EELECTRICLECTRIC PPERSPECTIVESERSPECTIVES NOVEMBER/DECEMBER 2011

Special Section: Solar Progress AEP’s Mike Morris: Navigating a Transition Computing in the Cloud What's Your Next Move?

The next stage of industry consolidation For more information: is now unfolding. Today's mergers face Tom Flaherty steeper challenges compared to those in Senior Partner prior years—transaction scale, economic Dallas uncertainty, regulatory hurdles, and 214-746-6553 integration complexity all require greater [email protected] foresight and execution skill today. Todd Jirovec Achieving merger success requires Partner that managements diligently prepare for Dallas the scrutiny that Wall Street, regulators, 214-746-6525 competitors, and customers apply. Draw- [email protected] ing on a deep understanding of how to make transactions successful, Booz & Company assists many of the world's leading power and gas

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© 2011 Telogis. All rights reserved. EELECTRICLECTRIC PPERSPECTIVESERSPECTIVES THE MAGAZINE FOR MANAGEMENT IN AMERICA’S SHAREHOLDER-OWNED Features ELECTRIC COMPANIES NOVEMBER / DECEMBER 2011 • VOLUME 36, NUMBER 6

22 Solar Progress Still a small part of the portfolio, solar power saw triple-digit growth in each of the last two years—with the steepest increase coming in utility-owned solar projects.

BY ROBERT GIBSON

22 38 Navigating a Transition The industry’s most recent Distinguished Leadership Award-winner 38 applies lessons of the past to the electric utility agenda of the future.

BY MICHAEL G. MORRIS

48 Computing in the Cloud As utilities handle the data deluge and the information technology demands of the smart grid, does the cloud fi t their needs?

BY DAVID BERNSTEIN

48 ELECTRIC EELECTRICLECTRIC PERSPECTIVES Jane S. Nunnelee PPERSPECTIVESERSPECTIVES Editor & Publisher, 1981-2001 THE MAGAZINE FOR MANAGEMENT IN AMERICA’S STAFF SHAREHOLDER-OWNED ELECTRIC COMPANIES Eric R. Blume Editor & Publisher [email protected] Bruce Cannon Associate Editor [email protected] William Bickel Art Director/Production Manager [email protected] LaVonne M. Rose Departments Subscription Coordinator [email protected] NOVEMBER / DECEMBER 2011 • VOLUME 36, NUMBER 6 EDITORIAL BOARD Edward Comer Vice President, General Counsel, and Corporate Secretary 6 58 Lynn LeMaster Senior Vice President, Policy, Powering Change Financial and Chief of Staff Changing business models. The EEI Index produced a positive Richard McMahon Vice President, Finance 1.8-percent return during the third and Energy Supply quarter—more Jim Owen Executive Director, Member Relations than enough and Meeting Services 8 to dramatically David Owens Executive Vice President, EE at Work outperform the Business Operations broad market. Quin Shea Wire intelligence. Vice President, Environment Brian Wolff Senior Vice President, External Affairs

CIRCULATION 10 64 LaVonne M. Rose 202/508-5584 News & Trends Economics [email protected] Subscriptions: $100 per year. Top environmental concerns… Recent data suggest that growth in capturingcapc carbon…set-top the residential electricity sector is REPRINTS Diana Sholl eenergyn hogs…cloud slowing down again, at least in cer- Reprint Management Services 717/399-1900, ext. 162 ccomputing…utility guide tain regions, and tot electric vehicles…real- may even be ADVERTISING SALES declining. William Mambert ttimei Electric Perspectives energyenerg 600 Cameron Street Alexandria, VA 22314 management… 703/751-9864 72 [email protected] Another Perspective smart grid Are you on the same channel? workforce Mailing label corrections: send old trends…DOE’s label and correct title and address to quadrennial Subscription Coordinator, Electric Perspectives at EEI. Allow 12 weeks. technology Postmaster: send address changes review…and to Subscription Coordinator, Electric Perspectives, EEI, 701 Pennsylvania more. Avenue, N.W., Washington, DC 20004-2696. Periodicals postage paid at Washington, DC, and additional mailing office. Electric Perspectives (ISSN 0364-474X) is published bimonthly by Edison Electric Institute, Inc. 701 Pennsylvania Avenue, N.W., Washington, DC 20004-2696. www.eei.org The title is a registered trademark of Edison Electric Institute. Statements of fact and opinion are the responsibility of the author(s) alone and do not imply an opinion on the part of EEI, its employees, or members. Each advertiser and advertising agency On the cover: Sempra Generation’s 48-MW Copper Mountain Solar 1 in Boulder City, NV, uses 775,000 assumes full liability for all contents photovoltaic panels spread across 380 acres to convert sunlight into electricity. Utility-owned solar grew of advertisements printed. Copyright © 2011 by 300 percent between 2009 and 2010, and utilities have announced plans to build more than 800 MW by Edison Electric Institute, Inc. of solar in the next few years. (Photo: First Solar) EEI Publication No. 43-11-06.

WWW.EEI.ORG/EP Reliable

Quanta Services’ roots in the power industry run deep. For generations, Quanta has been the force behind the development of the power grid. As consumption of electricity rises, so does the demand for transmission and distribution contractors. Reliability is at stake. Quanta designs, installs, maintains and repairs electric power infrastructure. The branches of our network are far reaching and ready to mobilize. With more than 14,000 employees working in all 50 states and Canada, Quanta’s growth has made the company the foremost utility contractor with the largest non-utility workforce in the country. The nation’s premier utilities rely on Quanta’s expertise to deliver the manpower, resources and technology necessary to meet growing demand, integrate new generation sources and deliver the power and reliability consumers deserve.

www.quantaservices.com 713.629.7600 NYSE-PWR powering change VALUE AND THE MODERNIZED CUSTOMER

ur industry’s job has been the same for decades—delivering reliable, affordable elec- tricity. But the world in which it performs that job continues to change dramatically. In particular, grid modernization—advanced metering, infrastructure, and call cen- O ter technologies—will change how we serve customers. Utilities can push out more information about their customers’ electricity service—information about outage response/res- toration times, energy usage, and price alerts—and use multiple modes of communication to do so. Edison Electric Institute’s latest research fi nds that more than two-thirds of consumers nation- wide want us to move ahead with smart grid and smart meter technology. And one in four wants us to do so quickly. But this is not a rapid transformation—it is an evolution that involves utility relationships, customer perceptions, and regulatory shifts. Indeed, the research fi nds great interest in moving ahead with “the smart grid,” but it also fi nds that less than half of the public has even heard the term. And of those who say they have heard about it, only about one in ten say they have a fairly complete understanding of the smart grid. Regulators, crucial in creating a supportive platform for the deployment of smart technology, are another essential part of the evolution. Cost recovery of new technology investments, prudency determination, data access, privacy, and cyber security are critical. Not surprisingly, in this economy, some regula- tors have been leery of expensive new equipment and redesigned rate systems. Promoting the modernized grid and its benefi ts involves signifi cant industry outreach, which is occurring at many levels.

The Utility Relationship For the modernized grid to deliver all the value it promises, customers will need to change their attitude about the role that electricity plays in their lives, and the relationship they have with their utility. This will not be easy—those attitudes have developed over a good number of decades. Many customers are happy with their basic electric service. Others want more: information about electricity use and options; information delivered anytime, anywhere, not just printed on a monthly bill; more choice and control; and energy-related services. And, in fact, changes have begun to occur. Many customers already are putting in rooftop solar, purchasing microturbines, plugging in electric cars, and installing energy management systems. Already, many customers are looking to enhance their basic relationship with their utility. And how they view power has changed or is on its way to doing so. Electric utilities are ideally suited to lead this transformation. After all, customers judge electric- ity’s value by their experiences—with reliability, customer service, personal comfort, affordability, outage restoration, and environmental impact. By providing value in those areas, utilities have cre- ated strong connections across all customer classes. Electric companies themselves are changing—they’re considering their business models and rethinking and repositioning themselves for the changes ahead. They also are building technology partnerships to benefi t from the evolving business landscape and to give themselves and their cus- tomers the most options and the most possibilities in the world of energy management and advanced networking products, software, and services. The modern grid is one more way we can build on the value we’ve provided to customers since the beginning. And value is our North Star, as our customers’ needs evolve, as our companies trans- form, and as the way we use power changes. ◆

Brian L. Wolff Senior Vice President, External Affairs, Edison Electric Institute

6 ELECTRIC PERSPECTIVES How do you design for future smart grids?

Advanced metering infrastructure…smart grid…automation… demand response…meter data management…stimulus grants… regulatory hurdles…customer acceptance…standards… return on investment...new business models…

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With a focus on smart integration, KEMA provides solutions that help you maximize business outcomes while minimizing future technology risks.

New Smart Grid - New Business Models - New Revenue Opportunities. To download our FREE e-book, “New Business Models,” visit: www.kema.com/newbizmodels www.kema.com 1.781.273.5700 ee at work Where electric efÀ ciency and efÀ cient regulation meet.

hours (MWH) and 11.3 megawatts (MW), respectively. While Wire Intelligence the projections represented 10 percent of PECO’s MWH goals By Lisa V. Wood, executive director of the in 2013, the program’s actual results far exceeded the utili- Institute for Electric Effi ciency ty’s expectations. In fact, the CVR program already has saved 300,000 MWH, equal to PECO’s anticipated savings from its compact fl uorescent light bulb initiative! e will judge tomorrow’s smart grid by its Consolidated Edison (ConEd) incorporates real-time ability to manage—effi ciently and in real building management data into its system management de- time—electricity’s acquisition by and move- cisions. [See “Con Edison Builds a Smart Distribution Grid” W ment to customers that demand it. That in the May/June 2011 Electric Perspectives.] With 61,000 basic industry tenet is confounded by the fact that the grid commercial buildings in New York City (which represent itself is changing from a generally unidirectional system of two-thirds—34,000 gigawatt-hours—of all electric con- central generation plants, high-voltage transmission wires, sumption in the utility’s service territory), there are many step-down substations, local circuits, and end users to a far potential demand response opportunities. ConEd’s smart more complex, interconnected system. Transitioning to a grid project seeks to tap into 15-20 MW of building load and multidirectional grid is a challenge, and utilities are inte- provide demand reductions when usage is at peak or when grating sophisticated monitoring and control technologies the grid is congested. Commercial buildings in the city also into their distribution systems to meet it. can offer additional power fl ows into the grid through in- The integration of information technology (IT) in energy tegration of distributed generation from renewable energy. has revolutionized the way utilities control and manage Since these new sources of power require monitoring and their distribution systems. By using IT to make their management, ConEd wires smart, utilities are improving their abilities to in- is installing two-way tegrate distributed power sources, commercial build- communications and ing management system demand response, household remote controls on 180 responses to price signals, electric car charging, and transformers. battery storage. Enhanced two-way communication AEP Ohio also in- systems and voltage-control programs are leading vests in distribution the way to enhanced reliability and operational automation, integrated effi ciencies that reduce customer bills. voltage-VAR control, Here are some success stories. Remote wireless grid sen- The Power of Technology sors enable real-time smart Virginia’s Dominion Power, for one, controls voltage grid applications, such as by incorporating two-way communication and volt- conservation voltage reduc- age-feedback reads from its customers’ smart meters. tion, and increase the

The utility applies a conservation voltage reduction Courtesy: ABB effi ciency of power lines. (CVR) algorithm to the feedback data to ensure that voltage remains tightly in the lower half of a regulated and storage to help manage system load and deliver opera- band. Initial results from pilot efforts on a handful of cir- tional effi ciencies. Within AEP Ohio’s gridSMART demonstra- cuits indicate that this control provides immediate benefi ts tion area, 17 circuits have integrated voltage-VAR control to consumers—a tighter and lower voltage range results in with two-way communication network capability to deliver average energy savings of 2.8 percent. At the same time, it a tighter and lower voltage range along the distribution helps the utility support distribution system technologies circuit. Initial results, independently verifi ed by Battelle, like distributed generation and battery storage. Dominion show that the circuits with the voltage control technology can achieve effi ciency savings and improve service and sys- reduced energy consumption and peak demand by 2-3 per- tem performance—all without customer action. cent, on average. In addition, AEP is integrating community PECO, in Pennsylvania, faces overall energy-savings goals energy storage systems into its smarter distribution systems of 1 percent in 2011 and 3 percent in 2013, and a 4.5-per- for power factor corrections and to supply backup power to cent peak-load reduction goal during the peak 100 hours households. in 2013. In its CVR project, the utility focused on lowering IT investments in the electric distribution system can voltage by 1 percent from historic levels on its distribution result in substantial energy and peak demand savings. And feeders, remaining within regulatory voltage requirements, such savings should count towards utility energy effi ciency and reducing energy consumption and demand. Diligent goals. Utilities across the country are poised to operate their monitoring prevented the voltage from dropping too low. systems more effi ciently, save customers money, and better Initial projections of energy savings and demand reduction manage the integration of new generation and new tech- associated with the CVR program were 110,000 megawatt- nologies into the grid. What a difference IT makes! ◆

8 ELECTRIC PERSPECTIVES DAMITHE CONVERGENCEA OF DA AND AMI

Through the convergence of DA and AMI with Elster’s EnergyAxis Smart Grid platform, utilities can obtain the benefi ts of Voltage Conservation across the Smart Grid distribution system.

Leveraging our robust Smart Grid systems for Voltage Conservation, utilities will achieve:

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Contact Elster today to learn more: 1.800.338.5251 or www.Elster.com

Electric I Water I Gas I AMI I DA I DR I MDM I Outage Management I Conservation Integration I Deployment I Business Case Support I Regulatory Assistance news+trends

If the survey were taken today, the ordering of environmental concerns could be quite different. Still, more than 80 percent of all respondents believe there is a future for coal, once the economic and fi nancial realities of competing fuels are con- sidered.

FIGURE 1 TOP UTILITY ENVIRONMENTAL CONCERNS (On a scale of 1 to 5)

Carbon emissions legislation 3.90 Water supply 3.85 Nuclear fuel disposal/storage 3.81 Nuclear safety 3.81 Water effl uent 3.35 Coal handling and ash disposal 3.32 Nitrogen oxide 3.25 Mercury 3.24 Sulfur dioxide 3.22 Particulates 3.17 Site remediation 3.10 Coal production 2.97 Coal transportation 2.68

Top Environmental Note: 1 indicates “less concern” and 5 indicates “more concern” Concerns Source: Black & Veatch

arbon emissions legislation is the number one concern of share- holder-owned utilities, according to Black & Veatch’s fi fth annual “Strategic Directions in the Electric Utility Industry.” (See Figure 1.) CAPTURING CARBON Even though respondents viewed the Washington, DC, landscape as C he world’s largest facility more utility-friendly as a result of last year’s elections, concerns over carbon dioxide legislation and nuclear waste disposal and storage were near the top for capturing carbon be- of the list in virtually every respondent group. This survey was conducted im- gan operating at Alabama mediately following the Fukushima disaster so the increased emphasis on T Power’s Plant Barry near nuclear safety is not a surprise. Mobile, AL, this past summer. The The concern level surrounding coal-related issues is plant will capture approximately somewhat elevated relative to prior years, perhaps due too 150,000 tons of carbon dioxide (CO2)

anticipation of or reaction to several Environmental Pro- annually—or the equivalent CO2 tection Agency actions—among them, the Cross State Airr emissions of a 25-megawatt (MW) Pollution Rule, National Emissions Standards for Hazard-- plant—and permanently store it in a ous Air Pollutants using maximum achievable control tech-ch-- deep saline geologic formation. Thus nology to address mercury and other emissions, cooling-waterwater far, the plant has met its design ca- intake regulations, and the classifi cation of coal-combustion byproducts as pacity of capturing 500 metric tons hazardous or nonhazardous. per day and had captured 24,000

10 ELECTRIC PERSPECTIVES tons of CO2 by mid-August, according natural resource, it is important for to a Southern Company spokesper- Southern Company and the industry son. to preserve coal as a fuel source.”

Captured CO2 from the plant will Southern Company also is de- be supplied to the Southeast Re- veloping other carbon capture and gional Carbon Sequestration Part- sequestration (CCS) projects, includ- nership for transport by pipeline and ing building a commercial-scale, injection 9,500 feet underground 582-megawatt (MW) generating plant at a site within the Citronelle Oil in Kemper County, MS, that uses Field—about 11 miles from the transport integrated gasifi cation Courtesy: AEP plant. The CO2 will remain below the (TRIG) technology, with 65-percent surface, permanently trapped in the carbon capture and reuse. TRIG captured CO2, approximately 1.5 geological formation into which it uses air rather than oxygen to gasify million metric tons per year, would was injected. It will not be used for lower-grade coals for use in plants, have been treated and compressed, enhanced oil recovery. which is cheaper. then injected into suitable geologic “This is a signifi cant milestone in AEP recently announced that it formations for permanent storage our continuing efforts to research, was putting its Mountaineer Plant approximately 1.5 miles below the develop, and implement 21st-cen- project in New Haven, WV, on hold surface. The Department of Energy tury coal technologies,” said South- until further notice. The system (DOE) had agreed to pay part of ern Company chairman, president, would have captured at least 90 the costs of installation through its and CEO Thomas Fanning. “Because percent of the CO2 from 235 MW of Clean Coal Power Initiative. coal is a low-cost and abundant the plant’s 1,300-MW capacity. The AEP and partner Alstom began operating a smaller-scale validation of the technology in October 2009 at Alabama Power’s Plant Barry near Mountaineer that captured up to 90 Mobile, AL, will capture approximately percent of the CO2 from a slipstream 150,000 tons of CO2 annually and permanently store it in a deep of fl ue gas equivalent to 20 mega- saline geologic formation. watts of generating capacity and injected it into suitable geologic for- mations for permanent storage. The validation project, which received no federal funds, was closed as planned in May after meeting project goals. During the life of the validation project, the CCS system operated more than 6,500 hours, captured

more than 50,000 metric tons of CO2, and permanently stored more than

37,000 metric tons of CO2. “We are clearly in a classic ‘which comes fi rst?’ situation,” said AEP’s then-CEO and current chairman Michael Morris. “The commercial- ization of this technology is vital if owners of coal-fueled genera- tion are to comply with potential future climate regulations without prematurely retiring effi cient, cost- effective generating capacity, but as a regulated utility, it is impossible to gain regulatory approval to recover our share of the costs for validating and deploying the technology with- out federal requirements to reduce greenhouse gas emissions already in

Courtesy: Alabama Power place.”

NOVEMBER / DECEMBER 2011 11 Consumers spend $3 billion a year to SET-TOP ENERGY HOGS keep their DVRs plugged in and at the ready, according to NRDC. The edu- ore than 80 percent of cated guess from Lawrence Liver- American householdsds moree National Laboratory is that Bigstock subscribe to a paid tetele-elel - 5-10 ppercent of annual residential Mvision service—eitherher eelectricitylectr use in the United States is cable, satellite, or some other ddueue ttoo standby power for household service that requires power- apappliancespliai in general. Nothing is off hungry “set-top boxes” to trans-- unleunlesss you unplug it. mit and record TV shows. In 2010,0, NRDCNRD suggests that a better de- these 160 million set-top boxes sisignedgnede set-top box incorporating a (satellite/cable receivers and digitalgiittal low-low-powerp “sleep” mode—European video recorders—DVRs) con- prprovidersovidi such as Sky Broadcasting sumed 27 billion kilowatthours alreadyalr offer them—could help of electricity, according to a reduce set-top box energy use recent study by the Natural Re- by 30-50 percent by 2020. sources Defense Council (NRDC).). The Environmental Protec- Set-top boxes use, on average,e, tiont Agency announced last almost as much power when notot MMarch the completion of up- in use as they do when in use. ddates to the Energy Star require- A set-top box with DVR actually mments for televisions and cable aandnd satellitesas boxes. Effective Sep- tetembermbbeb 2011, these products must be FIGURE 2 AVERAGE ENERGY USE uses 29.329 3 wattstt whilehil recording, di 37.637 6 4040-percent more effi cient than con- OF SET-TOP BOXES AND watts when simply sitting there at ventional models in order to qualify OTHER APPLIANCES the ready, and 36.7 watts when it is for the Energy Star label. The new (Kilowatthours per year) off, according to Lawrence Liver- Energy Star requirements for cable more National Laboratory. In fact, and satellite boxes specify that they 446 as NRDC calculates, the average new enter a deep-sleep mode while not Typical household set-top box cable high-defi nition DVR consumes in use, dropping their energy con- confi guration (1 HD DVR, 1 HD more than half the energy of an aver- sumption from about 16 watts to 2 set-top box) age new refrigerator and more than watts or less. The new requirements an average new fl at-panel TV. (See also encourage the deployment of Figure 2.) Set-top boxes are not in multi-room “thin client” devices to 415 use most of the time—in fact, two- transmit programming from one New Energy Star refrigerator thirds of total energy consumption central DVR to other televisions in (21 cubic feet, top freezer) occurs when the boxes are “off.” the home.

275 CLOUD BUILD-UP Recent model HD-DVR he rapid spread of cloud comput- ing—using hardware, software, data 180.5 storage, and computing power via the 42” LCD TV model (Energy Star internet, as opposed to purchasing and Version 4.1) T housing such things onsite—has enabled enter-

prises to outsource many information technologyy capacapa-- Bigstock 171 bilities, including data centers. (See “Computing ithCld”in the Cloud” Recent model HD set-top box on page 48.) The result is savings on staffpower, money, and energy. According to a recent report from Pike Research, the energy-efÀ ciency beneÀ ts of cloud computing are substantial, and growth in the mar- 17 ket will have important implications for both energy consumption and Compact fl uorescent lightbulb greenhouse gas emissions. The company forecasts that the continued adoption of cloud computing will lead to a 31-percent reduction of data- Source: NRDC center energy consumption from 2010 to 2020.

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‹6FLHQFH$SSOLFDWLRQV,QWHUQDWLRQDO&RUSRUDWLRQ$OOULJKWVUHVHUYHG 1<6(6$, ties such as state regulators; federal, WIND UTILITY GUIDE TO state, and local governments; and REBOUNDS ELECTRIC VEHICLES additional stakeholders; and ■ suggestions on ensuring grid here are ith both Nissan and and distribution system readiness, currently General Motors helping customers plug in, and 5,603 expanding produc- streamlining the charging station T megawatts tion of their popular installation process. (MW) of renewables W electric vehicles (EVs) and most of under construc- the other major auto manufacturers tion and expected planning to offer an EV of their own to come online in by the end of next year, Edison Elec- 2011, including tric Institute (EEI) recently released 4,754 MW of wind “The Utility Guide to Plug-In Electric projects hoping to Vehicle Readiness” for its member capitalize on the companies. Section 1603 Cash “The guide builds on the lessons Grants in Lieu of learned by the electric utilities serv- Investment Tax ing the cities and regions where Credits program, the Nissan LEAF and Chevrolet Volt Courtesy: Dominion Power which expires at were introduced late last year,” said the end of the year. EEI President Tom Kuhn. “We also “Electric transportation offers After a slow start, included the advice and insight of America tremendous opportunity,” if the current proj- automotive and utility industry lead- said Kuhn. “It can reduce the nation’s ects are completed ers, as well as groups such as the dependency on foreign oil, increase this year, wind ad- Electric Power Research Institute our national energy security, lower ditions could well and the Electric Drive Transporta- overall transportation fuel costs, exceed the amount tion Association. improve air quality nationwide, and of wind that came “The guide will save electric utili- spur economic development. Our online in 2010. ties real time and money in getting new guide provides electric utilities themselves and their customers with an important tool to help them ready for EVs.” support, encourage, and enable The guide focuses on four areas electric transportation to reach its that electric utilities will need to ad- full potential.” dress to prepare for EVs to plug into To download a free copy of the their service areas: guide, please visit www.eei.org. ■ structure and organizational changes, as well as the value of add- ing EVs to their fl eets; REAL-TIME ENERGY ■ educational topics and communi- MANAGEMENT cation channels that will help utili- ties get their EV-owning customers ast year Constellation En- up to speed; ergy launched its new en- ■ advice on engaging key third par- ergy management product, L VirtuWatt, a combination of hardware and online applica- tions that allows commercial and Mario Ortiz industrial customers to manage and optimize electricity usage in real- time and lower their energy bills by reducing consumption during peak pricing periods. Electric Perspectives recently spoke with Peter Kelly- Detwiler, Constellation Energy’s se- nior vice president of load response,

Courtesy: Xcel Energy about the success of the program.

14 ELECTRICEELECTRICL E C T R I C PERSPECTIVESPPERSPECTIVESE R S P E C T I V E S What is your Smart Grid Vision?

Ask anyone to define the smart grid and you won’t get the same answer twice. That’s because no two utilities have the same requirements. Sensus lets you define the smart grid in your own terms. Our FlexNet™ system gives you a secure, utility-owned data highway for mission critical applications like smart metering, distribution automation, demand response and more, each communicating over its own dedicated channel. So you can build your smart grid of today with flexible, expandable technology to accommodate tomorrow’s needs. No matter how you define it, the smart grid is only as smart as the people who build it. So let’s build it together.

Sensus customers already have over 10 million endpoints deployed and communicating. Learn more at sensus.com/buildit How many industrial/com- to grow. The second element is the capability across more than 250 mercial customers use VirtuWatt? automated bidding platform. It lets Marriott-managed hotel properties Before I answer that, let me make customers bid ancillary service ca- in the mid-Atlantic, New England, three distinctions about the applica- pacity. The third element is the auto- New York, Texas, and California. tion. There is real-time metering and mated load control part—with that, Was VirtuWatt developed by real-time pricing—what customers we have about half a dozen custom- Constellation specifi cally for its are consuming, and what it’s costing. ers, 64 sites, and 15 mega- After a big push this year, we now watts. And we just signed a have the majority of our 1,700 mega- contract with Marriott In- watts of dispatchable load in direct ternational for more than 23 metering. That number continues megawatts of load response

SITTING IN THE SHADE

he sun a rich data set showing mitigated can constantly what actually happens cause surges, shines on the when clouds pass by. greater Á uc- Earth, and Seventeen measure- tuations, and T Constellation Energy’s VirtuWatt combines clouds irregularly pass ment stations near headaches hardware and online applications for commercial by, shading parts of Hawaii’s Honolulu Inter- for the util- and industrial customers. the world for better or national Airport on the ity operator, worse. What happens island of Oahu collected Renne said. when those clouds Á oat data at 1-second inter- Storage of PV-gener- customers? Yes, it came out of our vals over ated electricity is one need to provide a higher level of the course way to handle those service to our commercial and in- of a year— Á uctuations. Another dustrial retail customers. We serve the data set, is to stabilize the grid two-thirds of Fortune 100 customers derived from via infrastructure and and more than 15,000 megawatts of measure- software packages. retail load across the United States. ments taken By understanding the We set up the load response busi- at exactly characteristics of cloud ness as a solution for our custom- the same shadows, utilities can ers’ diverse needs. Since we didn’t time, allows sharpen strategies to see that anyone else had a platform solar arrays better manage the inter- that could serve them, we built it to “see” mittency. ourselves. Many customers want to clouds mov- One new insight is dramatically improve ing through that very large arrays their energy aware- and simu- of solar panels help ness and ability to lates how smooth the Á uctuations, respond to markets the system compared to the sharp across multiple facili- between the sun and a might behave. spikes and plunges ties. Our custom so- Bigstock large solar photovoltaic “The data has to be that can happen when lution is designed to (PV) installation? How collected every second a cloud passes by a facilitate the achieve- much is lost in the ef- because PV systems single panel or small ment of such goals. fort to convert the sun’s respond very quickly to rooftop array. How much energy photons into electrons shadows,” said NREL The data set, which are customers saving?? FoForr exexample,ample for electricity? senior scientist David can model systems we say to a customer in a market The National Renew- Renne. “Clouds can up to 30 megawatts, such as PJM Interconnection: “We able Energy Laboratory cause pretty signiÀ cant should be of great inter- will pay you up to $40,000-50,000 (NREL), in collaboration jumps or ramps over est to utilities, the de- per megawatt per year in exchange with General Electric, a very short period of velopers of large-scale for your willingness to be bumped the Hawaiian Electric time.” PV systems, forecast- for six hours [up to ten hours] a year. Company, and the Ha- Those jumps can ers, system operators, In addition, if the energy price per waiian National Energy cause Á uctuations in laboratories, and uni- kilowatt-hour goes up X amount, we Institute, has produced the grid, which if un- versities. will implement a preset number of

16 ELECTRIC PERSPECTIVES “We need partners that understand our vision for the Smart Grid.”

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Find out more at Aclara.com 1.800.297.2728 | [email protected] changes to your energy consump- tion strategy, such as dimming the lights or turning up the thermostat 1-2 degrees, etc.” What are the advantages of Virtu- Watt over conventional energy load management? Most energy load management systems are meant to manage the interface for the more COAL PRODUCTION AND CONSUMPTION straightforward capacity load re- sponse programs but don’t take pric- oal production in the United States totaled 1,084.4 million ing of the actual kilowatt-hours into short tons in 2010 (about the same as 2009’s total of 1,074.9 account. But we are in the energy million short tons), according to the Energy Information markets every day. We have much Administration’s (EIA’s) “Annual Coal Report” released in late more information now that can be C November. Wyoming continued to be the largest coal-producing state made available. We can make folks with 442.5 million short tons, 2.6 percent higher than the 2009 total of more aware of what they are con- 431.1 million short tons. suming and how much it is costing Coal consumption totaled 1,051.3 million short tons, up 5.1 percent them—at one minute intervals—if from the 2009 consumption level of 997.5 million short tons. EIA attri- they want that type of information. butes this increase to higher consumption in the electric power, manu- We also have added several new facturing, and coke sectors in 2010. features to VirtuWatt that enable greater control in monitoring and managing energy use, such as an Smart grid jobs will be fi nancially positions. One utility forecasts a lo- enterprise-wide view of power con- rewarding, says the report, making a cal economic benefi t of $9 million sumption. Access to real-time pric- utility career attractive to new workers. annually through retraining more ing combined with automation has But while new talent is important, than 200 potentially displaced work- enabled customers to be much more retraining existing utility employees ers for smart-grid-related positions. strategic about how and when they and tapping into their best practices GridWise notes that skills to manage use electricity. is critical, the report points out. new communications infrastructure, Certain legacy data, customer service, and strategy positions, such development are key competencies GOOD JOBS as meter read- for the smart-grid worker. ers, will require A recent Center for Energy Work- he GridWise retraining for force Development (CEWD) report, Alliance’s re- other available “The Smart Grid Evolution: Impact cent report, T “The U.S. Smart Grid Revolution: Smart Grid Workforce Trends 2011,” recom- mends that government, industry, and schools develop curricula with a broad base of knowl- edge and skills that tap into the smart grid’s job-growthrowth

potential. Bigstock “The future of the workforce depends heavily on collaboration among industry, academia, and gov- ernment and will require reform in all sectors of society, including edu- cation, technology, and customer service,” said Bob Shapard, the alli- ance’s chairman.

18 ELECTRIC PERSPECTIVES on Skilled Utility Technician Posi- Community College in Covington, to keep on saving even when the tions,” states that while utilities will KY, to launch an associate in applied economy improves, according to a need to train employees as new tech- science degree in energy technolo- recent Deloitte study. About 45 per- nologies are introduced, the existing gies. Progress Energy has teamed up cent of Americans have been directly competencies will not change—the with Richmond Community College affected by the recession (through introduction of new technologies in Hamlet, NC, to develop a substa- job loss or income reduction), ac- does not, in and of itself, require new tion and relay technology program. cording to the study. Ninety-fi ve skills. For example, smart grid tech- Both programs are based on CEWD’s percent do not intend to return to nologies will require upgraded IT Get Into Energy Career Pathways pre-recession energy spending even expertise, particularly with engineer model, which is designed to provide if the economy improves. positions. People who want to move a roadmap for utility technician po- “We are seeing a profound and, in into utility careers may need train- sitions. The idea is to train for funda- many ways, grassroots movement ing to enhance their skills. But using mentals and then add new skills as toward energy conscientiousness current two-way communications, technology changes. among businesses and consumers,” for example, has prepared substa- said Greg Aliff, vice chairman and tion, relay, and distribution network U.S. energy and resources leader at operators with the skills to manage CONSCIENTIOUS Deloitte. The study also shows that data, identify problems, and initiate ENERGY CONSUMERS 52 percent of companies are working solutions on the smart grid. to reduce energy costs by 25 percent Many utilities and local com- ixty-eight percent of con- in the next two to three years. munity colleges have programs to sumers take extra steps A recent study from the Con- attract people to the modernized to cut their electric bills sumer Electronics Association utility. Duke Energy is partnering Sbecause of the recent re- (CEA) showed that nine out of ten with the Gateway Technical and cession, and the vast majority intend consumers who enrolled in an elec-

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National Carbon Capture Center in Wilsonville, Alabama

©2011 Southern Company tricity management program (that controls their air conditioning and FIRST HOLIDAY LIGHTS heating units through a program- mable display) said that lowering his probably won’t surprise their monthly bill was a reason for too many people, but Thomas participating. Thirty-six percent of Edison created the À rst strand consumers are aware of a similar T of electric lights, and his assis- program in their area, and among tants hung strands around the outside those, 24 percent are enrolled in one. of his Menlo Park Laboratory in New Jersey during the holiday season Lowering electricity costs guides of 1880. Edward H. Johnson, Edison’s friend and partner in the Edison consumer efforts to conserve and Illumination Company, built on Edison’s manage electricity use, said Tim concept in 1882 by wiring 80 red, white, and blue light bulbs together and winding them Doyle, CEA’s senior manager of envi- ronmental communications. around his Christmas tree. Not only was the tree illuminated by electricity, but it also revolved. Courtesy: GE

The DOE-QTR defi nes six key recognizes that the department is

Courtesy:ComEd energy strategies: increase vehicle not the sole agent in transforming effi ciency; facilitate electrifi cation the system,” said DOE undersecre- Not surprisingly, according to Doyle, of the light duty fl eet; deploy alter- tary Steven Koonin. “Through dis- consumers are more concerned native fuels; increase building and cussions with hundreds of energy about electricity costs (60 percent) industrial effi ciency; modernize the stakeholders, we have learned that, than other power-related concerns electrical grid; andnd deploy clean beyondb our technology such as total home usage or rising electricity. In developmentd activi- demand. More than half (55 percent) addition, DOE ties,ti the department’s expressed interest in an energy man- tasked itself uniqueu role as a conve- agement program from their utility. ■ to give greater nern and source of accu- emphasis to the rate techno-economic transport sector information is a great QUADRENNIAL relative to the public benefi t.” TECHNOLOGY REVIEW stationary sector;r; The DOE-QTR at- ■ to devote its tempts to bind he Department of Energy greatest effort to together multiple released its fi rst Quadren- electrifi cation of energy technolo- nial Technology Review the vehicle fl eet gies,gies, as well as multiple DOE energy (DOE-QTR) last September, (among the transportsport strategies); strategies); technology programs, pr in the com- T ■ as recommended by the President’s to increase emphasis on effi ciency mon purpose of solving the nation’s Council of Advisors on Science and and understanding the grid within energy challenges. It also provides a Technology. Modeled after similar the stationary heat and power sec- multi-year framework for program military reviews that the Pentagon tor; and planning by looking at a broader, uses to set goals and anticipate ■ to develop a stronger and more longer-term view than the annual needs, DOE’s version is an assess- integrated policy, economic, and budget process. According to DOE, ment of the department’s energy technical analyses of its research and the review allows the department technology research and develop- development activities. to provide consistent and predict- ment priorities. It also is a step to- “With nearly 90 percent of the able support for the success of its ward a national energy policy, said energy system owned and operated research, development, and demon- the department in a press release. by the private sector, the DOE-QTR stration activities. ◆

NOVEMBER / DECEMBER 2011 21 SOLAR PROGRESS BY ROBERT GIBSON

22 ELECTRICE L E C T R I C PERSPECTIVESP E R S P E C T I V E S StillStillla a ssmallmall parppartt ooff the pportfolio,ortfolio, sosolarlar ppowerower ssawaw ttriple-digitriple-digit ggrowthrowth in eaeachch of tthehe llastast ttwowo yyears—withears—with tthehe ssteepestteepest iincreasencrease ccomingoming in ututility-ownedility-owned sosolarlar pprojects.rojects.

Courtesy: BrightSource Energy NOVEMBERNNOVEMBERO V E M B E R ///DECEMBER DECEMBERD E C E M B E R 20112 011 23 OLAR ENERGYmade S headline news this fall but not the kind of news that cheered the solar industry. Solyndra, the bank- rupt solar manufacturer from California, became a symbol of the downside of government energy loans. The criticism expanded into knocks against the viability of solar in general.

Solyndra used an innovative struc- States is expected to be the largest so- tural design and a high-effi ciency thin lar market in the world within the next photovoltaic (PV) fi lm technology—a four years. As a result, the number of technology that many believe will be- solar jobs is growing here, including come important for future solar. But at electric utilities. China has invested the powerful supply-demand market heavily in solar production and domi- forces at work this year drove conven- nates some aspects of the global solar tional PV prices down at an exponential trade. But the United States was a net rate, making it diffi cult for a new and exporter of solar products in 2010—by more expensive technology to be com- $2 billion—with 75 percent of the net petitive. When the controversy over value of domestic solar installations in Solyndra expanded to claims that solar 2010 staying at home. had little or nothing to offer in the ef- As recently as the mid-1980s, the fort to meet future energy needs, facts major market for solar PV cells was were left by the wayside. calculators and watches. By 2000, the It is true that solar meets less than installed solar generation capacity in 1 percent of the country’s electricity the United States totaled 5 MW—com- needs. But solar is also the fastest- prised mostly of customer-owned sys- growing energy resource in the United tems atop homes and small businesses. States, and its once high price tag is By mid-decade, third-party developers falling rapidly, with a 25-percent brought new scale and activity to the Courtesy: Sempra Energy drop in the installed cost of larger PV commercial market by offering no-cost projects in just the past 18 months. solar to large customers, essentially also marks the first time that more This year electric utilities have signed selling “solar kilowatt-hours” on per- than 1 GW of solar will be added in one power purchase agreements (PPAs) for formance contracts instead of “solar year—and that will bring the cumula- less than 10 cents per kilowatt-hour— kilowatts.” By the end of the decade, tive total of solar in the United States prices do vary depending on location, utilities became major buyers of solar to nearly 4 GW. but that is an amazing number for an through PPAs to meet state renewable industry that was north of 20 cents/ portfolio requirements. Other Infl uences KWH a few years ago. The latest change is the rise of util- Solar is becoming comfortable in di- Many countries are ahead of the ity-owned solar, which grew by 300 verse locations. An old myth about United States in their use of solar-gen- percent between 2009 and 2010. Fur- solar is that it works only in the sun- erated electricity. But utilities are help- ther, electric utilities have announced niest locales. Indeed, it does work bet- ing this country pick up the pace. The plans to build more than 800 MW of ter where there is plenty of sunshine, utility-scale market is a signifi cant new solar in the next few years. but cloudy Germany, which has a solar growth area for solar, and the United The result is that grid-connected resource worse than almost any loca- solar grew by more than 100 percent tion in the lower 48 American states, Bob Gibson is vice president, market intel- ligence, at the Solar Electric Power Associa- in each of the past two years—in the leads the world in solar capacity with tion in Washington, DC. middle of a recession, no less. This year more than 17 GW installed. But for

24 ELECTRIC PERSPECTIVES net-metered solar—where homes and systems. In 2008, California accounted With 775,000 thin-fi lm PV solar panels, businesses generate power that offsets for 75 percent of all new solar. In 2010, Sempra Energy’s Copper Mountain facility in their electric bill charges—the solar the majority of new solar (63 percent) Boulder City, NV, generates 48 megawatts. resource needs to be compared to the was outside the state. Seven of the last price of retail electricity, making the year’s top ten utilities (measured by legislative mandates for renewables less sunny Northeast United States solar capacity) were from outside Cali- (and now, in 16 states, by solar targets), net-competitive with brighter loca- fornia; and four were located in the and the accompanying solar renew- tions in the Southwest. Eastern United States. able energy credit markets. Federal tax And solar really is spreading across Lower prices for solar components policy—whereby companies can take the country. California, with its sun- and installation help, as well. Glob- advantage of either the 30-percent in- shine, high retail prices, and strong ally, prices have declined signifi cantly vestment tax credit or the Treasury’s policies propelling solar development, over the past decade, largely due to 1603 cash grant program—have had is still the epicenter of the U.S. solar European policies that accelerated major impacts. (The grant program ex- market. But that’s changing quickly. markets, which led to new investments pires in December, but the credit con- Every year, the Solar Electric Power in manufacturing effi ciency and sig- tinues through 2016.) Association (SEPA) ranks U.S. utilities nifi cant economies of scale. The U.S. In the past six months, the falling by the amount of solar added to their market has been driven largely by state prices of PV modules shipped out of

NOVEMBER / DECEMBER 2011 25 Asia, while hampering many solar and Getting Bigger.) The largest con- First Solar component manufacturers, have con- centrating solar power (CSP) project tributed to historically low PPA prices. in nearly 20 years was also installed in 350 West Washington Street In this market, it’s all about price per 2010—Florida Power & Light’s hybrid Suite 600 kilowatt-hour, not high-effi ciency solar CSP-natural gas facility. (See sidebar, Tempe, AZ 85281 cells. It is part of an expected and con- “Technologies for Utilities.”) Central- www.fi rstsolar.com tinuing shake-out and consolidation in ized projects totaled 226 MW in 2010, a volatile global market. up from 46 MW the year before. Contact According to the SEPA analysis, the Adam Benzion trend of centralized projects also is Jobs, Jobs, Jobs 877.850.3757 changing the profi le of solar electric Electric utilities are a small but fast- info@fi rstsolar.com power. Traditionally, solar markets growing segment of the overall solar have relied on distributed PV for most jobs picture in the United States. It is As a premier provider of compre- hensive photovoltaic (PV) systems, new capacity. However, centralized generally a supporting role. At a mini- First Solar develops value-driven projects are gaining new traction— mum, all grid-connected solar electric renewable energy projects that eight such projects greater than 10 MW projects are interconnected and con- deliver higher energy yields in real each were installed in 2010. This in- tracted through the utility, but utilities world conditions and maximum cluded what are now the two largest PV also provide facilitating roles for many returns on customer investments. projects in the United States: the 48- technologies in different market seg- MW Copper Mountain project in Ne- ments and sizes through incentives, First Solar solutions span the vada, with power purchased by PG&E, formal procurement mechanisms, entire value chain from project and the 30-MW Cimarron project, in industry development and educa- development, through engineering, New Mexico, purchased by Tri-State tion initiatives, and long-term utility procurement, and construction Generation & Transmission Coopera- planning. This involves employees or (EPC), to operations and main- tive Association. (See the sidebar, “Big contractors—primarily program or tenance (O&M). We’re focused on driving down the cost of solar energy and making it a sustainable complement to existing generation portfolios.

Whether we’re partnering with the world’s leading project developers, minimizing risk through industry- leading project development capabilities, or delivering world- class EPC and O&M offerings to the world’s top utility companies, First Solar’s full-service approach ensures the successful delivery of clean, affordable solar power.

26 ELECTRIC PERSPECTIVES project managers and engineers—who megawatts the utility has integrated This may seem high, relative to the work on solar the majority of the time. annually. For example, utilities manag- MW output of other generating sources, But there is a list of other supporting ing 2-10 MW of solar had an average but the average number of systems in- roles to meet planning, legal, policy, of 4.7 employees working in that area, stalled per utility was more than 300. procurement, regulatory, customer while those managing 10-50 MW had Many of these utilities may have incen- service, and other needs. As the solar more than 12 employees. The overall tive programs for customers, as well as markets expand with increasing num- average was about four employees to the processes and procedures necessary bers of distributed projects, large-scale manage 7 MW of solar. for contracting and interconnection. individual projects, and new initia- tives involving utility ownership, the breadth and depth of utility employees touched by solar will continue to grow. To get an indication of future utility staffi ng needs as solar portfolios grow, SEPA recently analyzed the National Jobs Census results (as compiled by The Solar Foundation) with its 2010 Utility Solar Rankings data. The data show strong correlation between the number of utility employees working on solar and the amount of solar in

The National Solar Jobs Census 2011 counted more than 17,198 solar employ- ment sites and 100,237 solar jobs.

Powering Ahead

5GW Installed Worldwide

— Proven large-scale EPC leader — ,ŝŐŚĞƌĞŶĞƌŐLJLJŝĞůĚƐŝŶƌĞĂůǁŽƌůĚĐŽŶĚŝƟŽŶƐ — DĂdžŝŵƵŵĮŶĂŶĐŝĂůƌĞƚƵƌŶƐŽŶĐƵƐƚŽŵĞƌŝŶǀĞƐƚŵĞŶƚƐ — &ƌĞĞŽĨĐŚĂƌŐĞŵŽĚƵůĞĐŽůůĞĐƟŽŶĂŶĚƌĞĐLJĐůŝŶŐ

>ĞĂƌŶŵŽƌĞĂƚĮƌƐƚƐŽůĂƌ͘ĐŽŵ Courtesy: AG SolarWorld

NOVEMBER / DECEMBER 2011 27 The Impact on the Business Model placed distributed generation being like California, Hawaii, and New Jersey. At the same time, solar is one of many connected to utility lines is of concern Many analysts expect solar retail grid relatively new issues complicating the to engineers and operations staff. parity without incentives to occur in utility business. The rules and proce- One of the next big issues is revenue large parts of the United States in the dures governing everything from solar erosion and equitable cost recovery in next fi ve to ten years. incentive programs to net metering the face of more net metering-based As distributed solar moves into the to interconnection are time- and re- solar. With incentives, solar has already mainstream, it offers opportunities source-intensive and sometimes con- reached “retail grid parity”—the cost alongside the management headaches. tentious. In states with strong policies of the output of solar systems meet- While the delivery of electricity is criti- encouraging solar development, the ing the kilowatt-hour cost of electric- cal to every customer, the relationship impact of unplanned and randomly ity sold by the utility—in a few places between the customer and the utility

Solar Frontier Big and Getting Bigger 3945 Freedom Circle, Suite 360 empra Generation’s 48-megawatt (MW) Copper Mountain Solar complex in Boulder Santa Clara, CA 95054 City, NV, is currently the largest photovoltaic (PV) solar plant in the United States. www.solar-frontier.com S And a major expansion, Copper Mountain Solar 2, is expected to begin in early 2012. Pacific Gas & Electric (PG&E) has a 25-year contract to purchase the power generated Contact Tomoya Shitara at the new 150-MW solar 408.916.4150 plant. First Solar will install [email protected] the first 92 MW of solar pan- els by 2013 and complete the Solar Frontier’s mission is to remaining 58 MW by 2015. create the most economical, Sempra Generation also ecological solar energy solutions is developing the 4,000-acre on Earth—on the world’s largest Mesquite Solar complex scale. Our proprietary CIS technol- near Phoenix, AZ, that will ogy (for key ingredients copper, generate up to 700 MW when Mesquite Solar 1, indium, and selenium) combines completed in 2013—enough located near Phoenix, compelling economics and energy to make it North America’s AZ, will generate 150 conversion effi ciency today—and largest PV installation. Con- megawatts when com- pleted in 2013. greater potential for tomorrow— struction on the 150-MW first AP Images with superior reliability, stability, phase of the complex—Mes- sustainability, non-toxicity, design, quite Solar 1—began last summer. Suntech will provide the solar panels, and Advanced and lower overall energy consump- Energy will provide the inverters that convert the variable direct current output of the PV tion in the manufacturing process modules into alternating current that can be fed into the grid. The power from Mesquite Solar to yield a faster energy payback 1 will be sold to PG&E under a 20-year contract. time. Our new 900-MW production Other large-scale PV projects on the horizon: plant in Miyazaki, Japan, com- ■ NextEra Energy Resources and GE Energy Financial Services recently bought one of the menced operations in 2011 and world’s largest PV solar power projects—the 550-MW Desert Sunlight Solar Farm near Des- is the world’s largest CIS factory, bringing us to gigawatt-class pro- ert Center, CA. Project construction began last September, with full commercial operation duction levels and enabling us to expected by 2015. meet worldwide demand for a new ■ Exelon Corporation acquired Antelope standard in affordable solar panel Valley Solar Ranch One, a 230-MW project performance. under development in northern Los Angeles County. Construction has started, with the first portion of the site expected to come online in late 2012 and full operation planned for late 2013. Courtesy: First Solar ■ NRG Energy acquired the 290-MW Agua Caliente solar project located in Yuma County, AZ, in 2010 and expects it to be completed by 2014. The company also recently purchased the 250-MW California Valley Solar Ranch in San Luis Obispo County and expects to begin partial operations by early 2012, with the bal- ance of the project coming online later in 2012 and 2013.

28 ELECTRIC PERSPECTIVES The new solar standard

Find out more. Visit www.solar-frontier.com today.

Americas Solar Frontier Americas Inc., 3945 Freedom Circle, Santa Clara, CA 95054, USA, Tel: +1 408 916 4150 Europe Solar Frontier Europe GmbH, Bavariafilmplatz 8, 82031 Grünwald bei München, Germany, Tel: +49 89 92 86 142 22 Middle East Solar Frontier K.K. Technical & Scientific Office, Eastern Cement Tower, #306, King Fahd Road, Al Khobar, Kingdom of Saudi Arabia, Tel: +966 3882 0260 Asia (HQ) Solar Frontier K.K., Daiba Frontier Building, 2-3-2 Daiba, Minato-ku, Tokyo 135-8074, Japan, Tel: +81 3 5531 5626 on a day-to-day basis is at best passive Solar has the potential to provide researchers together to design and test and generally invisible. In contrast, tangible operational benefi ts (and sav- the intelligent communication, con- how a utility responds to a request to ings) to the utility, as well. One test of trol, and storage technologies that can interconnect a rooftop PV system or smart-grid technologies will be to see help turn a variable and often distrib- sign up for a community solar pur- if advanced communications and con- uted resource into a reliable and valu- chase offers a high-profi le opportunity trol measures, along with energy stor- able power source. to make a positive impression on cus- age, can allow the utility to effectively Recent SEGIS projects have involved tomers and policy-makers. manage increasing solar penetration. such utilities as Public Service Enter- In addition to customer and public And it is also probable that utilities prise Group, Portland General Elec- relations benefi ts, some planners en- might adopt solar more readily and tric, and Pepco Holdings. They tested vision that solar, or at least the man- robustly if it can be made to “act” more a variety of intelligent technologies agement of the resource, can become like conventional generation. That’s ranging from mesh-networked control a new source of revenue generation one of the goals behind the DOE’s Solar and communication of utility pole- for the utility, particularly if deployed Energy Grid Integration Systems (SE- mounted PV to advanced smart invert- in concert with new load-producing GIS) research program. It brings utili- ers that can manage many functions, technologies such as electric vehicles. ties, equipment manufacturers, and including demand response.

Technologies has dropped. Some solar generation owners are converting many hundreds-of-megawatts projects from CSP to PV. for Utilities One promising use of CSP is to pre-heat water for a fossil-fueled steam generation plant, thus reducing the amount of gas or coal here are two basic types of solar electric power technolo- required in conventional power production. A leading example of gies: photovoltaic (PV), which produces electricity directly this hybrid configuration is the 75-MW Martin CSP plant installed by T from sunlight; and concentrating solar thermal power (CSP), Florida Power & Light and commissioned in 2010—the CSP system which uses the sun’s heat to produce steam to drive turbines to reduces the gas required to run the adjacent 3,705-MW combined- produce electricity. cycle power plant. CSP closely resembles traditional utility generation. But, in Another concentrating solar technology that recently has gained this case, the CSP system can store solar heat and use it for hours commercial sales and installations is concentrating PV (CPV)—this (depending on the design) after sunset. This extends its delivery of power and helps provide peak demand coverage in the evening hours. On the downside, CSP has a limited geographic foot- print compared to PV—most CSP technologies require the strong, full sun of the desert Southwest. CSP requires water (again, the amount varies with the design) and is more suscep- tible to environmental permitting issues as a result. Also, CSP projects don’t necessarily have a central commodity component, like a PV panel, that could have a breakthrough price reduc- tion; reductions will be more incremental. Most important, however, is that the cost of PV

With 24,000 mirrors, eSolar’s Sierra SunTower solar thermal plant powers more than 4,000

homes in California. Courtesy: eSolar

30 ELECTRIC PERSPECTIVES Sandia National Laboratories is research- Different Programs ing how to use glitter-sized photovoltaic The policies that have driven the fast cells in utility-scale solar power systems, expansion of solar in the United States which eventually could cut the costs of may not have been designed with eco- solar panels in half and nearly double nomic interests of electric utilities in their effi ciency. mind, but utilities are proving to be creative in their responses. In mar- Other research delves into managing kets from California to New Jersey, areas where there is a high penetra- utilities have had a signifi cant impact tion of PV. One topic is “fi ne-tuning” on shaping and expanding local so- the reasonable limits of manageable PV lar markets. Research by SEPA and the power depending on individual circuit Electric Power Research Institute de- loads and capacities. Another focus is fi nes 89 distinct solar business models the potential for PV to supply ancillary that utilities have developed in both services, such as volt-ampere reactive regulated and unregulated markets.

Courtesy: Sandia National Laboratories support. The business models include incentive

SolFocus CPV technology employs a system of patented refl ective optics to concentrate sunlight 650 times onto small, highly effi cient solar cells. focuses intense sunlight with mirrors and lenses onto high-efficiency PV cells. CPV has a geographic footprint similar to CSP. The generic image of solar power is the glass of the silicon PV rooftop module glit- tering in the sun. Despite inroads by some thin-film technologies—indeed, First Solar, with its cadmium telluride thin film, has be- come a world leader in low-cost solar mod- ules—crystalline and polycrystalline silicon PV remain the workhorses of solar electric materials. They are proven, durable, and still coming down in price.

On the Horizon Courtesy: SolFocus Thin film photovoltaics (PV), made with a va- riety of materials potentially more versatile than silicon conditions. Those cells have a solar-electric conversion efficiency and potentially easier to mass-produce,ass-produce, lie ((mostly)mostly) of 33 pepercent,rceen and Emcore is developing panels that reach 36 per- in the future. Some thin-filmm materials cent.cent. with promise include copperper Nano andand organic solar materials may expand the versatility of indium gallium selenide solarsolar use, pperhaps someday allowing the solar junkie to realize his (the material used by dream of eeveryv exterior surface clad or painted with some form of

Solyndra) and amorphous Courtesy: GE electricity-producingellectricity-p PV material. But these are still in the labora- silicon (a cousin of crystal-- ttoryory stage.stage. line technologies). Two yyearsea ago, National Renewable Energy Laboratory re- Future supplies of high-efficiency-efficiency PV maymay seasearchers,r using lens concentration, produced a PV cell that come from technologies stilltill rrunninguunning thetheirir ppaces,aces, broke the 40-percent efficiency barrier. But that cell is such as multi-junction andd inverteinvertedd metamometamorphicrphic incredibly expensive and a long way from commercial cells. Emcore Corporation rerecentlycently relreleasedeaased into production.p low-earth orbit two such panelsanels duduringuring the final spaspacece TheT most efficient cells found in competitively priced shuttle mission in July—thehe cocompany’smpany’s effort is to assess commercialcomm modules may reach efficiencies of 16 percent, the performance of the cell’sl’ ttechnologiesh l i underd space fflightli ht withith 2121 percent on the high end.

NOVEMBER / DECEMBER 2011 31 Courtesy: Walmart

About 55,000 PG&E customers have AE Solar Energy inverters and SiteGuard® whole-site onsite solar systems with a total capacity O&M services, AE enables utility-scale, approaching 500 megawatts. 20720 Brinson Boulevard commercial, and residential solar Bend, OR 97701 project developers to maximize the and other customer programs, fi nanc- www.advanced-energy.com/solar- lifetime value of their power plants by ing options, purchasing options, and energy providing innovative, reliable, easy-to- innovative ownership structures. install PV inverter solutions backed Utility solar portfolios (and their Contact by a legendary customer experience. business models) differ by project Jessica Lord Customers count on AE as a trusted technology (PV or CSP), type (distrib- 541.312.3832 partner leveraging 30 years of innova- uted or centralized), and ownership [email protected] tion leadership and global services (customer, third-party, or utility). In infrastructure for optimum project addition, they differ from utility to util- Advanced Energy (Nasdaq: AEIS) is performance. For more information on ity due to different state policies, utility a leader in power conversion solu- Advanced Energy’s inverter solutions, preferences, solar resources, electricity tions for thin-fi lm manufacturing please visit www.advanced-energy. prices, incentives available, and other and renewable energy markets. com/solarenergy. factors. Some utilities purchase power from systems like rooftop PV, which The company’s solar energy busi- their customers own; others are creat- ness is driving the adoption of ing a solar electric market by procur- solar by lowering the levelized cost ing or owning large amounts of solar of energy (LCOE) for our custom- generation resources. Many are doing ers. By providing reliable, easy-to- both. Like different investment port- install Solaron® and PV Powered™ folios varying in percentages of stocks, bonds, and cash, the SEPA analysis of

32 ELECTRIC PERSPECTIVES Finally, someone beat Advanced Energy’s 97.5% CEC efficient solar inverter. It’s the new 98% efficient Solaron 500 HE.

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Advanced Energy, Solaron, and PV Powered are U.S. registered trademarks or service marks of Advanced Energy Industries, Inc. the top 10 solar utilities shows varying pouring power into the distribution worth of PPAs coming online between amounts of solar portfolio options. system—a system designed originally 2011 and 2017, in addition to 250 MW PG&E is a good example of a util- for one-way delivery of electricity. of utility-owned projects. ity that approaches its state’s policies The utility also is preparing to com- on many fronts. About 55,000 of the ply with the state’s new renewable So Bright, Etc. utility’s more than 5 million custom- portfolio standard—33 percent of retail Solar power is becoming recognized ers have onsite solar systems; the total sales—and implement a separate 765- as an important element in the energy capacity approaches 500 MW. Those MW customer rooftop allocation under are large numbers, and the utility is a the California Solar Initiative. PG&E The Ivanpah solar thermal complex, under pioneer in testing the effects of con- has a large solar project pipeline—an construction in California, will help SCE centrated pockets of solar customers estimated 35 projects and 4,350 MWs and PG&E comply with the state’s new RPS.

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34 ELECTRIC PERSPECTIVES REACTORS MINING FRONT END BACK END RENEWABLE ENERGIES & SERVICES Solar Simplified: High efficiency that is low-cost and water-wise

AREVA’s Compact Linear Fresnel Refl ector solar steam generators are installed at the Kimberlina solar thermal power plant, Bakersfi eld, CA. credit: Inc. All Rights Reserved. Eric Art James Swearingen, Photo 2011 AREVA of Eric James

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www.solar.areva.com supply planning and customer energy management of utilities nationwide. At Solar Boosters EEI’s Annual Convention last June, one By Milton Venetos of the Critical Issue Forums was on the impact of solar for utilities. SEPA CEO Ju- oncentrated solar power (CSP) systems can play the role of booster by producing lia Hamm asked the three utility execu- steam that can be integrated into the steam cycle of existing fossil-fuel, geothermal, tives on the panel—Moray Dewhurst, C or biomass plants. As such, CSP can bolster plant output to meet increased demand (vice chairman and CFO of NextEra without added emissions—or it can offset fossil-fuel consumption and reduce emissions. Energy), Don Robinson (president It is also one way to maximize the value of existing plant assets with an incremental and chief operating offi cer of Arizona investment that averts the costly expense and Public Service), and Michael Yackira long lead time of building a new plant. In (president and CEO of NV Energy)—to many areas of the country, the increased value speculate on what percentage of their can include reaping environmental reduction utilities’ energy resource mix would credits or meeting a state’s renewable portfolio standards (RPSs). In Areva Solar’s system, for example, its Solar compact linear fresnel reflectors (CLFRs) are Electric Power modular and scalable—usually, power compa- Association nies can install them on current property. We estimate that a system with CLFRs can result 1220 19th Street, NW, Suite 800 in a levelized cost of electricity that is up to 30 Washington, DC 20036 percent lower than that from standalone solar www.solarelectricpower.org plants. Photovoltaic (PV) technologies are often Contact at the mercy of cloud coverage. In a hybrid Don Lintvet, Vice President, Out- system, CSP can offer “thermal inertia,” a kind reach of battery system that addresses such inter- 202.559.2024 Areva Solar’s mittency and grid integration concerns. The [email protected] Kimberlina solar Kimberlina Solar Power Plant in California, for thermal power plant in example, has reliably maintained superheated The Solar Electric Power Associa- Bakersfi eld, CA. steam under cloud cover for up to 18 minutes. tion (SEPA) is an educational non- Courtesy: Solar Areva The first CSP coal-fired booster was at Mac- profi t dedicated to helping utilities quarie Generation’s 2,000-MW Liddell Power Station in New South Wales, Australia. Since integrate solar power into their April 2008, CLFR technology displaces up to 3 MW of coal consumption. energy portfolios for the benefi t of the utility, its customers, and the A project in the Southwest United States will enable the existing coal-fired station to public good. With more than 1,000 produce the same amount of electricity during peak daylight periods as it does today, while utility and solar industry members, reducing coal consumption and helping the company meet its state’s RPS. SEPA provides unbiased utility solar In 2010, Florida Power & Light unveiled a 75-MW trough CSP booster to work with a market intelligence, up-to-date 1,200-MW combined-cycle power plant. Over 30 years, the hybrid system is estimated to information about technologies and prevent the emission of more than 2.75 million tons of greenhouse gases. business models, and peer-to-peer CSP augmentation can be a high-value approach for meeting increased demands for interaction. From hosting national electricity and tightening emissions standards. This is especially true in the Southwest, events to one-on-one counseling, where the desert provides rich possibilities for solar augmentation. For the coal power SEPA helps utilities make smart so- market alone, depending on which states are considered to comprise that area, there are be- lar decisions. For more information, tween 27 to 80 coal-fired power plants, producing from 10,000 to 40,000 MW of electricity. visit www.solarelectricpower.org. Milton Venetos is senior vice president, product management of Areva Solar.

derive from solar by 2031. All agreed energy, is changing the utility business that solar likely would make up 15-20 across the nation. As those companies percent of their power needs by then. combine long-term customer business Those executives are from the gen- relationships with the management of erally sunny states of Florida, Arizona, an increasingly intelligent grid, that and Nevada, respectively, but the evolution will strengthen the utility’s evolution of a range of technologies, role in the business of delivering solar including distributed and renewable power to the customer. ◆

36 ELECTRIC PERSPECTIVES Helping Utilities Make Smart Solar Decisions

Education t Market Intelligence t Utility Interaction Whether your utility is just beginning to explore solar power or experienced in integrating solar into your energy portfolio, the Solar Electric Power Association (SEPA) is committed to providing you with the unbiased information and opportunities for peer interaction you need to help build and manage a successful solar program. For information on the benefits of joining SEPA’s community of utility solar professionals, contact us at [email protected]. www.solarelectricpower.org/ep NAVIGATING aTRANSITION BY MICHAEL G. MORRIS The industry’s most recent Distinguished Leadership Award-winner applies lessons of the past to the electric utility agenda of the future.

AS I STEP ASIDE AS CEO of American Electric Power (AEP), our industry is in transition. We must invest unprec- edented levels of capital to generate and deliver electricity more effi ciently, reliably, and with less environmen- tal impact, at a time when our customers can least afford it. We need to harness the value of “smart” grid technologies and ensure that we give customers the right information and options for managing their energy use. We face increasing pressure to consolidate. And we are grappling with the idea of electricity as a transportation fuel. I joined the electric utility indus- try in 1988, at another time of transi- tion. Fresh from deregulation in the natural gas industry, I was absolutely convinced that electricity would be deregulated and customers would be able to choose their electricity supplier

no later than 1990. The industry was Courtesy: American Electric Power

38 ELECTRICE L E C T R I C PERSPECTIVESP E R S P E C T I V E S Completed in 2011, the scrubber at AEP’s John Amos Plant Unit 1 in West Virginia

reduced the plant’s SO2 emis- sions by 98 percent.

NNOVEMBERO V E M B E R //DECEMBERD E C E M B E R 22011011 39 facing stringent new environmental requirements from the we navigate this transition, we have to be mindful of our past 1990 Clean Air Act Amendments. Companies felt compelled and try not to repeat the same mistakes. to merge. And we were dealing with lingering concerns about nuclear safety. Sound familiar? Maintain Fuel Diversity Two decades later, our industry continues to wrestle with There is an unfortunate war on coal in our nation. Low many of the same political and business challenges. And we natural gas prices, well-funded anti-coal campaigns and the haven’t fi gured out many of the answers. The unprecedented aggressive regulatory stance of the Environmental Protection transition that we face gives us an opportunity to improve Agency (EPA) have made coal no longer viable as a near-term the way that we do business and enhance the value that we choice for new power generation, even for a coal-centric util- provide for our consumers and our nation’s economy. But as ity like AEP. That is troublesome. Mike Morris is chairman of American Electric Power. When I came to the electric utility business, I was con-

40 ELECTRIC PERSPECTIVES vinced that we should convert coal plants to natural gas, as it was clearly a cleaner, better way to generate electricity. Since that time, and particularly over the last eight years at AEP, I’ve developed a true appreciation for fuel diversity, specifi cally the energy value and cost-effectiveness of coal as a fuel for utility customers and the U.S. economy. No single fuel holds the answer for our future energy needs, and we shouldn’t rely on just one fuel for all the new generating capacity that we build in the near term. If we learn anything from our industry history, it should be that Courtesy: Nuclear Regulatory Commission over-dependence on a single fuel is not the best choice for our customers or our companies in the long term. With the rush to build natural gas generation, it’s imperative that we continue to address the environmen- tal impacts of coal and keep it in the generating mix. We cannot abandon this plentiful, valuable fuel. It will Courtesy: American Electric Power continue to be burned around the Continuing to maintain onsite storage at every U.S. nuclear plant globe, and it’s vital that we continue is not a viable long-term answer, according to Morris. to advocate for coal’s place in our na- tional energy future. toward clean coal is essential to achieving our goals of pro- Power Nor should we abandon the sig- viding clean energy, creating American jobs, and reducing nificant advancements we’ve made greenhouse gas emissions. It will all help position the United Electric in clean coal technologies, includ- States as a leader in the global clean energy race.” ing advanced coal generation and The challenge of maintaining generating-fuel diversity will American carbon capture and stor- be exacerbated by post-Fukushima concerns age (CCS). The successful about existing and new nuclear plants. Although

Courtesy: validation of integrated we began 2011 in the midst of a nuclear renais- CCS technology at AEP’s sance, the future for nuclear power in the United Mountaineer Plant in If we learn any- States and the world is much less certain today. West Virginia proved that thing from our With a middle-aged nuclear fl eet providing 20 it is technically possible to industry history, percent of our nation’s power, simply main- capture and permanently ‘‘ taining nuclear energy’s current percent share it should be that sequester carbon dioxide of generation will require building one reactor from a working coal-fu- over-dependence every year starting in 2016, the equivalent of 20 eled power plant. Now, we on a single fuel to 25 new nuclear units by 2035, according to have to make it more eco- is not the best Department of Energy (DOE) estimates. We must nomic. When completed calm fears and prevent irrational overreactions next year, AEP’s ultra- choice for our to the perfect storm of events that impacted the supercritical pulverized customers or our Fukushima Daiichi Plant, so that we can main- coal plant in Arkansas and companies in the tain and grow the critical contribution of U.S. Duke Energy’s integrated nuclear power to our energy mix. gasification combined long term. Prudence and safety demand that we also cycle plant in Indiana will advance a long-term solution for nuclear waste be the fi rst examples of the next gen- storage in our nation. One of the most glaring failures of U.S. eration of coal-fueled power plants. It nuclear energy policy is the fact that after more than three would be a mistake if they are the last. decades and $24 billion collected from electricity custom- Energy Secretary Steven Chu had it ers, we are no closer to having a permanent storage site for right when he said, “Charting a path nuclear waste. Continuing to maintain onsite storage at every U.S. nuclear plant is not a viable long-term answer. We The ultra-supercritical coal combustion must press the DOE and Congress for a long-term solution. It technology at AEP’s John Turk, Jr. Plant can’t wait another 30 years. (under construction in Arkansas) will use Natural gas generation is sexy again and is currently the less coal and produce fewer emissions. only viable near-term option for companies that need to

NOVEMBER / DECEMBER 2011 41 build new baseload power plants. With hydraulic fracturing The push for green energy also will continue, with re- bringing plentiful and cheap natural gas back to the market, newables and effi ciency becoming a growing part of our we can’t ignore the ability of natural gas to contribute to our generation mix. But even if we double or triple the renewable nation’s economic recovery or to help us quickly and inex- capacity on the grid today, it will remain a small percentage pensively cut emissions and replace aging generation. But, as of our total generating mix for some time to come. Renew- our industry once again dashes to gas, we should not forget ables also can’t be the near-term clean energy panacea that the impact of the last natural gas boom-and-bust cycle, and some hope. Every megawatt of renewable energy that we the glut of natural gas generation that fl ooded wholesale put on the grid today still must have suffi cient 24/7 baseload markets. AEP was on the winning side of the natural-gas plant power generation as backup. This was acutely evident during fi re sales in 2004 and 2005 and was able to purchase like- the heat wave that gripped the East Coast in July. During peak new natural gas plants for pennies on the dollar. Many other generating hours, less than 5 percent of the 4,800 megawatts companies were fi nancially devastated as they were forced of installed wind capacity in the PJM Interconnection was to unload plants that could no longer generate competitively generating, while every available megawatt of AEP’s coal- priced electricity. fueled fl eet was called on to help meet demand.

nuclear plant, a $679-million merger with Yankee Energy System, Exemplary Service and the acquisition of Connecticut Valley Electric Company. He also ichael G. Morris was born in was involved heavily in the formation of ISO-New England, as well as Fremont, OH, and possibly would restructuring and retail customer choice in the New England states. M be the most well-known person Morris joined AEP as chairman, president, and CEO in 2004. from that town were it not also the home of During his tenure, he has focused the company on its domestic President Rutherford B. Hayes and Charles utility business and championed development of new technologies Stilwell, who invented the revolutionary to reduce emissions from coal-fueled power generation, including and ubiquitous self-opening paper grocery operating the world’s first integrated carbon capture and sequestra- sack. Morris also would have to compete tion project at a working coal-fueled power plant—Mountain View. with the fact that Fremont once was known In addition, Morris has advanced the development of an interstate, as the “Cutlery Capitol of the World” and high-voltage transmission system in the United States to enhance produced the first Ginsu knives. grid reliability and efficiently transport bulk power. Not to say that Morris isn’t well known— This year, in addition to EEI’s award, Morris received the United he is a force in the utility industry as well as American business. States Energy Award from the United States Energy Association and Indeed, in September, his industry peers presented him with Edison the Humanitarian of the Year Award from the American Red Cross of Electric Institute’s Distinguished Leadership Award for his 23 years Greater Columbus. of exemplary service as an electric utility chief executive. Mike retired as AEP’s CEO on November 11—11/11/11, Armistice Morris graduated from Eastern Michigan University in 1973 with Day, and his 65th birthday. He will stay on as executive chairman of both bachelors and masters degrees in biology—between classes, the company’s board of directors until the end of the year, when he he commanded the Reserve Officers’ Training Corps Brigade. Later, will become non-executive chair. he served on the university’s Board of Regents from 1997 to 2004 While it’s true that the long decommissioned battleship USS Hayes and received the Distinguished Alumnus Award in 1995. got its name from Fremont’s presidential favorite son, not even How does a biologist find his way into the utility industry? It Charles Stilwell has the honor that AEP River Operations recently be- was pretty simple: After graduation, he worked in the environmental stowed on its retired CEO: a ship (more precisely, a towboat) named department of Commonwealth Associates (in Jackson, MI), where after him in his lifetime, the Merchant Vessel Michael G. Morris. he prepared environmental impact statements for electrical utility transmission lines, natural gas and oil pipelines, and power plants. Morris received a law degree from the Detroit College of Law. In 1986, he founded the ANR Gathering Company in Troy, MI, one of the first gas marketing companies in the United States. From there, he became executive vice president of marketing, transportation, and gas supply for ANR Pipeline Company and then president of Colorado Interstate Gas Company. In 1989, Morris became president of CMS Marketing, Services, and Trading and then president and CEO of Consumers Power (now a subsidiary of CMS Energy). From 1997 to 2003, he was chairman, president, and CEO of Northeast Utilities System and led The Merchant Vessel Michael G. Morris.

the company during its $1.3-billion sale of the Millstone Station Courtesy: American Electric Power

42 ELECTRIC PERSPECTIVES Develops | Constructs | Owns | Operates

51 projects - 5,285 MW (constructed and/or under construction)

One company – many capabilities Founded in 1997, Renewable Energy Systems Americas Inc. (RES Americas) is a fully-integrated renewable energy company. With our in-house expertise, we offer resource analysis, development, site design, procurement, engineering, construction, through to operations.

RES Americas can • Sell its developed and constructed projects to others • Construct projects developed by others • Own and operate projects

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Webberville Solar - 30 MW

RES Americas’ experience with Utilities RES Americas’ Power Purchase Agreements with Utilities

Utility Project MW RES Americas Role Utility Project MW RES Americas Role Energy Northwest Nine Canyon I 48 EPC Contractor Public Service Co. Energy Northwest Nine Canyon II 16 EPC Contractor of Colorado (PSCo) Cedar Point 250.2 Developer & EPC Contractor Energy Northwest Nine Canyon III 32 EPC Contractor Ontario PowerAuthority Talbot 99 Developer & EPC Contractor Nebraska Public Ontario PowerAuthority Greenwich 99 Developer & EPC Contractor Power District Ainsworth 59 EPC Contractor Austin Energy Whirlwind 60 Developer, EPC Contractor & Owner Oklahoma Gas Austin Energy Hackberry 166 Developer, EPC Contractor & Owner and Electric Crossroads* 227.5 Developer & EPC Contractor So.California Edison Cameron Ridge 60 Developer & BOP Constructor Pacifcorp High Plains 99 BOP Constructor TXU Energy Woodward Mtn. 160 Developer & BOP Constructor Pacifcorp Marengo I* 140 Developer & BOP Constructor Reliant Energy, Pacifcorp Marengo II 71 Developer & BOP Constructor Austin Energy & TNMP King Mountain 278 Developer & EPC Contractor Pacifcorp McFadden Ridge 29 BOP Constructor TXU Energy Lone Star-Post Oak 200 Developer & BOP Constructor Petroleum Corp. TXU Energy Lone Star-Mesquite 200 Developer & BOP Constructor of Jamaica Wigton* 21 Developer & BOP Constructor EPC – Engineering, Procurement & Construction Public Utility District #1 Harvest Wind 99 BOP Constructor BOP – Balance of Plant Puget Sound Energy Hopkins Ridge* 149 Developer & EPC Contractor * Project was sold to the named Utility Puget Sound Energy Hopkins Ridge 7 BOP Constructor Puget Sound Energy Lower Snake River* 343 Developer & BOP Constructor Puget Sound Energy Wild Horse 229 BOP Constructor Puget Sound Energy Wild Horse Expansion 44 BOP Constructor Westar Energy Central Plains* 99 Developer & EPC Contractor For more info, scan the QR code with your smartphone. If you don't have a QR code app, it can be downloaded for free.

Renewable Energy Systems Americas Inc. 11101 W. 120th Ave. Suite 400 Broomfield, CO 80021 303.439.4200 res-americas.com We are telecom.

After practicing telecommunications law for more than 50 years, we know every up, down, twist and turn. From wireless licensing to spectrum acquisitions and everything in between, we can solve your telecom legal challenges.

Contact us today at telecomʢkhlaw.com or visit us on the web at www.khlaw.com/telecommunications. Completed in 2006, AEP’s newest 765-KV trans- mission line connects power stations in Wyo- ming County, WV, and Jacksons Ferry, VA. The $306 million project took 13 years to permit and just under 3 years to build.

electric transmission early in my career at Consumers Power (now Consumers En- ergy). Seeking a solution for dealing with generation capacity issues in Michigan and the impossibility of moving power in and out of the state (largely due to the system of that transmission leviathan AEP), I proposed an interstate transmission project with Pub- lic Service Company of Indiana (now Duke Energy Indiana) that would link our two companies and allow us both to take excess power to the wholesale market. I soon real- ized we could not rely on eminent domain and the single federal decision maker that I had taken for granted in the natural gas business, and the project was scuttled by rights-of-way disputes. Closer to the present, AEP’s Wyoming- Jacksons Ferry transmission project is a case study in transmission impediments. The newest extra-high-voltage transmission line built in this country, the 90-mile line was fi - nally energized in 2006 after being proposed 16 years earlier in 1990. It required 13 years to site and less than three years to build.

Courtesy: American Electric Power That’s not a workable model. We have made incremental progress in Build a Better Grid efforts to support interstate transmission development, but As our generation fl eet evolves, we can’t ignore the critical we’re not where our industry needs to be. Order 1000, re- need for new transmission investment. Until we develop a cently issued by the Federal Energy Regulatory Commission, truly interconnected transmission superhighway, we won’t addresses some of the impediments, like regional and inter- realize the full benefi ts that transmission can provide to en- regional planning, but still lacks clarity in some key areas in- hance effi ciency, reliability, and security and to enable a fully cluding inter-regional cost allocation—and, most important, developed, wholesale electricity market. it does not address federal siting authority. We’ve managed extraordinarily well with a grid largely If we are serious about building a truly effi cient, interstate built decades ago, but most of the transmission system in electricity transport system, we must renew efforts to estab- the United States was not designed to move power in large lish some form of workable federal siting authority for inter- amounts across multi-state regions or to integrate large state transmission. The courts have essentially gutted the amounts of remotely located renewable resources. Just as backstop federal siting authority established by the Energy heavy traffi c snarls overcrowded roadways, bottlenecks cre- Policy Act of 2005, so we are back to square one. We abso- ated by inadequate transmission prevent the effi cient move- lutely should continue to protect each state’s right to make ment of power and leave the system vulnerable. Inadequate generation and fuel choices, but the full benefi ts of interstate transmission also taxes other infrastructure by preventing transmission won’t be realized until we have a clear federal the increased development of generation where it is most authority for approving interstate lines. geographically appropriate. Lack of federal siting authority and parochial views about Clear Regulatory Hurdles transmission ownership, planning, and cost-allocation are Fuel diversity and robust transmission become even more preventing our nation from having a transmission grid that critical as we try to fi gure out how to comply with the most will support the future needs of our industry. aggressive EPA agenda since the formation of the agency and I recognized the need for federal oversight of interstate still keep the lights on.

NOVEMBER / DECEMBER 2011 45 The debate surrounding these EPA regulations has been particularly polarizing for our industry. It is time to move past the rhetoric and recognize the importance of preserv- ing all fuel sources for reliability and long-term economic stability. We are doing our industry a disservice if we refuse to cooperate or compromise because we are focused on short- term profi ts and don’t consider long-term implications for our customers and our country. It’s appropriate to seek continuing environmental im- provement, but it’s time to begin balancing environmental desires with economic reality. The reasonable approach will include a comprehensive analysis of the costs and benefi ts of the full suite of EPA regulations and an achievable compli- ance schedule. That would likely extend the compliance period by a few years, but still achieve the EPA’s environmental objectives and It’s appropriate greatly reduce the impact on con- to seek continu- sumers and the economy. ing environmen- ‘‘ Support Key Issues as an Industry Courtesy: American Electric Power tal improvement, Well designed national energy pol- Succeeding together. The industry’s massive power restoration ef- but it’s time to icy would help address many of the fort in the wake of 2005’s Hurricane Rita included almost 800 em- begin balancing issues challenging our industry. It ployees and contract personnel from the 11-state AEP system. would give us a roadmap for how environmental and where we should focus our The unprecedented set of new and proposed EPA regula- desires with resources and also would provide tions that will impact coal-fueled power plants as soon as economic reality. some of the long-term certainty next year will shutter up to a fi fth of our nation’s coal-fueled sought by our investors. But ad- generating capacity and seriously tax grid reliability, unless vancing a balanced national energy we are given more time and fl exibility for compliance. policy that benefi ts our industry will require developing that Over the last three de- policy as a united front. TOP 5 THINGS I PLAN cades, our industry has al- It is no coincidence that the oil, automotive, and natural TO DO AFTER AEP ready cut sulfur dioxide and gas industries are exponentially more effective in achieving nitrogen oxide emissions their public policy goals on a national level. They’ve been 1. Spend more time with my from power plants by 70 able to put aside individual business and economic interests wife (Linda), my son (Ryan), percent, and we’ve reached and unite on key policy issues that will shape the future of and our many lifelong friends. the point where incremen- their industry. 2. Read the many books I tal emission reductions will In storms and natural disasters, our industry has proven have kept over the years and cost signifi cantly more than time and time again how effective we can be when we put have not gotten to—particu- larly on U.S. presidential his- the reductions made in the aside geographic and fi nancial differences to support one tory and the histories of great past. The costs multiply another. Our entire industry benefi ts when we adopt a coop- U.S. corporations. when the irrational com- erative approach, and as a united front, we can bring about 3. Look for the appropriate pliance deadlines in these important change in national energy policy. opportunity to teach what I rules—which appear driven Twenty-three years later, I’m still excited and awed by be- have learned. I started out by political agendas, not en- ing part of the electric utility industry. We’re a noble business to be a teacher, and now is vironmental or health sci- whose product and people bring comfort, warmth, nourish- the time to look at doing that ence—take less-expensive ment, entertainment, energy and light to billions around again. compliance options off the globe, every day and night. We’re at a unique time in 4. Follow more closely (if the table. With the nation our history as we face the need to replace a large portion that is possible) my beloved Detroit sports teams: Tigers, gripped in an economic of our existing infrastructure, and we have an opportunity Lions, Pistons, and Wings. downturn, these unneces- to change our business for the better. It will be a challenge, 5. See the United States by sary additional costs pun- and we’ll feel unprecedented pressures from our customers, car: Take Route 66, drive Mi- ish American businesses and regulators, investors, and employees in the years ahead. But I ami to Key West, and so on. consumers and endanger the believe this industry can successfully navigate this transition. nation’s competitiveness. And I look forward to watching it happen. ◆

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Troops to Energy Jobs is managed by the Center for Energy Workforce Development (CEWD), a non-profit consortium of electric, natural gas, and nuclear utilities; their asso- ciations—the Edison Electric Institute (EEI), American Gas Association (AGA), Nuclear Energy Institute (NEI), and National Rural Electric Cooperative Association (NRECA); and their unions—the International Brotherhood of Electrical Workers (IBEW) and the Utility Workers Union of America, AFL-CIO (UWUA). COMPUTING AS UTILITIES HANDLE THE DATA DELUGE AND THE INFORMATION TECHNOLOGY DEMANDS OF THE SMART GRID, DOES THE CLOUD FIT THEIR NEEDS? BY DAVID BERNSTEIN

484 ELEELECTRICLLEECCTTTRR ICIC PERPEPPERSPECTIVESERE RSPESPS PPEE CTICTC TTIIIVESVEV E S IN THE

MANY THINK OF cloud computing as an exotic technology, but its main components have been around for decades—and its reason of existence will be familiar to anyone familiar with the history of shareholder-owned utilities. A century ago, the companies and institutions that used much of the world’s electric power generated it onsite. The do-it- yourself solution had many problems, but the biggest involved supply. Sometimes private operators had power shortages and needed to cut production to cope. Sometimes they had too much capacity, which meant underutilization of an expensive capital resource. The answer was a combination of the commoditization of power generation, load-sharing, and utilities to organize it all.

Dreamstime NOVEMBERNNOVOVO VEMBE MBMB ERE R ///DECEMBER DDECEMBEREECECEC E MMBEB E RR2 22011001111 4949 That same dynamic is revolutioniz- bucks and Citigroup use it to analyze structions the way the physical ma- ing information technology (IT) today, mountains of data; and the federal gov- chine would—have been around since and it’s called cloud computing—an ernment has aggressive plans to adopt the 1980s. over-arching term for a combination cloud computing as a way to save bil- For all its potential and high-pro- of technologies that provide computa- lions of dollars a year in IT costs. In fi le users, cloud computing is still an tion, software, data access, and storage April 2011, General Services Adminis- emerging technology. As such, it is dif- services and that use confi gurations tration associate administrator David ferent things to different people—and and multiple physical locations un- McClure told a Congressional commit- companies. The basic concepts are known to the user. Behind the growth tee that his department’s recent move common to all cloud implementations, in cloud computing are computing to the cloud alone will save $1.7 billion but the name itself is an umbrella for hardware commoditization, virtual annually. several technologies: machines, the internet, and the advent Cloud’s operating imperatives also ■ infrastructure as a service, which pro- of open-source software, which sim- are familiar to utility executives: Pro- vides raw IT resources on demand—an plifi es the acquisition and use of code vide a service simultaneously to mil- organization essentially outsources that someone else wrote and does so lions of customers with very high storage, hardware, servers, and net- at a lower cost. availability (greater than 99 percent) working equipment, which the ser- The internet, with its high-perfor- and at low cost. vice provider owns, houses, runs, and mance communications equipment, At the end of the day, cloud com- maintains; open-source software, and resultant puting is about the commoditization ■ platform as a service, which is most requirement of server space, com- of highly reliable, always-available IT helpful to software developers—an or- pleted the basic components. Unlike resources—something unimaginable ganization, looking to run its existing the normal adoption curve for most a decade ago. applications or to develop software, technologies, however, the cloud has rents virtualized servers and associated some high-profi le users. Amazon’s on- Atomizer services; line retail operations, Facebook, and The cloud’s computing components ■ software as a service, which is a set of iPhone apps are all cloud-based. Star- are familiar. Time sharing—the tem- on-demand applications hosted by a porary rental of computing power service provider and available over the David Bernstein is managing director of Cloud Strategy Partners, LLC, and founder from data centers run for that express internet; and and working group chairman of the Insti- purpose—was popular in the 1960s. ■ business process outsourcing, which tute for Electrical and Electronic Engineers’ Similarly, virtual machines—software allows customers to move entire func- standard-setting for P2301, “Guide for for a computer that implements in- tions out of house. Cloud Portability and Interoperability Pro- fi les” and P2302, “Standard for Intercloud For most industries, the cloud is a Interoperability and Federation.” computing paradigm different from

5050 EELEELECTRICL ECTRCTC T RICI C PPEPERPERSPECTIVESER SPES PPEE CTCTICT IVEVVESESES the way IT traditionally has functioned. HANDLING THE (and the smart grid they help enable) Instead of discrete boxes whirring and will deluge utilities with actionable blinking away in a data center, think TORRENT OF DATA AND data. It will be enough to weigh down of the cloud as a vast collection of ACQUIRING THE SOFT- the most sophisticated data center. computing, software, storage, and net- With smart meters in place, utilities working components that have been WARE CAPABLE OF will store thousands of readings a atomized. Then, consider that cloud RATIONALIZING IT month for each meter. Analyzing and software confi gures these elements to acting on the data will require not only meet the instantaneous IT requirement IS PRACTICALLY A TEXT- large amounts of data storage, but also of each client, which now has its very BOOK APPLICATION FOR applications to access and analyze the own virtual data center. data. Cloud software is based on several CLOUD COMPUTING. On the customer relationship side, operating principles. many utilities use different communi- ■ Virtualization. At any moment your Experience shows that human error, cation technologies across several plat- application may be in Cleveland, your such as connecting the wrong wires or forms—social media sites, multimedia storage in Baltimore, and your central forgetting to install a software patch, call centers, and so on—as a way to processing unit in Phoenix. Cloud soft- adversely affect reliability and avail- enhance those relationships. Such ware keeps track of it all and reconfi g- ability. Commoditization—particularly real-time, highly personalized inter- ures your virtual data center as your of the personal computers (PCs) that actions—from creating personalized real IT requirements change. You could provide most of the cloud’s comput- energy management plans to provid- call it “load optimization.” ing power—has made hardware inex- ing real-time outage information—will ■ Redundancy. All your data and virtual pensive. Instead of expensive onsite demand sophisticated software and IT configuration information—along workstations, inexpensive PCs as a analytics. with everyone else’s—is stored in at computing platform in server farms is On the power-generation side of least three different places. Cloud soft- cost-effective for service providers. operations, utilities are integrating ware must know where it is—and be smaller distributed energy sources, of- able to recover it if one or more of the Start With the Future ten based on renewable (and weather- atomized computing resources fails. The synergies between the needs of the sensitive) technologies, such as wind ■ Failure recovery. When a computing utility business and the cloud could be and solar. Recharging electric cars also element (hardware) dies there is no great. To the extent that they supply will change minute-to-minute load attempt to fi x it. Instead, the software two-way communication, real-time in- characteristics radically. Integrating that runs the cloud simply ignores it formation, and more options to moni- these sources into the grid and main- and allocates its function elsewhere. tor and control the grid, smart meters taining power quality will require

NOVEMBERNONOVN OOVV EEMBEMMMBB ERE R //D//DECEMBER DDECEMBEREECCCEE MMBMBEBBEE RR2 220110011011111 5151 predictive analysis that is many times more demanding than current opera- Partly Cloudy tions for the average utility. Handling the torrent of data and f you asked a roomful of utility chief information officers whether they use cloud acquiring the software capable of ra- computing,” says Marc Razeghi, director of information technology services at tionalizing it is practically a textbook “I Edison Electric Institute, “probably every hand would go up.” application for cloud computing—the That’s because utilities like other industries have been using several aspects of “the computational load will vary radically; cloud” for many years. Indeed, there are different cloud offerings that are part of a larger IT data storage requirements will be toolbox. Says Razeghi, it always needs to have ways to increase capacity or add capabilities substantial; and the communications on the fly without investing in new infrastructure, training new personnel, or licensing new capability to organize it all into a high- software. The cloud offers subscription-based or pay-per-use services over the internet that functioning operation will require the address that capacity need. internet. Utilities may use cloud services ranging from full-blown applications to storage services Indeed, it is diffi cult to envision a so- to spam filtering. It can be software-as-a-service for their human resources or enterprise lution to these challenges that does not resource planning system. The need even may be for cloud infrastructure providers that offer involve the cloud computing concept. storage and virtual servers, with on-demand access. Cloud web-service providers offer ap- (See the sidebar, “Partly Cloudy.”) plication programming interfaces—modular components for software application develop- ment—that enable the developer to expand functionality over the internet instead of building Cybersecurity and Other Issues the entire application from scratch. Google Maps and credit-card processing services are Still, the cloud must operate in an often two good examples. Also utilities may choose to use cloud-managed service providers for unfriendly atmosphere of black-hat such functions as network monitoring, anti-spam, or even desktop management services. hackers, accidents, acts of God, and By the same token, a utility might use the cloud for certain aspects of the smart grid if it human frailty. The cloud’s most daunt- provides more flexibility and cost-effectiveness. ing challenges are at the interface of When it comes to cloud computing, utilities and commissions still have concerns about software (which requires a large degree data security and reliability. Of course, cybersecurity and data privacy are top issues for the of predictability to function properly) industry regardless of cloud technologies. But the cloud adds another perceived level of and human motivations and random complexity—and the idea that software, hardware, and data might reside somewhere other events. than a utility-controlled site makes many utilities and their commissions uneasy. To begin with, governance is critical The cloud increases choices for utilities, for the smart grid as well as other large projects. to the cloud’s success. What rules are “Different cloud computing tools add more sensible options to the technology toolbox,” says there? What should a company expect? Razeghi. “But it is not the only tool, nor is it absolutely essential.” What are the standards of operation? By Eric R. Blume, editor and publisher of Electric Perspectives. Right now, the technology is proceed-

5252 ELELEEELECTRICLLEE CCTRCTTRT RICIC PPERPEPERSPECTIVESERER SPESPS PEP E CTCCTIT IVESVVEEESS If you’re there, we’re there. For over 100 years Platts has been the world’s leading global provider of energy and metals information. You can rely on Platts for business-critical market news and data, benchmark price assessments, insightful newsletters, and leading conferences to help you drive your business decisions with confidence. www.electricpower.platts.com

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Evolving threats Encryption Standards compliance Liability reduction Best practices Risk management Network security

Where is Security heading?

befutureready.com/security ing much faster than the humans who than one client using the same ap- privacy legislation and regulations in a must manage it uniformly. As the ul- plication—must be addressed, too, as cloud environment. Utilities probably timate cooperative venture, the cloud must the co-location of data on servers are already aware of how state laws needs its important stakeholders—the potentially anywhere in the world. restrict the storage of customer data. A corporations and institutions that im- Cloud computing providers give related concern is how cloud comput- plement their mission-critical applica- these challenges special focus. Spe- ing will affect government subpoenas tions on it—to provide oversight and cific barriers can prevent problems and searches of those data. If the cloud insight. In this respect, the cloud could due to hacking, multi-tenancy, and co- uses global IT resources (as called for be considered a public utility. location. Another line of defense is the by the model), utilities also have to un- Cybersecurity is a primary area for visibility cloud service providers have derstand the extent to which European governance. You can divide the cloud’s right down to a specific data set. In Union regulations (for example) might cybersecurity issues into two catego- the end, cloud-based services are not have an impact on operations. ries: Lost data and compromised data. inherently less secure than traditional There is a middle way that utili- Both are important to anyone who architectures. They just require a dif- ties could take—the so-called private thinks about moving mission-critical ferent way to recognize and address cloud. European utilities are organiz- business applications to the cloud in problems. ing private clouds, for example. Also, order to realize cost savings. For utilities, there are the associated the cloud itself can be helpful in setting The problem of lost data becomes concerns regarding their regulatory up cybersecurity defenses. A company less of an issue as the integrity of the climate and how they can conform to can secure data at appropriate levels. software and hardware strengthens. Departments can specify the sensitiv- More important, fi nding the approach ity of their data and allow the cloud that leads to verifiable, repeatable COMPROMISED DATA to process and store them in the most fi ve-nines performance (that is, 99.999 POSE A DIFFERENT cost-effective manner according to percent) in reliability and availability. such parameters as location of data While a diffi cult problem, the potential PROBLEM BECAUSE THEY centers and authentication. for data loss is subject to measuring OFTEN INVOLVE There are also operational concerns predictable performance and improve- such as the amount of data any cloud- ment. HACKERS—HUMAN based application can process before it Compromised data pose a different INTERVENTION THAT CAN becomes sluggish. Given the fact that problem because they often involve some data (certain sensitive customer hackers—human intervention that can BE INTELLIGENT, information, for example) cannot re- be intelligent, subtle, and effective. The SUBTLE, AND EFFECTIVE. side on the cloud due to regulatory re- challenges of multi-tenancy—more strictions, ways have to be worked on

NOVEMBERNNOOOVV EEMBEMMBM B EERR /D///DECEMBER DDECEMBEREECEECCCEE MMBEMBBBEE R 201120010111111 5555 for sharing the data in conventional Additional Cloud Benefi ts systems with data or applications that reside on the cloud. Companies also ost abatement and the handling of the data deluge from the smart grid are the com- need an exit plan and know that they pelling reasons for cloud computing, but there are other benefits. can easily reclaim the data held for C Cloud-based applications can address familiar operational issues. Remote sen- them by one cloud provider, so they sors that monitor the grid can also monitor individual assets and systems to control load, can easily switch to another. act to avoid service disruptions, and communicate between formerly siloed systems. Several professional organizations Similarly, the cloud can facilitate physical security monitoring of distribution networks as and industry groups are trying to reach well as remote—and therefore vulnerable—utility assets. Cloud-based applications already defi nitive answers to these and other are available to monitor video content automatically and apply software-implemented logic questions. Among those groups is IEEE, to assess risks and trigger security alerts. Predictive analysis can provide warnings or take which in April 2011 launched two new action to prevent equipment failure. Cloud applications are being marketed that can support standards development projects, IEEE field staff with accurate geographic data. P2301, “Draft Guide for Cloud Portabil- By its very nature, the cloud will drive the standardization of IT infrastructure and appli- ity and Interoperability Profi les,” and cations, and this can help utilities with acquisitions and investments, as well as with putting P2302, “Draft Standard for Intercloud new sites online quickly and cost efficiently. Interoperability and Federation.” Sharing and collaboration can extend beyond the company’s borders to include supply chain. The utility can deliver e-learning solutions, project documentation, and a wide range The Right Fit? of customer-facing social media programs over the cloud, as well. With their regulated nature and the Inside the utility, departments can take advantage of pre-approved, cloud-based plat- sensitivity of the customer data they forms and development tool kits or use preconfigured application appliances that come hold, utility companies are naturally with hardware, networking, security, and other services built in as standard features. Using wary of the security and privacy risks these cloud-based tools, departments can develop, test, and deploy web-based applications that could arise from cloud computing, quickly to support their operations. public or private. It should be comfort- Most utilities in the United States have a higher proportion of employees nearing retire- ing to know that the cloud community ment age than any other major industry. The problem has many facets, not the least of shares those concerns and invites their which is how to retain the knowledge accumulated by older workers. The cloud offers a participation in the next great internet means of capturing this knowledge using social media and collaboration tools. venture. The other side of the coin is the allure a smart grid operating on a cloud platform will In its full implementation, the smart have for younger workers. Energy conservation, sophisticated routing and optimization sys- grid ought to take the cloud concept tems, and consumer empowerment ought to be a powerful recruitment tool. to a new level. Millions of customers accessing both energy and IT resources

5656 ELEELEELECTRICLEL E CCTTTRR ICIIC PPERPEPERSPECTIVESEERR SPESPS PPEE CTCTIC TTIIIVVEVESESE S with the expectation of five-nines pany uses—the result is that operating adaptable will be a valuable asset given availability and the ability to manage costs are lower than traditional data the unknowns of smart grid deploy- energy costs is something entirely new. centers. Further, the utility can acquire ment. (See the sidebar, “Additional Although we can predict confi dently and deploy services quickly (although Cloud Benefi ts.”) that smart meters and smart appli- integration with existing systems will In the end, cloud computing is IT ances will provide the torrents of data take longer). And the fact that cloud outsourcing by another name—but needed to operate an ultra-efficient services are highly programmable and with the utility in more control. ◆ grid, utilities must fi nd ways to trans- port, process, and integrate those data into utility operations. Some form of cloud computing seems like the best option. For example, under the pressure of converting to geographically disparate renewable energy sources, utilities likely will turn to the cloud to supply the data center resources needed to operate a grid in which a signifi cant percentage of generating capacity may be intermittent, depending on whether the sun is shining or the wind is blowing. The sophisticated routing and optimization algorithms that utili- ties are developing today to meet this challenge must be complemented by equally sophisticated hardware and software that have high reliability and availability. In response to those challenges, the cloud offers several advantages. The capital investment a utility must make is low. In operation, the pricing rests solely on the actual resources a com-

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NOVEMBER / DECEMBER 2011 57 the outset of the third quarter to near 2.0 FINANCIAL percent by mid-August. This decline in interest rates no doubt was a source of strong support for utility shares as the Utilities: Positive Return quarter unfolded. Natural gas spot prices during the fi rst half of 2011 bounced along the During Market Turmoil $4 per million British thermal units By Mark Agnew (mmBtu) fl oor established after a sharp

he Edison Electric Institute (EEI) Index produced a positive T 1.8-percent return during the third quarter, and that was more than enough to dramatically outperform the broad market, which saw its weakest quarterly performance since the depths of the financial crisis in early 2009. (See Table 1.) The broad market aver- ages were driven down by investors’ recognition that U.S. economic growth had markedly slowed as 2011 pro- gressed. This combined with frustration over U.S. politicians’ efforts in July to deal with the U.S. fiscal debt limit and Europe’s leaders’ equally contentious response to their continent’s sover- eign debt woes to severely sap market confidence. The Dow Jones Industrials 123rf returned negative 11.5 percent for the Interest Rates and Declining interest rates, due to a potential quarter, while the S&P 500 and Nasdaq Natural Gas Prices Greek debt default and the Eurozone banking returned negative 13.9 percent and Arguably the two most signifi cant crisis, were a source of strong support for negative 12.9 percent, respectively. macroeconomic trends in recent years utility shares. The EEI Index’s defi ance of the forces that have impacted stock prices across impacting the broader markets dur- the industry are persistently low bond two-year decline from a spike over $10 ing the summer resulted in a positive yields and low natural gas prices. per mmBtu in mid-2008, with the weak- 10.7-percent return through the fi rst Dividend-paying regulated utilities are ness driven fi rst by the outbreak of the nine months of 2011, signifi cantly valued by investors as bond substitutes fi nancial crisis and demand destruction stronger than the Dow’s negative with dividend growth potential. Their in the deep economic recession and 3.9-percent return, the S&P 500’s nega- stock prices are supported by declining second by the advent of a prospective tive 8.7-percent return, and the Nas- rates and negatively impacted by ris- supply glut due to shale gas drilling. daq’s negative 8.9-percent return for the ing rates in the same manner as bond Natural gas spot prices drifted even same period. (See Table 2.) prices. Natural gas-fi red generators are lower during the third quarter, starting The strength of the EEI Index is no typically the marginal price setters in the quarter at $3.22 per mmBtu and surprise, highlighting the sector’s tra- many competitive power markets across ending around $2.75 per mmBtu. The ditional role as a defensive investment the country, therefore natural gas prices two-year-long bear market in natural following the industry’s reemphasis exert a strong infl uence on competitive gas has weighed heavily on the earn- in recent years of core regulated busi- power prices and on the profi tability of ings prospects for competitive genera- nesses with slow but predictable earn- competitive generation. tors and on the share prices of utilities ings growth and steady dividends. In Evidence of a slowing economy and with signifi cant competitive operations. fact, the industry’s 4.3 percent average fears of a dip back into recession that The natural gas forward curve also dividend yield on September 30, 2011, surfaced in the third quarter were only seemed to fi nd a fl oor during the fi rst led all other U.S. business sectors. amplifi ed by the renewed outbreak in Mark Agnew is director of fi nancial analysis at Edison mid-summer of fears about a Greek de- Electric Institute. fault and banking crisis in the Eurozone, and these forces drove the 10-year Treasury yield down from 3.2 percent at

58 ELECTRIC PERSPECTIVES years, according to industry TABLE 1 TABLE 2 SECTOR COMPARISON, EEI INDEX TOP TEN PERFORMERS analysts. This represents a THIRD QUARTER 2011 (For the nine-month period ending sizeable slice of a coal fl eet TOTAL RETURN September 30, 2011.) that totals approximately 340 (For the three-month period Return ending September 30, 2011) Company Category (%) gigawatts. EEI’s most recent annual Central VT Public Service Corporation R 64.8 Sector Total return (%) survey of industry capital PNM Resources, Inc. R 29.2 spending shows that the EEI Index 1.8 CenterPoint Energy, Inc. MR 28.8 industry plans to spend at Utilities -0.2 least $83-$85 billion per year Constellation Energy Group, Inc. D 26.8 from 2011 through 2013 on Consumer goods -8.5 FirstEnergy Corporation MR 26.2 transmission and distribution upgrades, new generation Technology -8.8 NiSource Inc. MR 25.5 in some power markets, and Telecommunications -9.7 Progress Energy, Inc. R 23.6 grid-related investments— Healthcare -10.9 Dominion Resources, Inc. MR 22.6 marking a recovery back to 2008’s capex level after a dip Consumer services -11.9 DPL Inc. R 21.3 to $77.8 billion in 2009 and El Paso Electric Company R 19.0 $73.9 billion in 2010. The Aggregate index -14.9 projected totals do not extend Note: Return fi gures include capital gains and dividends. Oil & gas -21.0 R = regulated, MR = mostly regulated, D = diversifi ed the torrid growth trend in capex seen during the 2004- Financials -21.3 Source: EEI Finance Department 2008 period. However, they Industrials -21.4 also do not include spending fi rst nine months of 2011. EEI weekly related to compliance with the EPA’s Basic materials -28.3 electric output data showed a 0.5-per- wide-ranging new Note: Sector comparison based on the Dow Jones cent decline nationwide for the third and stricter emis- The two- U.S. Indexes, which are market-capitalization- quarter and a 0.2-percent decline for sions regulations, weighted indices. the period overall. Whether due to the which are being year-long bear weak economy across much of the na- fi nalized this year. market in half of 2011—with a gradual upward tion, to the housing foreclosure mess, Industry analysts natural gas has slope to $5 per mmBtu by 2012 and $6 energy effi ciency and demand response predict that the new weighed heav- by 2015—after declining markedly dur- programs, or some combination, the rules may boost ily on the earn- ing 2009 and 2010. This changed little slow recovery in power demand since the numbers in the during the third quarter, but neither was the 2008-2009 fi nancial crisis and re- EEI survey by an ings prospects there evidence of a prospective near- cession is a form of uncertainty for the annual average of for competitive term price recovery. However, the third industry that bears watching. 30 percent over the generators. quarter did bring some talk by industry next decade. analysts that coal plant shutdowns Industry Fundamentals Such a strong in the years ahead mandated by new Remain Good ongoing investment need offers the and stricter Environmental Protection There was not much change during potential for extended strong rate base Agency (EPA) regulations would bring a the fi rst nine months of the year in the growth at regulated utilities. However, longer-term tightening to many power industry’s broader long-term outlook. as is always the case in this most politi- markets now marked by overcapacity, Many regulated utilities are engaged in cal of industries, maintaining healthy and that the bottom of the grinding bear capital spending programs that should, regulatory relationships will be a key market for competitive power generators according to Wall Street analysts, help to achieving reasonable returns for may be at hand. drive solid mid- to high-single-digit investors. The sharp decline in natural earnings growth over the next several gas prices in recent years has helped to Sluggish Recovery in years. Recent EPA moves to limit coal moderate the rise in end-user rates re- Electricity Demand plant emissions through the Cross- quired to fi nance the industry’s elevated While not a major determinant of stock State Air Pollution Rule—which will capital spending. While most analysts prices in the short term, electricity de- target sulfur oxide and nitrogen oxide now predict that natural gas prices will mand remained depressed during the emissions—and a Maximum Achiev- able Control Technology rule for mercury, will take effect next year and conceivably force the retirement of up to 50-60 gigawatts of older, ineffi cient coal plants within the next fi ve to ten

NOVEMBER / DECEMBER 2011 59 remain low over the next few years, any Low Treasury Yields and utility stocks may have room to rise. signifi cant uptrend has the potential to Valuations However, the 10-year Treasury yield boost the fuel cost component of rates As the summer quarter came to a close, has remained low since the 2008-2009 and renew the more confrontational industry analysts remained generally fi nancial crisis, as Treasuries remain a regulatory politics seen in some juris- upbeat about the fundamental prospects safe harbor for still-skittish investors dictions several years ago, when power for regulated utilities and the industry’s concerned about European fi nancial sta- prices were forced upward by surging fi nancial strength, while the historically bility and the weak U.S. economy, and natural gas prices. wide gap between utilities’ dividend they have also benefi tted from Federal yields and the much lower 10-year Trea- Reserve purchases in its recent quanti- sury yield was cited as an indicator that tative easing programs (which may re- sume if the economy weakens further). As a result, today’s low Treasury yields may be a distorted benchmark. As has been the case for several years now, analysts cite the fear of rising rates— when the economy gets back into a growth trend (especially in light of the U.S. budget defi cit)—as a risk for regu- lated utility valuations. But there is little that is actually news about the U.S. debt load and economists’ forecasts of rising interest rates have been repeatedly con- founded over the past several years.

Dividend Increases Average 6.6 Percent The shareholder-owned electric utility industry extended its seven-year-long trend of dividend increases during the third quarter, typically the quietest quarter for dividend changes. Two of the 56 publicly traded companies tracked by EEI raised their dividend, resulting in a total of 25 that either raised or reinstated their dividend during the fi rst nine months of the year. This is on par with the pattern of recent years—26 companies in the same period of 2010, 24 in 2009, 28 in 2008, 33 in 2007, 29 in 2006, and 27 in 2005. The 34 com- panies (60 percent of the industry) that raised or reinstated their dividend in full-year 2010 was up from 32 in 2009 and below the 37 and 43 in 2008 and 2007, respectively, but well above the 27 companies (42 percent of the indus- try) that did so in 2003. The 15-percent dividend tax rate has supported the high number of increases in recent years. As of September 30, 2011, only one of the 56 publicly traded companies in the EEI Index was not paying a common stock dividend.

60 ELECTRIC PERSPECTIVES The industry’s average a devastating tornado industry’s payout ratio was 59.1 per- dividend increase during the The indus- that hit its territory on cent when measured as an unweighted fi rst nine months of 2011 try’s dividend May 22. At the time average of individual company ratios; was 6.6 percent, with a payout ratio of announcement, the 58.6 percent represents an aggregated range of 0.8 percent to 30.0 was 58.6 per- company’s board of di- fi gure). percent and a median in- rectors said it expected While the industry’s net income has crease of 4.4 percent. Wis- cent for the 12 the quarterly dividend to fl uctuated from year-to-year, its payout consin Energy (30.0 percent months ending be re-established at ap- ratio has remained relatively consistent in the fi rst quarter), Sempra June 30, 2011, proximately $0.25 after a after eliminating non-recurring and Energy (23.1 percent in the surpassing that two-quarter suspension, extraordinary items from earnings. From fi rst quarter), and Cleco of all other allowing for the company 2000 through 2010, the annual payout (12.0 percent in the second to grow the dividend as ratio ranged from 62.0 percent to 69.6 quarter) had the largest per- U.S. business the Joplin area recov- percent, with the highest result coming centage increases. CH En- sectors. ers. Prior to suspension, in 2009 due to the weak economy and ergy (2.8 percent) and MGE the company’s dividend the weather’s negative impact on earn- Energy (2.0 percent) accounted for the rate was $0.32 per quarter. The second ings. only increases during the third quarter. quarter dividend was paid, with the an- The industry’s average dividend ticipation that the suspension will cover yield was 4.3 percent on September 30, Empire District Electric the third quarter and fourth quarter 2011 2011, unchanged from its June 30 value Temporarily Suspends Dividend dividend payments. and leading all other U.S. business sec- Empire District Electric, headquartered tors. (See Table 3.) The yield stood at in Joplin, MO, announced in late May Payout Ratio and Dividend Yield 4.5 percent at March 31, 2011, and at that it would suspend its quarterly The industry’s dividend payout ratio year-end 2010 and 2009, after rising to dividend for the remainder of 2011. was 58.6 percent for the 12 months 4.9 percent at year-end 2008. The action resulted from the impact of ending June 30, 2011, surpassing that of all other U.S. business sectors. (The

NOVEMBER / DECEMBER 2011 61 TABLE 3 SECTOR COMPARISON, DIVIDEND YIELD At September 30, 2011

Sector Yield (%)

EEI Index companies 4.3 Utilities 4.2 Consumer staples 3.1 Materials 2.6 Industrials 2.5 Healthcare 2.3 Energy 2.0 Financials 2.0 Technology 1.6 Consumer discretionary 1.6

Note: EEI Index companies’ yield based on last announced, annualized dividend rates. S&P sector yields based on 2011E cash dividends (estimates as of 9/30/11). Source: AltaVista Research, SNL Financial, and EEI Finance Department Bigstock

Statement of Ownership, Free Cash Flow Defi cit EEI’s latest projections for industry capex Management, and Circulation are $83.3 billion in 2011, $85.0 billion in (PS Form 3526) Continues in 2011 Publication title: Electric Perspectives. 2. Publication number: The industry’s aggregate free cash fl ow 2012, and $82.6 billion in 2013. 0364-474X. 3. Filing date: October 28, 2011. 4. Issue frequency: defi cit totaled $6.8 billion during the bimonthly. 5. Number of issues published annually: six. 6. Annual subscription price: $100. 7. Complete mailing address of known fi rst six months of 2011 compared to compliance, transmission and distri- offi ce of publication: 701 Pennsylvania Ave., NW, Washington, DC, negative $10.1 billion in the fi rst half bution upgrades, and new generation 20004-2696; contact, Eric R. Blume; telephone, 202-508-5714. 8. Complete mailing address of general business offi ce of publisher: of 2010. This followed fi ve consecutive capacity. 701 Pennsylvania Ave., NW, Washington, DC, 20004-2696. 9. calendar years of negative results. Free EEI’s latest projections (as of August Full name and complete mailing address of publisher, editor, and managing editor: publisher and editor, Eric R. Blume, Edison Electric cash fl ow fell to a negative $14.4 billion 2011) for industry capex are $83.3 bil- Institute, 701 Pennsylvania Ave., NW, Washington, DC, 20004- in calendar year 2010 from a negative lion in 2011, $85.0 billion in 2012, and 2696; managing editor, Bruce Cannon, Edison Electric Institute, 701 Pennsylvania Ave, NW, Washington, DC, 20004-2696. 10. Owner: $11.8 billion in 2009 as a modest de- $82.6 billion in 2013. These fi gures are Edison Electric Institute, 701 Pennsylvania Ave., NW, Washington, cline in capital expenditures was more based on a review of the latest capex DC, 20004-2696. 11. Known bondholders, mortgages, and other security holders: none. 12. Tax status: N/A. 13. Publication title: than offset by a sharper drop in net cash projections for our entire universe of Electric Perspectives. 14. Issue date for circulation data below: September/October 2011. 15. Extent and nature of circulation, provided by operating activities; 2010 companies. average number of copies each issue during preceding 12 months: capex fell $3.5 billion or 4.5 percent, Total aggregate industry-wide cash total number of copies, 10,826; b.(1) paid/requested outside-county mail, 9,193; b.(2) paid in-county subscriptions, 0; b.(3) sales while net cash provided by operating dividends paid to common shareholders through dealers and carriers, street vendors, counter sales, and other activities fell $5.2 billion or 6.2 percent. rose by $710 million, or 8.0 percent, in non-USPS paid distribution, 0; b.(4) other classes mailed through USPS, 0; c. total paid and/or requested circulation, 9,193; d.(1) Measured on a trailing 12-month basis, the fi rst half of 2011 when compared to free distribution by mail, outside-county, 0; d.(2) free distribution, capital expenditures have leveled off the year-ago period. On a calendar year in-county, 0; d.(3) other classes mailed through USPS, 0; d. (4) free distribution outside the mail, 1,328; e. total free distribution, 1,328; since third quarter 2008 after rising for basis, dividends rose by $858 million, f. total distribution, 10,521; g. copies not distributed, 305; h. total, the 16 preceding quarters as the indus- or 5.0 percent, to $18.0 billion in 2010 10,826; i. percent paid and/or requested, 87.38. Extent and nature of circulation, number of copies of single issue published nearest to try boosted investment in environmental from $17.1 billion in 2009. From 2003 fi ling date, 12,295; b.(1) paid/requested outside-county mail, 9,205; through 2010, total industry-wide cash b.(2) paid in-county subscriptions, 0; b.(3) sales through dealers and carriers, street vendors, counter sales, and other non-USPS dividends rose 46 percent, to $18.0 bil- paid distribution, 0; b.(4) other classes mailed through USPS, 0; c. lion from $12.3 billion. ◆ total paid and/or requested circulation, 9,205; d.(1) free distribution by mail, outside-county, 0; d.(2) free distribution, in-county, 0; d.(3) other classes mailed through USPS, 0; d.(4) free distribution outside the mail, 2,540; e. total free distribution, 2,540; f. total distribution, 11,745; g. copies not distributed, 550; h. total, 12,295; i. percent paid and/or requested, 78.38. Publication of statement of ownership will be printed in the November/December issue of this publication.

62 ELECTRIC PERSPECTIVES RRA. The presiding authority on utilities regulation. From the latest rate case rulings to commission profiles with rankings, RRA (Regulatory Research Associates, an SNL company) has been the leading authority on utility securities and regulation for 30 years.

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Your single source for energy industry intelligence. any of the fi ve that preceded it. Only the ECONOMICS industrial sector exhibits a pronounced vulnerability to a weak economy, where not only the magnitudes of the sales de- What’s Causing the clines are larger and more variable, but the time to recover is much longer as well. Recovery times in residential and Double Dip in Residential commercial sales have generally been measured in months (with an overall Electricity Sales? averageg of By John Caldwell

t has been nearly two and a half years Could it be that residential sales since the official end of the Great are turning downward again? And IRecession, but the electricity industry if so, what is causing this “double is still recovering from the toll that the dip” in sales? More important, economic downturn took on sales. Total does this dip signify a new trend, weather-adjusted sales for 2009 were or is it merely a consequence of thee 3,604 billion kilowatthours (KWH), down weak economic recovery? 3.4 percent from the pre-recession peak The “prime suspects” potentiallyy of 3,731 billion KWH in 2007. And while responsible for the residential saless sales grew by 2 percent in 2010 and dip (which therefore demand furtherer are projected to return to pre-recession investigation) are long-term unemploy-ploy- levels in 2012, recent data suggest ment, price hikes in energy and food,od, that growth in the residential sector is energy effi ciency, and household con-on- ababoutout slowing down again, at least in certain solidation. 2-3 months regions, and may even be declining. If foforr sasalesles to return to so, this is a break from previous reces- Electricity Sales and the Economyomy ppre-recessionre-recession levels aafterfter a sions, in which economic downturns There has always been a strong linkk recoverrecoveryy hhasas bbegun),egun), wwhilehile iitt ggen-en- 123rf caused relatively moderate declines in between electricity demand and the erally takes years for industrial sales to residential and commercial economy, with demand recover. (See Figure 2.) In fact, indus- trial sales never returned to their former electricity demand, which While resi- growing as the economy quickly recovered, while grows and falling when level after the recession of 2001. causing more significant dential elec- the economy contracts. But the recovery currently underway and longer-lasting declines tricity sales The impact of the is markedly different from the prior in industrial demand. did return to economy on demand, ones. While residential electricity sales According to the Energy pre-recession however, is very different did return to pre-recession levels im- Information Administration among different classes mediately after the recovery began, (EIA), residential electric- levels immedi- of electricity customers. commercial and industrial sales did ity sales in the fi rst half ately after the (See Figure 1.) Over the not. (Based on recent EIA projections, of 2011 were 0.2 percent recovery began, last 40 years, residential commercial sales will return to pre- lower than in the fi rst half commercial sales never declined recession levels by the end of 2012 of 2010. Weather could and industrial by more than about 3 and industrial sales by 2013.) Of even have contributed to this percent, averaging about greater concern is the fact that recent decline, since winter tem- sales did not. 1.9 percent, across reces- data suggest that residential sales may peratures nationwide were sions. Commercial sales even have started to decline again. 3 percent colder than normal in the are even more resilient, falling on aver- fi rst quarter of 2010 and only 2 percent age by only about 0.5 percent. In fact, A Double Dip? colder than normal in 2011. But even the commercial sales drop of 2.4 per- The apparent drop in residential elec- after adjusting for weather, a decline cent—which occurred during the most tricity sales from 2010 to 2011 followed in sales is evident in some regions of recent recession—was larger than in what appeared to be a robust recovery, the country, and a reduced rate of sales with actual sales in calendar year 2010 growth (relative to 2010) in others. more than 6 percent higher than in the

John Caldwell is director of economics at Edison previous year. Even after adjusting for Electric Institute. weather (2010 was signifi cantly warmer than 2009, as measured by cooling-

64 ELECTRIC PERSPECTIVES degree days), sales exhibited a growth FIGURE 1 DECLINE IN RETAIL ELECTRICITY SALES rate of 2-3 percent. Just as weather con- DURING PAST RECESSIONS tributed to the robust growth in 2010, Percent 1973 1980 1981 1990 2001 2007 however, it also may have played a role 0.0 in the apparent sales decline in the fi rst -2.0 half of 2011, since the winter of 2010 in some parts of the country was sig- -4.0 nifi cantly colder than 2011’s. Since EIA -6.0 reports electricity sales by census re- ■ -8.0 Residential gion and weather data are also available ■ Commercial at this level, it is possible to compute -10.0 ■ Industrial weather-normal sales for each of these -12.0 areas. (See Table 1.) -14.0 Even after an adjustment for normal weather, several regions exhibit an ac- -16.0 tual year-on-year decline in electricity sales in the fi rst half of 2011, and most have seen at least a reduction in growth. FIGURE 2 U.S. ELECTRICITY SALES BY SECTOR If one compares that change in sales to (Billion kilowatthours) the change between 2010 and 2009, one can group the regions into three general 1,500 categories, listed in decreasing order of ■ 2007 concern: sales declining (New England, 1,400 ■ 2008 South Atlantic, East North Central, and West North Central); sales growing but 1,300 ■ 2009 at a declining rate (West South Central); 1,200 ■ 2010 and sales growing at an increasing rate (East South Central, Mountain, and Pa- 1,100 cifi c). Weather-adjusted electricity sales grew in all regions in 2010, with the ex- 1,000 ception of the East North Central region, 900 Residential Commercial Industrial where they declined by 1.3 percent.

The Unemployment Effect One factor that could be taking its toll TABLE 1 on residential electricity consumption ACTUAL AND WEATHER-NORMALIZED RESIDENTIAL ELECTRICITY SALES, 1/1/11-6/30/11 is long-term unemployment. The aver- (Billion kilowatthours) age duration of a current unemployed Actual Change from fi rst Weather-adjusted Change from fi rst worker is more than nine months, and Region sales half of 2010 sales half of 2010 four million workers have been unem- ployed for at least a year. As unemploy- East North Central 93.598 -0.1% 92.577 -0.2% ment benefi ts expire for a growing East South Central 60.359 -4.0% 58.263 1.3% number of people, they will be forced to cut back spending on everything, in- New England 23.629 2.3% 23.379 -0.1% cluding such necessities as electricity. Middle Atlantic 66.042 2.1% 65.312 1.3% But there is practically no correla- tion between the absolute magnitude South Atlantic 176.550 -2.7% 168.898 -0.7% of, or change in, unemployment and the corresponding change in electricity West North Central 52.711 -1.2% 51.265 -2.5% sales in each region. (See Table 2.) The West South Central 103.226 2.5% 94.486 1.8% West North Central states, for example, where electricity usage fell the sharp- Mountain 42.933 1.0% 44.041 3.1% Pacifi c 71.898 3.0% 72.733 2.3%

NOVEMBER / DECEMBER 2011 65 est in 2011, have the lowest aggregate ment rate is the highest in the country. fi cult for them to reduce total household unemployment rate in the country, and One reason that electricity sales decline electricity usage, and in some cases, that rate actually has been improving only moderately in the residential sector they may actually use more electricity over the past year. In the Pacifi c states, during a recession is that while a weak than when they were working. on the other hand, where electricity economy may make electric consumers growth was the second-highest among more budget-conscious, an unemployed Rising Food and all regions, the aggregate unemploy- consumer will spend more time at Transportation Costs home. It appears that even long-term Another explanation for the drop in The average household currently spends unemployment does not completely electricity sales is that the budget of the about $400 a year more on food, gasoline, counteract the fact that when people American consumer has been tapped and public transportation than in 2009. spend more time at home, it will be dif- by rising food and gasoline prices. Because these have risen signifi cantly in recent months, some suggest that consumers have had to cut back spend- ing in other areas, including electricity purchases. But while food and gasoline prices have risen signifi cantly over the past year or so, the effect of these increases on the total budget are not as high as might be supposed. According to the Bureau of Labor Statistics (BLS), total personal consumption expendi- tures in the fi rst half of 2011 were 4.7 percent higher than a year earlier, but total personal income grew by 5.6 per- cent, suggesting that there is little A third hy- or no “crowding out” effect arising pothesis for the from excessive recent decline growth in spending in electricity in certain areas. sales is that it If there were, then is the result of it would be ap-

AP Images parent by the fact aggregate in- that income was vestment in en- TABLE 2 not keeping pace ergy effi ciency UNEMPLOYMENT VS. ELECTRICITY SALES GROWTH with consumption measures. (Percent) expenditures, in- Change in Electricity sales Unemployment unemployment rate: change from fi rst half 2010 dicating that it was Region rate: June 2011 June 2010-June 2011 to fi rst half 2011* becoming necessary to cut spending in certain areas. Pacifi c 11.0 -0.6 2.3 Another way to look at it: Based on East South Central 9.9 0.1 1.3 the consumer price index and the BLS 2009 “Consumer Expenditure Survey,” South Atlantic 9.3 -0.5 -0.7 the average household currently spends East North Central 9.0 -1.5 -0.2 about $400 a year more on food, gaso- line, and public transportation than in Mountain 8.9 -0.7 3.1 2009. If all other expenditures were scaled down proportionally to cover this Middle Atlantic 8.2 -0.6 1.3 cost (and this would occur only if all of West South Central 7.9 0.0 1.8 the increases in income which have oc- curred since 2009 were applied to other New England 7.8 -0.7 -0.1 West North Central 6.8 -0.4 -2.5

Source: Bureau of Labor Statistics *Adjusted for weather.

66 ELECTRIC PERSPECTIVES Rely on superior experience and expertise. Pike professionals are experts in the planning, siting, engineering, construction and maintenance of power distribution systems, both overhead and underground. In fact, we’ve been delivering innovative power distribution solutions since 1945. We know that your customers depend on you — just like you can depend on Pike. areas, such as debt repayment and sav- growth rate in residential consumption predicted would have the greatest sav- ings), then the reduction would amount during this time period is about 0.3 per- ings in residential electricity exhibited to less than 1 percent. Since electricity cent per year, according to EIA.) the recent sales decline.) is generally considered a necessity Nevertheless, the fact that the recent rather than a luxury, the relative reduc- downturn in electricity sales only oc- Household Consolidation tion in expenditures in this area would curred in some regions of the country One possible impact from the recession probably be even less, particularly in and was rather sudden in nature, sug- is that people who lose their jobs or the colder months. Still, it is not unrea- gests that energy effi ciency is not the their homes may move in with friends sonable to expect that substantial rises dominant cause at the present time. (For or relatives, increasing the average in critical household budget items will example, none of the areas that Brattle size of households. This is evident in cause at least some reductions in all other expenditures, including electricity.

Energy Effi ciency Investments A third hypothesis for the recent decline in electricity sales is that it is the result of aggregate investment in energy effi - ciency measures, perhaps even a recent I want my compensation data surge in such investments. However, the Electric Power Research Institute to be______. concluded in its 2009 study, “Assess- ment of Achievable Potential from En- ergy Effi ciency and Demand Response Programs in the United States (2010- 2030),” that if all realistically achievable affoordrdable energy effi ciency programs were ad- opted (where “realistically achievable” means giving consideration to such issues as budgetary constraints, com- peting priorities, etc.), then the rate of custos mizable annual electricity demand growth would decline by about 0.15-0.21 percentage points below baseline growth. If all reliable achievable energy effi ciency programs were adopted (taking into consideration that there will still be some hurdles to adopting all programs), then electricity However you describe it, Compdata Surveys demand growth would decline by about can meet your pay and benefit data needs. 0.29-0.39 percentage points below baseline. These results suggest that a Compensation Data Utilities surge in energy effi ciency would prob- has all the job titles, benefits ably, at most, account for a few tenths of data and pay practices information you need to stay a percent in reduced sales growth. competitive, including breakouts for customers served, Others have ventured some bolder FTEs and geographic area. projections of the potential impact of energy effi ciency. A recent survey conducted by The Brattle Group, in con- junction with Global Energy Partners, indicates that residential electricity con- sumption could decline by 10-12 per- cent below baseline growth projections by 2020, or a reduced rate of about 1.3 percent per year, as a result of the (800) 300-9570 anticipated adoption of energy effi ciency www.compdatasurveys.com measures. (The projected baseline

NOVEMBER / DECEMBER 2011 69 the slowdown in growth of residential increase to 0.4 percent in 2010. In the share common appliances (lighting, air electricity customers (which roughly face of continued population increases, conditioning, etc.). corresponds to number of households) such a slowdown shows that the weak Preliminary EIA data indicate that after the onset of the recession. The economic recovery is having a lingering residential electric customer counts are number of residential customers grew impact on residential customers. Aver- not only growing at a slower rate, but at an average annual rate of about 1.4 age household sizes are increasing, but actually declining in the Eastern United percent from 1999 through 2007, ac- while average use per customer would States (New England, Mid-Atlantic, and cording to EIA. But the rate of growth tend to increase accordingly, overall South Atlantic), and in the East North dropped to 0.8 percent in 2008 and electricity usage would grow slowly or and South Central regions. To test the to 0.2 percent in 2009, with a slight even decline, since more people would extent that household consolidation is

TABLE 3 CHANGE IN SALES FROM 2010 TO 2011 (Percent) Resources for America Use per Total Region customer usage

Pacifi c 2.8 3.9 East South Central -10.2 -10.0 South Atlantic -9.1 -9.6 Mountain 1.4 2.0 East North Central -0.8 -4.0 Middle Atlantic -0.8 -5.8 New England 1.8 -3.9 West South Central -6.3 -5.2 West North Central -1.7 -1.3

Source: Energy Information Administration

occurring there, the change in average use per customer by census region from the fi rst half of 2010 to the fi rst half of 2011 was compared with paral- lel changes in total electricity usage. A positive indication for household consolidation is if the growth in usage per customer exceeds the growth in total usage, or if a decline in usage per customer is not as great as the decline in total usage. (See Table 3.) Except for the West South Central region, all the areas where customer A strong infrastructure is the heart of our economy. counts have declined exhibit evidence of household consolidation, and three

MDU Resources Group provides the products and services to build and support infrastructure across the United States. of these four are regions where residen- s7EPROVIDENATURALGAS OILANDELECTRICITYTOPOWERYOURHOME BUSINESSANDDAILYLIFE tial sales have shown a recent decline. s7EPROVIDETHEPIPES WIRESANDPOWERLINESNEEDEDTOMOVEENERGYTOANDTHROUGHYOURHOME BUSINESSANDACROSSTHECOUNTRY Home foreclosures also seem to be at s7EPROVIDETHEPRODUCTSANDCONSTRUCTIONSERVICESTHATBUILDOURNATIONSROADS BRIDGESANDAIRPORTS least a partial contributor to the consoli- -$52ESOURCESOPERATIONSAREROOTEDINTHEINFRASTRUCTUREOFOURCOUNTRY7EARE"UILDINGA3TRONG!MERICA® dation phenomenon, since foreclosure rates are conspicuously high in the East North Central and South Atlantic

1200 W. Century Ave., Bismarck, ND | www.mdu.com

70 ELECTRIC PERSPECTIVES The Great Recession forced many consum- ers to leave their homes and relocate, or to move in with friends and relatives.

limited household budgets—a problem made more challenging by a surge in food and energy prices. It is perhaps not surprising that the impacts of the worst economic downturn since the Great Depression upon electricity sales have been unlike those of any other reces- sion since World War II. That electricity sales will grow in all regions once the recovery takes a fi rmer hold seems a good bet for the long term; but the fact that residential customers in some areas now are compelled to make such hard choices as cutting back on electricity is a warning of just how fragile the current economic recovery really is. ◆ AP Images INDEX TO ADVERTISERS states—two areas where residential has an unemployment rate signifi cantly Aclara ...... 17 electricity counts (as well as electricity below the national average. Yet weather- sales) have been on the decline. adjusted residential electricity sales are Advanced Energy...... 33 However, foreclosure rates also are declining. This fi nal piece of the puzzle Areva...... 35 high in the Western United States, might be explained by a more conven- Audimation Services, Inc...... 68 where customer counts (and sales) tional cause: Retail residential electricity Booz & Company...... Cover 2 are still growing. A partial explanation prices rose there by 6.8 percent from CN Utility Consulting...... 19 for this can be found in patterns of the fi rst half of 2010 to 2011—an Compdata Surveys ...... 69 population migration. Even before the increase more than three times the Elster...... 9 recession, there was a pattern of net national average. (This also might help Figmore Technologies ...... 61 migration of American citizens from to explain the relatively robust growth the North and East to the South and the in electricity sales in the western United First Solar, Inc...... 27 West. This pattern has generally con- States, where retail electricity rates have Itron ...... Cover 4 tinued, with states such as Nevada and been relatively fl at.) Keller and Heckman LLP ...... 44 Idaho seeing an infl ux of population, Thus, the recent dip in residential Kema...... 7 despite their high foreclosure rates. And electricity sales that occurred in several Landis & Gyr ...... 54 although on balance more U.S. citizens regions of the United States appears MDU Resources...... 70 are leaving the West Coast states rather to be linked to lingering effects of the Pace Global...... Cover 3 than relocating to them, these states severe economic recession that ended Pike Electric, LLC ...... 67 still have been increasing in popula- in mid-2009 and the weak recovery that tion—Washington and California, in has followed. Many residential con- Platts...... 53 fact, at a rate higher than the national sumers have been forced to leave their Quanta Services...... 5 average—due to immigration from homes and move in with friends or rela- RES Americas ...... 43 other countries. tives, move into smaller homes or rental SAIC ...... 13 properties, or, in the most extreme Sargent & Lundy ...... 1 It’s About Economic Recovery cases, relocate to other regions with Sensus ...... 15 The only area for which none of the more job opportunities and/or more Skire, Inc...... 57 previous explanations seem to fi t is the affordable living conditions. And even West North Central states (the Dakotas, those who have not been forced to move SNL Energy ...... 63 Minnesota, Iowa, Nebraska, Mis- have been compelled to make some Solar Electric Power Association ...... 37 souri, and Kansas). This section of the hard choices in how to allocate their Solar Frontier Americas, Inc...... 29 country does not appear to exhibit the Southern Company ...... 20 consolidation effect. Moreover, it has Telogis...... 2 relatively low home foreclosure rates Utilicon ...... 60 (with the exception of Minnesota) and

NOVEMBER / DECEMBER 2011 71 anotherperspective

etermining how to com- about restoration. Half (50 percent) municate with customers ARE YOU ON THE rate their company positively for is an ongoing challenge for SAME CHANNEL? keeping customers informed during D electric companies. You “normal” outages; 49 percent are posi- need to get information to customers By Wallace Mealiea, tive about companies’ efforts during about resource planning, rates, util- manager of customer research at natural disasters. ity demand response programs, and Edison Electric Institute. When there are large outages ex- so on, and especially when the power pected from natural disasters like goes out. Today, there are many new their utility through bill inserts (56 snow storms or hurricanes, custom- and traditional communication chan- percent). That likely includes percep- ers are most likely to turn on their nels that companies can use. But what tions that the bill itself is a commu- radio (25 percent) and television (22 channels are your customers actually nication vehicle. Around one-third percent) to get information about the using and depending on? What chan- of customers say they currently use utility’s plans. Signifi cantly, 18 percent nels do they want to use? company websites (36 percent) and are interested in mobile phone text Edison Electric Institute looked at mailed newsletters/letters (33 per- messages—even though few custom- these questions in its third quarter cent) as electric company information ers currently use this medium. This 2011 “Power Poll,” a national survey sources. Traditional mass media— suggests that texting could be an of residential customers. This survey, newspapers (29 percent), television increasingly important way to reach performed for EEI by Market Strategies (28 percent), and radio (16 percent)— customers in a crisis. Company web- International using a national online are somewhat less commonly used, as sites are seen as an important infor- panel from Research Now, was con- are email newsletters (13 percent). mation source by 13 percent during ducted September 20 to October 5, As we saw with the interest mea- storms, while other channels, includ- 2011, with 1,000 customers. ing social media, are the fi rst choice of The gap between less than 5 percent. What They Use and Want to Use restoration performance This gap between restoration For general information, customers performance and communication are most interested in receiving infor- and communication efforts suggests there are other op- mation from their electric utility com- efforts suggests there portunities for companies to reach pany from sources like its website (56 are other opportunities customers. In fact, on all the media percent), television (53 percent), and channels tested (with the exception of bill inserts (50 percent). Other popu- for companies to reach bill inserts), interest exceeds current lar communication channels include customers. usage. Increasing customer awareness email newsletters (47 percent), mailed of company communication through letters/newsletters (45 percent), news- all these channels can help during papers (42 percent), and radio (41 sure, new media are not on the radar major outages. And it certainly makes percent). One in fi ve (21 percent) are for most customers, with 1 percent or sense to maintain “traditional” media interested in mobile phone text mes- fewer saying they currently use Face- channels. This is not to say new and sages. book, mobile phone text messages, social media do not have a place in a While social media have a lot of Twitter, or YouTube to get informa- company’s media mix. The proportion buzz now, few electricity customers tion about their utility. This applies to of younger, media-savvy customers say they are interested in receiving younger customers, too. is growing all the time, after all; and it information from their utility through may be that social media will become Facebook (16 percent), YouTube When the Lights Go Out an integral part of how customers (10 percent), or Twitter (8 percent). Reaching customers during major look for information from their util- Perhaps not surprisingly, interest in outages is critical. In the main, resi- ity. Moreover, social media can be an social media as well as text messages dential customers like their utility’s effi cient way to reach utility business is higher among younger customers, reaction to an outage. According to reporters, regulators, and other infl u- particularly those ages 18-24, com- the survey, 79 percent of residential encers who communicate utility news pared to customers 55 and older. Even customers feel their electric company and perceptions to broader audiences. among younger customers, however, does a good or extremely good job of But for the majority of customers the level of interest in receiving utility restoring electric service (in general). who want information from the utility, information through social media lags During natural disasters, two-thirds social media are still emerging—for behind their interest in more tradi- (67 percent) of customers give a posi- the utility’s general mission, they are tional communication channels. tive rating for restoration. But custom- icing, not the cake. For more informa- Most electricity customers say ers are somewhat less positive about tion, EEI members can visit www.eei. they currently get information from a company’s communication efforts org/powerpoll. ◆

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