively manage your home’s functions by doing things like turning your thermostat up when you’re heading home or leaving it down longer because you’re working late, the data provided can bring social benefits as well.

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utilities multiple benefits, including significant savings of time and vital manpower.

It eliminates a truck roll, which saves the utility money and reduces pollution output. This can be particularly beneficial in areas with high turnover, such as near college campuses where residents move frequently, saving on both manpower and pollution.

It also gives the utilities the ability to respond more quickly. In the case of a gas or water leak, whether detected via the smart meter or reported by the customers, service can be shut off almost immediately, reducing damage or potential damage from what might occur in the time it took a technician to travel to the property and physically shut off service.

LeRoy Nosbaum, Itron President and CEO.

“For so long, we have said there are three motivators: you want to save money, you want to save the environment, or you want to compete with your neighbor. But what I hear from people who use home automation and the data provided is, it makes their life easier. It changes the way they live,” Warner said.

Itron parties with third-party vendors including Digi, C3, and Comverge to make data from the devices available to homeowners, who can then use it to adjust their habits to use the resources more efficiently.

Beyond consumer benefits to operational excellence While they have the potential to provide information to consumers, smart meters unquestionably provide the utilities that

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deploy them with valuable information and management tools.

“Working with CenterPoint Energy, we have installed over two million smart meters,” Nosbaum said, noting “We have already eliminated over two million truck rolls since the start of the project.”

Smart meters – whether electric, gas, or water – give the utility the ability to monitor their commodity remotely.

This function reduces the need for staff to be in the field. It can also provide an indication of a potential problem on the system or an early warning of illegal use.

Smart meter data can be used to identify usage patterns or other data that can make the field crews more effective in locating the source of a range of potential problems.

Smart meters also allow utilities to turn service off remotely, a feature that offers

Even in cases where a utility has not yet fully deployed its remote monitoring and control functions, Itron’s metering technology can provide vital data.

For example, Itron’s 100G communications modules, which attach to gas meters, have a data logging function; they store 40 days of hourly data about the flow of gas through the meter and into the home or business.

That function proved vital to an investigation of a home that filled with gas and exploded in Atlanta Gas Light’s (AGL) service territory in April 2010.

The explosion threw the communications module approximately 40 feet from the house; however, it was recovered and the data was retrievable. The data showed that, for the seven hours prior to the explosion, 2,500 cubic feet of gas per hour was passing through the meter and into the home.

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While AGL had initially been thought to be at fault because it was supplying the gas, “The data turned that whole investigation from, ‘It’s an AGL issue,’ to looking into it as an arson event, which is what it turned out to be,” Brandon Carlson, senior product manager for Itron, said.

Homeowners can also make use of the data collected and put knowledge to work.

“We license our technology that reads the messages sent to our collector,” Carlson said. “That data can present the usage of your meter, and that allows you

rolls and personnel time in the field.

The trending data can then be used to facilitate planned maintenance.

Strategic partnerships to solve real challenges Effective leaders realize they alone do not have all the answers; they look to others who are also successful, partner with them, and learn from them.

That creates a different value proposition for smart meters than exists in North America.

The extent of Itron’s success in that area was evident in the Partner Pavillion, where Itron and 35 of its strategic partners showcased the variety of products and services the various companies have teamed up to offer.

The driver in Brazil, he noted, is not labor costs or stimulating people to reduce consumption. Rather, “it’s a way to use the meter as a sensor. You can use these meters as sensors to improve how you manage and how you operate your distribution.”

In addition to its own cellular communication communications offering, Itron has partnered with both Verizon and AT&T to extend the reach of such communications in situations where such a solution makes sense.

Itron Utility Week attendees test drive energy saving in-home device.

to use some great apps for budgeting, to compare things hour-to-hour, monthto-month, and just better manage the data that’s available.”

Itron hardware also includes remote sensing modules for the cathodic protection of high-pressure gas lines. Instead of having a field crew periodically travel to each module and read it manually, telemetry modules collect daily voltage readings and send them back to the control room for logging, saving truck

Thoug hT le ad e rsh i p - s p on sor e d by iTron

“We have a lower consumption average than Europe or the U.S.,” Gadner Vieria, Itron’s general manager of energy for Latin America, said. “While U.S. consumption can average 600 kWh per month, average monthly consumption in Brazil is 108 kWh/month.”

Itron’s partners include giants IBM, Microsoft, and Cisco as well as other, smaller companies with niche expertise that is outside of, but complements, Itron’s core competencies.

Data privacy and secure communications are major concerns when it comes to smart grid operations. To that end, Itron has partnered with companies including Industrial Defender, a security company that helps make the company’s smart meter communications more secure.

Global expertise, local solutions As a global leader, Itron is keenly aware of the differences that exist in different parts of the world.

Another challenge smart meters are helping meet in Latin America is maintaining the region’s very distributed grid.

“In some areas, you have feeders of 250 to 300 miles in length, so it’s hard for utilities to send trucks to identify where the problem is, so this comes to the second big driver: how we can use technology to bring greater operational efficiency and reduce the costs of operations?” he said.

Physical differences in the infrastructures between North and South American require broad planning and bring about some hardware challenges.

“In general, the infrastructure is more close to European in the sense that we have larger transformers with about 40 consumers off each transformer,” he said. “We have areas that operate at 120V, areas that operate at 240V, at both 50 Hz and 60 Hz. This is a challenge because when you’re thinking about planning or proposing some initiatives

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or products, you have to consider these local requirements.”

the U.S. and in Europe and localize it,” he said.

As in North America, growth is also an issue in Latin America, but the specific concerns are different.

Itron’s vice president for Asia-Pacific, Alan White, provided an example.

“We may face challenges, not about the average growth of consumption but when it’s growing and where,” he said.

Remote communities in the Amazon rain forest are an example.

“A consortium provided some photovoltaic panels as well as some oil-fired generators for these Indian communities,” he said, “and we’ve been working with the government on how to adopt pre-payment systems for these isolated areas.”

“We see the opportunity for improvements within Asia Pacific utilities [in terms of] advanced smart grid management, demand forecasting, and demand response,” he said.

To help meet that demand, Itron has established 11 local manufacturing centers around the world, including Asia-Pacific. In addition to supplying goods locally, the centers support local economies.

“We have manufacturing in Indonesia where we employ almost 1,000 people locally producing our single and three phase pre-paid STS electric meters for one of our clients,” White said.

However, adjustments to existing technologies must sometimes be localized to support culturally different environments.

Itron Utility Week attendees listen to motivational speaker Shawn Achor’s talk about the Happiness Advantage.

Even in the more populated areas, however, the need to update the infrastructure provides an opportunity to incorporate smart meters.

“Not only in Latin America but in other regions – especially Asia-Pacific – we’ll be able to take what we are doing in

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“We have adapted products using our local R&D team in-country to meet our client’s specific requirements as well as meeting local component sourcing and manufacturing requirements as specified by the client,” White said.

Demand for Itron’s smart meters is significant in Asia-Pacific, and growing constantly.

“Due to the recent tsunami in Japan, the government has mandated that 80% of electric meters will be smart meters by 2020,” White said. “For TEPCO, the largest utility in Japan, this will require them to deploy approximately 30 million smart meters.”

Other countries are also embracing the technology. The largest deployment of smart meeting in the region is in Victoria, Australia, thanks in part to a state government mandate. India plans to deploy 1.5 million smart meters by 2017, and both India and China are building smart cities.

Emerging issues and technology innovations Among the many values of smart metering is the ability to detect changes to, or unusual, usage patterns, which may help utilities pinpoint the source of non-technical losses, or energy theft.

That particular value of smart meters has garnered significantly more attention outside North America and Europe, where non-technical losses are reported to be in the low single digits.

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For example, the City of Cape Town, in South Africa, implemented a prepayment system and now customers have the ability to buy electricity anywhere within in the city where a vendor is present, nationally at any major retail stores or internationally if he/she buys over the internet.

There are a number of reasons for the increasing popularity of this type of meter.

For the customer, prepayment for electricity is a means of direct budgeting.

It allows customers to relate usage to the amount of money required for that usage, and it keeps customers from going into debt, unlike the monthly billing system.

Attendees meet and network at an Itron-hosted event.

“In Latin America, where non-technical losses account for serious energy and revenue losses, detecting diversion and tampers is critical,” Vieria said.

“In general, we have about 15% total system losses. Technical losses are about 5% or 6%, so non-technical losses from theft is about 9% to 10% on average, but when you go to areas like Rio de Janeiro, there are areas with 40% to 50% losses from theft. So for every two kilowatts transmitted, utilities are only able to charge for one,” Vieria said.

Other areas of the world have similar problems. Non-technical losses around Cape Town and Johannesburg, South Africa rival those of Rio.

Thoug hT le ad e rsh i p - s p on sor e d by iTron

Smart metering can help identify and stem those losses.

“You can, through analytic systems, create some data sets and since you have limitations on your field force, you have to send them to the right spot” to confirm and correct illegal taps into the distribution system.

Itron is also advancing its prepayment meters.

In North America, prepayment meters are primarily used by utilities to enable customers who have had multiple disconnects due to non-payment to continue to receive electric service. In other parts of the world, however, they are becoming the standard.

Much as a driver looks at their car’s gas gauge before running an errand or embarking on a trip, a homeowner can look at their available balance on a display in their home and use that information to help them decide whether to turn down the heat or turn up the air conditioner, do a load of laundry or run the dishwasher, or take other actions that would either use or save electricity.

There are also benefits to the utilities that deploy prepayment meters.

Prepayment eliminates the time interval between supplying the electricity and receiving payment for it. It reduces the financial exposure by virtually eliminating large bills that go unpaid, and it removes the issue of deposits and their management.

While they’re not yet a significant part of the North American grid, they could be increasing in popularity as the 86 million baby boomers in the U.S. and Canada head into retirement.

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Itron is also applying its expertise to the burgeoning renewables market and has just unveiled a dedicated solar meter.

Campbell McCool, director of business development for Itron Cellular Solutions, said the emerging involvement of third-party finance companies will allow homeowners to put solar energy systems on their homes without an up-front financial commitment. As a result, Itron expects the installation of rooftop solar systems, currently at about 60,000 to 80,000 units a year, to explode,

Forecasting the future Itron owns the gas meter market in North America and has significant market share around the world, but it is hardly resting on its laurels.

“There has always been a rock-solid business case for energy automation and the operational savings smart meters bring,” Wolf said.

However, the greater value, he said, is the monitoring and safety function. “That’s how we’re architecting our solution going forward.”

He predicts the earliest applications will focus on the electric distribution system, and will measure “things like transformer load monitoring, and volt/ VAR optimization” for the utilities.

In addition, there are functions on the customer side, including demand response and other information that will prove beneficial to the end-users.

Itron’s Sharelynn Moore, Vice President Corporate Communications holds a media briefing in the Knowledge Center.

enabling more homeowners to generate some of their own electricity and sell excess energy back to their local utility.

“The utilities need revenue-grade metering equipment, and that’s what we’re able to provide via our cellular-based, dedicated solar meters,” McCool said.

Homes with electric vehicles may also require a separate meter for their car charging station, and Itron has a solution for that as well, according to Matt Owens, senior director of software solutions.

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Smart metering generates a veritable mountain of data, so Wolf said the other area that is emerging strongly is data analytics.

“What do you do with all the data, how do you do the integration with the other systems? We’ve architected our meter data management and analytic software to ensure that utilities are making the most out of the massive amount of smart meter data,” he said.

this data that I’m collecting that I wasn’t collecting before?’” Owens said.

Itron offers several solutions.

“Itron has offered software applications for the last 15 to 20 years, which have been applied without all that smart metering data,” Owens said. “Now we’re looking at ways to leverage that ability and the expertise we have and apply it using the new volumes of data that we have.”

Advanced metering data will also open other areas to Itron and its customer utilities.

“Demand response is a really good application where having more real-time information will allow the utility to play in wholesale markets that they weren’t able to play at the same level,” Owens said. “Using ancillary services to get credit for more real-time demand response, so you have to have more real-time data collection and more real-time analytics to support that type of activity.”

Translating that data into information that customers – particularly residential customers – will find useful and actionable can be a challenge.

Owens agreed that the future is more real-time analytics.

“Customers don’t really respond well to looking at their energy consumption information,” Owens said. “They want to look at it in terms of dollars, not necessarily usage. They want to know how much their bill is going to be next month, how it compares to their budget, and what are ways they can save and how can they improve.”

“The advantages of meter-reader savings and their associated economies are obvious. But beyond that, the utilities are asking, ‘What else can I do with all

Itron’s strategic partnership with OPower, for example, serves to communicate the benefits of the smart grid to end-use customers.

Thoug hT le ad e rs h i p - sp on sor e d by iTron

Itron’s Knowledge Center, where product experts demonstrate their products for attendees.

Itron has also partnered with a company called C3 Energy, which has developed software that will enable customers to track their energy use and offers incentives for reaching energy efficiency goals.

Itron’s consumer engagement expert Linda Warner agreed that utilities probably won’t drive the market for displays.

“It’s going to come to people through home automation,” she predicted.

“We offer you points based on how much you’re able to lower your bill,” Tom Scaramellino, C3 Energy’s senior vice president and generation manager for residential and small-to-medium sized businesses, said. “With those points you can get discounts at your favorite brands. You reduce your energy use by 100 kWh, you get 1,000 points, which you can use to get $10 off at your favorite retailer.”

The future also involves forecasting.

Itron is involved in demand forecasting for a range of operations from small utilities to the Midwest ISO and PJM Interconnection, the nation’s two largest regional transmission organizations.

Thoug hT le ad e rsh i p - s p on sor e d by iTron

Itron well-positioned for the future

shape this century,” Nosbaum said.

“Itron’s innovative solutions will enable our customers to build a sustainable future for their businesses, for their customers, for the environment, and for our children’s children.”

But even with its vast body of expertise, Itron’s CEO acknowledged that it can’t do it alone; it will require a cooperative effort by the industry as a whole.

“Working together, we can shape the future of the industry for generations to come,” he said.

“Our vision at Itron is that the way the world manages water and energy will

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» INTRODUCING

Mastering Transformation DOMINION’S THOMAS FARRELL // BY MARTIN ROSENBERG Thomas F. Farrell II is committed to using firmly embraced values to steer Dominion through profound changes now sweeping through the utility industry. Farrell, Dominion’s chairman, president and chief executive, soft-spoken and thoughtful, recently discussed the future of his company and the energy business. He is the past chairman of the Edison Electric Institute and winner of the EnergyBiz KITE CEO of the Year award in 2012. We recently interviewed Farrell for an EnergyBiz Leadership Series webcast. His edited comments follow.

Dominion on its website states, “Safety, ethical behavior, excellence and teamwork are the cornerstones of Dominion’s corporate culture.

Each of those values support and strengthen our commitment to environmental protection.” How is the industry changing, and how will future utility leaders meet those objectives?

ENERGYBIZ

There are some things that will probably never change. Dominion has a values-based corporate culture. These are the four things that matter. Anything you do, every activity you undertake in the company or outside the company, these are the four things that you need to worry about. If you worry about these four things, all the other things will follow. Earnings are not in that list of values. Hitting revenue targets is not in that list of values. If we operate safely, ethically and with excellence, and we do it as a team, the revenue targets and the earnings will flow from that.

FARRELL

ENERGYBIZ Will threats to safety in the coming decade be different from what they were in the past? There is growing concern about cyber security and cyber threats.

44 E N E RGYB I Z January/February 2013

Cyber security is one of the things that we as an industry are attuned to. But I think our biggest problem is that we don’t know what we don’t know.

And that’s not just our industry. The threat is out there and you can’t keep the intruders out. You have to contain the intruders when they get through the first levels and make sure they can’t get further down into your systems where they can really cause a problem.

Our industry is on top of it.

FARRELL

What is Dominion’s strategy when it comes to power generation?

ENERGYBIZ

Our 27,400-megawatt system is in two worlds. We have a monopoly service franchise in Virginia and northeastern North Carolina, where we have fully integrated generation, transmission and distribution. We’re also in the merchant power business in New England and the Midwest. Our strategy in Virginia is to meet our customers’ needs. We have a gap where we’re still importing more power than we should, and it’s more expensive for our customers than it needs to be. We can build facilities and own and operate them far less expensively and more FARRELL

If we operate safely, ethically and with excellence, and we do it as a team, the revenue targets and the earnings will flow from that.

Photo by Dayna Smith

reliably for our customers than we can by constantly having some segments of power coming out of the wholesale markets. Our Virginia City Hybrid Energy Center uses coal and 20 percent biomass. I believe it is the cleanest coal-fired plant in the United States, maybe in the world. Its permit allows it to emit 5 pounds EDITOR’S NOTE of mercury in a year. It’s got Listen to the full interview very low sulfur. with Thomas F. Farrell II at www.energybiz.com/ farrellwebcast.

In the merchant business, we’ve taken a hard look at the kind of assets we can continue to own. We will continue to own the Millstone Nuclear Power Station in Connecticut, which is the largest power generation unit in all of New England at 2,200 megawatts. But we are exiting the merchant coal business.

ENERGYBIZ

Why?

With our capital structure, and where we see those fuels playing out over the next decade, it’s difficult for them to perform as well as they should inside our capital structure.

FARRELL

ENERGYBIZ

What is the future of nuclear power?

We’re working to develop a third reactor at our North Anna site in the central part of Virginia.

We have two units there now, each about 1,000 FARRELL

megawatts. Nuclear provides over 20 percent of the nation’s power today. In 30 years, it will provide zero unless we start building more nuclear plants because all the licenses are going to run out.

What share of Dominion’s 27,400 megawatts of generation is renewable?

ENERGYBIZ

We have about 5 percent renewable in that mix. We have two wind farms, one in Indiana and one in West Virginia. We have hydro. We have very large pump storage facilities. We have a number of biomass facilities. And we’re also looking at an offshore wind farm. Virginia probably could sustain 2,000 megawatts of offshore wind about 20 miles off of the Virginia shoreline. We’re also looking at distributed generation. Somebody is going to crack the code on making very effective, cost-efficient distributed generation. So we’re looking at fuel cells.

FARRELL

We created a unit about three-and-a-half years ago we call Alternative Energy Solutions. Its job has been to explore all energy solutions to see what we think is going to work and what’s not going to work.

If the technology will work, we’re looking at which companies will do the best. We’ve been investing in some of them.

ENERGYBIZ How fast are you prepared to embrace a new business model if it becomes imperative? energybiz.com E N E RGYB I Z 45

» INTRODUCING Well, that’s one of the reasons why I put this group together. One question is how does an idea fit into the regulatory schemes in various states?

So we’re trying to understand how these various solutions can work technically and also how they’re going to work in a regulatory model and financially. Then we can try to get ahead of the regulatory situation by helping shape regulations.

FARRELL

ENERGYBIZ

Can you elaborate?

FARRELL Energy efficiency products are coming fast and furious. Our engineers developed a product that we call EDGE, which does voltage regulation. All the utilities run their systems in a voltage band. If you have better, more perfect information, you can narrow the band. It is constantly monitoring transformers all over the system and can allow the operators to change the voltage. Those kinds of things are coming, and they’re going to keep coming. Distributed generation is going to advance and utility managements are going to have to be willing to make investments with less information than they have traditionally relied on. You always have to make decisions based on incomplete information. If you wait until you have all the information, somebody else is going to make the decision for you.

To what extent do you feel handcuffed by existing regulation at the state level?

ENERGYBIZ

All regulation does hinder development.

Think about it this way. Pharmaceutical businesses have huge research and development budgets. IT companies have huge R&D budgets. I don’t know of a single utility in the United States that has an R&D budget at all. It hasn’t been viewed as our job for a hundred years. Am I going to build a $100 million, $300 million, $500 million a year R&D budget at Dominion and then go to our regulators and say we need our customers to pay us for this? They’d say no, and they’d be right to say no, at least under the traditional regulatory models. That’s an issue that probably hinders faster development of newer ideas in our industry.

FARRELL

Dominion is the largest natural gas storage company in this country. What is your view of America’s shale gas revolution?

ENERGYBIZ

FARRELL We have a trillion cubic feet of gas storage.

There’s no doubt in my mind that the shale gas revolution is real. It is going to be long term. And it will have a huge impact on the whole energy infrastructure of the United States.

ENERGYBIZ

Do we need a national energy policy?

46 E N E RGYB I Z January/February 2013

Not having a national energy policy is one of the most frustrating things that our industry has to deal with. Energy policy is super-complicated. It is super-expensive. It is a very long-term issue. And it has to be decided by people who don’t have long-term views of the world. It’s also very regionally diverse. We are forced to make decisions on the best information that we have and our best view of what the future will bring. When you’re making billion-dollar investments, that is not the most comfortable scenario. But that’s what we do. That’s what we’ve always done.

FARRELL

ENERGYBIZ What specific corporate culture changes do you advocate as you prepare your next generation of leaders?

Some years ago we developed a leadership development program in our nuclear business unit.

First we identify the next generation of leaders and then we place them in a year-long program. They don’t go to class. They come in periodically to study what’s going on in the company. In our succession programs, we identify the top 40 or 50 jobs. What can’t we fail at? Then we identify what the specific attributes are of those jobs. Then we identify three to five people who we think have the potential to do that job, identify where they need more training and get them that training. The core business we’re in now of electricity production is 103 years old. When I leave, I want to make sure that I’ve done whatever I can to make sure it’s here for another 103.

FARRELL

Tom, you’re a lawyer by training. Where do you think the CEO of the future should be coming from in terms of professional training?

ENERGYBIZ

They can come from anywhere. If you look across the utility industry, we have electrical engineers, mechanical engineers and a great CEO who doesn’t have a college degree. We have lots of lawyers. We have financial people. Whatever their background, CEOs need the intellectual discipline that allows them to sort through the huge amount of information they get all the time and decide what are the important issues. I read a lot. I’ll read four or five newspapers every day. I read all the industry publications that come out every day. I read your magazine.

My busiest days here are the days I don’t have anything on my schedule. People constantly are coming in, talking through issues. You need to be able to deal with that constant flow of information, sort through it, and make a decision. And hope for the best.

FARRELL

» METRICS

energybiz.com E N E RGYB I Z 47

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» LEGAL ARENA

REITs for Renewables NEW INVESTMENT TOOLS // BY SHANE SPENCER THE SUSTAINABLE ENERGY MOVEMENT faces formidable obstacles to a needed transition to financial stability.

Until now, investment in renewable energy has depended on subsidies from the federal and state governments. But subsidies are not always available, and that makes business models that count on them unreliable for providing renewable energy, yet good for losing taxpayer and investor money. Meanwhile, treating renewable energy investment as a sale of goods to the utility companies — in effect, a commodity transaction — introduces unneeded risk and volatility.

Gatherings// Legal Arena Feb. 5-6

AWEA Wind Power on Capitol Hill

Washington

Feb. 27-28

Renewable Energy Finance & Infrastructure

Vienna

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

50 E N E RGYB I Z January/February 2013

Using a real estate investment trust to invest in renewable energy is a way to alleviate these risks and encourage the investment of a significant amount of money.

A REIT is a subcategory of a corporation whose sole purpose is to own real estate assets. The benefit is that REITs do not pay corporate taxes as long as they distribute 90 percent of their taxable income to their investors. REITs operate in a fashion similar to mutual funds. Mutual funds raise investment money and use it to purchase stocks, bonds and other securities, and then distribute the cash flow from those investments to their investors.

REITs raise investment money and use it to purchase real estate assets, and then distribute the cash flow from those assets to their investors. The idea behind a REIT is to allow the public to invest in high-quality real estate assets. If used correctly, the renewable energy industry can capitalize on the proven REIT business model for the long-term ownership of high-quality assets together with having access to significant amounts of capital investment.

Traditionally, renewable energy developers and utilities transacted the sale of goods with a power purchase agreement. These long and complicated

agreements detail the sale of the power from a renewable energy generator to a utility. Power purchase agreements add several layers of risk for both parties because of performance contingencies and clauses.

EDITOR’S NOTE Instead, the power industry should For his innovative approach treat renewable energy transactions to energy investment, not as a sale of goods but as real Shane Spencer in 2011 was listed on Forbes’ estate transactions. A real estate magazine’s list of “30 under transaction is either a lease or a 30” real estate leaders loan. Using this strategy results in “who aren’t waiting to reinvent the world.” a fixed yearly payment from the utility for the right to occupy and operate the renewable energy asset. A REIT’s core business activity is the investment and ownership of real estate. A utility’s core business activity is the production and transportation of power. Treating a renewable energy transaction as a lease or loan allows both the REIT and the utility to benefit from the activity in a similar fashion to the way they benefit from their other core business activities.

Treating the transaction as a lease or loan also allows utilities to benefit from incentives intended to encourage the generation of renewable energy. REITs BOULDER MUNI Boulder, Colo., officials do not pay taxes; thus, they cannot have established the benefit from federal or state subsidies, rules that will govern whether the city abatements, tax benefits or depreciation. proceeds with efforts This allows REIT investors to include to set up a municipally owned utility, according such incentives in the transaction and let to a report in the the utility benefit from the other incentives Daily Camera. involving the production of clean power.

Muni power rates cannot exceed those Other benefits of using REITs for of Xcel Energy at the renewable energy transactions include time the city acquires Xcel’s system, if the stabilizing cost, complying with renewplan goes forward. A able portfolio standards, taking advancommunity meeting is planned in January. tage of the opportunity cost, protecting the bond rating by forgoing high capital expenditures, alleviating the need to hedge the volatile commodities’ markets and forgoing the multilevel transaction cost associated with traditional power purchase agreements.

The renewable energy movement is at an inflection point. The use of REITs to invest in renewable energy will bring significantly more equity into the market, propelling the industry to a new level.

Shane Spencer is founder and chief executive officer of Green REIT.

Imagine delivering a customer experience that’s consistent, rewarding and unique for every customer you serve. Invite them to interact with you using the communications channel they choose. Send automatic notifications for payments or unplanned outages.

Reach out through social networks and mobile devices. Collaborate across your contact center and enterprise, and push information to answer questions and resolve issues quickly. Increase satisfaction and reduce churn with speech analytics and feedback management. Now imagine doing all of this with a single software platform and application suite. Multichannel, all-in-one, cloudbased or on-premise — and used in utility companies and organizations around the world since 1994 – Customer Interaction Center™ from Interactive Intelligence.

www.inin.com CONTACT CENTER UNIFIED COMMUNICATIONS BUSINESS PROCESS AUTOMATION Cloud-based or On-premise energybiz.com E N E RGYB I Z 51

» LEGAL ARENA

FEDERAL ENERGY REGULATORY COMMISSION

Enforcement Resolve PRESERVING THE INTEGRITY OF ENERGY MARKETS // BY MARC L. SPITZER THE TITLE of the New York Times piece, “FERC Takes Aim at Wall Street,” overstates the case. Federal agencies, like courts, generally do not select their targets nor “take aim” at them. The Federal Energy Regulatory Commission adjudicates the market manipulation cases brought before it, which are often referrals from third-party market participants that allege harm from respondents’ conduct.

Let’s take a look at the big picture, and discern some regulatory truths. First, there is an inherent and normal tension between the regulated and the regulators.

For 25 years, I represented taxpayers versus the Internal Revenue Service. If the IRS had acquiesced to my every demand, it would have abdicated its responsibility to the United States. Conversely, my interest was in the rights of my taxpayer clients, not in the public fisc.

This encourages a healthy competition between competing interests, differing interpretations of the law and occasional litigation.

All regulation exists within a historical context.

The context of the FERC enforcement authority from 2005 legislation was the California energy crisis of 2000–2001 and the market manipulations preceding the collapse of Enron. On a basic level, FERC received authority from Congress to impose penalties of $1 million per violation per day to deter wrongdoing. More substantially, Congress and subsequently FERC responded to the crisis to restore an erosion of public confidence in U.S. energy markets.

It is not surprising that legislation so substantial in such a complex area of the law would give rise to a lack of clarity and ultimately legal disputes.

FERC’s market manipulation rule was adopted in 2006. Fine points of SEC Rule 10b-5 continue to be litigated 78 years after enactment of the Securities

[POINT]

52 E N E RGYB I Z January/February 2013

Exchange Act. The SEC’s enforcement division was not born full-grown upon enactment of New Deal securities legislation. Similarly, FERC’s Office of Enforcement has grown and developed, as we would expect, in the wake and as a result of Congress exercising its statutory authority. Maturation of U.S. energy markets has led to the entry of new market participants that are not regulated utilities. Lacking a traditional relationship with energy regulators, it is understandable that there will be an adjustment period for financial entities in dealings with FERC. Federal and state regulation of natural gas and electricity combined with public interest suggests the commercial rules for trading in soybeans or pork bellies may not apply.

Continued on page 54

FEDERAL ENERGY REGULATORY COMMISSION

Reforming FERC IN SEARCH OF A CONSUMER ADVOCATE, RTO CHANGES // BY TYSON SLOCUM their operations too opaque. Their only saving grace is that low natural gas prices are keeping marginal costs down, thereby shielding the public from the huge price increases these markets produced only a few years ago. Absent reforms, the trickle of manipulation cases will turn into a flood. Public Citizen recommends two actions: Establish an Office of Consumer Advocate at the commission, and improve RTO governance by reforming stakeholder voting rights.

In the 1970s, states began establishing state utility consumer advocate offices after it had become clear that simply having a state utility commission wasn’t enough to protect consumers. Today, these offices promote transparency and help to ensure that household consumers have an effective voice in the often-complex world of state utility regulation. Additionally, in 1978 an Office of Public ParticiCOUNTER pation was proposed at FERC as part of PURPA. But because the office was never appropriated, it was never created.

FERC was a sleepy agency in 1978 with limited jurisdiction when Congress felt the need to create an office to help consumers participate in FERC proceedings. FERC now has sweeping authority over power markets, but few truly understand what the agency does. Navigating the myriad filings on FERC’s eLibrary requires advance knowledge of which dockets are significant — leaving resourcestrapped public interest advocates unable to muster a presence. At the state level, consumer advocates play a critical role weighing in, while at FERC, they are nowhere to be found.

FERC serves as a liaison with the consumer community to ensure that organizations representing the public interest are engaged in important proceedings.

[POINT]

WHILE MEDIA COVERAGE of recent Federal Energy Regulatory Commission actions against banks for market manipulation and false statements portrays a new, get-tough look for the agency, one can just as easily conclude the opposite: The enforcements expose a commission scrambling to keep up with increasingly intricate manipulation strategies in overly complex markets, with the agency seemingly several steps behind. Indeed, the investigations — against Barclays, J.P. Morgan, Deutsche Bank and Constellation — demonstrate that FERC’s experiment with voluntary RTO markets is in need of reform. The ease with which financial entities are able to game the market illustrates that broader market reforms — and not just discreet enforcement actions — are needed. More than a decade after Enron, the organized markets are unnecessarily complex, plagued with uncompetitive practices, and

Continued on page 54 energybiz.com E N E RGYB I Z 53

» LEGAL ARENA

FEDERAL ENERGY REGULATORY COMMISSION

POINT // Continued from page 52 The newness of the statute and paucity of court decisions means there is no judicial gloss. It will take years for the courts to resolve novel, ambiguous or unresolved matters. Again, absence of absolute clarity is a disconcerting but unavoidable consequence of the recent legislative enactment.

FERC’s mission since 1935 has been to assure the ratepayers of the United States a reliable supply of energy at just and reasonable rates. Since Congress enhanced FERC’s enforcement authority in 2005, the five commissioners have on occasion disagreed on the margins. However, there is unanimity from the FERC bench for the imperative for fair, honest and

transparent energy markets. FERC’s enforcement tools, including penalties, are a means to that end.

So FERC is not “taking aim” at Wall Street or anyone else, but instead is fulfilling U.S. energy objectives codified by Congress and universally recognized as essential to our way of life.

FERC may not win every case it pursues. But its mission requires that the public have faith and confidence in the integrity of U.S. energy markets. The courts will ultimately determine the outcome of discrete cases, but no one should doubt the agency’s resolve.

Marc L. Spitzer, former member of the Federal Energy Regulatory Commission, is a partner with the Steptoe & Johnson law firm.

COUNTERPOINT // Continued from page 53 FERC’s dockets are filled with lawyers representing generators, but not with lawyers representing the working families impacted by FERC rulemakings.

An increasing number of state commissions allow for intervenor funding, whereby public interest groups are reimbursed for the costs associated with participating in key dockets. Indeed, the 1978 Office of Public Participation that passed Congress featured intervenor funding.

Congress has revived its interest in establishing such an office. In 2003 the Senate passed an Office of Consumer Advocacy for FERC as an amendment to the energy act of 2003. In 2010, the House-passed Waxman-Markey climate legislation featured an Office of Consumer Advocacy for FERC, with mirror language featured in the Kerry-Lieberman climate companion bill.

Congress never expressly authorized the private organizations that run power markets; rather, FERC created them as voluntary organizations under Orders 888/889/2000. FERC has delegated sweeping Federal Power Act authority to them, creating private organizations on the front lines of federal law enforcement with little accountability to the public. No other agency relies so heavily on private contractors to enforce federal law on its behalf. Sure, FERC will tell you that it has a “War Room,” but the reality is that FERC has no capability to actually monitor the markets in real time. Rather, FERC depends on private market monitors to collect and process market data, 54 E N E RGYB I Z January/February 2013

and these private actors flag uncompetitive or illegal behavior for FERC to review. With the exception of PJM, the market monitors are not independent, but instead are part of the RTO management structure.

RTOs aren’t subject to FOIA or public meeting laws.

Governance is also a problem. The RTOs assign voting shares to different stakeholders. PJM, NYISO and the others tilt the voting rights heavily in favor of generators, power marketers and utilities. End users always have a tiny minority of the voting shares, and therefore no influence. Sure, the RTOs have dozens of working groups that meet hundreds of times on an array of market topics, but at the end of the day, the RTO votes on policies, and the outcome of the election is rigged against the consumer’s interest.

If FERC is going to continue to rely on private organizations to enforce the law on its behalf, the commission must require RTOs to provide end consumers with at least 50 percent of the voting shares, and require that organizations representing household consumers represent at least half of this allocation. It also must open an investigation into whether or not RTOs are producing just and reasonable rates.

As FERC continues its restructuring experiment, it is crucial that the institutions governing power markets — both the commission and the private RTOs — adopt the reforms necessary to more fully involve consumers in decision-making, and help make these complex markets more transparent and accountable.

Tyson Slocum is director of Public Citizen’s energy program.

Carbon Tax Revisited A WIN FOR ENERGY AND AMERICA // BY JOHN M. REILLY THE NEW – STILL DIVIDED – CONGRESS reconvenes this month, and its first order of business is the looming federal deficit. The president made his desires clear in his victory speech: “We want our children to live in an America that isn’t burdened by debt … that isn’t threatened by the destructive power of a warming planet.” Meanwhile, congressional leaders recognize the need for compromise.

Some suggest that closing the deficit would require both budget cuts and increased revenue. The riddle in any tax reform is the need to reduce the tax burdens on wage earners and investors, while generating revenue for essential government services. A carbon tax might answer this riddle. It could help avoid some tax hikes and spending cuts, while stimulating the economy, securing America’s energy future, and giving utilities and energy companies greater certainty.

The Congressional Budget Office found that a tax on carbon dioxide, starting at $20 per ton, could raise $1.25 trillion over the next decade. Our research puts those numbers higher — at $1.5 trillion — while cutting emissions by more than 20 percent by 2050. With the money raised, Congress could maintain income tax cuts and avoid serious cuts to social programs.

Lowering taxes and maintaining funding for social programs would give Americans more money to spend, boosting the economy. This is particularly true in the short term, if tax cuts and spending are skewed toward lower income households, which spend more of their income, stimulating weak consumer demand.

On the other hand, cutting these programs and raising other taxes would drag down our economy, so much so that the loss would more than offset the cost of a carbon tax.

When it comes to the pure economics, a carbon tax makes the most sense. But what is a win for our economy is also a win for the energy industry. For years, many in the industry have called for a clear,

market-based approach to secure America’s energy future. Instead, they’ve received mixed signals and patchwork regulations. Meanwhile, narrow tax incentives have allowed the government — not the market — to choose winners and losers. This approach has been inefficient and ineffective.

A carbon tax, if part of broad tax reform, could bring an end to this approach, providing certainty to utilities and energy companies and allowing these businesses to make the investments needed to usher in America’s clean, prosperous and secure energy future. A carbon tax would provide a clear market signal for U.S. businesses and consumers, giving them the flexibility to choose technologies that save energy and money, boosting sales of more fuelefficient cars and other goods. With greater efficiency, fuel and energy costs could actually go down — not up — as the U.S. economy turns from spending and borrowing to saving and investing in our future.

Partisan gridlock and the political fear of anything labeled a “tax” may make this sensible solution seem impossible. But because it makes the most economic sense, it is receiving support CAPE WIND from both sides of the aisle.

OPPOSITION Opponents of the As the chairman of President Cape Wind project in George W. Bush’s Council Massachusetts have raised $24 million to of Economic Advisers, Greg fund a decade-long Mankiw, has said, “Economists fight against offshore wind, according to the have long understood that the Cape Cod Times. key to smart environmental policy is aligning private incentives with true social costs and benefits. That means putting a price on carbon emissions, so households and firms will have good reason to reduce their use of fossil fuels and to develop alternative energy sources.”

There are usually hefty trade-offs and hard-set winners and losers in politics. This time, that doesn’t have to be the case.

John M. Reilly is co-director of the Joint Program on the Science and Policy of Global Change at the Center for Environmental Policy Research at the MIT Sloan School of Management. energybiz.com E N E RGYB I Z 55

» FINAL TAKE

Gaming Regulation HONING SKILLS WITH SCENARIO WORKSHOPS // BY MILES KEOGH KEEPING THE LIGHTS ON and keeping power affordable is a tough job, and in the coming decade, the job will only get tougher. Infrastructure upgrades and grid modernization could cost billions.

New environmental rules and market realities are reshaping our nation’s generation fleet. Concerns over cyber security are causing utilities to spend capital on infrastructure protection. And the perpetual debate over who should site transmission — and where — is rekindling longstanding tensions between state and federal regulatory authorities.

These questions are landing on the desk of every state utility regulator in the country. Over the next several years, state regulators will be making decisions that will leave a lasting impact on the utility sector as we know it, perhaps ushering in the most profound change this industry has seen since the era of deregulation. Literally trillions of dollars and the reliability of the system are at stake. For state regulators, there are no do-overs, so they must get it right the first time.

Wouldn’t it be great if there was a way for state commissioners, utilities, consumers and other stakeholders to explore these decisions without having to commit themselves to the consequences? What if there was a venue where regulators could come together and try a series of different approaches, any of which they could undo later? We decided to make one.

For years, the National Association of Regulatory Utility Commissioners has run tabletop emergency scenario workshops and simulation games that help regulators and our public- and private-sector partners practice going through cyber-attacks, natural disasters and other incidents that challenge reliability, to help them find the approaches that work best.

Since 2010, we’ve used this model to help regulators become ready for challenges that are caused by policy, technology and market activities, instead of just emergencies. Through the generous assistance of the Environmental Protection Agency and the Department of Energy, NARUC has been hosting and running these Energy Risk Labs — interactive role-playing 56 E N E RGYB I Z January/February 2013

Scenario pieces from a recent regulatory workshop produced by the National Association of Regulatory Utility Commissioners.

Photo courtesy of NARUC

programs that help regulators deal with these issues in an informal, off-the-record setting. These labs have helped state regulators and many other stakeholders who work in and with the electricity sphere think about new transmission, grid expansion and modernization, and integrating high levels of renewable energy. More recently, we’ve added hypothetical situations dealing with gas and electric interdependencies and the Environmental Protection Agency rules. With labs run in the District of Columbia, Iowa, Missouri, Indiana and Oregon, we’ve reached hundreds of electric-sector decision-makers.

These labs serve two purposes: educating state commissioners and stakeholders on the new and emerging issues facing the industry and bringing

about new levels of communications and understanding among all parties. Because the workshops deal in hypotheticals, we can challenge commissioners and others to make difficult, billion-dollar decisions with Monopoly money. The objective is to create landscapes that show how risk-oriented decision-making creates better outcomes than strategies that focus on a single technology or resource. In the end, regulators are armed with a better understanding of what is at stake, allowing them to make better decisions at home. This could potentially save consumers a considerable amount of money and help the industry maintain a clean, efficient and safeguarded system.

In workshops focusing on the new EPA rules, attendees worked in small groups on various scenarios dealing with how the environmental restrictions will impact the generation fleet. Through our labs, decision makers learn how to use risk-oriented thinking to make smarter decisions that accommodate the dynamic world we live in.

For example, in several workshops this summer, participants were tasked with devising a strategy for complying with EPA’s Mercury and Air Toxics Standard. After a number of iterations, the groups were then required to manage the risk of compliance with other potential regulations and market situations that reversed their earlier assumptions, thereby changing many of the outcomes. Participants learned a clear lesson that taking one rule or assumption at a time will lead to wasted effort, time and money.

By directing participants to take a broader perspective, the resulting dynamic lets regulators and stakeholders consider options that may have been left out of a formal proceeding entirely. Gas-fired power, for one, often does well in the labs. But energy efficiency and demand response are emerging as key strategies that could not only help utilities comply with the new clean-air rules, but also save consumers considerable amounts of money. Given 3,100 megawatts of hypothetical replaceable capacity — i.e., capacity likely to be retired as a result of the EPA rules —

...we can challenge commissioners and others to make difficult, billion-dollar decisions with Monopoly money.

workshop participants increasingly relied on energy efficiency to fill a considerable portion of that gap. For example, at a workshop in Missouri, participants were comfortable using about 850 megawatts in energy efficiency. In a separate workshop in Oregon in July, participants leveraged wind and other forms of renewable energy as well.

In workshop after workshop, participants recognize the dynamic nature of the current utility environment.

On one day, the challenges they face could be new clean-air rules, and on the next it could be carbon pricing or gas price spikes. Time and again, participants learned that what looks like a good decision at the time can quickly become a bad one as markets, technologies or policy considerations change the landscape.

And by putting people — who often are on opposite sides during regulatory proceedings — together in groups to solve problems collaboratively, participants learned the value of communication and taking a broader understanding of the issues they face.

Perhaps most importantly, we are able to do this in informal, off-the-record settings. This takes the pressure off the decision makers and lets them focus on holistic solutions. From here, the regulators can go back to their offices and act on these issues armed with a renewed focus and a broader view of what is at stake.

We plan to keep running Energy Risk Labs as long as we have funding and interest from the states.

There’s a lot at stake. Hopefully, practice will help make perfect.

Miles Keogh is director of the grants and research department of the National Association of Regulatory Utility Commissioners.

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