Climate, Technology, and a New World...

General Session speakers outline the future for the electric utility industry

By Bruce Cannon and Dennis Wamsted

Opening General Session

Wednesday, June 24

"There is literally no place like San Francisco," said PG&E chairman, president, and CEO Peter Darbee, as he welcomed the assembled delegates to the Edison Electric Institute (EEI) 2009 Annual Convention and Expo. In recounting a brief history of the company, he explained how the first central generating station in the United States had been built in 1879 by one of PG&E's predecessor companies and saluted the "incredible will" of the men who brought electricity and gas service to the Bay Area. PG&E was honored to host such an important and timely event, Darbee said, as he emphasized the critical issues that would be discussed during the convention.

"Transformation is not new for us," said David Ratcliffe, EEI's chairman and the chairman, president, and CEO of Southern Company, as he introduced the conference theme, "The Power to Transform." He ticked off several reasons why it had been a year of transformation, including the Obama presidency, the financial crisis, the $700-billion stimulus package, and a national debt that now reaches $11 trillion. And yet, Ratcliffe said, shareholder-owned electric companies had come together on important issues, such as the allocation of emissions allowances to ease the transition to a low carbon future.

While it prefers stability, the industry is intimately familiar with transformation, said Ratcliffe. While operating one of the most reliable networks in the world, the industry has continually reinvented itself. And that reinvention continues apace today.

"Electric utilities are on the cusp of a whole new world," continued Ratcliffe. Transmission and distribution operations and the customer interface are all changing rapidly.

And on top of this, there is the very real prospect that climate change legislation will be enacted in the coming months, further speeding the industry's transformation.

Here too, though, Ratcliffe pointed to the "significant transformation" that has occurred in the past couple of years through EEI's work with EDF and NRDC, two leading environmental organizations.

The industry should be proud of its efforts to cope with the many changes facing it while maintaining the reliability the nation has come to depend on, Ratcliffe concluded. "I could not be more proud of the work we have been able to accomplish," he said, "but we have much work to do."

The Power of Technology

"We believe technology will play a pivotal role in tackling the global energy issues we currently face," said the next speaker, Craig Mundie, chief research and technology officer at Microsoft. As the country moves gradually to zero carbon energy sources, Mundie said that computers and software in particular can play a role. Computers in the near term will be 50-100 times more powerful, use the same amount of energy and cost less than current models, he said, and those improvements will help significantly in designing solutions to address our many pressing energy and environmental problems.

But the computer industry can also play a major role in the short term by targeting its own attitude toward energy use, Mundie continued. In particular, if all personal computers went to sleep when not being used (thereby sharply cutting their power demand) consumers could save an estimated $22 billion annually in electricity costs, and U.S. carbon dioxide emissions could be trimmed by roughly 3 percent. To push in this direction, he said, Microsoft is changing the defaults in its upcoming operating system update (Windows 7), which will put computers in sleep mode quicker. In addition, the company is working to speed restarts; slow restarting from the sleep mode has prompted many customers to disable this function, Mundie acknowledged.

Beyond this, the industry is taking a new approach to power use by individual computers and the massive servers that run data centers nationwide, which should significantly cut energy demand, Mundie said. Current generation PCs are like one-cylinder engines, they essentially run flat out all the time even when not needed. In the future, he said, PCs will have the equivalent of many cylinders, and will use the number needed to satisfy changing user computing demands.

Similarly, the industry is changing the way it operates data centers, which have been tremendous power users in the past. Previously, these facilities ran at peak capacity — even if there was no demand. Now, the industry is moving to a model where servers are brought on line as needed, much as the utility industry does to cope with daily peak demands, Mundie said. While these and other changes are now being phased in, it likely will be 2010 before real reductions in computer-related power needs begin to be noticeable, he predicted.

The changes under way in the computer industry, and similar changes in other industries, are vital in the short term, Mundie continued, because the reality is "we can't replace our current energy sources right now." There are many environmentally friendly power options, but they are not ready at the scale needed to power the nation's economy. But we can't wait, he said, meaning it is essential that energy efficiency efforts take center stage for the near term.

As a part of the effort to use computing prowess to develop new energy-saving technologies, Mundie announced Microsoft Hohm, a new online application that enables consumers to better understand their energy usage, get recommendations, and start saving money.

The Edison Award

EEI president Tom Kuhn and chairman David Ratcliffe presented the 2009 Edison Award to Jose Delgado, CEO of American Transmission Company, and Chuck Shivery, CEO of Northeast Utilities.

The Edison Award recognizes U.S. and international electric companies for outstanding leadership, innovation and advancement of the electric industry. A panel of past electric company CEOs selects the award winners.

American Transmission Company (ATC) owns, operates, builds and maintains the high-voltage electric transmission system serving portions of Wisconsin, Michigan, Minnesota and Illinois. ATC in 2008 completed the Arrowhead-Weston transmission line, a 345-kilovolt, 220-mile-long line between Wausau, WI and Duluth, MN that has significantly improved northern Wisconsin's reliability while easing constraints on the region's other major transmission line, the Eau Claire-Arpin line. The new transmission line allows for the movement of larger volumes of lower-cost electricity to utilities and customers. This has led to savings of $5.1 million by electric customers after its first year in service, and the power it brings into the region helps control price spikes. Due to the high efficiency of the new line, the company estimates a savings of 35 megawatts of on-peak usage on neighboring utility systems and that, over a 40-year life span, 5.7 million megawatt-hours of electricity will be saved and 5.3 million tons of carbon dioxide emissions will be prevented.

Northeast Utilities (NU) operates New England's largest energy delivery system and serves more than 2 million electricity and natural gas customers. Northeast Utilities in 2008 completed a major, multi-year electric transmission upgrade in southwest Connecticut, an area previously considered by the Federal Energy Regulatory Commission as one of the nation's most severely congested. The upgrade consisted of four transmission line projects-Bethel-Norwalk, Glenbrook Cables, Long Island Replacement Cable, and Middletown-Norwalk. The utility completed and energized Bethel-Norwalk in 2006 and the rest in 2008. Overall, the four projects were finished ahead of schedule and under budget by $80 million. Since completion, the Bethel-Norwalk project already has generated more than $150 million in congestion-related savings. The Middletown-Norwalk line includes the world's longest 345-kV buried, solid-core cable (24 miles). The Long Island Replacement Cable project includes 11 miles of cable buried six feet under the sea bed.

"At a time when siting transmission lines is one of our industry's most formidable challenges, we salute the accomplishments of Northeast Utilities and American Transmission Company" said EEI President Thomas R. Kuhn. "The projects these companies undertook were extremely well-executed and serve as strong examples to the rest of the industry. For that reason, NU and ATC are well-deserving of this year's Edison Award.

"Both of these companies have succeeded in remarkable reliability efforts, as they have each completed extensive transmission projects to improve reliability and operation for their respective service territories. The need to bring power to customers efficiently continues to be a major concern, and it's critically important to our energy future that this challenge is addressed."

Where Energy and Environment Meet

Fred Krupp, president of the Environmental Defense Fund, said his organization is focused on cooperation, not confrontation, as it tackles the serious environmental issues of the day — particularly climate change. Citing the United States Climate Action Partnership as a model of cooperation and understanding, Krupp said that effort helped him realize that certainty was very important to electric utilities, as well as where the cap would be set in potential cap-and-trade legislation. "You were able to figure it out internally," Krupp said as he congratulated eei for its unified industry position on allocating emissions allowances.

Krupp used an inauspicious anniversary to highlight the changes that have occurred in both the utility and environmental communities in recent years. Forty years ago, almost to the day, Krupp told the conference, the Cuyahoga River in Ohio caught fire. The fire galvanized the developing environmental community and served as a rallying cry for years about the need for changes in business practices across the United States.

EDF, founded in 1967 after forcing the federal government to ban DDT, the chemical responsible for endangering the bald eagle, has played a major role in pushing for those changes during the intervening decades, Krupp said. But progress has not come easily, he continued, pointing out that the environmental community's successes in the past 40 years almost always have required adversarial court proceedings and contentious rulemakings.

That has been changing lately, and nowhere is the change more obvious than in the current push in Congress to enact legislation curbing greenhouse gas emissions, Krupp said. Instead of fighting each other in court, EDF and EEI have been working together for past couple of years to ensure that legislation can be crafted that addresses both the environmental and business communities' concerns. "We have gone from confrontation to cooperation," he said.

EEI President Thomas Kuhn sounded a similar note in introducing Krupp. The changes that have occurred in the utility industry recently are evident simply in the fact that EEI is having the environmental leader serve as one of its keynote convention speakers, Kuhn said.

Still, while cooperation may be more common today than in years' past, Krupp warned that the two groups still inevitably will find themselves on opposite sides of contentious issues in the future, mentioning growing concern in the environmental community about mercury emission as one particular issue that may divide the two groups.

Krupp believes there is much work to be done in other areas, as well. "We need a smarter grid," Krupp said as he challenged the industry to migrate to Electricity 2.0.

Closing General Session

Thursday, June 25

Tom Kuhn, president of the Edison Electric Institute (EEI), opened the session by announcing that Anthony F. "Tony" Earley Jr., chairman and CEO of DTE Energy, had been elected the new chairman of EEI. Earley will be supported by Richard C. Kelly, chairman, president, and CEO of Xcel Energy; Thomas F. Farrell II, chairman, president, and CEO of Dominion; and Lewis Hay III, chairman and CEO of FPL Group.

Ford's Better Ideas

"I'm really charged up to be here," said Alan Mulally, CEO of Ford Motor Company. "We're doing fabulous." With a big smile and infectious enthusiasm, it is easy to see why Mulally is leading the effort to turn Ford's fortunes around. "There is no reason why we can't compete with the best vehicles in the world," he continued. "The progress we're making on size and efficiency is very encouraging to us." Much of that efficiency is improving the internal combustion engine and focusing on drive trains, using electronics to monitor and streamline performance. In addition to pursuing the hydrogen solution with fuel cells, Ford is also focusing on improving the electrification of vehicles. "Part of that solution is going to be batteries," said Mulally, "and we're looking at that with a number of the utilities here today."

International Edison Award

David Ratcliffe, chairman, president, and CEO of Southern Company and chairman of the selection committee, presented the 2009 International Edison Award to Alfredo Elias Ayub, director general of the Comisión Federal de Electricidad (CFE), the Mexican utility.

The award is given each year in recognition of outstanding leadership, innovation, and advancement of the electric industry.

When a landslide in November 2007 completely blocked the course of the Grijalva River in southeast Mexico, rising waters put the population downstream in grave danger and threatened to damage CFE's Peñitas hydroelectric power plant. CFE rapidly built a channel to re-connect the river around the natural dam caused by the landslide. The company later had to enlarge the channel while also draining 10 million cubic meters of water from the river without wasting water or affecting the cities downstream. CFE is currently constructing two permanent deviation tunnels connecting the river upstream and downstream from the natural dam in the event of any further blockage. The video developed by the company was impressive.

The Secretary of Energy on Climate Change

Energy Secretary Steven Chu delivered a sobering keynote address to attendees at Thursday's General Session. "For the first time in human history, science has shown that we are altering the destiny of our planet," said Dr. Chu. He detailed the long-term effects of climate change: presenting a list of recent changes that show that the impact of rising carbon dioxide emissions has begun to have on the climate.

Among the items cited by Chu:

• Arctic sea ice is melting much faster than previous models had predicted


• Sea levels are rising at a faster pace than anticipated earlier


• The number of 90-degree-plus days is rising


• The Arctic permafrost, which has huge quantities of methane and CO2 locked in frozen organic matter, is beginning to thaw.

This last item was of particular concern to the secretary. Once the thawing begins, he said, it may initiate a loop that further speeds up the process, with more CO2 and methane leading to higher temperatures, which in turn causes faster thawing. This could be the "tipping point," he said.

Despite these issues, Chu stressed that he sees opportunity where others may see only doom and gloom.

For example, there is a huge potential in demand response, he told the meeting. Currently, some 25 percent of our distribution assets and 10 percent of the nation's installed generation are needed only some 5 percent of the year. Instead of meeting demand in this fashion, he continued, new technologies offer the potential to reduce peak usage by as much as 15 percent, which would cut costs and lower emissions.

Similarly, energy efficiency measures offer significant potential across the U.S. economy. "We need incentives to increase energy efficiency," he said. As an example, he pointed out that the efficiency improvements achieved just in refrigerators in the past couple of decades have saved more electricity than all the nonhydro renewables currently installed in the United States generate in a year.

Chu also announced that DOE is soliciting applications for $3.9 billion in grants to support efforts to modernize the electric grid, as part of the American Recovery and Reinvestment Act.

The talk on warming was Chu's way of reminding the audience why the government was taking steps in the first place. "It is time to act, Secretary Chu concluded, "there is such a thing as being too late."

The Forces of the Future

Along with the issues of healthcare and education, "we are going to be pre-occupied with questions of energy for the rest our lifetimes," said David Gergen, senior political analyst for CNN. "The last thing that we can afford is a disruption in that flow of energy." Citing his unique experience as an advisor to four presidents (Nixon, Ford, Reagan, and Clinton), Gergen said that presidents have always felt hostage to the forces of energy.

The energy and the environment have the attention of the voters 30 and under, he said, and they are the ones who voted for President Obama and (if history can be trusted) will probably do so again, giving the president great power to have a continuing impact over the next decade or more. They are a force to consider, because young people who vote twice for a party in general elections tend to vote for that party for the rest of their lives.

Gergen thinks it is unlikely that the American Clean Energy and Security Act will pass the Senate by the end of the year. "The president can go to Copenhagen in December [for the United Nations Climate Change Conference] with just the House bill," Gergen said. "In some ways, it makes his bargaining position more interesting." If, in turn, China and India produce plans to limit greenhouse gas emissions, then that would blunt a key argument by the legislation's detractors in the Senate. In closing, Gergen issued one final warning regarding the nexus of energy and environment: "The climate issue is not whether or not we prevent damage, but whether we prevent a catastrophe."