A Year of Uncertainty - Power of Learningpoweroflearning.org/wp-content/uploads/ELP.pdf · Get smart about intelligent grids. ... Metering Transmission Distribution Fault Indication

Jan|Feb|2008

volume 86|01

www.elp.com

A Year of UncertaintyCapital expenditures in the

electric industry for 2007

Wind Power and Grid Reliability

Nuclear Revival, the Sequel

2008 Products and Services Directory

0801ELP_1 10801ELP_1 1 1/31/08 10:47:10 AM1/31/08 10:47:10 AM

http://www.elp.com

You need an intelligent network with real-world smarts.Cannons Yukon Advanced Energy Services Platform sends all other systems back to school. It not only optimizes your power and load factor, it increases reliability and strengthens voltage stability. And in your world, thats the only intelligence test that matters.

Learn more at: www.cannontech.comOr call: 1.800.827.7966

www.cooperpower.com

All Cooper logos are valuable trademarks of Cooper Industries in the U.S. and other countries. You are not permitted to use Cooper trademarks without the prior written consent of Cooper Industries.

Get smart about intelligent grids.

0801ELP_2 20801ELP_2 2 1/31/08 10:47:20 AM1/31/08 10:47:20 AM

http://www.cooperpower.comhttp://www.cannontech.com

Imagine Your Life Without Reliable Electric Power

At SEL, we are passionate about quality, innovation, and customer service.

We work hard to invent, design, and manufacture complete solutions for

power systems worldwide. SEL revolutionized power system protection

and control in 1984, and we continue to provide products and services for

the safe, reliable, and economical delivery of electric power to your world.

To learn more about SEL and why the electric power industry ranks us #1,visit www.selinc.com/elp1

Protection

Monitoring

Control

Automation

Metering

Transmission

Distribution

Fault Indication

Transformer

Bus/Breaker

Capacitor/Feeder

Generator/Motor

Precise Timing

I/O Control

Computing

Cybersecurity

Fiber Optics

Software

Engineering Services

Integrated Panels

Substation Control Systems

Complete Solutions

0801ELP_3 30801ELP_3 3 1/31/08 10:25:44 AM1/31/08 10:25:44 AM

http://www.selinc.com/elp1http://www.selinc.commailto:[email protected]

86 Years of Energy Business

Jan|Feb|2008

volume 86|01

4 | ELECTRICLIGHT&POWER Jan|Feb|2008

Events 6

Commentary/Letters 8

Management Methods 70 Less Left, More Right by Jim Walters, Rochester Public Utilities

FEATURES Industry Report 14

Capital Expenditures in the Electricity Industry for 2007 by Nancy Spring, managing editor

with Dan Gabaldon, Booz Allen Hamilton COLUMNS Managing Uncertainty 10 The Role of Risk Management in the Trading Transaction Lifecycle by Michael D. Barrett, Ernst & Young

SECTIONS News Analysis 12 Reducing Carbon Footprints: How Five Utilities Help Their Customers by Alan Bouris, Ecos Consulting Finance Focus on the CFO 24 by Nancy Spring, managing editor

Exclusive C Three Equity Index 25 by the C Three Group

Texas-sized Data 26 by Clayton Cook, Lower Colorado River Authority

Federal Loan Guarantees 28 by Mary Anne Sullivan and Sam Walsh, Hogan & Hartson

Risk Management Nuclear Revival, the Sequel 32 by Stephen Maloney, Towers Perrin

Centralized Energy Credit Risk Management 34 by Rahim Inoussa, PA Consulting

Generation36 Negawatts: KCP&Ls Energy

Efficiency Forum by Matt Tidwell, Kansas

City Power & Light

Renewables38 Wind Power and Grid Reliability by Tim Poor, American Superconductor

T&D40 A Smart Smart Grid Strategy by Derek Booth, Cellnet+Hunt

IT/CIS & CRM42 Emerging Communication Technologies

The Power of Meter Data Unification and Synchronization of Advanced Metering Infrastructure (Part II)

by Kevin Walsh, SAP America Inc.

44 How an Electric Co-op Improved Customer Service with Document Management

by Mark Thompson, Perceptive Software

46 Customer Care Transformation by Jon Arnold and Mark Morrison,

Microsoft

48 Is This an Era of Transition? by Rod Litke, CS Week

Buyers Guide51 Electric Light & Powers

2008 Products and Services Directory

14

38

44

70

0801ELP_4 40801ELP_4 4 1/31/08 10:25:48 AM1/31/08 10:25:48 AM

And give them all a name.

Take the most reliable and proven AMI technologies in the industry.Make them the most advanced, innovative, and scalable.

Aclara is the new name for the first utility communicationscompany to offer end-to-end data collection,management, and analysis capabilities. Integratingadvanced, proven, and fully scalable AMI technologies tocapture, analyze, and apply electric, gas, and water utilitydata to meet the demands of todayand tomorrow.

Unlock the power of utility information atwww.AclaraTech.com.

0801ELP_5 50801ELP_5 5 1/31/08 10:26:14 AM1/31/08 10:26:14 AM

http://www.AclaraTech.com

E V E N T S

ELECTRICLIGHT&POWER is the official supporting publication of

February 3-5, 2009 : San Diego Convention Center : San Diego, California

ELECTRICLIGHT&POWER is the official print publication of

May 19 23, 2008 : San Antonio, Texas

ELECTRIC LIGHT & POWER, ISSN 0013-4120, USPS 858-860 is published 6 times a year in January/February, March/April, May/June, July/August, September/October and November/December by PennWell Corp., 1421 S. Sheridan Rd., Tulsa, OK 74112; phone (918) 835-3161. Copyright 2008 by PennWell Corp. (Registered in U.S. Patent Trademark Office). Authorization to photocopy items for internal or personal use, or the internal or personal use of specific clients, is granted by ELECTRIC LIGHT & POWER, ISSN 0013-4120, provided that the appropriate fee is paid directly to Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923 USA 978-750-8400. Prior to photocopying items for educational classroom use please contact Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923 USA 978-750-8400. Periodicals Class postage paid at Tulsa, OK, and additional mailing offices. Subscription: $76 per year (U.S.), $85 (Canada/Mexico), $210 (international air mail). Single copies: $12 (U.S.), $20 (international air mail). Back issues of ELECTRIC LIGHT & POWER may be purchased at a cost of $12 each in the U.S. and $20 elsewhere. Copies of back issues are also available on microfilm and microfiche from University Microfilm, a Xerox Co., 300 N. Zeeb Rd., Ann Arbor, MI 48103. Available on the NEXIS Service, Mead Data Central Inc., Box 933, Dayton, OH 45402; (937) 865-6800. POSTMASTER: Send address changes to ELECTRIC LIGHT & POWER, P.O. Box 3204, Northbrook, IL 60065-3204. EL&P and Electric Light & Power are registered trademarks of PennWell Corp. We make portions of our subscriber list available to carefully screened companies that offer products and services that may be important for your work. If you do not want to receive those offers and/or information, please let us know by contacting us at List Services, ELP, 1421 S. Sheridan Rd., Tulsa, OK 74112.

Member GST No. 126813153

American Business Press Publications Mail BPA International Agreement No. 40052420

Printed in the U.S.A.

1421 South Sheridan Rd., Tulsa, OK 74112 : P.O. Box 1260, Tulsa, OK 74101(918) 835-3161 : fax (918) 831-9834 : [email protected] : http://www.elp.com

Subscriber Service : P.O. Box 3204, Northbrook, IL 60065-3204(847) 559-7501 : fax (847) 291-4816 : [email protected]

Publisher Michael Grossman

(918) 831-9500 : [email protected]

President/CEO Robert F. Biolchini

ChairmanFrank T. Lauinger

Senior Vice President, Planning, Development & Strategic Policy Advancement

Jayne A. Gilsinger

Associate/Online EditorJohn M. Powers


Circulation Manager Janet Orton


Southeast & Midwest Regional Sales Manager Tom Leibrandt


Digital Media Sales Candice Doctor


DistribuTECH Exhibit & Sponsorship Sales Manager Sandy Norris


Presentation Editor Clark Bell


Northeast Regional Sales Manager Kathleen Wackowski


Ad Traffi c Daniel Greene


Production Manager Dorothy Davis


Circulation Director Gloria Adams


West Regional Sales Manager Shawn Sejera


Reprints and Classifieds Account Executive Glenda Harp


Business Administrator Teresa Davis


Editor in Chief Steven Brown


Managing Editor Nancy R. W. Spring


President, Petroleum and North American Energy Group

Michael Silber


FEBRUARYFebruary 1115, 2008

CERAWeek 2008Cambridge Energy

Research AssociatesHouston, Texaswww.cera.com

February 1921, 2008PowerGen Renewables

PennWell Co.Las Vegas, Nevada

http://pgre08.events.pennnet.com/fl/index.cfm

February 2025, 2008TechAdvantage 2008

Conference & ExpoNational Rural Electric

Cooperative Association Anaheim, California

www.techadvantage.org

February 2328, 20082008 Annual MeetingNational Rural Electric

Cooperative Association Anaheim, California

www.nreca.org

MARCHMarch 912, 2008Geospatial Infrastructure Solutions Conference 31

GITASeattle, Washington

www.gita.org

March 1819, 2008Wind and Transmission Workshop

American Wind Energy Association& CanWEA

Detroit, Michiganwww.awea.org

Products and Services DirectoryJudith Simers Buyers Guide DirectorJessica Ross Production/Database ManagerTammy Croft Database Production SupervisorJean Gallagher Editorial AssistantHeidi Seiders Sr. Input ProcessorChristine Algie Database AdministratorLinda Smith-Quinn Database AdministratorSandy Taylor Database Administrator Standard Mail A Enclosed - P3

86 Years of Energy Business

0801ELP_6 60801ELP_6 6 1/31/08 10:26:19 AM1/31/08 10:26:19 AM

http://www.cera.commailto:[email protected]://www.elp.commailto:[email protected]://www.techadvantage.orghttp://www.nreca.orghttp://www.gita.orghttp://www.awea.orgmailto:[email protected]:[email protected]:[email protected]://pgre08.events.pennnet.com/fl/index.cfmhttp://pgre08.events.pennnet.com/fl/index.cfmmailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]

Dont let aging assets short-circuit your reliability

>Reliability Strategy

>NERC Standards Compliance

>Asset Management

>Integrated Resource Planning

>Transmission Planning

>Cost Recovery

Reliability is a growing concern in the power industry. With goodreason. According to the North American Electric ReliabilityCorporation (NERC), the industry will potentially miss all of itsregional minimum reliability targets between now and 2015.Enterprise Management Solutions, the management consultingdivision of Black & Veatch, can help. With a broad range of servicesfrom strategic and financial planning to market services and riskmitigation. A proven full lifecycle approach to asset management.Even supporting technology initiatives to move ideas into action. Let us put our more than 90 years of knowledge and experience towork for you. Go to www.bv.com/consult, or call 913-458-3440. If you want reliability, count on Enterprise Management Solutions.

BUILDING A WORLD OF DIFFERENCE

0801ELP_7 70801ELP_7 7 1/31/08 10:26:21 AM1/31/08 10:26:21 AM

http://www.bv.com/

Commentary


Nancy Spring, managing editor

With this issue, Im very pleased to welcome a new member to our industry report family. Dan Gabaldon from Booz Allen Hamilton teamed up with me to write Capital Expenditures in the Electricity Sector for 2007.

Weve covered the utility financial rankings with The C Three Group and the operating performance rankings for power plants with Energy Ventures Analysis for many years and with the addition of this report, a gap in our industry report library is filled. Visualize it this way: the power plants make electricity, the utilities make money, money is spent on the electric system.

I think weve got you covered from soup to nuts.In the capex report, Dan characterized 2007 as a year of uncertainty. Its as if the background music in a

Hitchcock movie is getting louder and louder from 2004 to the present, he said. 2007 was characterized by the high level of renewables coming into the generation mix, the many power plant cancellations and just sheer cost increases. The American Wind Energy Associations announcement that U.S. wind power generating capacity expanded by 45 percent in 2007, shattering all previous records, didnt come as any surprise to him.

Dans insightful analysis of investments made in the industry in 2007 begins on page 14. Dont miss his list of five things to watch for in 2008.

Letters

MagazineName | Month Year 1

Nov|Dec|2007

volume 85|06

www.elp.com

2007 Utility of the Year

Taking a leadership position to combat global warming: FPL Group CEO Lewis Hay III

Committed to improving the environment and reducing

greenhouse gases

tted to improving the onment and reducing

greenhouse gases

FPL Group

2006Operating Performance

Rankings



EL&P welcomes your lettersE-mail us at: [email protected] or mail

to Nancy Spring, Managing Editor, Electric Light and Power,

1421 South Sheridan Road, Tulsa, OK 74112.

Please include your full name, title, company name, address and telephone number.

Letters may be edited for clarity and length.

Dear Editor:I am an employee at a nuclear power plant. One of my jobs involves reporting generation data to the NRC. In the 2006 Operating Performance Rankings (EL&P, Nov. Dec. 2007), you noted that to be in the top 20 nuclear plants for generation, a plant must have 2,000 MW of capacity and multiple units. However, to be in the top 20 for capacity factor, the playing field is somewhat leveled. What capacity factor are you using? Is it Maximum Dependable Capacity or Design Electrical Rate as defined by the NRC or are you using some other calculation?

Skip OlsenConstellation Energy

Tom Hewson, principal, Energy Ventures Analysis, and analyst on Performance Rankings report: The EIA 906 data submitted by the operating companies for net power output and net capacity are used to develop the reports nuclear plant rankings. These data were downloaded directly from DOE. In developing the 2006 rankings, we combined the monthly data reported separately for Units 1 and 2. These data showed the Calvert Cliffs station having a combined 2006 net generation of 13,830,411 MWh and a net demonstrated capacity (average of summer and winter) of 1,703 MW, giving an average station capacity factor of 92.74 percent. This performance places the station ranking at #26 for generation and #31 for capacity factor.

Had we not combined the multiple units by station, we would have had 104 reporting nuclear units and your unit #2 would have ranked as #21 in capacity factor using the reported average net generating capacities.

LETTERS continued on 29

CORRECTION:In Table 4: Top 20 Coal Generators Ranked by Capacity Factor (2006), p.24 of the Operating Performance Rankings (Nov. Dec. 2007 EL&P) the location of the No. 3 ranked plant, Healy, was incorrect. Healy is located in Alaska.

0801ELP_8 80801ELP_8 8 1/31/08 10:26:27 AM1/31/08 10:26:27 AM

mailto:[email protected]

Elster...always a step ahead with proven AMI solutionsUtilities worldwide are faced with the issues of rising fuel costs, deregulation, peakload, grid reliability and conservation. Elster Integrated Solutions (EIS) is playing a central role in addressing these issues by providing proven, reliable AMI solutions toIOUs and smaller utilities alike. A turnkey solution provider, EIS brings together anexceptional team, leading-edge technologies and strategic partners to deliver valueadded solutions that mitigate risks and accelerate ROI. Our AMI systems and solutionsfor gas, electricity and water help utilities improve operational efficiencies, reduce costs and support conservation efforts.

Elsters EnergyAxis System is the largest, true two-way, RF mesh deployment in theworld. Proven to work in multi-utility applications ranging from high-density metropolitanenvironments to lightly populated rural areas, the system supports residential and commercial and industrial applications. Its standards-based, open architecture is flexible and adaptable to utility needs today and future-proofed to support rapidlychanging infrastructure, applications and communications technologies. A proven foundation on which to build reliable demand response, distribution automation andsmart grid solutions, Elster's EnergyAxis System is a step ahead of any AMI on the market.

www.elster-eis.com

0801ELP_9 90801ELP_9 9 1/31/08 10:26:35 AM1/31/08 10:26:35 AM

http://www.elster-eis.com

Managing UncertaintyMManaging UncertaintyMC O L U M N


A u t h o r

Michael D. Barrett is a senior manager in

Ernst & Youngs energy risk

management practice. He focuses on risk management

infrastructure, controls and analytics in the

energy, utility, refi ned products and natural gas liquids industries. You may contact him

at [email protected].

The evolution of energy trading, while relatively brief in duration, has been dramatic. As part of electricity and natural gas pipeline industry deregulation, companies embarked upon opportunities to trade and transact around energy commodities. While different companies employed varying approaches through speculative trading and trading around their assets, the rewardsand the riskswere significant. Now, even after some well-documented trading-related challenges in the late 1990s and early 2000s, energy trading is alive and well, thanks in large part to effective risk management practices.

For power and utility companies with trading operations, Sarbanes-Oxley established platforms to transform the way their businesses trade commodities, manage risk and communicate, especially between front, middle and back offices. Since the implementation of SOX 404 in 2002, the industry has shifted its focus to enterprise-wide compliance and risk management. By understanding the impact of trading operations at every level, senior management, financial teams, traders and, importantly, the companys stakeholders and investors, can all have full confidence in energy trading activities and the risk management strategies that are in place. Consider the following current best practices of the trading transaction lifecycle.

Tone from the top In the past, risk management played a part in the trading process, but it was focused primarily on the business unit or trading desk. Today, many power and utility companies with trading operations are devoting entire teams to aggregating, monitoring, advising and recording the potential risks associated with all daily transactions across the corporation. A risk strategy team, typically consisting

of a chief risk officer, a policy committee and a risk management committee, establishes an overall risk strategy for the company, evaluates risk limits for each business unit and develops clearly stated policies to reflect risk limits.

For the trading floor, leaders should first define the goal of the companys trading activities and then strategize what types of trades are best suited for the overall risk management strategy. Once the strategy is in place, they should regularly read and interpret risk reports from the trading organization. Above all else, it is imperative that company leaders understand the importance of risk management, especially in the trading transaction lifecycle, and communicate with traders to understand the extent of their activities.

Changing corporate functional areasOld practices are giving way to new, comprehensive approaches as key functional areasnamely credit risk, market risk, product control and operational riskshift their roles and responsibilities. As these functional areas oversee trading and operations, they are working more closely with senior management in both the day-to-day and overall monitoring, enabling senior company leaders to take a more active role in risk management. While all four groups are independently important, communication among company leadership and these functional areas has become key to understanding corporate-wide risks and to developing a consistent vision and approach to risk management. Each individual area can contribute to the companys overall risk management strategy.

Transitions in the trading organization In the past several years, the trading market mindset has become more

holistic, with traders forced to understand both how to make a profit as well as how their transactions impact overall company performance. Like all areas of a company, senior leadership should provide its traders with an understanding of the overall corporate objectives and work with traders to ensure that trading activities achieve these objectives. To assist other risk management operations, traders should learn to accurately enter trades into the system, be sure volumes are balanced and help resolve discrepancies. However, additional responsibilities for traders should not include reporting; ultimately, trading is their primary role.

As companies aim to utilize personnel effectively, cross-functional responsibilities allow organizations to move away from the structured front, middle and back offices. While traditional middle offices slowly diminish, oversight monitoring will become a separate and distinct function and will remain a vital part of the organization structure. Whether the individuals responsible are in the back office or an independent group, their duties will include daily confirmations, effectiveness calculations and regressions.

Communication ties objectives togetherFinancial teams at power and utility companies will be critical to connecting the front and back offices and raising awareness of compliance and risk management issues across the company. The finance and accounting organization must understand what is going on within the trading organization through daily interaction and communication with traders. Open lines of communication will allow accountants and traders to discuss the effect of trades on the overall business objectives and strategize the most effective approach for the company.

The Role of Risk Management in the Trading Transaction Lifecycle

by Michael D. Barrett

0801ELP_10 100801ELP_10 10 1/31/08 10:26:41 AM1/31/08 10:26:41 AM


0801ELP_11 110801ELP_11 11 1/31/08 10:26:43 AM1/31/08 10:26:43 AM

http://ibm.com/do/energy

N E W S / A N A L Y S I S


A u t h o r

Alan Bouris is vice president of energy

effi ciency solutions at Ecos Consulting, where he oversees all aspects of program delivery to utilities, retailers and manufacturers. Ecos

Consulting implements energy effi ciency

programs and shep-herds specifi cations

and program designs through the regulatory process. Bouris can be

reached at [email protected].

iIn September 2007, the Environmental Protection Agency reported that ENERGY STAR and other climate change programs prevented 70 million metric tons of carbon equivalent greenhouse gas emissions in 2006, up from 63 million in 2005. In addition, Americans saved more than $14 billion on their energy bills. With terms like climate change and carbon footprint taking root in the vernacular, Americans are increasingly aware of their impact on the environment and are seekingand are clearly selecting choices that promise less harm to the environment. Providing customers with the ability to select environmentally friendly products and services requires dedication and a strategic approach; the resulting reward of a smaller carbon footprint is invaluable. Recently, several ENERY STAR programs garnered accolades from the American Council for an Energy-Efficient Economy, a nonprofit organization dedicated to research and policy development to advance energy efficiency. Programs implemented by Arizona Public Service, Puget Sound Energy, PacifiCorp Rocky Mountain Power, and Sierra Pacific/Nevada Power were deemed noteworthy for helping customers achieve greater energy efficiency in their homes and businesses.

The programs instituted by these utilities have succeeded due to one primary factor: relationships. Each organization outsourced the management of energy efficiency programs to an experienced consulting firm, gaining vital relationships and a higher level of expertise in the process.

Education is kingThe key to successful energy efficiency programs lies with the team associated with the project and its ability to foster mutually beneficial relationships. A successful energy savings program requires calling upon organizations with specific core competencies to help execute critical components of a campaign, including trusted trade allies, retail partners, manufacturers, and measurement and verification partners. The process requires patience and a willingness to put in as much time as necessary to produce a fruitful partnership. A thoughtful and open approach is critical.

Education is also imperative. For example, ENERGY STAR lighting programs with Puget Sound Energy and Arizona Public Service relied on key retail partners to promote and

educate consumers about energy saving choices. At PSE, the Residential Efficiency Program was launched in 2002 on the heels of the West Coast energy crisis the previous year. The utility hoped to build on the momentum for adopting efficient lighting and to garner the cost-effective energy savings that lighting programs offer.

To educate the public about the benefits of ENERGY STAR products and encourage PSE residential customers to purchase high-efficiency ENERGY STAR qualified lighting, various retailers were called upon to participate in promotional efforts. DIY stores, hardware stores, drug stores, grocery stores and lighting showrooms partnered with the utility to offer discount coupons to customers at the time of purchase. Discounts ranged from $2 for a single twist compact fluorescent lamp (CFL) to $20 for hard-wired fixtures.

Similarly, APS required retail partners to carry and promote discounted lighting, achieved through the utilization of an upstream lighting manufacturer buy-down approach. APS was able to bring the cost of energy-efficient lighting products down to a more attractive price and retail relationships were critical in placing the affordable options at local stores.

Educating the public about their choices is a key component of any energy savings program. Both PSE and APS benefited from outreach events, targeted media and marketing campaigns, in-store advertising, retail visits and training. Such educational efforts reinforce the energy saving messages, changing consumer behavior for the long term.

Thinking outside the bulbWhile lighting is clearly a strong starting point for an energy saving program, utilities can encourage customers to do more by evaluating the efficiency of other products around their homes and businesses. At Nevada Power/Sierra Pacific, the ENERGY STAR Residential Lighting and Appliance

Energy Efficiency Programs Utility customers want to reduce their carbon footprints. Heres how five utilities helped them.

by Alan Bouris

EFFICIENCY continued on 22

0801ELP_12 120801ELP_12 12 1/31/08 10:26:55 AM1/31/08 10:26:55 AM

mailto:[email protected]:[email protected]

Customers rely on you to power their world.

We make sure your plants deliver on that promise.

Optimize your plant lifecycle with our Managed Maintenance SolutionsSM

Your customers depend on you to deliver all day, every day. With our newly expanded full-service off ering, Day & Zimmermann is equipped to deliver the unsurpassed value you expect. Our suite of Managed Maintenance SolutionsSM encompasses plant maintenance and modifi cations, major construction projects, professional staffi ng, and valve, condenser, and radiological services. Were focused on optimizing your plant operations, and accelerating your success where it counts most: with your customers.

www.dayzim.com

Safety, Integrity, Diversity, Success

0801ELP_13 130801ELP_13 13 1/31/08 10:26:59 AM1/31/08 10:26:59 AM

http://www.dayzim.com

Industry Report


Anytime the U.S. electric system is the topic of discussion, theres a call to action. Experts warn that the transmission grid must be strengthened, that we need to build new power plants and that we should do everything A.S.A.P. We must, they say, invest in the future and embrace new technologies.

Its been years since the Northeast Blackout of 2003 and passage of the Energy Policy Act of 2005, but theres still a sense of urgency and frustration. We started off 2007 with a stern reminder from Edison Electric Institute President Tom Kuhn that it was timehigh time, reallyto invest in Americas electric future. More power plants and transmission wires must be built to meet this demand, Kuhn said. The distribution system needs to be modernized and expanded. And investments need to be made in technologies that can further reduce air emissions and increase energy efficiency.

While acknowledging that investment in the electric industry has increased, the jurys still out on whether the dollars are being spent fast enough and in the right places. Now that the numbers are in for 2007, we wanted to know how the year stacked up. What was unique about 2007? What should we be watching for next?

We turned to Dan Gabaldon, a principal in Booz Allen Hamiltons energy practice, to find out. Gabaldon focuses on advising participants, suppliers and investors in the conventional and renewable electricity sectors. For this report, he zeroed in on generation because thats the area that was most interesting in 2007.

First and foremost, Gabaldon sees 2007 as characterized by uncertainty. Its as if the background music in a Hitchcock movie is getting louder and louder from 2004 to the present, he said. While the year brought higher costs throughout the economy, sector specific to the power industry what was remarkable about 2007 was the rise of renewables, the level of plant cancellations and just sheer cost increases.

Looking back firstWe begin our assessment of 2007 by placing the year in its historical context to examine the level of expenditures, the mix and what some of the drivers are that, over a longer time horizon, explain the way money is spent.

Its no news that there have been some big mistakes in electricity sector predictions made in the past, but whether we use our understanding of those miscalculations to avoid the same kinds of mistakes in the future

A Year of UncertaintyCapital expenditures in the electric industry for 2007

by Nancy Spring, managing editor, with Dan Gabaldon, Booz Allen Hamilton

EXPENDITURES continued on 16

0801ELP_14 140801ELP_14 14 1/31/08 10:27:05 AM1/31/08 10:27:05 AM

Some companies will sell you a

residential energy meter that

generates interval data and call it

advanced metering infrastructure

(AMI). But collecting 15-minute

interval data from a million

advanced meters

creates 35 billion

readings annually.

How will you realize

the full value of that

much data?

OpenWay by Itron draws

on Itrons unrivaled expertise in

solutions for collecting, managing,

and applying interval data to drive

your business. OpenWay

integrates easily with leading meter

data management systems, such

as Itron Enterprise EditionTM Meter

Data Management, which

combines the scalability and

throughput to manage 10 million

meters, the security and inter-

operability to share data easily

across your enterprise, and two-

way control to every meter.

Applications for data

presentation, demand

response, revenue

protection, and

distribution asset

analysis, such as those

built with Itron Enterprise

Edition, give you the tools for

applying meter data to improve

your business and connect with

your customers.

The OpenWay service-oriented

architecture is built on industry

leading hardware and software

platforms from IBM, HP, Microsoft

and Oracle. OpenWay seam-

lessly integrates with existing

networks and IT systems using

standards such as ANSI C12.22,

Web Services, XML, TCP/IP

and WMI.

A complete solution that delivers

the full value of AMI datajust

what you should expect from

the industry leader.

Delivering true AMI technologyrequires more than changing a letter

To learn more about how OpenWay by Itroncan support your AMI business case,

contact your Itron representative.www.itron.com

Smart Metering for the Smart Grid

* IBM is a registered trademark of the IBM Corporation. HP is aregistered trademark of the Hulett Packard Corporation. Microsoft isa registered trademark of the Microsoft Corporation. Oracle is aregistered trademark of the Oracle Corporation.

0801ELP_15 150801ELP_15 15 1/31/08 10:27:17 AM1/31/08 10:27:17 AM

http://www.itron.com

20

19

18

17

16

15

14

13

12

11

10

9

8

7

6

5

4

3

2

K BT

U pe

r $

K BT

U pe

r cap

ita

Energy Consumption Per GDP

Electricity IntensityEnergy Consumption Per Capita

19541949 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004

400

350

300

250

200

150

100

50

019541949 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004

Energy

Electricity

Energy

Electricity

Source: Energy Information Administration, Census USA data; Booz Allen Hamilton Analysis

Industry Report


EXPENDITURES continued from 14is the still-unwritten story.

People have made mistakes in terms of electricity demand predictions and price predictions, largely by underestimating the medium-term impact of markets, said Gabaldon. The biggest mistakes, which led in the generation sector to big overbuilds, were made when people extrapolated from what happened in the late 60s and early 70sand even, frankly, since World War IIin terms of demand growth.

What happened instead was a very strong reaction to the first oil crisis, which delinked electricity and energy demand from gross domestic product.

Historically, there had been a linear relationship between GDP and energy demand, but when you look at the data after 1973 or 1974, they get delinked, very dramatically. Momentum was maintained in terms of optimismfast forward to mortgage markets todayand people thought that the good times would continue. As a result there was a significant overbuild.

Similarly, Gabaldon said there was an underestimation during the 80s when gas prices fell and there was a real demand elasticity effect. People underestimated demand growth because of the price impact.

One of the themes he saw in 2007 that he believes well see more of in the future is the rippling effect of underlying prices. People get caught up in the challenges of engineering and of the regulatory process in terms of getting things built and forget about the economic fundamentals after theyve made their decision to go forward. That can come back to get you.

Technological wild cards will throw off predictions, too. That happened in the 60s, when demand growth caused by air conditioning was underestimated. There was real uptick in demand growth that wasnt foreseen, said Gabaldon. So the question is, will something

happen in terms of technology going forward that could change our existing relationships between supply and demand and adversely impact the supply side?

Volatility and predictability With the delinking between GDP growth and energy growth, per capita growth now drives demand, which in turn requires supply growth. Thats been true for the last few years, including 2007, in terms of the overall capital expenditures, said Gabaldon. But if you look at those levels theyre actually fairly steady in aggregate for the most part. Distributions been quite steady year on year with volatility at about 8 percent over the last 10 years, but generation and transmission are very volatile.

Standard deviation year to year in that same time frame in terms of the spend for transmission is 26 percent and for generation, 35 percent.

Thats not too surprising, said Gabaldon, because the lumpiness of those kinds of investments is much greater than you see in distribution. They also tend to be funded differently. He pointed out that the public power sector spends more of its money on distribution than do the investor-owned utilities and that public power funding tends to be steadier.

For transmission, volatility and predictability are driven by different factors.

Theres been a great deal of focus on RTOs and states mandating or allowing transmission projects to go through, said Gabaldon. Of the three different sectors, we have seen transmission grow much faster than distribution or generation across most regions of the country over the last several years and that trend continued in 2007.

This, he explained, is a result of EPAct 2005 and more broadly, FERC policy, plus the fact that RTOs are running more smoothly now,


0801ELP_16 160801ELP_16 16 1/31/08 10:27:19 AM1/31/08 10:27:19 AM

Host publication:

AMI TAKES OFF IN THE US

ne of the key trends in 2007 was the adoption of Advanced Metering Infrastructure (AMI) in the United States.

According to the FERCs latest review of demand response and advanced metering utilities announced new deployments of more than 40 million advanced meters between 2007 and 2010. Utilities are signing contracts, filing AMI plans with regulators, operating AMI pilot programmes, issuing RFPs for AMI infrastructure or consulting assistance, and announcing plans to implement AMI, wrote the authors of the report.

Currently smart meters are installed in about 6 percent of homes and businesses in the USA, but if all of the new projected deployments occur then the market penetration could be over 20 percent by the end of 2010. Moreover, according to industry analysts, 40 percent of all customers in the USA are likely to have some kind of advanced metering, by the end of 2012, with about a third of these customers opting for flexible pricing options such as time-of-use tariffs.

This trend was very apparent at the Metering, Billing/CIS America 2007 conference and exhibition in San Antonio, Texas, with smart metering and the issues and challenges around deployment dominating discussions.

In the keynote address Al Lujan, executive vice president for Energy Delivery and Solutions at CPS Energy, explained that AMI was being driven by a combination of regulatory impacts, new technology impacts, customer impacts and value-added services. And, Lujan predicted, in turn it will force many changes: AMI creates terabytes of information that the utility can use, and customers are clamouring for information that they can use.

Delegates heard that the size of the utility is no barrier to smart metering. While it is the big utilities in California such as Pacific Gas & Electric (PGE), San Diego Gas & Electric (SDG&E) and Southern California Edison (SCE) that are making the biggest headlines, with endpoints running into the millions, the potential for AMI is just as viable in the many smaller municipal utilities or cooperatives, with endpoints in the tens of thousands or even thousands. It all comes down to the business case

O

that can be made and that will be unique for each utility.The second key trend that has emerged in the past year

has been the increasing focus on areas beyond the smart meter, such as smart grids and home area networks (HAN), with new vendors and service offerings appearing and much attention being given to HAN connectivity in particular.

AMI is the key, allowing communication through the electric or gas meter into the home, said Terry Mohn, technology strategist at San Diego Gas & Electric Company and panel moderator, who led Metering America 2007s closing panel discussion on this theme. It will allow communication with devices such as thermostats inside the home, opening the way for the provision of demand response and other new services to customers.

A year on, the industry will be able to review these and other trends that will come under the spotlight at Metering,Billing/CIS America 2008. The event is expected to attract some 800 industry participants, including 100 high-level speakers, and 50 exhibitors from a cross-section of North American and international electricity, water and gas utilities.

LOOKING AHEAD TO METERING AMERICA 2008

METERING AMERICA

CONFERENCE & EXHIBITION

9th Annual

Metering the smart grid for the smart customer

The 2008 lineup is here!Theres no better way for electricity, water and gas utilities to piece it all together learn, connect, explore and gain the edge in the metering and customer-end technology sector. Think smarter Register today and bring your smart metering and customer management experience full circle. Visit www.meteringamerica.com

HIGHLIGHTS INCLUDE:

www.meteringamerica.com

April 20 - 23, 2008San Diego, CA, USA

Platinum sponsor:

Gold sponsors: Silver sponsors:

Extended early

bird discount to all

Fortnightly readers! Register

before February 28, 2008 and

quote FORT_MAM08 as sales ID.

Debra Reed, President & CEO, San Diego Gas & Electric & Southern California Gas Company, will give the keynote address at Metering, Billing/CIS America 2008

Metering AmericaBilling/CIS AmericaWater trackHome Area Networks (HAN) pre-conference workshop

AMI Star Wars pre-conference workshopMDM America post-conference workshopExhibition

Host utility: Participating utilities:

0801ELP_17 170801ELP_17 17 1/31/08 10:27:21 AM1/31/08 10:27:21 AM

http://www.meteringamerica.comhttp://www.meteringamerica.com

U.S. CapEx70,000,000

60,000,000

50,000,000

40,000,000

30,000,000

20,000,000

10,000,000

0

1988

$ 00

0s

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Distribution CAGR: 8.62%Transmission CAGR: 11.7%Generation CAGR 2.05%

Distribution GenerationTransmissionSource: Booz Allen Hamilton Analysis

Industry Report


EXPENDITURES continued from 16particularly in PJM.

Theres a broad coalition of folks in the policy set and regulatory set who recognize the value of transmission.

Gabaldon also described the interesting confluence with a longer-term trend that drives transmissionthe 10-year bond. Theres a relatively tight correlation between bond yields and transmission that explains about 20 percent or 30 percent of the variance. Thats been accentuated by companies like Macquarie Co. that have made infrastructure investments more fashionable.

A lot of private equity and institutional money is looking for investments that are rateable and long-lived and uncorrelated with other capital market trends. Transmission projects are perfect and with the extra incentive rate of return from FERC and the relative simplicity in terms of regulatory authorities compared to other electricity related infrastructure investments, its kind of an easy place for them to put their money.

Generations differentGabaldon said that historically, theres actually a very steady relationship in terms of the mix between generation, transmission and distribution over time and that there have only been a couple of disturbances to that. One big disturbance occurred in the 70s and 80s when there was a real run-up in generation. Gabaldon thinks that was related to changes in prices and oil going out of the generation mix, with substitutes coming in, plus the interest in nuclear.

Gabaldon pointed out another building bubble, when the merchant sector and all the gas came in at the end of the 90s, continuing into the early 00s. Several factors caused that bubble, among them advances in combined cycle technology, an expectation

of low gas prices and high environmental prices to comply with CO2, NOx and SOx regulations, and the fashion for low capital intensity in terms of the capital stock.

What it all boiled down to was a significant overbuild and more volatility.

People think that generation is where all the action is in terms of capital, said Gabaldon, but you can see that thats not true when you look at the actual dollars. Investment in generation actually is relatively steady in terms of the mix and in terms of its overall impact.

Although there was a lot of sound and fury in terms of the overall mix of capital expenditures, generation still wasnt that big a deal even during that up-tick. Lots of megawatts went in, but they were cheap megawattsone of the reasons they went in at all, said Gabaldon. I dont think we can foresee any near-term watersheds like that, but there are two potential candidatesrenewables and nuclear.

The brink of a fourth epoch?The history of electrification in the U.S. can be broken into three epochs: the hydro epoch, which ran from the beginning to the 50s, the coal epoch that ended with take-off of new gas capacity in the late 1980s, and the third epoch, natural gas, which started with gas deregulation and has now trailed off. Gabaldon thinks we could be on the brink of the fourth epoch, a return to renewables or perhaps the arrival of nuclear. For him, that was one of the interesting trends of 2007: renewables coming on big.

To a large degree, it was a wind story, which has replaced whats traditionally been our biggest renewable source, biomass, said Gabaldon. I think it was driven by several factors: the maturation of renewables markets and renewables administrative

0801ELP_18 180801ELP_18 18 1/31/08 10:27:22 AM1/31/08 10:27:22 AM

T&D CapEx vs 10-Year Bond

50,000

45,000

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

1976

T&D

Cap

Ex ($

MM

)

10-y

ear B

ond

Yiel

d

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Correlation of T&D Cap Ex and 10-year Bond Yield = 82%

T&D CapEx10-Year Bond

16.00%

14.00%

12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%

Source: Booz Allen Hamilton Analysis

Industry Report

Jan|Feb|2008 ELECTRICLIGHT&POWER | 19

procedures in various states; the maturation of project finance in the renewables development community, which is getting a bit consolidated so theyre able to move more quickly than they used to. Before, they were more of a cottage industry.

It was driven in part by the expectation of falling renewables prices relative to conventional prices, as gas stayed high and as CO2 loomed on the horizon. But, as we all know, the reality was that renewables components experienced very, very significant price inflation, most notably in wind, both for some component parts and building sites.

For solar, the issue has been the scarcity of polysilicon capacity, leading to significant price escalation and severe shortages. To find supplies, theres been quite a flurry of acquisition and alliance activities, some players trying to lock in their current, very advantageous positions and others just trying to find some solar panels.

Weve also seen thin film taking on polysilicon much faster than most people thought was possible, said Gabaldon.

What about nuclear?While there was a lot of talk about nuclear, shifting alliances and recertification and relicensing activity, there was only limited deployment of money. Even in its heyday, nuclear wasnt predominant enough to claim its own epoch. But maybe thats just around the corner, said Gabaldon.

The cost of uncertaintyWhats for sure is that 2007 was characterized by uncertainty and higher costs and that one of the manifestions of that was renewables, said Gabaldon. They were affected by higher costs and you could argue that choosing renewables was a relatively safe response to all the uncertainty.

The uncertainty is fundamentally about CO2 prices and gas prices, and importantly,what the real price of nuclear and clean coal will be. Renewables benefitted because from a PR standpoint or a funding standpoint, it was a no-brainer to turn to them.

However, from a social standpoint, said Gabaldon, Some folks say we could look back and think this is a return of PURPA, were sending crazy price signals for a laudable public policy objective, but were meeting that objective in the most expensive way conceivable.

Coal was also affected by all the uncertainty and higher costs in 2007, but instead of growing like the renewables sector, its story is

one of contraction. While coal plants werent the only generation type to be cancelled in 2007, they certainly took the biggest hit.

The public was more vociferous in the case of coal than nuclear, said Gabaldon, which is sort of interesting and reflects where many of the more economically minded environmentalists have been for several years.

Some natural gas projects also fell victim to uncertainty and higher costs and were cancelled or deferred. There, the uncertainty was partially around market mechanisms and high capacity market functions, but more about the relative prices of coal, CO2 and gas going forward.


In 2007, the once hotly debated market design issue was no

longer at the forefront of concern; rather, the questions centered

around the prospect of re-regulation.

0801ELP_19 190801ELP_19 19 1/31/08 10:27:23 AM1/31/08 10:27:23 AM

35000

30000

25000

20000

15000

10000

5000

0

MW

Year

Online Capacity Cancelled Capacity

Recent U.S. Generation Capacity Announcements

2004 2005 2006 20072003

Gas Coal Nuclear Alternatives 35000

30000

25000

20000

15000

10000

5000

0

MW

Year

2004 2005 2006 20072003

Gas Coal Nuclear Alternatives

OtherPetro

HydroRenewNuclear

Natural GasCoal

OtherPetro

HydroRenewNuclear

Natural GasCoal

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

0

100%

80%

60%

40%

20%

0%

U.S. Generation Capacity Additions

19591955 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 19591955 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007

Note: 2007 is only inclusive through the third quarter. Source: Edison Electric Insitute; Booz Allen Hamilton Analysis

Source: Booz Allen Hamilton Analysis

Industry Report

20 | ELECTRICLIGHT&P&& OWER Jan|Feb|2008

When generation really had to come in, there was old reliablegas and renewables, said Gabaldon. What were seeing is the cost of uncertainty. If youre trying to find the highest average cost sourcesof electricity, you couldnt do much better than looking at peakers and renewable projects given current economics.

Price increasesGiven the way these markets work, Gabaldon explained that generallywhen there are price increases in terms of the underlying costs, the profitability goes upand thats how it worked in 2007.

Last year, there were real commodity price increases, especially in steel, and lots of supply constraints around highly specializedmanufactured products, especially for renewables. There were also major constraints in availability of specialized engineeringprocurement and construction firm skills, for clean and classic coal

and renewable projects.But I think there was also profit taking, said Gabaldon. The

reality is that all of these markets tend to be relatively supply inelastic in the very short term.

Idiosyncrasies of the yearIn 2007, a gold rush mentality swept through the renewables sector.Wind farm sites were scooped up and building supplies for wind andsolar became scarce.

Some real innovation in technologies like clean coal alsocharacterized the year, but once again, it was all about rising prices. The price tag for quite a few integrated gasification combined cycle(IGCC) projects, for instance, caused sticker shock.

Whats interesting is how you can get things wrong when you under-estimate the medium- and long-term impact of prices, said Gabaldon.

EXPENDITURES continued from 19


0801ELP_20 200801ELP01ELP 20 2_20 20 1/31/08 10:27:25 AM1/3/31/08 10:27:25 AM1/0/08 10:27:25 AM

WASHINGTON, DC | NEW YORK | LOS ANGELESPrior results do not guarantee a similar outcome.

When Competitive Power Ventures Inc. (CPV), a leading power generation development and assetmanagement company, launched a new natural gas power generation program, it turned to DicksteinShapiros experienced energy and corporate counsel to negotiate, structure, and document a $200 millioncommitment from Warburg Pincus, a global private equity firm. CPV continues to rely on DicksteinShapiros strategic counsel to manage the many demands of project development and asset management,and to further enhance its position as a cutting-edge competitor in North American energy markets.

2

008

Dic

kste

in S

hapi

ro L

LP. A

ll R

ight

s R

eser

ved.

missingfrom your natural gas power generation project?

W hats

0801ELP_21 210801ELP_21 21 1/31/08 10:27:26 AM1/31/08 10:27:26 AM

Industry Report


EFFICIENCY continued from 12Program folds various components into its energy efficiency strategy. The initiative partnered with retailers to carry and promote discounted ENERGY STAR qualified lighting. A rebate element encouraged customers to purchase energy efficient appliances, such as refrigerators and clothes washers.

PacifiCorps Rocky Mountain Power (RMP) took a different approach, focusing not on what consumers bring into their homes, but on what types of homes they move into. Rocky Mountain Powers ENERGY STAR New Homes Program promotes construction of energy-efficient homes based on the Home Energy Rating System (HERS). The measures modeled by HERS qualified software include building envelope upgrades, high performance windows, controlled air infiltration, high efficiency heating and cooling systems, tight duct systems and more efficient water heating equipment.

RMP forged relationships with builder and trade allies, providing training and education to create a presence in the market. While recruiting participants from the home construction industry was crucial to the programs success, so was a consumer education campaign executed to generate demand for these environmentally-sound homes. The program has worked: At the start of the ENERGY

STAR New Homes Program in 2005, Utah had a handful of ENERGY STAR builders; in 2007, more than 100 builders were actively constructing ENERGY STAR homes and 3,063 homes were ENERGY STAR certified.

Meaningful, measurable resultsIn order to justify the expenses of energy savings programs, it is critical to show measurable results. For the programs highlighted here, aggregated savings are estimated at more than two million megawatt hours. While those in the industry have some grasp of the enormity of this number, the average consumer may not.

It is important to provide consumers with a clear idea of what one kilowatt hour can represent. In this case, imagine taking 472,286 cars off the road for one year. Keep in mind that this represents only four ENERGY STAR programs, and that consumers are also benefiting from lower monthly bills.

It has become abundantly clear in recent years that the climate change crisis is not a problem that can be fixed easily by one entity or another; rather, a concerted and committed effort is required among an array of organizations and individuals that each have the power to tread a little more softly on the planet.

News/Analysis

In electricity markets, the equilibrium gross margin is set by the price at which new entry occurs. As these technology and commodity factors and constraints have their impactssignificant price increaseswe see the knock-on-effect. The price at which electricity has to rise in order to bring in new entry will go up, so an equilibrium reserve margin should tighten and the value of existing assets should go up as well. Gabaldon said weve begun to see that across the board. At the same time, the cost of new equipment has gone up and that could mean medium-term ramifications for electricity markets.

What reserve margin do we need before new entrants are attracted to the market? That could make some predictions wrong about how the supply response is going to change; it could be lagged, said Gabaldon. That means existing assets could enjoy some rents that arent fully baked in right now.

Pain points are shiftingIn 2007, the once hotly debated market design issue was no longer at the forefront of concern; rather, the questions centered around the prospect of re-regulation.

The drama around capacity markets and whether we trust capacity markets to build new capacity kind of went away, said Gabaldon. In the Northeast, the debates were concluded with a belief that peaking capacity was close to what it needed to be. Capacity markets were not designed to attract base load, so people gave up on trying to build large baseload projects based on merchant markets, Texas being the exception.

The pain points are shifting. The possibility of re-regulation is

lurking in the backs of many minds.

Things to watch in 2008 People are behaving rationally in the face of uncertainty and theyre waiting to see how its resolved, said Gabaldon. While we wait, heres a list of five things Gabaldon suggests we watch for in the near term:1. Will we see a lot of asset turnover? Some of the financial

players have been sitting on the assets they bought during the crisis for several years now and they may want to monetize. Will we see a big turnover as the strategics buy in?

2. What more are we going to learn about the real costs and feasibility of nuclear and clean coal (including gasification)? Will we continue to be negatively surprised or will we turn the corner?

3. Will some of the supply bottlenecks for renewables break? Will there be a return to price decreases or a glut, especially in photovoltaics? Its not a CalTech problem, its a VoTech problem, said Gabaldon. You dont need gee-whiz basic research breakthroughs, you need to get the manufacturing right. Blocking and tackling breakthroughs could lead to a real discontinuity in terms of the costs and that would surprise people.

4. Will we see enough tightening of reserve margins that we begin to have real reliability problems? And will that cause further momentum toward re-regulation?

5. What will a very low dollar mean in terms of foreign incursions? Will the foreigners finally come?

EXPENDITURES continued from 20

0801ELP_22 220801ELP_22 22 1/31/08 10:27:28 AM1/31/08 10:27:28 AM

0801ELP_23 230801ELP_23 23 1/31/08 10:27:29 AM1/31/08 10:27:29 AM

http://www.csweek.org


Finance

uUtility companies in the U.S. are anticipating huge capital improvement programs. Billions of dollars are earmarked for the countrys electric infrastructure. Companies that provide the raw materials for power plants and transmission lines are also gearing up. All this activity takes money and that puts the chief financial officer in the spotlight. Whats topmost in the CFOs mind?For David Hauser, group executive and chief financial officer at Duke Energy, the main issues for his company in 2008 will be financing the capital expenditures the company is planning. Duke Energy is one of the largest electric power companies in the U.S., supplying and delivering energy to 4 million U.S. customers. My priorities in 2008 will be first, to make certain that Duke Energy is making the right decisions on how to deploy capital, and second, to secure the right mix of capital resources necessary to finance the substantial capex program underway at Duke Energy, said Hauser. Over the next five years, we expect to invest around $23 billion. Most of that will be in our regulated electric utility businesses as we make investments necessary to meet growing customer demand on our system and improve the environmental performance of our existing power plants. Fortunately, Duke Energys strong balance sheet will provide us with significant flexibility in raising the capital necessary to achieve our capital investment plans.

Stability at utilitiesThe average length of tenure for the CFO post across all sectors of the economy is three to five years, according to CFO magazine. At utilities, however, things are more stable.

Dukes Hauser, for instance, joined Duke Power in 1973. For the first 20 years of his career he held various accounting positions, including controller, vice president, procurement services and materials, senior vice president of global asset development, and senior vice president and treasurer. He was named acting chief financial officer in November 2003 and group vice president and chief financial officer in February 2004. In April 2006, he was named to his current position.

Its always been a more staid industry, said Richard Jacovitz, senior vice president of Liberum Research, the largest database of C-level executive changes at public companies. Weve never seen a high level of management change over time in utilities. Its a much more stable, structured industry, its much bigger and it runs along differently than an industry like oil and gas, which is somewhat dependent on discovery and a variety of other factors that play into how the company is performing.

(See Table 1 for 2007 C-Level changes for all industries.) Liberums change statistics for CFOs separately totaled

2,263 in 2007. The top industry sectors for CFO changes were Drugs/Biotech203, Energy (which includes oil & gas companies)151, and Metals/Mining (which includes coal mining firms)129. Utilities came in at a mere 21, (see Table 2). The year before, utilities registered only 23 CFO position changes. It is indeed a stable industry.

Looking at the CFO position at eight utility holding companies in the U.S., admittedly a very small and statistically

By Nancy Spring, managing editor

Focus on the CFOYears of experience are a plus in this capital intensive industry

Table 1: C-level Changes 2007: CEO, CFO, VP, board of directors, etc. Sector TotalsAero Defense 316Auto 355Banking 2376Brokers/Investment Management 734Business Services 1367Chemicals 353Computers 595Conglomerates 208Construction 270Consumer Durables 83Consumer Products 788Drugs/Biotech 2520Energy 1721Food/Drink 816Health Services 740Insurance 1302Internet 365Leisure 547Manufacturing 1382Media 722Metals/Mining 1225Other 3945Real Estate 446Retail 733Semiconductors 465Software 787Telecommunications 1200Tobacco 45Transportation 568Utilities 383TOTALS 27357Percentages 100%Source: Liberum Research

0801ELP_24 240801ELP_24 24 1/31/08 10:27:38 AM1/31/08 10:27:38 AM

$130.00

$120

$110

$100

$9012/29/06 1/31/07 2/28/07 3/30/07 4/30/07 5/31/07 6/30/07 7/31/07 8/31/07 9/29/07 10/31/07

The C Three Group CompositeLess Regulated Gas Focus

Regulated ElectricRegulated Electric Gas Combination

The C Three Group 12 Month Equity IndicesYear-to-Date Value of $100: 1/1/2007 through 12/31/2007

11/30/07 12/31/07

Less Regulated Electric Focus

LDCDow Jones Ind

Financee


2007 Ends on High NoteThe less regulated, the betterFor all but the regulated electric and gas combination utilities, 2007 ended on a positive note. The less regulated the better in 2007, with the least regulated electric beating all the others.

While 2007 had its bumpy moments, for the most part it ended on a positive note for 61 of our 96 component companies. Thirty-five companies ended 2007 below where they started in 2007. Forty-one of our component companies, or less than half, outperformed the Dow Jones Industrial Average for 2007, whereas 63 companies, or more than two-thirds, outperformed the Dow for the past five years. Less regulated companies, gas or electric focus, continued to outperform their more regulated brethren.

The groupings of the indices have been changed to more accurately reflect how the energy industry is evolving. Many companies have gone almost completely back to basics while others have continued to pursue less regulated strategies. We cut and diced this data in as many permutations possible for client-specific projects. We took a quantitative approach to decide which company would go into which group, based on third quarter 2007 year-to-date financial reports.Less regulated electric focus: More than 50 percent of revenues come from sources that are not state regulated and/or more than 33 percent of assets are not state regulated.Less regulated gas focus: More than 50 percent of revenues come from natural gas distribution and/or more than 33 percent of assets are not state regulated.Regulated electric: No more than 20 percent of revenues can come from natural gas distribution and no more than 49 percent of revenues and 33 percent of assets can be associated with non-regulated activities.LDC: No more than 20 percent of revenues can come from electric distribution or generation and no more than 50 percent of revenues and 33 percent of assets can be associated with non-regulated activities.Regulated electric and gas combination: More than 20 percent of revenues derived from natural gas distribution, no more than 50 percent of revenues and 33 percent of assets from non-regulated activities.The C Three Index: The non-weighted average of each of the companies included in the groupings above.

FOCUS continued on 30

Exclusive C Three Equity Index

For more, visit www.cthree.net.

invalid sampling, certain patterns emerge. For one thing, 2004 seemed to be a big year for CFO change; for another, the CFOs of today often put in many years at the company, like Dukes Hauser. (See Table 3.)

A new CFO at National Coal Corp.At the other end of the management change spectrum from the quiet world of Utilities is Metals and Mining. In 2007, Liberum found that sector to be in the No. 3 spot for

Table 2: CFO Changes 2007Management Change Description

Sector Internal Joining Leaving Promotion Resigned/Retired Terminated TotalsEnergy 24 67 1 22 36 1 151Metals/Mining 15 62 2 19 31 0 129Utilities 4 7 0 5 5 0 21TOTALS 43 136 3 46 72 1 301Percentages 14% 45% 1% 15% 24% 0% 100%Source: Liberum Research

CFO changes. National Coal Corp. (Nasdaq: NCOC), a producer of high-quality steam coal in Central and Southern Appalachia, is one of the Metal and Mining companies where there was a CFO change: Michael Castle was appointed senior vice president and CFO in December 2007. In an exclusive interview with EL&P, Castle talked about his top three goals for 2008.

Were a coal mining company that supplies utilities; 100 percent of our production goes to the electric steam market in the U.S. We have production in Kentucky,

0801ELP_25 250801ELP_25 25 1/31/08 10:27:40 AM1/31/08 10:27:40 AM

http://www.cthree.net


Finance

oA u t h o r

Clayton Cook has been with the Lower

Colorado River Authority for 27 years. He has

been the computerized maintenance

management system (CMMS) manager for more than 10 years.

Cook serves as the system owner and

functional manager of the enterprise asset

management system (EAM) at the LCRA. Cook also leads the

LCRA EAM subject matter expert team. Contact him at clay.

[email protected].

Texas-sized Data Leading-edge technology helps the LCRA manage a wide range of resources and assets.

by Clayton CookOne public utility agency is using small display screens to cut its coverage area down to a manageable size. Spanning the heart of Texas, the Lower Colorado River Authoritys coverage area stretches 29,809 square milesan area larger than Rhode Island, New Jersey, Hawaii or several other states.

Created by Texas state legislators in 1934, the LCRA conservation and reclamation district employs 2,350 people who work to provide a myriad of utility-related services in 53 central Texas counties. The LCRA relies on mobile technology to complete its broad-based responsibilities, including bringing electricity to more than one million residents, managing the lower portion of the Colorado River in Texas and operating six dams.

The software supports a variety of functions such as work order management, equipment monitoring and inventory management. With handheld computers and their software, workers can send and receive data from wherever they are located. Being able to send and receive critical information to workers at job sites enables the LCRAs mobile staff and its managers to manage scores of complex operations throughout the agencys vast region.

The information bottleneckDespite being the key agency behind a number of public works-related projects in Texas, the LCRA is a non-profit entity that receives no tax dollars. Unique in structure and mission, the LCRA sells wholesale electricity to more than 40 retail utilities, including cities and electric cooperatives. The agency operates 3,300 miles of transmission lines and manages the water supply for cities, farmers and industries along a 600-mile stretch of its namesake river between the city of San Saba and the Gulf Coast. The LCRA also owns 16,000 acres of recreational land, comprising more than 40 parks, natural science centers and nature preserves.

Before they had mobile technology, LCRA field technicians were unable to efficiently transmit hard, actionable data easily. Forms were completed in the field and returned to the central office for data entry by support staff, then managers had to wait for information to be processed. The information that managers and field technicians needed on field meter readings, substation equipment

conditions and maintenance work orders was locked on paper forms that had to be moved by hand from central dispatch. It was an information bottleneck.

Realizing this information bottleneck existed, in 2002 the LCRAs transmission and substation group joined with its generation group to mull over the options, which included reviewing the products of a number of mobile technology vendors.

With wide-ranging resources including hydroelectric dams, a coal-fired power plant, gas-fired power plants, and even electrical power transmission services scattered across a large expanse, the LCRA shed its reliance on paper documents as demands for its services grew and information had to be processed at a much faster rate.

The benefits of modern-day effectivenessNow, with mobile technology, field technicians can complete more preventative maintenance on the agencys far-flung assets. Mobile technology also allows an organization to end its reliance on paper-based systems for a host of other functions. For instance, the information the LCRA receives from its enterprise asset management (EAM) system can be sent immediately to field workers and is no longer trapped on static paper forms. The LCRA now has the ability to electronically send and receive information on work orders for repairing or replacing equipment, inventory management

The LCRA uses mobile technology to manage its many assets. Photo, courtesy LCRA.

0801ELP_26 260801ELP_26 26 1/31/08 10:27:43 AM1/31/08 10:27:43 AM


Todays technology is the cornerstone for tomorrows energy savings. Come and discover whats ahead... Smart

metering and beyond

February 25 - 27, 2008Toronto, ON

Canada

www.metering.com/canada

3rd annual

Register now!

Sponsors: Host publication:

Metering | Customer relations management | Demand side management

Energy ef ciency | Meter Data Management

Workshop Conference Field visit

INTELLIGENT METERING, GRID ANDMDM STRATEGIES FOR SMART UTILITIES

Announ

cing

new dat

es

Februar

y 25-27

2008


Financee

details and measurements for equipment monitoring. The software the LCRA uses to stay current on its

operations and supplies comes from Syclo, a Hoffman Estates, Ill.-based mobile software provider that also developed a mobile platform that supports the mobile tools the agency uses and extends the functionality of its EAM system to its field workers. To complete its connection with leading edge technology, the LCRA tapped the MC9000 Series mobile computers from Motorola-subsidiary Symbol. The MC9000 is designed to operate in the kinds of harsh environments where many of the LCRAs facilities and assets are located.

Other benefits?With the paperwork completion requirement eliminated

by mobile technology, LCRA field technicians had more time to devote to following-up on work order requests and equipment monitoring.

Since deploying mobile technology, the LCRA has experienced an increase in the work completed per shift for its field workforce.

The amount of preventative maintenance versus reactive maintenance completed has dramatically increased. Assets can be repaired or replaced before they start seriously malfunctioning, threatening customer service.

Mobile technology has also facilitated better monitoring of the LCRAs assets. For example, with the new technology, the agency can effectively inventory and maintain data on 314 nuclear measurement devices at its coal-fired power plant. This monitoring includes validation of the devices physical location, collecting information on equipment condition and leak test results monitoring.

With the increased efficiency mobile technology enables, the LCRA continuously meets its service level agreements in all areas. And since the data is collected, transmitted and stored electronically, a verifiable electronic record is compiled for state and federal compliance reporting. Plus, those reports are now generated in minutes.

The LCRA also saves on its labor expenses. In the old paper days, tracking all the activities, readings and repairs manually was labor-intensive, costly and time-consuming. Today, those functions are automated. Since mobile technology was implemented by the LCRA, the agency has experienced a 20 percent increase in the quality of work completed.

Soon, the LCRA will add automated scheduling software to its list of mobile technology tools so it can more effectively schedule workers to be at sites for repairs, monitoring and other operations. To locate workers such as inspectors, the LCRA will acquire global positioning system (GPS) technology. All of the tech-nology the LCRA employs helps it effectively serve its customers while protecting the environment and constructively using the areas resources.

(Visit www.elp.com for more articles about mobile technology.)

0801ELP_27 270801ELP_27 27 1/31/08 10:27:49 AM1/31/08 10:27:49 AM

http://www.elp.comhttp://www.metering.com/canada


Finance

A u t h o r s

Mary Anne Sullivan, partner in Hogan &

Hartsons energy practice, has more than 25 years of experience

as an energy lawyer. She previously served as general counsel of

the U.S. Department of Energy and as deputy

general counsel for en-vironment and nuclear

programs. Currently, her practice focuses on

electricity and advanced energy technologies

and she has assisted several clients with loan guarantee applications

and comments. One client was recently

accepted to proceed to the next stage based on its loan guarantee

application. Contact Sullivan at [email protected]. Sam Walsh

is an associate at Hogan & Hartson.

aAlmost three years ago in the Energy Policy Act of 2005, Congress gave the U.S. Department of Energy authority to provide loan guarantees for innovative energy technologies. This authority was seen by its supporters and Congress as a tool to jump-start commercialization of climate-friendly energy technologies that have been demonstrated at the pilot scale or in other countries, but not yet commercialized in the U.S.The loan guarantee program was stalled by intramural battles within Congress and between DOE and Congress, the need to conduct a rulemaking to guide the exercise of this authority, and general caution by DOE. (DOEs past experience with loan guarantees has not been good. The caution is understandable.) However, as we enter 2008, it appears that the program is about to begin delivering on the promise of helping to bring important new greenhouse gas-reducing technologies to the marketplace. The battles with Congress have abated; the rulemaking is finished, and the 2008 Omnibus Appropriations Act gives DOE greatly increased loan guarantee funding. Particularly for the most costly technologies, most notably new nuclear power plants, some questions about the structure and affordability of the program remain. Those questions will be front and center as the program unfolds in the coming months, but hopes are high that the program is about to kick into high gear.

Good news on fundingEven though the loan guarantee program is designed to be self-funding, DOE takes the position that it must have appropriations authority each year for the total amount of the loan guarantees it issues. In 2006, Congress gave DOE $2 billion in loan guarantee authority for the program; in 2007, that amount doubled to $4 billion, even though the program was stalled by the lack of implementing regulations; for 2008, DOE sought $9 billion. Recognizing that a significantly larger program will be required if loan guarantees are to bring transformational energy technologies to market, Congress has been more generous. The report accompanying the Omnibus Appropriations Act for 2008 authorizes $38.5 billion in loan guarantees. Report language further directs that $18.5 billion of that go to loan guarantees for new nuclear plants, $10 billion for renewable energy, $6 billion for carbon capture, $2 billion for advanced coal gasification, and $2 billion for uranium enrichment. This should enable DOE to proceed with multiple solicitations, each focused on a designated class of technology.

Loan structure issues resolvedIn its Notice of Proposed Rulemaking, DOE suggested that it

would: (1) limit guarantees to no more than 90 percent of any debt instrument; (2) prohibit stripping the guaranteed portion of any such instrument from the non-guaranteed portion for syndication or resale; and (3) require that DOE have the first lien on all project assets pledged as collateral for the guaranteed loan. Numerous parties argued that the loan guarantees would be unusable with those conditions because no market exists for a hybrid instrument composed of roughly 90 percent federally guaranteed debt and roughly 10 percent debt that is non-guaranteed, subordinate and, therefore, much riskier. In addition, many argued that private lenders would never agree to be entirely subordinate to DOE in the event of default.

DOE took those concerns seriously and in the final rule DOE changed all three conditions.

First, DOE eliminated the firm 90 percent cap, indicating it would consider guarantees up to 100 percent of a debt instrument, although it did not commit itself to guaranteeing 100 percent of every debt instrument covered by the program. In an unexpected turn of events, DOE said that where 100 percent of a debt instrument is guaranteed, the debt must be issued by the Treasury Departments Federal Financing Bank, not by commercial lenders. While this means less of a role for Wall Street, it may reduce the cost of the debt, a plus for project developers.

Second, in cases where it guarantees 90 percent or less of a debt instrument, DOE eliminated the prohibition on stripping the guaranteed portion of the debt from the non-guaranteed portion. Thus, debt can be resold in parts based on the differing risk profiles attached to the guaranteed and non-guaranteed portion of a loan. When DOE guarantees more than 90 percent of a debt instrument but less than 100 percent, the prohibition on stripping remains.

Finally, irrespective of the level of guarantee, DOE stated that it would no longer insist that the non-federally guaranteed portion of project debt be subordinate to the

Federal Loan Guarantees Will they give the U.S. climate response a needed boost in 2008?Part One

by Mary Anne Sullivan and Sam Walsh

The report accompanying the Omnibus Appropriations Act for 2008 authorizes $38.5 billion in loan guarantees. DOE should be able to proceed with multiple solicitations, each focused on a designated class of technology.

New nuclear plants . . . . . . . . . . . . . . $18.5 billionRenewable energy. . . . . . . . . . . . . . . . $10 billionCarbon capture . . . . . . . . . . . . . . . . . . $ 6 billionAdvanced coal gasifi cation . . . . . . . . . . . . $ 2 billionUranium enrichment . . . . . . . . . . . . . . . $ 2 billion

0801ELP_28 280801ELP_28 28 1/31/08 10:27:52 AM1/31/08 10:27:52 AM

mailto:[email protected]:[email protected]

www.metering.com/design

February 20 - 22, 2008San Jos, CA, USA

PROGRAM HIGHLIGHTS

Fabio Toledo, Project Manager, EDF, France, on the worlds biggest AMM project and the requirements for next generation meters

Gerard Nanninga, Head of Electrotechnical Department, Hanze Technical University,Netherlands (winner of the European Utility Award 2007) on energy ef cient meters

Joseph Hughes, Senior Technical Manager, Electrical Power Research Institute, USA, on integrated infrastructures for utility and energy service operations

Michael Markides, Senior Analyst, IMS Research,USA, on the results of an industry-wide semiconductor research project

Bob Heile, Chairman, ZigBee Alliance, CA, USA, on wireless communications for meters

Dr Peter Honebein, Managing Member, Honebein Association, USA on emotional and social aspects of meter system design

WORLD METERDESIGN CONGRESS

Presented by:

Supporting associations:

Register today!

workshops conference exhibition

Contact: Julia Former: [email protected]: +27 21 700 3500 / 888 559 8017 (US)Fax: +27 21 700 3501 / 413 487 6276 (US)

Premier media partner:

Future trends in meter design - The rst global forum for meter design enigineers


Financee

guaranteed portion. Instead, DOE will retain control over the disposition of assets, but it will agree to a pari passu structure with other lenders, giving them a proportional recovery from collateral in the event of default.

Although DOE may guarantee up to 100 percent of a given debt instrument, the law limits loan guarantees under the program to 80 percent of project costs. Therefore, DOE also considered what, if any, constraints it might impose on the remaining 20 percent of financing. DOE did not impose a hard numerical floor on the equity contribution of project sponsors, but it stressed that it would take the type and amount of equity contributions into account when deciding which projects to select. DOE is clearly looking for project sponsors to be at risk, alongside the government, if a project is to receive a guarantee.

[Part Two of this article will be published in the March/April issue.]

Letterscontinued from 8

(Several units have calculated capacity factors >100 percent, suggesting that many may not have updated their rated capacities or use permitted output capacities.) The individual components for the Calvert Cliffs station by unit contained in this DOE 906 database are as follows:

Capacity 2006 Output Capacity FactorUnit #1 850 MW 6,438,340 MWh 86.5% (no generation for 3/06)Unit #2 853 MW 7,392,071 99.0%

Skip Olsen: Thanks, Tom. It seems like everyone uses a different reference point. Your generation values are not what is reported to the NRC, but what is used for DOE. This accounts for the difference in what you state we produced and what I have.

The DOE uses negative generation. If a unit is not producing power but continues to use power it results in negative generation, which for DOE and financial reasons is important. The NRC is concerned with power generation only. This makes sense from the view of reactor fuel usage and core life. Negative generation gives the appearance, math-wise, that you are putting fuel back in the reactor: produce 100 MW output, used 30 MW while shut down = net generation of 70 MW. However, for NRC, you produced 100 MW and had 0 generation while shut down, not -30 MW. Its all a matter of reference.

CCNPP-1 did have a capacity factor (mdc) of >100% in 2005. We had a great 365 days with one minor outage (in hours not days).

My only negative feeling about your methodology is that you combine a sites generation and average it out. We will probably never be in your ranking since we have a unit down each year for refueling, but at least now I know why we arent there!

0801ELP_29 290801ELP_29 29 1/31/08 10:27:54 AM1/31/08 10:27:54 AM

mailto:[email protected]://www.metering.com/design

Why would you want more thing in your inbox?

Five good reasons:

Synopses of important industry reports

The weather outlook

Financial trends

Inter

Documents

A Year of Uncertainty - Power of Learningpoweroflearning.org/wp-content/uploads/ELP.pdf · Get smart about intelligent grids. ... Metering Transmission Distribution Fault Indication