Modern Solutions Power Systems Conference Notes
WEDNESDAY, JUNE 6, 2012
WELCOME AND CONFERENCE OPENING
Opening Presentation – Ed Schweitzer
Schweitzer talked about how in the golden age of utilities, there were probably three safe things to do with your money that had little risk of loss–store it under your mattress, invest it in government bonds, or buy utility stocks. Recently, he called Northern Trust Bank, a respected Chicago institution just blocks from where we were, and asked what advice they would have for an investor regarding utility stocks today. They said that utility stocks should be “significantly underweighted” in someone’s portfolio. Schweitzer expressed concern for financing of projects, for the ability of utilities to raise needed capital, and discussed many reasons for why it’s hard for them to raise capital, why they are not viewed as a solid investment (one of which is uncertainty in government regulations).
His talk started with describing Samuel Insull’s work and philosophies, which were fundamental to centralized power stations, diversified load, funding and financing a capital intensive industry, and the need for a regulated monopoly as the most efficient societal cost-benefit balance.
Schweitzer’s talk was full of vivid, practical analogies and examples. For example, it takes about one 8 oz cup of oil or coal to make 1 kilowatt hour of power for about 10 cents. About 16 60-Watt light bulbs turned on for one hour would use 1kW/hr. Everyone can understand that. He was speaking to how remarkably efficient and cost effective, electric power is, and that is why it is so fundamentally necessary to society.
He emphasized, similar to Robert Bryce on Wednesday, that where there was reliable and affordable electric power; there was economic development, prosperity, and growth.
How did things get messed up? Schweitzer talked about FERC Order 888, the de- or re-regulation of the utility business, the splitting of generation, transmission, and distribution assets. He used a quote of Adam Smith’s, “…the interested sophistry of merchants…” Self-interest, greed, and special interests have led to many things that have eroded our industry (be it deregulation, renewable mandates, etc.).
He commented that he was a free market advocate. Interesting that if we believe so strongly in free, open, and fair markets, WHY did regional franchises work so well, continue to drive prices down, provide the most reliable electric power grid in the world? One reason was Insull’s advocacy of constant downward pressure on price. Not through competition, but through efficiency, economies of scale, and regulation.
One very thought-provoking point he made…in most smart grid projects today, a utility will install a “smart meter” and/or provide emails, tweets, text messages, and website reminders hours in advance that tell them of real-time price discounts, request them to change their demand or consumption, etc.
For example, I may receive a text message saying to not use power from 2 to 7 p.m., that the rate will be more, so that would lead me to run the pool pump later, turn the thermostat up, defer clothes drying until late at night, etc. Schweitzer asked the question, do we really want to manage, from our smart phone, a 20 cent per hour commodity? That was a very eye-opening image for me. I checked my bill when I got home. In the summer months, our electric bill may be as much as $180/month. That’s $6/day, or $0.25 per hour. A quarter per hour—for reliable power, anytime and in any quantity I need. Now let’s say I defer a load of clothes, etc. Maybe I save 20%? We’re talking about one nickel for about a 5 hour period . . . I’ve saved a quarter that day. How much time, effort did that take? How much did I have to change my habits, my schedule, etc.?
Schweitzer brought us back to the beginnings of the industry . . . a brilliant marketing campaign in the 1950s and 1960s that personified the industry’s customer service with Ready Kilowatt. “…I’m always there, with power to spare, I’m Ready Kilowatt!” said the ad. This was in a period when utilities were trying to increase demand—the use of electricity with a vast array of new appliances and machines. It worked. Electric use skyrocketed. Electric appliance development skyrocketed. And in the 1960s and 1970s, utilities built power plants and infrastructure to match. Contrast that today with headlines – ERCOT forecasts there may be slimmer margins than required by their operating guide. We had rolling blackouts a year ago in winter and summer, and most utilities are pushing “demand-side management” (a very politically correct term for reducing or deferring customer load). This is a stark contrast to Ready’s jingle.
General Session Executive Forum—CEO Perspectives on Challenges in the Electric Power Industry
Moderator: Edmund O. Schweitzer, III Ph.D., President, Schweitzer Engineering Laboratories, Inc.
Panelists:
Bob Yeager, President, Emerson Process Management
Terence Donnelly, Executive Vice President and Chief Operating Officer, Commonwealth Edison
Paul Barham, CPS Energy
Noel Schulz, IEEE PES President, Paslay Professor of Electrical & Computer Engineering, Kansas State University
Trip Doggett, President and Chief Executive Officer of Electric Reliability Council of Texas (ERCOT)
Mark Carpenter, Senior Vice President, Transmission Grid Management and System Operations Officer, Oncor
Schweitzer: What’s different today compared to 30 years ago?
Yeager: More automation and control for advanced temperature control.
Schweitzer: How does an owner get paid back for additional stresses and costs?
Donnelly: Intermittent generation is paid by the “cost causer,” though there’s a move to socialize that
cost. Big wind farms in the shadow of nuclear plants worry that at night when there is light load when you don’t need the wind power; today there are light-load criteria on the interconnection—constraints developing because of the immaturity of the interconnections. Constraints are light load constraints, yet drive investment based on what happens at night! The beginning of how to figure this out, renewable portfolios and everything. Engineers will figure it out through controls and the like, but these are some of the strange dynamics right now.
Schweitzer: How do you think customers’ perspectives have changed over 30 years in terms of how they view ComEd?
Donnelly: Customers expect lights to never go out! Expectation higher, a lot of which is driven by data communication. Storm response issues are at a new level; nobody wants to be out more than three days. Put our money where our mouth is and put profit penalties in place if we don’t make our goals. Profit: make sure there is a steady incentive to recover costs. Tried to move the paradigm of 30 years ago—cost plus—to investment and benefits of accountability and recovery.
Carpenter: Various kinds of customer segment. High end customers: today much higher requirements for power quality; they also have energy management systems that “game our rates” the best that they can. It’s just a fact, neither good nor bad. It’s driven by money. Another segment wants to have all communication by cell phone – outage info, restoration time. Another segment that just wants a person or they’re a bad company. Price is the most important to some people; others price is not as important.
Doggett: Different levels of sophistication and you have to deal with all of them. Started out in a vertically integrated utility then moved into a deregulated arm. ERCOT is probably the most deregulated company in the world. Too far into the conservative realm 30 years ago; but today, the real focus is to do things much smarter; most sophisticated companies can tell which fuse you’re behind when you call or can tell because of your smart meter that your power is out. Focus is on technology to do things smarter today…we just have to be careful not to let the pendulum swing too far the other way.
Barham: Wide spectrum of customer desires. Low cost and reliability are seen as a right; today’s customers are looking for other services like phone-based info (think of how phones have changed!) so what the utility provides is headed down the same road. Some customers don’t want to change their service from a higher rate out of convenience; their bill is not painful enough to push them over the hump. Municipally owned means that CPS doesn’t have retail choices. Lots of data centers, so power quality and reliability are a totally different realm.
Schweitzer: The DoD is a really tough customer. You have a major defense, load, Paul – what’s the relationship like?
Barham: We have several major bases in San Antonio and are involved with the military on those bases. The DoD has some directives around reliability and renewables; we’re working to partner with them to accomplish their goals. Bases are a microcosm.
Schweitzer: How have students changed and what are the expectations from recruiters?
Schulz: Customers are very well connected. The amount of information is different; all sources are treated as equal. If a movie star says one thing and an engineer another, people will believe the movie star! By not standing up and talking, we’re not heard. We have an educational responsibility. Today’s customers are more skeptical because they have more information. You could get a free thermostat in Kansas, but people didn’t want the power company to know how much power they’re using. Students today are balancing how to save the world with “what’s in it for me?” Kids are extremely connected: lots of multitasking. Make sure kids can use these skills in the work world! More and more people want to be connected.
Schweitzer: What do you recruit for?
Yeager: Need good electrical and mechanical engineers and computer scientists. Not always the most exciting career. IT’s a hard sell: we’re competing with Google and Twitter and so on. Gen Y kids are very interested in moving their careers. Now we have a lot more job descriptions so there are a lot more promotions… Also, kids today want access. We’ve instituted mentoring programs; Bob mentors now too. Senior management does it too. Attrition was as high as 19 percent; if they don’t see where they’re going they’ll leave. Had to change whole attitude. Also industry is aging. Fifty percent of Pittsburgh HQ is over 50 years old. Good because they have lots of skills but what happens in ten years? So we need to bring people in and keep them and retain them.
Doggett: We recruit interns every year. Target specific universities and have about 20 interns. They want the attention! Trip goes by and personally greets them because that’s that they want. Retention is really the issue. They enjoy their work because it’s exciting and challenging. But we’ll bring them in, they work two years and then go somewhere else. So we let them move around, promote them frequently, and provide work life balance.
Schweitzer: Thirty years ago a student graduating in power would have a good background in the basics. How has coursework changed?
Schulz: There are a lot of changes. Our industry is now diverse. We need power but also controls, signal processing, computer engineering, computer science, communications. Computer engineering is a draw. EE has diversified and students are graduating with fewer hours of instruction. My dad is an EE, and now I say the same thing as he does! They don’t do the math; they use their calculators and so on. Only about 1/3 of schools have a required power class for EE. More students are deciding to study power because of increase in renewables, because that’s where the jobs are and because there are scholarships. Power electronics has had a big increase in the last 20 years. Students are broader and thinner; that’s why a master’s degree is often times a good idea, to get some depth.
Schweitzer: What has happened to “courses that don’t trust”?
Schulz: In EE they continue to be the base. There are a lot more applications. They want to know why before they do the calculations. More computer simulation for visual representation where we might have earlier done an equation. Same with circuits: computer simulations.
Carpenter: Go back 30 years and what was taught in school and then what happened in the utility. Most engineers never touch the stuff that they didn’t learn about, like stability studies. Fundamentals are taught well, and we can teach them the additional stuff. Tool set of 30 years ago: you had to be a PhD to do a transient study. Today you can do this with basic training.
Donnelly: Engineering disciplines have diversified. Good talent is coming out in the disciplines…they’re just broader fields so people are less deep. Get the engineers working everywhere, not just engineering! Get engineers on the customer end, the regulatory end, on cross functional teams, so that they all work together. Tremendous benefit of these teams. Alliances with other companies will emerge. Not sure who with, but engineers forging relationships with other companies in addition to traditional relationships will motivate engineers.
Schweitzer: What would happen if ComEd ran the Little Bill ad on TV today?
Donnelly: I don’t know what would happen. I know that in terms of connecting to consumers that we need to connect through channels that consumers use every day and that’s the Internet. Not totally sure what customers want whether it’s more control or more information, the first challenge is getting on the right channels of communication.
Schweitzer: What’s wrong with Little Bill today?
Barham: What Reddy and Bill were saying is that we have great service so you should use electricity! Electricity as a service is a given…the message is different and there’s a struggle internally with the right communications channels, with all of the electronic media and modes. Our messaging is more around information around programs that we’re offering that offer something to the customer in terms of home energy management like thermostats, the availability of usage information, etc. Each of these will interest different customers at different levels. Things like electric vehicles: are customers interested in charging stations are one of the things that utilities are looking at. Do you wait til people are screaming or get ahead of it? Staying up on consumer needs is a challenge.