Survey Exposes Electric Reliability

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Lew formerly led the Electrical Contracting Foundation organizing team while serving the National Electrical Contractors Association (NECA) as Director of Marketing and Management Services in the '70s. He also served as acting executive director and managed several energy-related Foundation projects. After his retirement in 1998, he organized C-E-C Group as a proprietorship and has continued serving energy users and suppliers. He also completed a Foundation project titled, "Surviving Utility Deregulation" in 1999 (www.ecfound.org)

In addition, Lew has been published in over 180 articles in various trade magazines. He also consults with the Washington, D.C., chapter of NECA and supports its labor-management cooperation committee as an industry relations consultant. He completed engineering and business administration degrees, both with academic honors, and he has published three commercial books. He is a member of the Association of Energy Engineers.

Sometimes, it pays to ask the experts when it comes to planning: That’s what the utility industry did when Sierra Energy Group, the research and analysis division of Energy Central, joined up with the enterprise management solutions division of international engineer-constructor Black & Veatch’s energy division.

Under Senior VP Richard Rudden, a recruited team of experts conducted a survey of executives and managers of more than 400 North American electric utilities, plus investors and consultants, to analyze what they thought were primary issues facing the industry. Approximately 75 percent of the respondents were from executive or management/supervisory levels of their organizations, which means that a very large percentage of the respondents were in positions to make valid observations about the state of the industry and the positions of their individual organizations. Since their issues also are your issues (if you use gas and electricity), it might be helpful to summarize some of the primary findings that were released last month in the 106-page report titled Strategic Directions in the Electric Utility Industry. This was the second such survey, so it’s possible to see a few changes in response, although it’s not possible to draw any long-term trends from the data. Nevertheless, what bothers utility executives might also bother your bottom line.

The full report is available in PDF format. Following is a summary of the top problem areas – it has been edited to save you time by avoiding the tabular details.

Top Utility Planning Issues
When they were ranked in order of concern on a scale of 1 to 5, the top utility issues were service reliability, the aging energy industry, uncertainty over carbon regulations, and security of the operating equipment. In 2007, the level of the energy industry’s concern over carbon uncertainty, reliability, and the aging of both the workforce and infrastructure increased by between 5 percent and 7 percent from the previous study. Reliability continued to rank as the No. 1 concern overall, while the aging workforce moved up in the ranks from No. 5 in 2006 to No. 2 in 2007. Environmental issues remained No. 3, and aging infrastructure moved to No. 4 from its previous No. 2 position in 2006. For the most part, the concerns were shared equally between investor-owned and municipal utilities, and, quite often, by independent power producers and regional transmission operators as well.

Interestingly, according to the survey, approximately 82 percent of those surveyed believe that global warming is occurring, and 44 percent of those respondents believe it is caused by human activity. Therefore, about 36 percent believe global warming is real and caused by man. Approximately 35 percent of the respondents have a significant degree of confidence in the underlying climate-change science, while 42 percent have little confidence. The analysts thought these were surprising results, and were more conservative on the issue than expected. The report noted, “The results illuminate the substantial differences in views between the [United States] and nations participating in the Kyoto Protocol. Whether or not climate change is perceived as real and manmade, the public profile of the issue is spurring significant policy and behavior. Nearly 20 percent of respondents have deferred or canceled coal-fired power plants due to uncertainty of carbon regulations.”

The independent analysis by Black & Veatch indicates that 13 coal plants representing 11 gigawatts of base-load capacity have been cancelled or deferred within the last 12 months, despite the burgeoning need for additional capacity. The top five supply-side technologies that survey respondents believe should be emphasized in the future are (in order of preference): nuclear, coal gasification, wind power, carbon capture and sequestration, and solar power. These goals present significant challenges, both politically and financially, so there is a large gap between desire and reality that must be overcome if they are to be achieved.

The focus on improving reliability and accommodating likely future greenhouse-gas regulations will require significant investments in new generation technology. Indeed, generation was regarded as the technology most likely to both receive highest investment and produce the greatest economic benefit, as compared to investments in transmission (No. 2), information technology (No. 3), distribution (No. 4), and maintenance equipment and facilities (No. 5).

Regarding aging infrastructure: While this category dropped somewhat in overall standing from last year, it remains a critical strategic issue. The percentage of assets that were still within their planned service lives dropped by between 5 and 10 percentage points, indicating that the proportions beyond their planned lives are increasing. The report suggested two possible reasons for the seemingly inconsistent lower ranking this time. First, many utilities have been successful in building and financing new distribution and transmission facilities, and receiving adequate rate treatment for the new plant. This has possibly built sufficient confidence to make infrastructure replacement slightly less of a concern. Second, the latest survey had proportionately more nonutility respondents (e.g. regulators, consulting and law firms, and vendors), who tend to be less hard-asset intensive and more labor intensive. This would possibly also explain why the aging workforce has moved up in the ranks.

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More Details on Major Issues
Probably the most significant change from 2006 to 2007 in the category of major issues is that both investor-owned utilities (IOUs) and municipals seem to be even more concerned about reliability than last year, and that should trouble you, too. In 2006, reliability averaged 3.92 among all respondents on a 5-point scale. This time, reliability ranks 4.18 on the same 5-point scale. There are numerous reasons for utility concerns about reliability. One of the major ones is likely the difficulty in getting approval for new large-scale generation and transmission projects. As a result of those difficulties, the North American Electric Reliability Corp. reported in its October 2007 Long-Term Reliability Assessment (2007-2016) that long-term capacity margins are “still inadequate” to meet U.S. electricity demand during that period. As demand continues to increase and restrictions on generation and transmission continue to multiply, it is likely that reliability will continue to go down – a concern that seems to be reflected in this survey. Bear in mind that states with deregulated utilities required them to divest the transmission and generation investments, so they must rely upon the unregulated generation and federal-regulated transmission assets for power supplies. (Have you considered a back-up power plant yet?)

Although utility aging infrastructure has dropped a position among the list of major concerns, it is closely linked to the reliability issue. This is perhaps most pronounced in the IT/computer systems area where the respondents with equipment “well past its service life” have more than doubled. The transmission area indicates an increasing problem, too. Somewhat surprisingly, improvements were noted in generation, distribution, and maintenance equipment areas. While the percentage of infrastructure “well past planned service life” remained small (and, in fact, there were marginal improvements in some areas), the percentages “within planned service life” declined dramatically. The report notes it is likely that the continued uncertainty, distraction, and costs associated with the turmoil surrounding global warming and its causes (manmade or natural), environmental restrictions on building, turmoil in capital markets, restrictions on rates, and other factors continue to result in an overall aging of the infrastructure.

Don Mundy, senior vice president at Black & Veatch, notes, “Although some shifting in rank has occurred since the last survey, it is clear that aging infrastructure, and the reliability concerns that come along with it, remains a concern for nearly everyone. And, since only about one-third of the generation, transmission, and distribution facilities are operating within their designated or planned life, that means that about two-thirds are living on borrowed time. For some facilities, that time may run out for consumers at the worst possible moment. But, if utilities know this now, they can investigate the aging process, develop a mitigation strategy, plan ahead, make budgets, order replacements or parts or new facilities as may be needed, hire and train the engineering and craft workers, and life will continue in an orderly fashion. The trouble is that utilities have not done all these things just right. Not that they didn’t plan to, but the models cannot be perfect and sometimes budgets must be cut. All of this leads us to the situation we have today, which is a looming mountain of infrastructure that is getting older daily and worn out faster than we can keep up with it.”

He continues: “Energy companies must delay no longer to get started with implementation before we begin to see even worse issues. Between 40 and 60 percent of our electric-system infrastructure was installed along with the birth and growth of the Baby Boomer generation. As that group reaches retirement, so do most of those facilities. Most of these facilities have a 40- to 50-year design life and, even with some refurbishing, might go another 10 to 20 [years], but even a good piece of equipment must retire some day.” (So, as you look around and contemplate the pressing concerns about attrition and retirement of your staff, be thinking about utility infrastructure as well.) “As to the future,” says Mundy, “the issues of the last couple of decades have shown us that demands will be greater, margins will be pressed, and automation and intelligent devices are now a part of everything. Advances in technology, new types of generation, greater attention to grid losses and the environment, and a host of other changes will demand greater versatility and reliability from new power networks. And, though we are led to believe that aging is a rather steady and predictable effect, we often find that it is, at times, full of sudden and unexpected behavior.”

Mundy concludes, “Getting caught up, and possibly getting ahead of the situation will require up-front planning and continuous execution. The consequences of frequent and prolonged outages, unavailable equipment, extended overtime, and generally higher costs are just too great as people depend on the electric system more than ever before. Even a modest plan with a few unexpected events along the way is better than no plan at all to secure our networks and preserve the necessary reliability.”

One might conclude by saying that electric utility problems are your problems, too. It might be a good idea to consider plans for meeting the power-reliability needs of your building occupants should the utility serving you not be able to live up to your expectations.

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