International insights Utility insiders on customers, analytics …energycentral.fileburstcdn.com › IntelligentUtility... · 2014-05-28 · VOL 6, ISSUE 3 » MAY/JUNE 2014 Realizing

VOL 6, ISSUE 3 » MAY/JUNE 2014 Realizing the digital utility evolution

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International insights Utility insiders on customers, analytics CIOs on cybersecurity fears

How to hire young engineers A regulatory update on

FERC Order 1000

Ideas exchangeStrategies

emerge

Relationships

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�COVER // MAY/JUNE 2014

On the cover: You�can�almost�smell�the�leather�in�our�close-up�of�an�executive�office�chair�on�this�month’s�cover.�In�this�issue,�we�reveal�insider�details�for�the�busy�exec—from�overviews�on�metering�in�Africa�and�wind�energy�in�Latin�America�to�notes�on�investing�in�upgrades,�engineers�and�FERC�Order�1000.�

SPECIAL SECTION // INTERNATIONAL

8 OnsmartmetersinAfrica+ Funding is in short supply

10 Electrictravelogue+ T&D in the wilds of Eire

14 Utility2utility+ DONG Energy

16 LatinAmericawindenergymarketoverview+ Drivers mostly in Brazil, Mexico

18Utility2utility+ Hagihon (Israel)

DEPARTMENTS

4 Drawing the line

6 Intelligentutility.com

21 Customer Focus

21 Wantasuccessfulsmartgridimplementation?

+ Consumers are key

23 Scamssetoffutilityalarmsacrossthecountry

+ NU, Consumers and PGE respond

25 Operational Perspectives

25 Investingcashinupgrades

+ The return benefits all, including customers

26 MISO’sCurranmanagesthechallengesoftransmissionwork

+ Part of the women-in-energy article series

28 We’reawashindisruptivechange

+ Two directives to embrace the new utility business model

31 IT insights

31 Nomorecustomization

+ Secret to COTS is best practices

33 Weasked

+ What are the top three things every utility CIO should worry about when it comes to cybersecurity?

35 Analytics

35 Geospatialanalyticsaddsvaluetoelectricutilityoperations

+ CenterPoint’s story

37 Thefour—no,six—

Vsofanalytics

+ UAI increases Vs by 50 percent, but what are Vs exactly?

38 By the numbers

38 Howtoreachandretainyoungengineers

+ Lessons from oil and gas

39 Out the door

39 LookingbackatFERC’sOrderNo.1000

+ And ahead, too

Vol.6,No.3,2014byEnergyCentral.Allrightsreserved.Permissiontoreprintorquoteexcerptsgrantedbywrittenrequestonly.Intelligent Utility®ispublishedbimonthlybyEnergyCentral,2821S.ParkerRoad,Suite1105,Aurora,CO80014.Subscriptionsareavailablebyrequest.POSTMASTER:SendaddresschangestoIntelligent Utility,2821S.ParkerRoad,Suite1105,Aurora,CO80014.Customerservice:303.782.5510.ForchangeofaddressincludeoldaddressaswellasnewaddresswithbothZIPcodes.Allowfourtosixweeksforchangeofaddresstobecomeeffective.Pleaseincludecurrentmailinglabelwhenwritingaboutyoursubscription.


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Kathleen Wolf Davis

Editor-in-Chief, Intelligent Utility magazine [email protected]

DRAWING THE LINE

FindingthewindowIN MY FAMILY, MOM WAS THE CFO. DAD WAS THE CEO,

and I was the unpaid intern. At one point in our family/compa-ny history, it was decided by the board—without input from the unpaid intern—that we’d replace the linoleum in our farmhouse kitchen. It was also decided—also without input from the unpaid intern—that we’d do it ourselves.

The CFO crunched the numbers and got the necessary items for the proj-ect paid for up front. We gathered them all on the lawn: giant vat of glue, giant roll of linoleum, impossibly tiny-looking (by comparison) roller with handle (for the seams) and us.

The CFO’s job was done. She went off to study financial aspects for the next project—leaving the CEO and the unpaid intern out in the midst of the pre-project detritus.

We discovered, in our cookie-fueled meeting amongst this detritus where we went over specs, that we had overlooked one major flaw in our project planning: The roll of linoleum was too long to go in the front door and make the turn into the kitchen.

With a second round of cookies, we examined our new choices, brought out the tape measure and mulled things.

At one point in the meeting, when the unpaid intern decided to find Dr Pepper to wash down the cookies, the CEO disappeared around the side of the house and was gone for about 15 minutes—or the time it takes to rather leisurely drink a can of Dr Pepper.

Our CEO came back with a plan: We’d take the roll of linoleum into the house through a back win-dow. From there, it was a straight shot into the kitchen. Problem solved, and a little extra, out-of-the- box thinking up front saved us hours of rolling along seams with that teeny tiny roller down the way.

In any company—whether family-based or bigger—the job of the CEO is all about finding that back window to solve problems, to streamline issues and to prevent cost and labor overruns. But those back windows can’t be found without being able to walk around the house and get the big picture of things.

In this issue, we focused on gathering information to aid in that search for that back window—a walk around the big picture from international information on Africa, Latin America and Europe to investment advice with upgrades and staffing.

So, take a read and go on that window search. I’ll be right here, waiting with my Dr Pepper to hear all the details. E-mail me anytime at [email protected].

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INTERNATIONAL

ONE OF AFRICA’S MOST PRESSING

challenges is to provide access to electricity. Sub-Saharan Africa is the only region in the world where energy consumption per capita is falling.

According to the World Bank, only 20 percent of the sub-Saharan population has access to electricity compared with 50 percent in South Asia and more than 80 percent in Latin America. Based on current trends, less than 40 percent of African countries will have universal access to electricity by 2050.

In the few countries that do have access to (barely) reli-able power, there is a pressing need to manage it sufficiently well to avoid losses. The South African city of Tshwane (Pretoria), for example, has endemic problems with late payments, long-term debtors and electricity theft.

In common with the majority of African cities, Tshwane Electricity, which is responsible for supply to a population of around 500,000 customers, is not flush with cash. So when it wanted a smart metering program, which would ordinarily have cost six billion South African Rand (or about $570 million), Tshwane turned to its panel of service providers to create an off-balance sheet, self-funding smart metering program.

South African investment company PEU Capital won a tender under which it would own and operate the new smart metering system in Tshwane in return for a service fee. Instead of the city raising the required capital invest-ment, the funding structure draws on revenue from each tranche of “converted” customers to fund subsequent stages of capital investment.

Every electricity customer of Tshwane Electricity will effectively go onto prepayment metering. PEU will roll out the metering equipment, meter boxes, data communica-tion, network, service center, and vending infrastructure for prepayment.

In return, PEU will collect a service fee of between 19.5 percent and 25 percent of electricity sales revenue for the next ten years. There is also an option to extend the contract for a further three years, while an inbuilt flexibility in the technol-ogy will allow the city to upgrade to time-of-use tariffs.

The first meter was installed in October 2013, within two years of the project’s initiation. All new meters will be installed within three years of go-live.

The off-balance sheet nature of the initiative meant, in essence, a new utility company had to be set up to operate these assets. With assistance from EY (formerly known as

++Funding is in short supplyBy Tim Probert

SMART METERS IN AFRICA

On

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Ernst & Young), a new structure and operating model was designed and created from scratch, with a new C-suite and supporting workforce of 85. EY said this unprecedented move required a “fundamental mind shift away from the typical model for implementing smart meter systems.”

It should be noted, however, the PEU Capital contract is the subject of a lawsuit brought by business rights watchdog AfriSake. The watchdog has called the contract

“blatantly corrupt” due to an alleged deliberate overestima-tion of costs, arguing it breaches South Africa’s Municipal Finance Management Act, the Municipal Systems Act, the Consumer Protection Act, the Promotion of Administrative Justice Act and the city’s own supply chain management policy because PEU Capital is a pre-existing consultant.

The City of Tshwane and PEU Capital deny the allega-tions, but the controversial nature of the scheme suggests implementing similar smart meter projects in Africa may be challenging. Norman Ndaba, EY’s head of Power and Utilities Africa, believes some countries are in a better posi-tion than others.

“South Africa leads the way. In the next five to ten years, it will have fully embarked on the smart journey,” he said. “The next big potential is in Nigeria in the next decade, as-suming its privatization program is a success.”

It is preferable to think of suitable African cities rather than countries. “It’s all about segmenting the market,” he said. “Take the example of Namibia. Namibia has a popula-tion of 2 million, mostly in rural areas. Segmenting the market into large power users and the rest, however, offers perhaps 200,000 potential customers who account for 60-80 percent of national electricity revenue.”

He added, “The primary criteria for where to start do-ing smart metering business in Africa is the ease of doing business in a growing economic environment. Zambia, Nigeria, Namibia and Ghana, for example, are countries that have sufficient economic growth from a foreign aid funding point of view. The key is targeting large power us-ers and segmenting the market by ease of doing business and readiness.”

As the Tshwane example demonstrates, however, money is not always available from power utilities and other ways are needed to fund the projects. Cost-recovery certainty, there-fore, is problematic. Will raising electricity tariffs to cover the cost of investment be socially and politically acceptable?

“[South African state-owned utility] Eskom has em-barked on a large program of AMI, but it has a major funding problem and has to cut its cloth accordingly,” said Ndaba. “Smart metering is something Eskom aspires to, but it doesn’t have sufficient funding. At the same time, the cost-benefit case to embark on a $1-billion-plus program is not clear. So that program is on hold.”

He concluded, “What we, as consultants, need to define is: What are the benefits of smart meters for large power users? They are already suffering from a cost point of view, so if we add technology, which is not necessarily going to help them achieve cost reduction, it is going to be a challenge.”

Tim Probert is a London-based freelance writer with a focus on European power markets and new smart grid technology. He helms Millicent Media and can be reached at [email protected].

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INTERNATIONAL

FOR SOME OF US, THERE’S A PARTICULAR

moment when we realize we may be too into our jobs. Mine came on a recent 10-day tour of Ireland.

We had a small group of tourists standing on the beautiful edge of a beautiful precipice along the Ring of Kerry. The constant ting of digital cameras rang out so steadily it became melodic. You could detect a faint ren-dition of “When Irish Eyes Are Smiling” within the low din. Everyone was capturing the sea, the cliffs, the rocks, the water—everyone but me. I was turned the opposite

T&DinthewildsofEire By Kathleen Wolf Davis travelogueElectric

direction shooting pictures up the cliff rather than down.Why? Well, right along the top of the cliff ran a beauti-

ful string of distribution wires—with beautiful poles and beautiful pole transformers to match.

Yes, sadly, that’s me. I can’t pass up the chance for a good picture of a distribution pole. I’m sure that makes me mildly odd, though not unique—except with that particular crowd. But, they tolerated it. After all, I’m also the one who could explain to my fellow travelers why their hair dryers fried when they plugged them in but

+

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their computers didn’t, despite the stocking up on the right adapter plugs.

And one fellow tourist nicely told me I asked very interesting questions when I posed queries on electric distribution to the local fisherman we ran into on an Aran island rather than the typical ones about the ideal catch in those chilly waters.

So, I guess this is rather a sort of confession that on my vacation I didn’t really take a full break from the power business. Like every American, I checked my work email. But, unlike every American, I also took a lot of pictures of power structures and sent updated photos of them on Intelligent Utility’s Twitter feed. (And, if you were at Blarney Castle recently, I fully admit it was me holding up the line a few minutes before 10 a.m. local time. I was taking pictures of the live cables—and the matching sign that warned of live cables—which ran up the inside of the castle wall. Sorry if your smooching of the stone was held up a bit. I hope you still got a swak in.)

Here are a couple of interesting tidbits I learned about power in my recent Irish travels.

INTERNATIONAL

Kylemore Abbey (between Westport and Galway toward the Northwest side of Ireland) may be an abbey these days, but once it was simply a very big, very lovely residence for a very rich fellow named Mitchell Henry. It’s pretty to look at inside and out, nestled as it is in one of the most Irish views you’ll find: green hills, clear water, lush trees. All of it was enhanced by a very Irish mist when I visited.

And, while it certainly is a pretty sight, I was caught taking pictures not of the view but of an informational sign that told Kylemore’s electricity tale. As noted earlier, Mr. Henry had some cashola, and he hired J.G. Howard of London to install an electric system inside the house (that honestly looks more like a castle). Smartly using the water supply that was pulled down a cast iron pipe from a lake (or “lough”) above, Howard put in a Girard high-pressure turbine that, according to the sign, was coupled with “a dynamo running at 800 revolutions per minute and an automatic regulator was fitted to reduce the water pressure to suit requirements.” Wires ran to the castle, the stables, the post office and the photographic dark room.

At night, the lit castle, which was also reflected in the lake, “amazed the locals.” The system also cost 2,000 pounds and was put in during 1892, which amazed me. (And don’t try to convert that 2,000 pounds into its modern U.S. equivalent in your head. You run out of zeros, get lost in the inflation, and it gives you a headache, especially if you haven’t had any Diet Dr Pepper for days and are having caffeine withdrawals. According to currency converters and online inflation calculators today, though, that system cost about $75,500 in modern American money.)

An even more expensive system brings electricity to Inishmore in the Aran Islands. Despite being 45 minutes by rough-and-tumble ferry travel from the mainland, Inishmore’s landscape is dotted with distribution poles, along with an ancient fort and lots and lots (and lots) of rocks. According to that local fisherman we ran into, power came to the island a bit later than it did to Kylemore. An underwater cable was laid to the island from mainland Galway in 1975. Before that, islanders used diesel genera-tors when power was necessary.

I have no numbers from our fisherman friend on the cost of that underwater cable, but I’m going to make a safe bet that it was even more than Mr. Henry’s turbine system.

From early adopters to late players, Ireland has a lot of power stories to tell. And I have a lot of pictures to prove it, as you can see from these pages.

“Yes, sadly, that’s me.

I can’t pass up the

chance for a good picture

of a distribution pole.”

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INTERNATIONAL

DONG ENERGY IS DENMARK’S LARGEST energy company. For this installment of the utili-

ty2utility article series, we spoke to Ivan K. Pedersen, head of DONG’s Power Hub about renewables and partnerships.

INTELLIGENT UTILITY: WHAT’S THE CURRENT STATUS OF RENEWABLES IN THE OVERALL EUROPEAN EQUATION, AND HOW IS THAT FARING IN ACHIEVING THE EU’S 20-20-20 GOALS?

PEDERSEN: The EU has met its interim targets but more efforts will be needed to reach the 20 percent target in 2020. In 2011, 12.7 percent of gross final energy consumption was from renewable energy. In aggregate, the EU 28 has met its interim target for 2011/2012, driven by member states’ efforts to make progress toward the national targets in the Renewable Energy Directive. Regarding the 2020 target to make energy savings of 20 percent in the EU’s primary energy consumption (com-pared to projections made in 2007), significant progress has been made. After years of growth, primary energy consump-tion peaked in 2005/2006 and has been slightly decreasing since 2007, in part due to impacts from the economic crisis, but also due to lowered energy intensity.

INTELLIGENT UTILITY: HOW IS DONG, PARTICULARLY, HELPING IN THAT AREA?

PEDERSEN: At DONG Energy, we invest in building more wind turbines at sea, using biomass at our power stations instead of coal and rethinking how biomass can be used as an energy source. DONG Energy is the world’s leading company in offshore wind and has built more offshore wind farms than any other company. Together with our suppliers, we are constantly pushing the technology to mature it. Today, DONG Energy has installed 1.7 GW of offshore wind capacity, enough to supply more than 1.6 million households with power. By 2020, our goals are to

have four times as much offshore wind capacity installed and to have reduced the cost of offshore wind to be less than EUR 100 per MWh.

INTELLIGENT UTILITY: THE RECENT PARTNERSHIP WITH SCHNEIDER ELECTRIC ON TECH COOPERATION TO HELP REMOTE ISLANDS—HOW DID THAT COME ABOUT, AND WHY IS THAT IMPORTANT TO YOU AND THE EUROPEAN POWER MIX OVERALL?

PEDERSEN: The trigger for the partnership with Schneider Electric was the inauguration of Power Hub in the Faroe Islands, where the technology helps SEV—the Faroese energy company—to mitigate the effects of integrating renewables in a vulnerable electricity system. It is a very im-portant step forward to cope with the challenges of renew-able integration throughout Europe, because the conditions seen in the Faroe Islands will become reality in mainland Europe in the future. Together with Schneider Electric, we

Utility2utility

++DONG Energy

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can develop advanced solutions and test them in coopera-tion with SEV under severe conditions, thus proving their value and reliability.

INTELLIGENT UTILITY: WHAT’S THE PLAN FOR THAT PART-NERSHIP GOING FORWARD?

PEDERSEN: The partnership focuses on system opera-tors of remote island grids, namely, island groups with weak or no interconnections to larger electricity systems. Schneider Electric will offer a comprehensive solution for such system operators based on their broad portfolio of products and services, and Power Hub will be a key component in that offering. At the start we are focus-ing on northwestern Europe, which is the geographical footprint of DONG Energy, but both parties see a global potential in the partnership. We will start with a limited number of customers, but we expect to accelerate the efforts quickly.

INTELLIGENT UTILITY: WHAT BENEFITS DO YOU EXPECT FOR DONG?

PEDERSEN: The main reason for DONG Energy to join forces with the global technology company Schneider Electric is the obvious synergies between the companies. DONG Energy brings to the table core competence within optimization of the physical and economical aspects of com-plex and dynamic energy systems. We have developed an ad-vanced technology platform, Power Hub, but DONG Energy is not a technology company. In Schneider Electric we found a partner with global presence and strong capabilities and experience in bringing new technology to the market. The partnership will ensure industrialization of Power Hub as well as create new business opportunities for DONG Energy.

INTELLIGENT UTILITY: HOW WILL THIS IMPACT LIFE ON REMOTE ISLANDS IN EUROPE?

PEDERSEN: Most islands in Europe rely on fuel oil for power generation, and as both energy consumption and prices of fuel oil increase, the pressure on the island economy rises and may have a negative impact on the growth in the islands. Cutting costs on energy supply is thus a key driver, and the logical solution is switching to renew-able energy supply, which will also lead to more unstable electricity systems. The joint solution from DONG Energy and Schneider Electric will give island system operators the tools to cope with these challenges in the most economi-cally efficient way.

INTELLIGENT UTILITY: HOW DO PARTNERSHIPS LIKE THESE FIT INTO THE CHANGING CULTURE OF THE GLOBAL POWER INDUSTRY?

PEDERSEN: We believe that partnerships like this will play an important part in the future of the global power indus-try. We believe in a multidisciplinary approach to solving the serious challenges to the energy systems all over the world, caused by the ambitious integration of renewables. The challenges can be solved only by taking all relevant aspects into account. We have to consider consumers, generators, system operators, markets, regulation, infra-structure, assets, technology and organization in our efforts to develop sustainable solutions, and we believe that the partnership between DONG Energy and Schneider Electric brings together core competencies in most of the aspects.

Ivan K. Pedersen heads DONG Energy’s Power Hub Technology department and is responsible for leading the commercial and technical development of the technology.

Got a good idea for an interview for our utility2utility series? Contact Editor-in-chief Kathleen Wolf Davis directly at [email protected].

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DriversmostlyinBrazil,MexicoBy Jesse Broehl

INTERNATIONAL

market overview

Latin America

+

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THE GLOBAL WIND INDUSTRY ADDED

36,134 MW in 2013, the first time in eight years that the wind power industry has installed less in a given year

than the year before. The size of the annual market declined 20 percent year on year in 2013, compared to market growth of 18.6 percent in 2012. The market decline was not unexpected. Negative conditions in several key countries, particularly the U.S. and Spain, were a drag on market growth. The U.S. will recover through the 2014-2015 cycle with over 12 GW ex-pected, but Spain, once a pillar of the global wind market, will languish following a collapse of its renewables policies.

This backdrop highlights the importance of a diversified global wind energy market, and Latin America, in particu-lar, has provided an important alternative growth market for the wind energy industry. As a whole, Latin America represents a mere 10 percent of the 77.1 GW of installed capacity in North and South America combined. The U.S. alone represents 60.2 GW. However, in 2013, Latin America represented just over 2 GW or 43.3 percent of the 4.7 GW installed last year, driven primarily by Brazil and Mexico.

Brazil’s power contract auctions are continuing to drive the country’s wind market. In 2013, Brazil brought 948 MW of new wind plants online, just down from the 1,077 MW installed in 2012. Cumulative capacity reached 3,869 MW by the end of the year, a growth rate of 32.4 percent from the 2,921 MW total capacity online at the end of 2012. The country’s wind growth is fuelled by its power contract auc-tions. Since 2009, there have been 11 auction rounds, with over 13.2 GW of wind power contracts awarded.

The power contracts are a double-edged sword. Average price across all auction rounds is BRL120.5/MWh ($49.5/MWh), which enables wind to compete with fossil fuel plants. However, these low contract rates force slim profit margins for wind developers and wind turbine OEMs. Most wind plants in Brazil secure low-interest CAPEX financing from the coun-try’s development bank, BNDES. This, too, is double-edged because to qualify for BNDES funding, wind plants have to meet specific local content mandates requiring wind turbine components and materials to be manufactured in Brazil. This challenge is aggravated by a high number of OEMs competing and limited sub-component manufacturers.

The top three turbine suppliers in Brazil in 2013 were GE (25 percent), Gamesa (20 percent), and Vestas (19 percent). This is the first year GE topped other OEMs in Brazil, and a clear example of the U.S. company using Brazil to offset what was otherwise a bleak year in the U.S. Gamesa has traditionally been well represented in Latin America, but the collapse of the wind market in the OEM’s home market of Spain underlines the importance for Gamesa of increas-ing business in Latin America.

Mexico installed 476 MW of new wind capacity in 2013, a 22.3 percent increase on the 389 MW installed in 2012.

Cumulative capacity reached 1,988 MW by the end of the year, representing a growth rate of 31.4 percent. A number of factors, including strong wind resources, high electricity prices, and robust energy demand drive Mexico’s market. A few key policies tailored to large industrial users are also prov-ing effective. This includes a 100 percent first-year accelerated depreciation tax policy and the so-called self-supply (auto-bastemiento) scheme. This allows large industrial end users of electricity to partner with wind developers to build wind plants to offset a company’s energy usage. Wind plants do not have to be located near the end user’s facilities but simply have to connect to the Mexican grid. Under NAFTA, companies exporting to Mexico from the U.S. or Canada avoid a 15 percent import duty—providing a secondary market for wind manufacturing facilities in North America.

New energy policy reforms announced in late 2013 are set to end state-owned monopoly rule of the electricity sector. This is a wild card for the wind market. Details of how this will be structured are being drafted this year and will ultimately determine if the strong momentum in Mexico’s wind sector continues. If a truly competitive electricity market open to pri-vate investment results in slashing energy prices, wind plants may be at a new cost disadvantage with few financial incen-tives to lean on. Gamesa was by far the leading turbine supplier in Mexico last year, accounting for 73.5 percent of the market, followed by Vestas (22 percent) and GE (4.5 percent).

While Brazil and Mexico are the twin pillars of the Latin American market, others cannot be ignored. In 2013, Argentina installed 76 MW of wind plants, thanks to sup-port from its GENREN program. Chile added 200 MW, nearly doubling its cumulative installed wind capacity to 413 MW. There are few government subsidy incentives in Chile, but high electricity prices and high energy demand are driving growth. In Peru, 30 MW of new wind capac-ity were installed, while the rights to develop a further 232 MW were awarded via two government tenders. Despite political upheaval, Venezuela installed 149 MW in 2013. Uruguay installed just 11 MW last year, but a series of government-sponsored power contract auctions mean it is poised to reach triple-digit growth rates, potentially install-ing over 1 GW between 2015 and 2017.

Overall, by 2015, Latin America should begin to install over 3 GW wind on an annual basis, eventually reaching 4.3 GW annually by 2022. The total amount of wind power capacity projected to be installed from 2014 to 2022 is almost 31.5 GW.

Jesse Broehl is senior research analyst with Navigant Research. Further data and analysis of the Latin America and global wind markets is available through the following Navigant Research reports: Latin America Wind Market Assessment and World Market Update 2013 - International Wind Energy Development, Forecast 2014-2018.

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INTERNATIONAL

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HAGIHON COMPANY, LTD. IS ISRAEL’S LARGEST

municipal area water and wastewater services utility. Hagihon, established in 1996, is fully owned by the city of Jerusalem and the townships of Mevaseret Zion and Abu Gosh, and is regulated by the government of Israel (Israeli Water & Sewage Authority).

The company provides water and wastewater services in Jerusalem and the surrounding area. For this unique interna-tional installment of our popular utility2utility article series, we spoke to Aharon Rosenberg, deputy CEO, water, and Josh Yeres, vice president of business development, about Israel’s utility system and tech trends they’re working with.

INTELLIGENT UTILITY: HOW WOULD YOU DESCRIBE ISRAEL’S WATER UTILITY SYSTEM TO FOREIGN INVESTORS?

YERES: Israel’s water utility system is completely regulated by the national government by way of the national water authority, which sets standards and, more importantly, prices for water bought and sold. The national water sup-ply—including sources, water purification and the national water transport grid—is managed by Mekorot, a quasi-governmental company. Urban water and sewage systems are managed by 55 municipal water utilities, most of which have been formed during the last 5 years, after the passing of the Municipal Water Utilities Act (the rationale of the legislation being to separate the budget and management of urban water and sewage systems from city hall, which has a tendency to utilize payments for water services for non-water-related purposes).

The utilities buy their water, for the most part, from

Utility2 utility:

Hagihon (Israel)

“Israel’s water utility

system is completely

regulated by the national

government by way

of the national water

authority, which sets

standards and, more

importantly, prices.”

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INTERNATIONAL

Mekorot and are responsible for the supply of water in the urban areas from the city boundary to the home water meter. The utilities are also responsible for the removal of wastewater/sew-age from the property line and its treatment.

While foreign investors cannot invest directly in Israel’s munici-pal water utilities, we are open to collaboration vis-à-vis foreign infrastructure projects (providing O&M, emergency contingency, customer relations, IT knowhow for urban water and wastewater networks), training water utility professionals (during 2013, Hagihon held two workshops for large groups of senior wa-ter managers from India) and supporting the development of innovative water-related technologies.

INTELLIGENT UTILITY: EVEN WITHOUT INVESTOR

OPTIONS, IT’S FASCINATING INFORMATION. NOW, YOUR UTILITY, HAGIHON, IS DESCRIBED AS “ISRAEL’S LARGEST.” CAN YOU BREAK DOWN SOME NUMBERS ON SERVICE AREAS AND CUSTOMERS FOR US?

ROSENBERG: Absolutely. Our service population is almost a million people. We have 220,000 water connections and a water demand of around 60 million cubic meters annually. We maintain four separate pipe systems: a water network that runs over 1,200 kilometers, a storm drainage network of 450 kilometers, a sewage network of 950 kilometers and a 35-kilometer treated effluent network transporting tertiary treated effluent to irrigate Jerusalem’s public parks—replac-ing valuable and expensive potable water pumped up from the coastal plain.

INTELLIGENT UTILITY: WITH THAT LION’S SHARE OF THE MARKET, WHAT ARE YOUR VIEWS ON THE LATEST TECHNOLOGY/TRENDS FOR WATER?

ROSENBERG: In the past, water utilities served mostly as caretakers of systems/infrastructure. Present trends in municipal water utilities include managing water systems, managing water pressure, managing water quality and managing water flow by the implementation of a growing number of sensors and very advanced systems.

In the sewage sector, the utilities are more active in performing preventive measures—employing more sensors to achieve better service and better energy efficiency. In addition, new regulations require policing and minimiz-ing effects of industrial waste and moving from secondary treatment to tertiary, thus enabling the reuse of wastewater

within the city system.In short, there is a realization that

smart networks are necessary to achieve the present-day requirements of all stakeholders: regulators, custom-ers and company management.

INTELLIGENT UTILITY: HOW IS HAGIHON USING THAT TECHNOLOGY OR PARTICIPATING IN THOSE TRENDS?

YERES: Hagihon has positioned itself to be an early implementer of innovative technologies, cooperating with technology companies to support development of and to implement innovative water-related technologies

that contribute to increasing consumer satisfaction and achieving increased efficiency. Network management and leak detection are being improved with the construction of additional district metering areas (DMAs) and the imple-mentation of the TaKaDu management solution that identi-fies changes in water flow and water pressure.

Most recently, we have begun installing the Aquarius Spectrum cloud-based, fixed-acoustic, leak-detection sys-tem with plans to install over 2,000 acoustic sensors. We’ve discovered that the acoustic leak detectors also detect other malfunctioning systems on the network.

Regarding water quality, we’re employing the TaKaDu system to provide online monitoring of network water qual-ity parameters: chlorine, pH and turbidity. And Hagihon is presently performing a pilot with an online bacterial detec-tion system, BAS Detect.

It is important to note that acquiring innovative tech-nology is not sufficient by itself and requires analysis and implementation of best practice procedures.

INTELLIGENT UTILITY: IN YOUR EXPERIENCE, WHAT SHOULD WATER UTILITIES PREPARE FOR IN THE NEXT FIVE YEARS? THE NEXT TEN?

ROSENBERG: Quite simply, they should prepare for more regulation, a shrinking professional workforce and in-creased consumer involvement.

INTELLIGENT UTILITY: THOSE PREP NOTES SOUND LIKE YOU COULD BE AN AMERICAN UTILITY. SO, WHAT ADVICE WOULD YOU GIVE WATER UTILITIES OUTSIDE OF ISRAEL? ANY SAGE WISDOM FROM SOME OF YOUR PROJECTS IN PROGRESS?

YERES: Do not be afraid of new technologies. The future—and lower costs—can be achieved with smart networks. Even though implementation of new innovative technologies can sometimes involve periods of trial and er-ror, we find that the dividends by far outweigh the risks.

“While foreign investors

cannot invest directly in

Israel’s municipal water

utilities, we are open to

collaboration vis-à-vis

foreign infrastructure

projects.”

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CUSTOMER FOCUS

NO MATTER HOW MUCH WORK WE DO ON DEVELOPING technology and forecasting its commercialization—as we’ve done recently

with our IEEE research Vision series on smart grid—the consumer is both the chief sponsor and beneficiary of most of our technology-related work. We must keep our focus on the end user as we pursue technology in order to fulfill the IEEE mission of fostering “technological innovation and excellence for the ben-efit of humanity.”

By now, most of you are familiar with the value propositions associated with smart grid. As we enable consumers to have greater control over their energy

consumption through a variety of strategies, technologies and behav-iors, they in turn will help utilities in managing the sustainable and reliable provision of electricity.

There’s a catch. Though consumer awareness and knowledge of smart grid have improved significantly over the past few years—a fact we’ve

Wantasuccessfulsmartgridimplementation?

++Consumers are keyBy Bill Ash

“No matter how much

work we do on developing

technology and fore-

casting its commercial-

ization, the consumer is

both the chief sponsor

and beneficiary of most

of our technology-

related work. ”

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CUSTOMER FOCUS

documented in our report through a survey of consumers in six influential countries—we have a long way to go. As we’re in the early stages of implementing smart grid-related technologies and capturing their value, we must make a parallel effort to educate and engage consumers.

Fortunately, our new re-port, “IEEE Global Consumer Socialization of Smart Grid,” pro-vides the means to understand the range of consumer knowledge of and sentiment toward smart grid. It identifies a handful of common mo-tivations among consumers in order to segment them for effective out-reach. For instance, some consumers wish to save money, others will pay a premium for environmental ben-efits, and yet others are early adopt-ers of technology. Understanding consumer attitudes, perceptions and motivations will allow us to develop more effective messaging to grow their knowledge and eventual par-ticipation in smart grid.

The report also details the chal-lenges faced by utilities, govern-ment and industry stakeholders in understanding consumer behavior and educating them on smart grid.

It suggests action items that can be undertaken in order to create large-scale awareness and understanding among consumers. This will be a generational effort, and the report provides a basis for optimism. Eighty-seven percent of the respondents in the report’s consumer survey were 25-34 years old. It might not surprise you that consumers in that age bracket generally are open to new ideas and technology. And they display a proclivity for spread-ing their awareness among their peers and to an even younger generation.

The report’s findings are firmly rooted in reality. We’ve documented les-sons learned in China, India, Japan, South Korea, Germany and the United States from recent and current smart grid implementations. Those lessons are based on factors such as smart grid adoption levels in each country, the level of consumer socialization and awareness, initiatives taken to mitigate consumer concerns and the impact of consumer socialization on smart grid rollouts. The report homes in on the implementation of the four technologies most relevant to consumers: advanced metering infrastructure (AMI), distribution automa-tion, renewable energy and cybersecurity.

Perhaps most importantly, the report spells out two crucial how-to subjects. One discusses the consumer socialization cycle, a step-by-step process aimed at influencing consumers, spreading awareness among them and creating an in-depth understanding of smart grid concepts in terms consumers are likely to understand. The other addresses actions that stakeholders can take to reach out to consumers in an impactful and positive way and further effective adoption of Smart Grid technologies and practices. It spells out how influence, awareness and understanding can lead to action.

We’ve all heard about how consumers will benefit from smart grid, and it’s true. But years will pass before smart grid technologies are fully integrated for improved efficiencies and better reliability. It’ll be years, as well, before consum-ers have full access to affordable home energy management systems, smart appliances and smart homes, and before applications to run those technologies become available for smartphones, tablets and the like. Those technologies and apps are beginning to appear, but widespread adoption will take time.

Thus we have designed the new report as a practical guide to what works in the effort to bring consumers along on this great energy challenge. If we begin effective outreach to consumers now, they’ll be willing partners in the needed investments and desired outcomes encompassed by smart grid. Let’s get the word out and move the proverbial needle.

Bill Ash is a strategic program manager for the IEEE Standards Association (IEEE-SA).

“We’ve all heard about

how consumers will

benefit from smart

grid, and it’s true. But

years will pass before

smart grid technologies

are fully integrated for

improved efficiencies

and better reliability.”

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WHERE THERE’S A NEED, THERE’S A SCAM. THERE’S A REASON

that we have the phrase “snake oil salesman” in the lexicon. And the greater the need, the greater the scam opportunities it seems. Snake oil salesmen

used good marketing shtick to prey on the sick; today’s scammers use technology to spread their cons across the population a bit more objectively—and power has certainly been a part of a con artist’s favored target market.

After all, it’s the biggest potential con market of all: absolutely everyone needs power.

If you’ve been following utilities on Twitter recently, you may have noticed the same thing I did—a whole lot of utilities warning customers about scam artists.

Running down the con

We polled a few utilities to ask what’s going on in their areas and what they suggest customers should keep an eye out for. In the Northeast, we chatted with Penni McLean-Conner, chief cus-tomer officer and senior vice president for Northeast Utilities (NU). In the Midwest, we spoke with Brian Wheeler, a spokesperson for Consumers Energy.

In the Northwest, we spoke to Sarah Pagliasotti, a spokesperson for Portland General Electric (PGE).

All three cited one specific scam they’ve been dealing with recently: the Green Dot.

“A typical scenario involves the caller demanding payment for a Consumers Energy bill within an hour, and telling the customer to purchase a Green Dot prepaid credit card available at drug and food stores. People are then directed to call an 866 toll-free phone number to pay their bill with these cards,” Wheeler said.

Scamssetoffutilityalarmsacrossthecountry

++NU, Consumers and PGE respondBy Kathleen Wolf Davis

“In some cases,

restaurant owners have

been approached during

a busy dining hour and

were told they had an

electrical problem that

could cause a fire and

they must pay immedi-

ately to have it fixed.”

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CUSTOMER FOCUS

All three utilities mentioned a focus on Spanish-speaking and foreign lan-guage populations. NU and PGE saw the scam spread to businesses as well.

“In some cases, restaurant owners have been approached during a busy dining hour and were told they had an electrical problem that could cause a fire and they must pay immediately to have it fixed,” McLean-Conner added.

PGE’s newest scam problem, however, isn’t Green Dot based. It’s an email sent to customers made to look like it has come directly from the utility. The email has links labeled as ways to view an online bill, but it really connects to malware that attempts to steal banking information and passwords. That one is more broadly targeted across businesses and residential consumers than the Green Dot one.

And, Pagliasotti admits that the email aspect is new to them. Phone scams, prepay and door-knocker scam—these are old school. But email is a newer beast in this business.

So, how do they advise customers to ward off these scammers who are increas-ingly getting more sophisticated in their tech savvy? By using an old-school defense: Listening to your gut and approaching everything with caution.

HowtospotautilityfraudMcLean-Conner said the one thing all customers need to remember is that

NU does not require you to purchase any type of pre-paid card to pay your util-ity bill. (Wheeler mentioned the same with Consumers Energy.)

Second, if you get a call from someone claiming to be from your utility who seems suspect, McLean-Conner advises having the caller verify account infor-mation in a similar way that utilities and banks do when you call them: Ask for the account number. (Don’t give it.) Ask for the name on the account and the address. (Again, don’t give those, however.) Ask for the past-due balance. If your caller can’t answer those things, hang up, note the phone number the call came in on and immediately call the police.

Wheeler tells customers to trust their own instincts when they get these sorts of calls.

“If something sounds wrong, don’t feel pressured to make a payment or give out personal information,” he added.

And utilities like NU, Consumers and PGE will continue to keep an ear to the ground and sound the warning about scams—spreading the word is the best defense.

Talk,moretalkAll three utilities said the most effective way that utilities can thwart scammers is

through communication, and NU is working to increase scam awareness with this issue, especially with Spanish-speaking customers, McLean-Conner noted.

“We also work with partners like the Better Business Bureau, AARP and our state consumer protection agencies to help to get the message out,” McLean-Conner added.

Wheeler added that Consumers tries to build awareness and provide information in order to head-off scams through news releases and media stories, which NU also addressed.

His advice: “Be proactive and work to let the public know if there is a scam that persists.”

Communication is also the cornerstone of PGE’s advice for conquering scam artists.

But Pagliasotti admits this can be complicated. The scam emails they are dealing with look like theirs—and even phone scammers are getting better at programming the phone so that calls appear to come from PGE offices. Utilities just have to keep

up with the new scams.When scammers targeted non-

native English speakers at PGE, the utility used bilingual direct mail and radio spots and even sent bilingual letters to business customers.

They even engaged a “Spanish-language ad agency to distribute Spanish posters in 'La Tienda'-type markets and spread the word via social media,” Pagliasotti added.

To other utilities dealing with scams in their area, McLean-Conner says to be vigilante and just keep talking to your customers.

“Scammers never rest,” she said. “It’s important to communicate warnings frequently and in as many ways as can be used to reach your customers. We have found that social media is an especially helpful tool in reminding the public about such scams.”

Indeed, that’s how I learned about them and decided to write this article. It does get the word out.

“Scammers never

rest. It’s important

to communicate

warnings frequently

and in as many ways

as can be used to

reach your customers.

We have found that

social media is an

especially helpful tool

in reminding the public

about such scams.”

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OPERATIONAL PERSPECTIVES

EVERY YEAR UTILITIES INVEST BILLIONS TO UPGRADE CRITICAL

distribution systems that reduce voltage and deliver energy the final mile to customers. In fact, according to the Edison Electric Institute, the utility industry has invested $275 billion in the nation’s distribution system since the beginning of 2000.

Although there are several reasons for making these investments, almost all utili-ties point to one reason for doing so—the increased customer uptime that improv-ing distribution services provides.

“Increased system reliability and durability is the main goal of these kinds of investments,” said Christopher Eck, a spokesperson for Toledo Edison in Ohio. “The PUCO (Public Utilities Commission of Ohio) holds us accountable for customer outage duration and frequency standards as well as system outage and frequency. Toledo Edison has been the most reliable utility on many of those measures for the last several years out of all utilities in Ohio.”

Toledo Edison, which serves 300,000 customers in northwest Ohio, isn’t about to rest on its laurels, especially after a severe winter stressed its distribution systems. The utility recently announced that it will invest $100 million on reliability and in-frastructure projects in 2014, a $25 million increase over what the company invested in the region last year.

The new 345 kilovolt (kV) substation in Middleton Township in Wood County, Ohio will cost $18 million to complete and will be finished in 2015. The end goal is to further enhance customer service by eliminating outages when possible.

“The new substation will increase the flexibility of the grid,” said Eck. “With the closure of power plants, some of these transmission substations become more critical to customer service because they allow us to have ample power in the areas where we need it.”

Eck likes to think of the electricity grid as a highway system, where frequent exit ramps make it easier to move traffic onto surface streets and into neighborhoods. The same holds true with utility transmission systems. The new substation, Eck says, will act as a new highway exit ramp and allow Toledo Power to divert power around other problem areas and therefore decrease the number of and frequency of outages.

“There are any number of efficiency gains you’ll see from making distribution investments, but the increased work on the grid is just one thing that contributes

to customers uptime,” said Eck. “More uptime makes the service more reli-able for customers, but it’s also better for the company.”

Reducing outages and improving customer uptime was also the goal of a cutting-edge distribution upgrade recently completed by Pacific Gas & Electric. As part of its multi-year Cornerstone Project, PG&E undertook an aggressive project to install intelligent switches along a portion of its distribu-tion system.

In the event of an outage, instead of waiting for a crew to arrive on scene to restore circuits manually, the new devices do it automatically, often within minutes. Utility workers installed auto-mated “intelligent” switches on almost 400 circuits last year, and more than 500 circuits have been enabled with this advanced “self-healing” technology.

Since completing the first phase of the project at the end of 2013, PG&E had experienced about 76 outage events on one or more of those 500 circuits in 2014 (through mid March). The new intelligent switches avoided about 8.3 million customer minutes of outage time. When averaged out for the entire year, PG&E could avoid about 32 million or more customer minutes of outage time, based on a similar number of outage events.

“Our customers are seeing the benefit of this program already,” said Kevin Dasso, PG&E’s senior director of technology and information strategy. “The whole reason we exist is to provide good service to our customers, so in that regard this is helping us to meet our mission of providing reliable service.”

The technology deployed by PG&E was initially rolled out by Japanese utili-ties. It was relatively unknown in the U.S. when PG&E first began to research it in 2008. Today, Dasso says intelligent switching is gaining in popularity, although he estimates that only 25 to 50 of the approximately 3,000 utilities in the U.S. are experimenting with the technology.

++The return benefits all, including customersBy John R. Johnson

Investingcashinupgrades

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JENNIFER CURRAN MANAGES A LOT OF STUFF. SHE MANAGES her division. She manages staff. She manages corporate strategic mat-

ters. She manages customer and regulatory outreach efforts. And, she deter-mines strategic direction on important policy topics, trying to tease out the details: Who should pay? What are the benefits? How will we respond to FERC Order 1000?

Curran is very good at managing. After all, she managed to get here. And where is here? Curran is vice president of transmission at Midcontinent Independent

PG&E anticipates rolling out the technology to more of its 3,000 circuits in the future when it gains regula-tory approval. Aside from the obvious customer-focused benefits, PG&E also benefits from being able to direct its response crews to the areas where the outage actually occurred.

“Because we can isolate what section of the circuit the problem occurred on, we can send our crews into that section and not spend time trying to find where the actual problem occurred on the rest of the circuit,” said Dasso. “So it helps with our dispatching.”

While crews are still needed to make repairs, usually three-quarters of the circuit has been restored in less than five minutes, leaving only the section where the damage occurred with sustained service interruption.

In addition, instead of the utility’s switchmen spending time patrolling and finding the problem and then operating some of the devices, the majority of those “fixes” have already been done automatically, giving utility workers the ability to conduct fine-tun-ing to further isolate the problem and put additional customers back online, as opposed to restoring large segments of the circuit.

“This technology helps us with our response time to other customers in the affected section as well,” said Dasso. “So all of that results in less outage time for customers and potentially lower costs over time as we can more precisely dis-patch our crews. That ultimately trans-lates back to benefits for our customers.”

In 2013, the intelligent switching technology and other gains from the Cornerstone Project helped PG&E cus-tomers to experience the fewest amount of service interruptions in company history. The average length of an outage for PG&E customers also fell to an all-time low.

John R. Johnson is a Boston-based freelance writer specializing in alternative energy and technology topics.

MISO’sCurranmanagesthechallengesoftransmissionwork

++Part of the women-in-energy article seriesBy Kathleen Wolf Davis

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System Operator, Inc. (MISO), one of the handful of regional transmission organizations (RTOs) in the U.S.

How did she get here? More manag-ing—of sorts.

”I worked first for a generation company and came here to get a different view of the industry. Once I got here, I had the chance to re-ally bring along regional strategic transmission planning efforts in the industry,” she said.

That managing aspect takes up a lot of Curran’s time, especially cost allocation. It’s a challenge, but it’s a welcomed one to Curran, at least. Those who face and overcome the biggest challenges often reap the big-gest rewards, making Curran a happy teammate, actually.

“Cost allocation is a challenging

issue, but one of my favorite parts about my job is that there is always a new chal-lenge. I don’t think I’ve been bored a single day,” she added.

That non-boring day typically includes a whole lot of team meetings, where everyone talks about key issues, such as the impacts of EPA regulations, manag-ing the seam between MISO and its neighboring ISO/RTOs, and transmission projects and coordination. They also talk a lot about projects to combat, counter-act or help with those issues.

After all those meetings, there’s a bit more talking: Curran mentors and coaches her staff, and she collaborates with others on the executive team about corporate matters. She often gets to chat with customers, too, and she visits with a whole lot of “fantastic engineers,” whom she works with daily.

“Although I have an engineering degree, I don’t do much engineering these days, but I get to chat with great ones,” she said. “For me, though, a different skill set led me on a different path—away from engineering work every day.”

But, that new path wasn’t exactly what she thought she’d be as a kid—nor is it anything that most in her personal sphere easily understand.

“If you asked my family what I do, they’d be very hard-pressed to describe what my job is in any detail. I think of it as one of those hidden jobs—a hidden gem that really makes a difference but no one can put an accurate label on,” she added.

Still, despite the odd job no one can describe and the odd jaunt that led her away from everyday engineering work, Curran got to this place on a linear path.

“I just always liked math and problem-solving,” she said. “That led to a (me-chanical) engineering degree and then an MBA, and then to this industry.”

Curran’s daughter wants to be an engineer, too, just like Mommy. But, as she tells Mommy at 8, she wants one thing to be different: The daughter wants to “do something,” which circles back to Curran having a hidden job that’s difficult to explain—especially to an eight-year-old.

Sometimes, it’s equally hard to explain to an 18-year-old or a 28-year-old, but Curran believes that women can make advances and strides in this industry.

The education is the first step; the rest is a bit of moxie.Curran advises: Volunteer a lot, think a little more, and find some people to

help you learn.“First and foremost, stepping up and taking on new challenges, showing a

willingness to take on something outside of your comfort zone, that’s key,” she said. “Then, think about transferable skills. Think about getting leadership and management skills if you’re technical. Broaden your technical knowledge, if you’re in a management/support role. And have mentors and sponsors—people who support you in taking on challenges. Go find those and then be that for someone else.”

Beyond the development of women in this industry, we also spoke to Curran about the development of her favorite thing: transmission.

All that talking they do at MISO reflects something more fundamental: It’s an exciting time for them. Their board of directors recently approved a $5 billion multi-value project portfolio for investment that supports integration and has upgrades through 2020 that utilities are implementing.

“That’s a major step forward in transmission investments overall,” Curran noted. “We see a lot of transmission development in the Midwest, and we’re also expanding in the South. So that offers some additional opportunities to enhance the grid for reliability and reduce the cost of energy.”

And when all of that’s built, up and ready to go, perhaps Curran’s daughter can help “do something” with it as part of the the next generation of women in energy.

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HAVE YOU HEARD THE STORY ABOUT JIM ROGERS, THE MAN who once helmed powerhouse utility Duke Energy? At an award cer-

emony for the Charlotte Business Journal earlier this year, he basically told the audience—and, through a blitz of media coverage, the utility industry as well—that our traditional business model is punch-drunk and ready for the KO.

And, to be honest, he’s not alone, news from RWE’s “new focus” in Europe to papers from Edison Electric Institute (EEI) and the Rocky Mountain Institute (RMI) here in the U.S. tell us all the ways this biz is shedding old skins—that change is the new black, so to speak.

In this new model discussion, you have two major components that balance each end: the system and the customer. While there is a bevy of buzz on the new thinking, here are two simple ways to get started.

Prep for more competition and

more customer input.

Germany’s RWE made headlines last fall when European media outlets inside and outside the industry began leaking their new corporate strategy of a nicer, more customer-centric focus.

We’reawashindisruptivechange

++Two directives to embrace the new utility business modelBy Kathleen Wolf Davis

“News from RWE’s

‘new focus’ in Europe

to papers from Edison

Electric Institute (EEI)

and the Rocky Mountain

Institute (RMI) here

in the U.S. tell us all

the ways this biz is

shedding old skins—that

change is the new black,

so to speak.”

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29

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And, RWE, facing its first full-year loss in 60 years, may see a new utility model of happy customers and greener energy as a way out of their own mess. But they aren’t alone in a mindset that focuses more on the consumer. In various industry pubs and within various utilities, “the year of the customer” has been declared, almost annually, for the last three or four years. But, what does that mean?

We’ve all gotten better—as an industry—in thinking about customers and try-ing to work their reactions and attitudes, wants and needs into future strategies. But it’s not all about applying lessons from banking and retail. It’s not all about marketing positive messages ahead of the outage negatives.

We are thinking more about making customers less angry at their utilities, but have we pushed out full circle to thinking about making them stay with their utilities? Competition is roaring back in various forms, and the future of utility customer service may not be solely about toning down the anger. Utilities may face retention issues.

In a recent article series, we spoke to Melissa Lauderdale, president of the Retail Energy Supply Association (RESA), who noted that retail competition in this traditionally closed utility model is growing—with Texas leading the way. Illinois, Pennsylvania and Ohio are also each making great strides. Illinois and Pennsylvania are clocking in power shoppers at over 3 million and 2 million, respectively, and Ohio is actively looking to expand competitive options.

And what can that teach you about preparing for the future utility model? According to Lauderdale, it’s all about about diversity.

So, if the future model of this industry will mirror retail more closely, how do you fight off other utilities from stealing your customers? Well, there’s the diver-sity of products that Lauderdale suggested, and then there’s bribery.

According to a recent parago study, customers (including utility customers) react favorably to rewards in the form of prepaid gift cards. So, you could try that. (Parago noted, however, that those customers want the cold, hard plastic—not promises to help pay down bills or gift redemption codes. So take note.)

Don’t forget the hardware.

Whatever new and exciting customer-centric layers you’re building into your new model—mobile apps, transactive energy, cloud storage—the backbone that carries your real product remains the same: that basic infrastructure, the bulk electric system (BES).

First and foremost, with a new model and the BES will be a regulatory de-tour—namely a run at tackling NERC CIP version 5. Whether you think that package helps protect or are simply rolling your eyes and saying, “Here we go with compliance again,” you’ll still need to pay attention.

On top of that compliance, now, let’s talk about real protection for that hard-ware—not from terrorists, really, but from weather. Let’s face it: Most terrorists today are much more likely to come through a cyber channel to disrupt things, and while we talk a lot about how to protect infrastructure from people with weapons—such as the Metcalf substation attack in California’s Silicon Valley that got even Congress motivated to ask questions about the BES—in reality what takes down the most poles, transformers, substations and the like is all natural: lightning, animals, rain, tornadoes, hurricanes, flooding, wind. And yet, even as those natural issues abound, we get distracted by that fear of potential terrorism rather than deal with the real damage changing climate can cause.

“My state—New York—has had nine federally declared, weather-related disas-ters since 2011,” revealed Gil C. Quiniones, president and CEO of the New York Power Authority at the Energy Biz Securing Power Forum in D.C. in March

(under many, many inches of snow). “We’re now getting rocked by 100-year storms—or 500-year storms—every two or three years. All of this has dramatically demonstrated the need to rebuild, to harden and to radically revamp our systems.”

So, in new thinking about protec-tion for the old infrastructure, let’s not let terrorism sidetrack weather. And, remember that focusing on this old-school part of power doesn’t mean your infrastructure can’t benefit from new modes of thinking. (This isn’t an “or” proposition. It can be an “and.”)

As we approach the new busi-ness model, shoring up the BES and finding new ways to incorporate new technology will be essential. Don’t get so distracted by the rise of the customer that you neglect the rise of necessary infrastructure. No amount of energy efficiency programs, pre-paid reward structures or new mobile apps will appease a customer whose power is good and out—who is sit-ting in the dark.

“We’ve all gotten

better—as an industry—

in thinking about

customers and trying

to work their reactions

and attitudes, wants

and needs into future

strategies. But it’s

not all about applying

lessons from banking

and retail.”

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IT INSIGHTS

THE WORST ASSIGNMENT OF MY WORKING LIFE CAME FROM the CEO of a power company. He told me to manage the merger of his

company with the neighboring utility. Here’s how it was going to work:• Sequester 100 of the best employees from each company. • Form them into small teams to redesign each process. • Then recommend to senior management who stays and goes, what union

contracts to negotiate, and what work rules to try to change. • Lastly, figure out what to do about the IT systems.

Luckily, both companies operated within the same state. They had to follow the same regulations and endure the same miserable Northeast weather patterns. With corporate offices separated only by a river, the employees presumably came from the same general neighborhoods and shared the same demographics. They

were in the same business. The prod-uct and the physics of it were the same.

Yet everything they did was dif-ferent. The IT systems, processes, products, standards, and methods were different.

Though they both had a GIS, they had different vendors. Nearly every-thing about their GIS was different, even the symbology of their maps. The symbol of a normally closed line switch of one company was the symbol of an open switch for the other.

Underground lines were dashed by

++Secret to COTS is best practicesBy Bill Meehan

Nomorecustomization

“The worst assignment

of my working life came

from the CEO of a power

company.”

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IT INSIGHTS

one company while solid by the other. So how do you pick a process or soft-

ware system for the merged company when you have two entrenched prac-tices and products? Simple, you’d think: pick the processes, software systems, or workflows that represent best practices.

Think again. What often happens instead is the

merged companies reach a com-promise on processes, workflows, information products and applica-tions. This is even worse when the practices and cultures evolved over many decades.

At the same time, utilities are more and more requiring software vendors to deliver commercial off-the-shelf (COTS) software products. The idea is to automate these highly compromised and legacy workflows and processes. No vendor could cre-ate software systems out of the box to satisfy its unique requirements. The same thing happens when a utility upgrades its software from an old in-house developed system to a commercial software product. It wants COTS products, but with this

little change, that little tweak, and this tiny new function. Before long, the software is highly customized.

Most COTS software vendors have developed a set of applications that meet the majority of requirements for a particular industry. They really want to imple-ment the software as is. It makes their lives simpler and more profitable. More importantly, it is better for the customer in the end.

What is a vendor to do? Just say no to the customer who wants this changed and that feature added? Probably not. The vendors end up developing add-ons, special tools, unique apps, and different workflows. Why can’t they say no?

Because no one has really identified best practices.Vendors fail to show that their COTS software represents best practices. Part

of the problem is with the term “best practices.” Vendors say their software rep-resents best practices, but they do not spend enough time proving their practice is better than others. Who is to say that a vendor’s practice or workflow is better than what a utility has been doing for years? What is lacking is good benchmark-ing of practices.

A best practice is not some recommended way of doing something. A best practice achieves best results. For example, a best practice for a GIS-based design workflow should result in the lowest benchmarked cost of a design, all other things being equal. If a utility rejects a vendor’s COTS software, it may be there is little evidence the vendor’s workflows are any better than the ones the utility is using. Since a utility knows its workflows and applications actually work, it will need to be convinced that shifting gears will actually improve results.

The alternative is customized COTS software, which is more expensive to maintain, troubleshoot, and upgrade. This is especially true for GIS software projects at utilities.

So what are the vendors and utilities to do? Vendors, particularly application vendors, must do a better job of document-

ing that their software does use best practices. They need to participate in or perhaps even commission a best practices study of workflows they model in their applications. A vendor can claim its mobile GIS application represents best practices, but without evidence that it results in faster work times, fewer field errors, better employee rankings, and lower costs, the utility has to simply trust the vendor. Documentation of actual best practices will make a difference in just saying no to customization.

Sure, there might still be a need to slightly deviate from the COTS software. The ideal situation for a vendor is to create a platform that users can easily configure to deal with the subtle nuances from one customer to the next without violating the underlying best practice workflows modeled by the software. In this way, upgrades are inexpensive and routine, not risky.

I have seen some requirements from utilities that leave me scratching my head. When questioned, the answers are often the utility has been doing things this way or that way for years, and it would be too expensive or hard to change.

To get at best practices, not entrenched practices, utilities can collaborate in best practice studies. They could see ample proof that continuing their unique practices does not add value to the business. Then they would have the confi-dence to abandon old workflows that are simply not in their best interest and feel free to implement COTS software that is easy to maintain and upgrade. During mergers and software upgrades, they can look to very best practices to generate the very best results.

BIll Meehan is director of utility solutions at esri.

“Utilities are more

and more requiring

software vendors to

deliver commercial

off-the-shelf (COTS)

software products.

The idea is to automate

highly compromised and

legacy workflows and

processes. ”

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33

Weasked++What are the top three things every utility CIO should worry about when it comes to cybersecurity?

1. THE SKILLS OF YOUR CYBER SECURITY TEAM ARE INCREDIBLY IMPORTANT. This is a field that is changing every day, and you need people who have an insatiable appe-tite to learn because they need to stay current with the threats. They need

to be exceptionally strong operationally to understand how to identify a threat and best recover and be able to stay calm and provide leadership throughout. Finally, they need to have good interpersonal skills. It’s easy for a cybersecurity team to tell people to get out (and stay out) of their way, but they won’t be supported if they approach their peers in that manner.

2. THE BALANCE OF RESOURCES IS CRITICAL TO THE SUCCESS OF YOUR CYBERSECURITY PROGRAM. We all want to have defense in depth as the core principle of our cybersecurity program, and balancing how your resources are applied across that depth is equally important to ensure you do not have any blind spots.

3. COMMUNICATION TO ALL OF THE VARIOUS STAKE-HOLDERS IS INVALUABLE AS YOUR PROGRAM MATURES. This includes your board of directors, your regula-tors, your customers and your employees. How do we make sure that everyone knows what they need to know about our program to help them sleep better at night? For example, our employees need to under-stand that we are protecting their personal informa-tion and, at the same time, why we need to ban the use of thumb drives.

David Harkness, VP & CIO, Xcel Energy

Culture, architecture and processes are the three areas where the CIO must exercise leadership for security. (Don’t just worry about these. Instead, lead with pro-active steps in these three areas.)

1. DEVELOPING A CULTURE OF SECURITY IS DIF-FICULT, YET IT IS ONE OF THE MOST IMPORTANT AREAS A GOOD CIO CAN INFLUENCE. If you are not a leader in changing the culture, who will be? This is a crucial component of leadership. It cannot be purchased from vendors or delegated to others.

2. ARCHITECTING SO THAT INFORMATION, IT SYSTEMS AND PROCESSES ARE DESIGNED (AND FOLLOWED) WITH SECURITY IN MIND IS CRUCIAL. This is an important part of the leadership needed from the CIO. It sets the path that progress will follow.

3. PROCESSES MUST BE PURPOSEFULLY ALTERED OR DEVELOPED IN TWO AREAS: (1) solution devel-opment processes to make sure security is taken in consideration and (2) security-related processes to ensure that vigilance will be maintained and responses are appropriate.

Reid Nuttall, former CIO, OG&E

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1. MAINTAINING A CLEAR PATHWAY FOR CONTINUED IMPROVEMENT IS CRITICAL. Cybersecurity is an evolving field with ever-changing threats that require more complex protections and deeper responses. Although we keep improving our capabilities and assurances, there will always be more work ahead. We can identify logical project pipelines, healthy investment plans and supportable technology road maps to enable continued progress.

2. NAVIGATING THE FAST-PACED EVOLUTION OF THREATS, REQUIREMENTS AND TECH-NOLOGIES COMPLICATES THAT PATH. The utility industry might be getting used to changing technologies and the hype that comes with it but applying that pace of change to our busi-ness practices is more challenging. There is additional concern around compliance and the pace of change of those standards. Hopefully, standards will evolve in a manner that encour-ages continued advancement and does not disrupt progress we are making.

3. PROTECTING CORPORATE REPUTATION IS MORE IMPORTANT THAN TECHNOLOGY, PROCESSES AND COMPLIANCE. Reputation includes being a trusted partner, a diligent and ef-fective performer. It is not all about technologies and systems but much more about people, their actions and perceptions.

Jim Jones, VP & CIO, Great River Energy

1. IT’S NOT A GAME OF IF BUT WHEN, AND NOT A GAME OF WHY BUT HOW. CIOs need to understand that regardless of size, or asset portfolio their utilities will be targeted. More important is ensuring that the other business leaders under-stand this. All too often the threat of

cybersecurity can appear throughout the business units as science fiction, but the reality is: The threat is real. So, as CIOs, they should be worrying that the message is being heard and understood—and that there is an agreement on actions to be taken. This becomes very hard at times because IT projects are typically “sold” on value or return on investment, and it is difficult to numerate any type of value from these projects.

2. ONCE FUNDING IS APPROVED, MAKE SURE THAT YOU ARE SPENDING IT APPROPRIATELY AND DIVERSELY. A security posture is only as good as your weakest point. Therefore, if you focus all your time and money on your external perimeter, you still might not be secure. As a matter of fact, you may be less secure because of that sin-gular focus. To accomplish diverse spending, CIOs should work with the appropriate business leaders and complete an independent assessment of all systems and connectiv-ity points. This includes control systems, and that is a dif-ferent beast in itself. This may also include ensuring that

those who connect from the outside (vendors) practice the same level of protection as you do within the organi-zation. The thing that worries me the most isn’t whom I don’t trust, it’s who I do trust: employees, contractors, consultants and vendors.

3. ENSURE THAT YOU ARE BUILDING A SECURITY-CONSCIOUS CULTURE THROUGHOUT YOUR ORGANIZATION. CIOs can quickly build this mindset throughout IT and even within senior management. But we oftentimes struggle to do so throughout the ranks of an organiza-tion. The reality is: Security is disproportionate to conve-nience, and at first glance the measures that we put in place seem like roadblocks or IT acting like the “police.” CIOs need to work with the appropriate leaders to make sure the message of why is being conveyed.

BONUS WORRY: The more technical thing that wor-ries me is the convergence of IT & OT. As OT systems become more like IT systems and the demand of data and business intelligence increases, so does the exposure to these critical systems and networks. This requires us to introduce ideas that historically did not exist in the OT world such as IPS/IDS, firewalls, and OS patching, which may cause issues or operating impacts.

Branndon Kelley, VP, IT & CIO, American Municipal Power

NEXT IN THE “WE ASKED” SERIES: We tackle big data.

Question: How are

you dealing with

big data overload

inside your utility?

Got an answer?

Want it published?

E-mail it to

Editor-in-chief

Kathleen Wolf

Davis at kdavis@

energycentral.com.

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ANALYTICS

WHILE HELPING TO REBUILD A FORT IN EGYPT IN 1799, A FRENCH

soldier stopped to examine a broken slab of rock that had been un-earthed. The piece, engraved with hieroglyphs and two other distinct

scripts, soon drew interest from scholars around the world.Through years of intense study, that fragment—now known as the Rosetta

Stone—became the key to deciphering hieroglyphs and beginning to under-stand ancient Egyptian civilization.

Although our methods are a good deal more advanced than those used by 19th-century historians, CenterPoint Energy is developing a 21st-century Rosetta Stone: geospatial analytics, an advanced discipline that offers the pros-pect for significantly improving our ability to deliver electricity, keep it flowing in good conditions and bad—and sharply reduce the number and impact of outages that do occur.

Over the past several decades, CenterPoint Energy has built an enterprise GIS system. And over the past few years, we’ve spent hundreds of millions of dollars creating a smart grid that serves about 2.3 million residential and business customers in the fast-growing Houston area. This new technology collects about 220 million data elements every day from a region covering more than 5,000 square miles. As impressive as that may seem, this mountain of data pouring into our network would have limited business use if we couldn’t correlate it with other internal and external information sources to provide meaningful insights on how to better manage the electric grid. Now, leveraging geospatial analytics,

we are adding value to our company by more effectively combining data to create visually functional information that enables CenterPoint Energy to make better, quicker business decisions.

Before development of the smart grid, analytics relied largely on tabular reports, alerts and marginally sophisticated statistical extrapola-tions of historical information from a single source or a handful of sources. Advanced analytics is providing a growing platform of tools for sophis-ticated, information-based, system models capable of providing better op-

Geospatialanalyticsaddsvaluetoelectricutilityoperations

++CenterPoint’s storyBy Jeff Myerson and Burke Watson

“CenterPoint Energy

is developing a

21st-century Rosetta

Stone: geospatial

analytics, an advanced

discipline that may

significantly improve

our ability to deliver

electricity.”

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erational insights and optimized rec-ommendations. Smart grid technol-ogy, aided by our advanced analytics tools, has given us situational aware-ness, combining data from multiple sources to provide real-time, or near real-time, knowledge about electric system conditions throughout our ser-vice territory. Our controllers receive dashboard updates every five minutes, providing a unique perspective on our grid operations. Additionally, several back office functions related to asset management and optimization are benefiting from this growing toolset.

This information is changing the way we do business, not only helping us improve how we respond to outages and other problems, but also helping us to anticipate future needs and de-ploy our resources accordingly. With geospatial analytics, controllers can track on-screen where crews are work-ing at sites of reported trouble and those that are not on assignments, or are on non-trouble calls such as reha-bilitative work or connecting service at new construction. This gives control-lers a real-time view of their options, enabling them to dispatch a crew from the nearest non-trouble site to resolve a problem and reduce outage time.

Although we have much more to do, the future looks very promising. Perhaps as soon as one year from now, we expect our system to be capable of predictive analytics—synthesizing historical and real-time data to project likely future scenarios, and giving our personnel the information they need to make the best possible decisions. With the Houston area growing by 2 to 3 percent each year, this will be a vital tool to help CenterPoint Energy meet the demands of that growth.

Jeff Myerson is director, business transformation and technology project management office, CenterPoint Energy Houston, Electric, and Burke Watson is project manager, corporate communications at CenterPoint Energy.

THE WORLD OF BIG DATA AND ANALYTICS IS VERY COMPLEX, and in complex times we often see many thought leaders in different

market areas try to reduce the challenges to more simple terms that we can wrap our heads around—think “S-M-A-R-T” planning or “The Seven Habits,” for examples.

In our market, many of us have seen “the Vs” of analytics. In the version of “the Vs” at the Institute, we broke these down into four requirements (or areas of focus) for analytics initiatives and the professionals leading these:

• VOLUME: Big data is, if nothing else, voluminous—possibly to a degree that none of us have seen or dealt with before. This size creates complexities unto itself if the value of the data is to be realized.

• VELOCITY: The expectation of both internal and external customers is speed, which can mean different things to different people. But thinking in real- to near-real-time data and information availability is directionally correct.

• VARIETY: Lots of data—from different departments inside the firewall as well as from outside sources—are coming into play in many of the successful applications we have observed. The ability to create meaningful correlations or even cause-and-effect relationships across different data sets—especially data sets that were previously not thought to be related in any way—is prov-ing to be a huge component of success in the analytics world across many different industries.

• VERACITY: Much of the data coming across the transom is new to the user, and some of it might also be coming from outside sources. Accuracy and timeliness of data are critical for the end user to become a true believer.

We think that these “Vs” hold up pretty well, but as we have learned more about the dynamics of the utility analytics market, we see other needs becoming increasingly important, and they just happen to start with a V. Let’s look at these two new entrants a little closer.

First is visualization. The power of analytics is very impressive, and we are seeing that it is even more impressive when there is a visual com-ponent or layer that effectively communicates real-time to near-real-time or predictive information. This is particularly true

Thefour—no,six—Vsofanalytics

++UAI increases Vs by 50 percent, but what are Vs exactly?By Mike Smith

“In our market,

many of us have

seen ‘the Vs’

of analytics.”

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when there are traditionally disparate data sources, business functions or depart-ments that are now being virtually or actually integrated via an analytics-driven application (the emerging term for this is “situational awareness”). As an example of the power of visualization, note how this comes into play with one of the core hypotheses of the power of analytics: specific behaviors reside in specific databases, and unleashing the power of analytics across these different databases can identify correlations or even cause-and-effect relationships that would have never otherwise been identified. In utilities, this could be a change in customer behavior due to a successful DR program, which would affect the behavior of the grid, which would in turn impact the performance of assets managing the grid. Those are three traditionally siloed databases that could have some significant relationships.

Finally is value. There are so many cool new applications and developments in this market that it is easy to get carried away with the newest shiny thing that catches one’s eye. Yet it always comes back to the ROI and how value is being added to the organization and its stakeholders. We see many developments of business cases, use cases, and case studies that demonstrate the value of going down the path of an analytics initiative. One thought worth sharing in the analyt-ics ROI discussion: utilities have spent unprecedented amounts of money on the build out of their intelligent infrastructures—namely smart meters and the accom-panying smart grid infrastructure. Serious consideration needs to be given to these investments in calculating or estimating the ROI of any given analytics initiative. The thinking here is along the lines of “Well, we’ve spent a billion dollars already. Do we want to spend another $2 million to drive more value out of this technology investment and what level of payback is acceptable in this view?”

Relative to both visualization and value—a word to the wise in an excit-ing new market like this—the real value often lies in the “blocking and tackling” and not in the glitzy, slickest-looking application. We have seen millions spent, and solution providers come and go in different technology markets within the utility industry (think: AM/FM/GIS and mobile computing in the early 1990s), so the need is to em-brace the new potential while staying grounded in the basics.

So, if you’ll excuse our tongue-in-cheek headline we’re really not that proud about increasing our Vs by 50 percent. We are, however, excited about the development and direction of the utility analytics market.

Mike Smith is vice president of the Utility Analytics Institute. Mike can be reached at [email protected]. More on the Utility Analytics Institute can be found at www.utilityanalytics.com.

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BY THE NUMBERS

ACCORDING TO THE NATIONAL SCIENCE FOUNDATION’S CENTER for Science and Engineering, tech fields are taking over the workforce.

In 1950, a little less than 200,000 American workers made a living from science- or engineering-related occupations. By 2009, the last date of confirmed numbers (released in 2012), that field had grown to 5.4 million—nearly six percent a year.

The power industry has certainly been part of that growth as the creation and distribution of energy gets more complicated and technical, from smart grid to synchrophasors to data analytics.

Those numbers from the National Science Foundation say it all. The growth rate of engineers necessary to keep the power flowing will keep going up. And that same technology (such as ruggedized tablets and field force management software and two-way data communication) that helps offset worker shortages in the field means you need to add people on the tech-head side of the equation: namely, IT and engineers.

At a recent invitation-only CEO/CIO conference, one attendee shared with me her woes in trying to keep younger engineers at her utility. While the utility she worked for didn’t really have a problem filling openings when older engineers retired or when projects expanded, she found that the younger generation of en-gineers didn’t stay in the job past a year or two. And each new engineer she hired meant they started all over again with training and HR costs.

She asked me for some suggestions on the subject, and I asked Vita P. Como, senior director of professional development at the Cullen College of Engineering’s Career Center in Houston. Cullen graduates a lot of engineers. Most of them go to work in the oil and gas industry. Those engineers in the oil and gas industry often stay for at least five years—and many stay with companies for 10 or more. So, what can power utilities learn from that?

Here are Como’s top three lessons:1.) HELP YOUNG ENGINEERS MANAGE THEIR CAREERS. As Como noted, students of

all varieties are taught to take charge of their own careers these days. But a utility shouldn’t see this as a detriment or a hurdle. Instead, it’s an opportunity to build a relationship. Companies that retain engineers, for example, often help them build out their portfolio and prepare them to apply for and get their P.E. (That helps you keep people for at least the first five years.) You can even start with an intern stage, getting them in the door early and helping them see how working in the power industry can be exciting, can take them places.

2.) BE SOCIAL. It’s the same thing that makes Twitter so popular with millenials: They like to communicate. So you need to communicate with them, and get them to communicate with each other. Como suggested “creating cohorts” with younger

groups. She noted that many oil and gas companies bring young engineers in together, move the same group together through their first year and have that group play together, too: volunteer work, happy hours, brown bag lunches on topics of interest—all organized and run by the company to help the engi-neers build an internal social network. After all, if they like their coworkers, that’s a real incentive to stick around.

3.) MENTOR. Mentoring can ben-efit young engineers and companies alike at many stages. Engineers one or two years ahead can help new hires understand the company, become comfortable and assist with navigating a culture the new hire isn’t used to. (But the younger mentor isn’t intimidating, as they’re of the same age group and on the same level.) Engineers a career ahead can help a new hire understand the history of the company and the subject and allow for a bridge of experi-ence to move down the company chain. (Plus, older mentors and younger hires may develop an almost familial relationship, which, again, can convince the young hire that this company is a place to stick with.)

Como realizes these lessons aren’t as easy as they sound, and it can take some shifts in cultural thinking and communication skills to get it all to run smoothly, along with investments of time and money in programs. It also takes some flexibility on the part of management to bridge varying forms of culture, preferences and com-munication desires among different age groups.

So to start, she boils it down to one thing: Talk. If there are issues, talk. If there are positives, talk. If there’s noth-ing going on, still talk.

“Most of the time, the reason young people leave is poor communication,” she said. “They are used to immediate access to information.”

So, the top lesson is: Talk to them.

Howtoreachandretainyoungengineers

++Lessons from oil and gasBy Kathleen Wolf Davis

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OUT THE DOOR

++And ahead, tooBy Jim Hoecker

IN MID-2013 INTELLIGENT UTILITY ASKED FOR MY PERSONAL

top five observations about Order No. 1000, which would be old news by now if it weren’t for its long compliance process.

At that time, I proffered that Order No. 1000 so lacked specificity and prescription that the outcomes in various regions working to implement its planning and cost allocation ideas would be uncertain, quite likely divergent,

LookingbackatFERC’sOrderNo.1000

and conceivably counter-productive. Anticipating the benefits of broader markets for power with different regional flavors, FERC had chosen principally to spur formation of re-gional mechanisms to plan and pay for

“In mid-2013

Intelligent Utility asked

for my personal top

five observations about

Order No. 1000, which

would be old news by

now if it weren’t for

its long compliance

process.”

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OUT THE DOOR

the grid, rather than using a heavy hand to mandate that the interstate transmis-sion network must conform to particular configurations or operations within a decade or two. Quite the contrary.

That’s why the determination of some critics to portray the Order as funda-mentally anti-consumer, an attack on state and regional preferences, or a grab for control of non-jurisdictional entities and to seek its repeal legislatively on that basis simply demonstrates (best case) that the industry and regulators have not coalesced around a discernible vision of the bulk power market of the future. Judging by the arguments against the Order made in federal court recently (there are always serious questions about the elasticity of the Federal Power Act), the Commission’s expectations are not only not universally shared; they are in fact flatly rejected by some regional policymakers who perceive more consumer

price risk than reward, appear to favor a plethora of local or sub-regional electricity markets, and fear erosion of their control over traditional utility operations. Order No. 1000 does not appear to have a cure for this level of elec-tric policy incoherence—at least not yet.

It was similarly predictable that, even in the face of the emergence of regional power markets, many entities would aim to preserve some version of the balkanized power markets of the 20th century, while others would instead seize upon the opportunity to advance, inte-grate, and enlarge the commerce in electric power by ensuring the adequacy of the transmis-sion platform across state and regional boundaries. To be fair, there are no guarantees that come with generic orders of the

potential breadth of Order No. 1000. Such “mega-rules” as FERC staff calls them, are generally founded on rejection of the well-understood defects or inefficiencies of existing energy systems and policies more than a quantifi-cation of the long-term benefits for consumers from reform. However, the intergenerational benefits of Order No. 1000 to the economy, in the form of more competitive and liquid markets supported by an inter-regional trans-mission network, are clearly perceptible even if hard to measure.

At bottom, the choice is between today’s uncoordinated planning regimes, disparate cost allocation principles, resource parochialism and retention of vesti-gial market power versus the Commission’s expectation that bulk power markets would capitalize on robust infrastructure to expand and become more barrier-free and competitive. This is the stuff of national policymaking. It is hard to overesti-mate how dramatic the potential changes inherent in Order No. 1000 could be, not because FERC has set the industry on a forced march toward a specific end-state, but because the Order would create an environment that invites technological

innovation, fuel diversity, new business models, and the potential to transform the generation mix and other sectors of the economy such as transportation. Backbone infrastructure like trans-mission is the basis upon which the market will work its will. Its strengths or weaknesses will affect patterns of electrical generation, energy efficiency and demand, the deployment of new technologies, and even the advent of industries yet unborn.

So I was confident last year that that Order No. 1000 would focus planners on the diverse and often-ig-nored benefits of most transmission projects, including benefits that may be incidental to a project’s original purpose but central to its long-term economic, operational, and environ-mental value. There was no clearly articulated list of transmission ben-efits, however. To address this prob-lem, The Brattle Group developed an unprecedented list based on industry experiences in RTO and non-RTO markets in a report produced for WIRES. The report understood that even the best planning regimes tend to judge the merits of projects primarily, if not exclusively, using production cost simulations to de-termine benefits, namely short-run reliability and consumer price im-pacts. Judging from Order No. 1000 compliance filings little has changed. The report also concluded that, without specifically identifying all of the transmission benefits needed to be part of the analysis in individual cases, as well as the metrics of each benefit, allocating transmission costs to “beneficiaries” of individual projects or groups of projects was bound to remain a constant quar-rel. In the extreme case, the lack of a common understanding of the benefits that planners must look for when evaluating any proposed inter-regional project, there would be a greater likelihood that adjacent RTO or bilateral market planners will only

“Order No. 1000 is

deserving of a balanced

evaluation by the

industry and policy-

makers, provided

policymakers have the

patience to withhold

judgment as the Order’s

consequences unfold.

Its evolutionary arc is

rather unprecedented.”

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OUT THE DOOR

agree on projects that meet lowest common denominator criteria.

My confidence that the Brattle/WIRES report would change behav-iors and help coordinate planners’ practices was premature. The Order No. 1000 compliance filings suggest that the allegiance to state or sub-regional practices and preferences may still prevail and that the Order No. 1000 planning processes may not ensure that the best projects are developed across historical market or RTO seams. This naturally raises serious questions about whether accommodating (as opposed to eliminating) the differences in judging the merits of transmission proposals among RTOs and be-tween RTO and non-RTO markets will result in optimal transmission planning decisions. Order No. 1000 doesn’t require the kind of benefit analysis Brattle suggests is neces-sary. At least this makes it harder to criticize the Order as dictating any particular outcomes—even opera-tionally and economically superior outcomes.

As I argued last time, Order No. 1000 is a reasonable and defensible continuation of almost four decades of national energy policy favoring competitive markets, innovation, and new technologies. It is thus deserv-ing of a balanced evaluation by the industry and policymakers, provided policymakers have the patience to

withhold judgment as the Order’s consequences unfold. Its evolutionary arc is rather unprecedented.

Since last year, there is plenty of evidence of the ongoing tug-of-war over electricity policy from several intervening developments. Order No. 1000 com-pliance filings on inter-regional planning were submitted; a federal circuit court argument was held (not yet decided) about the Order’s legal sustainability; FERC is deadlocked over policies governing transmission rates of return; deep concern has grown about the physical security of the grid stimulated by the Metcalf substation attack; DOE’s Quadrennial Energy Review was inaugurated with a focus on energy delivery infrastructure; competitive transmission development processes continue to grow in organized markets; and the anticipated impacts of low-cost natural gas and EPA’s upcoming Clean Air Act Section 111 enforcement rules are fueling speculation about what comes next. While Order No. 1000’s collaborative approach has yet to win over its critics, many of whom misappre-hend both its intent and its methods, it remains FERC’s principal marker in the electricity policy arena and a convenient target. Attempts to legislate its repeal are possible, especially if the rule survives court review as expected. Planners in organized markets continue to employ uniquely regional criteria and priorities, ignoring a range of shared transmission benefits in their analyses and therefore missing the efficiencies and long-term consumer benefits potentially available in more integrated markets. The Commission will find this understandable; the question is whether it is tolerable.

Suffice it to say, the tasks of diminishing market balkanization and achiev-ing regulatory harmonization are still formidable. Order No. 1000 is only part of the solution to those hoary problems. Yet, despite the risks and challenges in this changing regulatory and industry environment, incumbent utilities, equity investors, nontraditional developers and transmission providers retain their enthusiasm for the investing in the transmission sector. After all, rebuilding our nation’s core infrastructures is supposedly near the top of our domestic prior-ity list. As Order No. 1000 plays out to its logical if uncertain conclusion over the next 1 to 3 years, the transmission industry will continue moving positively ahead to address reliability, congestion, stranded resources, and aging facilities undeterred by all the regulatory challenges and policies in flux, hopeful that important pro-market outcomes will result. That’s a good thing.

Jim Hoecker is a former chairman of the Federal Energy Regulatory Commission. He serves as counsel and advisor to WIRES, an industry coalition promoting transmission infrastructure, and is senior counsel at Husch Blackwell LLP in Washington, D.C.

DOW ElEctrical & tElEcOmmunicatiOns | www.dow.com

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