COO Rountable: The Future of Utilities

Technology is changing the utility industry, and debates swarm over ways to meet regulators’ demands and customers’ and shareholders’ expectations.

Jul 1st, 2012
Pennwell web 120 164

by Jennifer Van Burkleo, associate editor

Steven E. Kurmas

Technology is changing the utility industry, and debates swarm over ways to meet regulators’ demands and customers’ and shareholders’ expectations.

The cost of natural gas is declining, and there are concerns that the nation’s generation portfolio will not be diversified because natural gas generation is gaining popularity.

Chief operating officers (COOs) must prepare their companies for the future. Opportunities and overcoming challenges will play roles in the success of utilities. Electric Light & Power magazine invited a few COOs to discuss the future of the utility industry.

At the Table

Steven E. Kurmas is president and COO of Detroit Edison. Kurmas served as executive vice president of fossil generation at Detroit Edison. He joined Michigan Consolidated Gas Co. (MichCon) in 1979 and held engineering and construction leadership posts before being named vice president of gas supply in 1995. During the 2001 merger of DTE Energy and MCN Energy, Kurmas served as president and CEO of MCN

Dave Velazquez

Energy’s midstream and supply and senior vice president of MichCon supply services. Kurmas was named Detroit Edison’s senior vice president of electric operations and customer service in 2003. He has a Bachelor of Science and a master’s degree in chemical engineering from Wayne State University. In 1996, Kurmas was selected by Gas Industries magazine as outstanding gas industry manager of the year. He was elected to Wayne State University’s College of Engineering Hall of Fame and received the Distinguished Engineering Alumnus Achievement Award in 2001. Kurmas serves on the boards of directors of the Detroit Regional Chamber of Commerce, Michigan State Chamber of Commerce and YMCA Southeast Michigan. He is also treasurer and past president of the board of directors of the Engineering Society of Detroit. He is treasurer of the Michigan Economic Development Foundation and in 2011 was elected as a director to NextEnergy and the National Association of Manufacturers (NAM).

Dave Velazquez is executive vice president of Pepco Holdings Inc (PHI). He joined Delmarva Power in 1981 and advanced through management positions in engineering, operations and planning. Velazquez served as

Mark Crosswhite

president and CEO of Conectiv Energy. He served as vice president of strategic planning, where he was PHI chief risk officer. Velazquez has a Bachelor of Science in Engineering from Widener University. He serves on the boards of the Maryland Business Roundtable for Education and the Southeastern Electric Exchange.

Mark Crosswhite is Southern Co.’s COO. Crosswhite began his career there in 2004 as senior vice president and general counsel for Southern Co.’s generation organization. He later served as vice president and general counsel for Alabama Power before being named executive vice president of external affairs for Alabama Power. Crosswhite was elected president and CEO at Gulf Power in 2010. He earned a bachelor’s degree in 1984 from the University of Alabama and a law degree in 1987 from the University Of Alabama School Of Law.

Chris Gould is Exelon Corp.’s senior vice president of corporate strategy and chief sustainability officer. He has been with the company since 1999 and previously served as vice president of corporate strategy and Exelon 2020. Prior to Exelon, Gould was with Dames & Moore in engineering and project management roles in the environmental and infrastructure professional services sector. He began his career at EA Engineering

Chris Gould

as a project engineer working on federal, state and local government agency and public utility projects. Gould earned a bachelor’s degree in civil engineering from The Pennsylvania State University. He received his MBA in finance from the University of Pittsburgh.

Bob Powers is executive vice president and COO for American Electric Power Co. Inc (AEP). Powers joined AEP in 1998 as senior vice president of nuclear generation. From 2001 to 2003, he was executive vice president of nuclear and technical services. Powers also served as vice president and plant manager of Pacific Gas & Electric Co.’s Diablo Canyon Nuclear Generating Station. He is active in the Edison Electric Institute (EEI) and is chairman of the board for the Center for Energy Workforce Development (CEWD). He also served as a member of the National Nuclear Training Accreditation Board for six years until 2009. Powers served as a member of the Electric Power Research Institute (EPRI) board from 2002 to 2009. During his term at EPRI, he served as the chair of the compensation committee and as a member of the executive committee. Powers has

Bob Powers

a bachelor’s degree in biology from Tufts University and a master’s degree in radiological hygiene from the University of North Carolina.

ELP: Many industry insiders say investor-owned utilities need to make a lot of capital investment in generation, transmission, distribution and customer-facing technologies during the next 10 years to meet regulators’, customers’ and shareholders’ expectations. What technologies and projects will your utility invest heavily in during the next decade?

Kurmas: Over the next decade, Detroit Edison plans to continue its investments in maintaining and improving its electric generation fleet, distribution system and customer service operations, including billing and customer call centers. For example, in 2012 alone, Detroit Edison will invest more than $750 million to ensure the reliable delivery of power to customers and the efficient delivery of customer-support functions. Similar to many other utilities, Detroit Edison continues to invest in smart grid technology to provide operational efficiencies and enable other utility services such as demand-side management and plug-in electric vehicle support. We have installed more than 800,000 advanced meters and plan to reach 1.2 million by the end of next year.

Additionally, Detroit Edison will invest heavily in environmental control technologies to meet the ever-evolving environmental regulations. Detroit Edison has tested Dry Sorbent Injection (DSI) systems at several of our coal-fired plants. The results have shown that with DSI technology, the majority of the nonscrubbed units are able to economically comply with the Mercury and Air Toxics Standard (MATS). Including the ongoing flue gas desulfurization (FGD) and selective catalytic reduction (SCR) projects at our 3,000-MW Monroe Power Plant, Detroit Edison plans to invest more than $1.3 billion in environmental compliance technologies over the period of 2012-2016.

Finally, Detroit Edison will continue to invest in renewable energy projects to meet the state of Michigan’s 10 percent renewable portfolio standard. By the end of 2013, Detroit Edison will have invested $750 million in three major wind projects.

Southern Co.'s Nacogdoches Generating Facility near Saoul, Texas, represents a half-billion-dollar capital investment. The nation's largest biomass plant will deliver $58 million in taxes to the country over 20 years and provide some 40 permanent jobs.

Velazquez: Utility infrastructure, like a lot of other infrastructure in the United States, is aging and in need of replacement or renewal. Our first priority is to make sure that we are making the necessary investments in our basic infrastructure so we can provide safe, reliable and affordable service to our customers. There is nothing fancy about these investments—it is investing in the basic building blocks of our system. Along with that, we are well under way in bringing the smart grid to our customers, we are virtually done installing smart meters in the state of Delaware and the District of Columbia and are making great progress in our Maryland service territory. The smart grid is much more than smart meters. Advanced metering infrastructure, or AMI, will create a sophisticated network of automated digital devices that will deliver real-time data to help customers manage their energy use more efficiently and assist in the integration of distributed, renewable generation and electric vehicles. With a better understanding of their energy use, our customers can make informed decisions on how to manage and control their electricity consumption.

Additionally, smart meters help us to improve operations and outage response, making the electric system more self-healing. The list of opportunities that the smart grid is creating is quite extensive and exciting. The smart grid and all the benefits that it will bring our customers is our second area of focus for the next several years.

Crosswhite: Southern Co. is a portfolio in terms of generation. As we deliver the benefits of today’s record-low natural gas prices to our customers, we are continuing to diversify our fuel mix through investments in new nuclear, 21st-century coal, renewables and energy efficiency. We also are lowering emissions by applying environmental improvements to existing generation facilities. We are halfway through a 10-year, $14 billion construction project at Vogtle Units 3 and 4, the first new nuclear units to be built in a generation of Americans. As we expand our nuclear generating capacity, we’re also continuing to pursue a range of other generation sources, including the nation’s largest biomass plant in Nacogdoches, Texas, solar facilities in Nevada and New Mexico and a 21st-century coal technology plant in Kemper County, Mississippi. Southern Co. is also investing in smart technologies such as smart grid, but we’ve expanded the concept to smart energy. It’s taking a fuel source like coal, natural gas or nuclear, converting it to electricity, moving the electricity to a customer and redefining the way they think about and use it. So it’s the whole life cycle of generation to consumption. By improving the grid, enhancing customer-facing programs—including developing more robust energy-efficiency offerings and introducing smart meters—and becoming a leader in energy innovation, Southern Co. is making the best use of every energy dollar.

Gould: The electric utility industry expects to invest trillions of dollars in the coming decades to upgrade and maintain the nation’s electric infrastructure, so utilities must consider very carefully where to concentrate their long-term capital investments. Exelon is focused on investments that will grow the business in a way that is sustainable for its customers and communities, the environment and shareholders. Today, our sustainable growth strategy tells us that our best options are nuclear uprates, economic renewables and smart grid, so that is where our investments are focused.

Pepco Holdings Inc.'s Bay Regional Office is in Salisbury, Md. PHI is one of the largest energy delivery companies in the Mid-Atlantic region, serving about 2 million customers in Delaware, the District of Columbia, Maryland and New Jersey. PHI subsidiaries are Pepco, Delmarva Power, Atlantic City Electric, and Pepco Energy Services.

Powers: A lot of the investment in capital over the next decade will be directed toward retrofitting coal-fueled power plants where it makes sense, so we can meet the changing environmental regulations. We also will be investing in our transmission system, which will enable the efficient and optimal use of all types of generation. Regarding customer-facing technologies, a lot of our jurisdictions are considering what the next steps will be in the smart grid arena. It’s not yet clear whether the expense of the smart grid technologies is being offset by customer benefits or reduced costs.

ELP: It might take utilities 30 to 40 years to recover the cost of some of these large capital investments. It’s impossible to know what utilities will look like in 30 years, let alone what technologies they’ll use. How do you create plans that will help ensure existing and future investments will be operating when the utility has finally paid for them?

Kurmas: Customers expect utilities to consistently deliver safe, reliable and affordable energy products and services. For the past 100-plus years, with multiple waves of technological advancements, DTE Energy has leveraged those opportunities and made prudent investments to meet or exceed customer expectations. Our strategic plans and key processes around investment decisions are in place to ensure that our investments are prudent for the long term. Some of the key activities include performing rigorous scenario analysis in anticipation of technology advancement, benchmarking best practices in the industry, proactively participating in the development of industry standards and involving multiple stakeholders in the decision-making process.

Additionally, it is important to involve state regulators in long-term planning. This involvement includes helping keep them abreast of technology developments, industry trends and emerging regulations.

Velazquez: This is an unavoidable issue that every business faces. How does the automotive industry know that we will still be using internal combustion engines in 30 years when they invest in a new plant? One thing that I do know is that we won’t look the same in 30 years as we look today. Therefore, the key to creating any plan is to make sure that it includes the maximum amount of flexibility to accommodate a wide a range of future possibilities.

Crosswhite: The electric utility industry is one of the most capital-intensive industries in America. Often faced with normal economic horizons of 30 years or longer, investor-owned utilities must strategically plan for tomorrow’s energy needs while continuing to provide exceptional service and value today. Over its 100-year history, Southern Co. has established a reputation as an outstanding provider of clean, safe, reliable and affordable energy. We’ve earned this reputation by consistently operating a diverse generating fleet efficiently in terms of reliability, environmental impact and cost.

At Southern Co., we know a key to our success will be honoring our past and learning from our 100-year history while building for the future. In today’s climate, this means, in part, striking a balance between the desire to deliver the benefits of today’s natural gas prices and the need to avoid becoming overly dependent on any single fuel source, or as we call it, using all the arrows in the quiver. Anticipating, planning for and mitigating the potential impact of evolving environmental regulations will also be an important component of our business over the next 30 years.

In short, we must remain committed to acting in our customers’ best interests today while making the kinds of crucial decisions that will help shape tomorrow’s energy future.

Gould: Our investment strategy takes a long-term view and is guided in part by our Exelon 2020 strategy, which has set the goal for the company of eliminating the equivalent of its annual carbon footprint by 2020. Exelon achieved 80 percent of the goal as of the end of 2011. At the heart of the strategy is an annual analysis that tells us which clean energy options will give Exelon the greatest bang for its buck while ensuring a reliable energy supply in the decades to come. We incorporate the latest projections and intelligence for future energy demand and power prices, as well as the impact of factors such as inexpensive shale gas and the ever-changing energy policy and regulatory landscape. As the economic and policy picture shifts, we adjust our plans accordingly to help ensure the long-term viability of our investments. We consider a broad range of future scenarios in our planning to minimize risk and ensure that each investment makes the most long-term sense.

Powers: As chief operating officer, I put a lot of tension on the organization to make sure that depreciation schedules for our investments make sense in relation to the risk. For example, right now it appears that the risk related to coal plant projects is greater than it is for natural gas, so I’m going to push the organization to choose a shorter depreciation time on a retrofit for a coal plant, for example. This puts pressure on the near-term cost impact of that investment, but it reflects the risk and uncertainty of coal in today’s environment versus some of the other options for generation. Every organization just really needs to challenge itself to make sure that the assumptions made 10 or 20 years ago regarding the life expectancy of generation investments are consistent with today’s reality.

ELP: Natural gas prices are lower than they’ve been in many years. Some experts say this low price has impacted the electricity generation business in a big way, making it impossible for any other generation source (i.e., coal, nuclear, wind, solar and hydro) to compete. Many are concerned that the U.S. generation portfolio will not be diversified sufficiently and will be too dependent on natural gas. How is your utility planning to keep its generation portfolio sufficiently diversified?

Kurmas: Natural gas prices have moved significantly lower in the last year or so, and gas combined-cycle units are providing significant competition to other generation fuel sources such as coal in many areas of the country. However, it is important to distinguish the economics of existing generation with that of the cost of a new plant. Our plants operate under the Midwest Independent Transmission System Operator (MISO), and existing coal plants remain very competitive with gas. Our current fleet is 63 percent coal, 16 percent gas, 10 percent nuclear, 8 percent pumped storage and 3 percent renewable. While diversified, we have traditionally favored coal as one of the most economic sources of reliable baseload generation for our customers.

Going forward, we will move toward an even more diversified portfolio. First, in response to the Michigan legislated renewable portfolio standard—10 percent of sales by 2015—we will increase our utilization of renewables. Second, approximately 5 percent of our smallest, oldest coal units will retire due to the EPA MATS regulation. Third, for the longer term, we look to complete our nuclear Combined Operating License Application (COLA) process for Fermi 3 by the end of 2013, which will allow us to maintain a nuclear generation option for the future. Finally, we will continue to monitor the signposts for significant drivers that will ultimately determine our need and type of any new generation. These drivers, amongst others, include our load growth, energy efficiency effectiveness, natural gas price volatility, future generation cost and performance and future environmental regulation such as the greenhouse gas (GHG) emissions.

Velazquez: Pepco Holdings is no longer in the generation business. We do purchase energy for our customers who have not switched to a competitive supplier. It is done slightly different in each jurisdiction in which we provide utility service, but generally we purchase energy through an auction process from the wholesale competitive market and enter a series of contracts for duration of up to three years. In addition, a portion of the energy we purchase is mandated to come from renewable resources.

Crosswhite: Natural gas seems to be the fuel source everybody’s running to. We call it the “rush to gas.” Five years ago, Southern Co.’s energy production from natural gas hovered around 16 percent. That share is expected to grow to approximately 47 percent in 2012. Natural gas prices have fallen rather dramatically and we are committed to doing what’s best for the interests of our customers. We don’t need more regulations to make this transition happen. We are already doing it. As a leader in the industry, we do not have the luxury of reacting. Instead, we must always be proactive and future-focused. Part of maintaining a focus on tomorrow means avoiding a generation mix that is too dependent upon any one fuel source, particularly one as historically volatile as natural gas. So natural gas is important, but it’s not a comprehensive cure-all. Today we are investing in new nuclear, 21st-century coal, renewables and energy efficiency to continue building the full portfolio that will enable us to best serve our customers over time. Natural gas will remain an important part of that mix, but it is only a piece of the puzzle.

Now, who would believe that the largest power plant in AEP's system is named after a hardcore Democrat? Forty years ago, no one would have thought twice. That's because energy isn't a partisan issue. We all need power. We all want a clean environment. We all need good paying jobs.

Gould: Exelon’s recent merger with Constellation created the nation’s leading competitive energy provider and further diversified the company’s clean, low-cost generation portfolio, both by fuel source and geography. Exelon is now the nation’s No. 1 competitive power generator, with nearly 35,000 MW of generation capacity—including nuclear, natural gas, hydro, fossil and renewables—across 20 states and Canada. As a strong proponent of competition, Exelon believes that competitive electricity markets will incent it and other power generators to innovate and invest in the lowest-cost energy options and ensure electric system reliability. If permitted to work properly, we believe the markets will result in the right balance of generation sources and proper diversification of the nation’s energy mix, bringing value to customers and shareholders alike. In addition, Exelon’s sustainable growth strategy will drive the company to continue to diversify its generation fleet through economic clean energy investments.

Powers: At AEP, we continue to advocate for national energy policy that supports fuel diversity for electricity generation. In the near term, there are a lot of factors pointing toward natural gas for new generation. The capital cost to build a new natural gas baseload unit is one-third the cost of new coal and one-sixth the cost of new nuclear. Plus, the construction time is shorter and fuel is cheaper. Until we have comprehensive energy policy supporting diversity, it will be difficult to build any other type of electricity generation.

For existing generation, the capital has already been spent so it becomes a question of whether it can compete on the margin or not. On the margin, a lot of existing coal generation competes very favorably with new gas. Smaller, older coal plants are having a hard time competing against existing gas plants, but the bigger, more efficient coal units are going to compete well. With few exceptions, renewables require subsidies to compete. The wind production tax credit is set to expire at the end of the year, and it is unclear whether Congress will be willing to extend it given the pressures on the federal deficit.

ELP: Many states have legislation that encourages electricity consumers to generate their own electricity and sell any excess electricity to their utilities. This type of distributed generation is often called disruptive generation. How will disruptive generation impact power generation and grid operations at your utility, and how will you deal with its impact?

Kurmas: Michigan does have a legislated net metering program but with some limits on participation (less than 1 percent of peak). To date, utilization has been fairly limited with around 600 services with less than 5,000 kW of predominantly solar generation. We will continue to monitor the payback economics facing customers for these types of installations in Michigan but don’t see this becoming a major impact on power generation or grid operations. Typically, these self-generation options are not competitive with existing baseload generation and, therefore, will remain niche installations.

Velazquez: First, I would not characterize distributed generation as disruptive generation. Distributed generation, which most often takes the form of renewable energy in our area, is something that is being driven by our customers and their needs and wants. Nothing that a customer does is disruptive; meeting the needs of our customers is our reason for being in business. That being said, distributed generation is causing us to rethink how we build our electric grid. You can think of the electric grid as a one-way street from the central generating station to the customer. We are now introducing traffic flowing in the opposite direction onto a previously one-way street. We have to change to accommodate that. PHI has seen the biggest impact from distributed renewable generation, almost exclusively solar, in its New Jersey service territory. New Jersey regulations have mandated that in order to receive some of the incentives that are available through the state, the solar facilities needed to be connected to the distribution system. This has caused some large facilities that would normally be connected at a transmission voltage level to be connected at distribution voltages. We have had to close some areas to further distributed generation because of the impacts it could have on other customers. We are closely monitoring what happens during peak- and low-load times to better understand how we need to adapt, and we are working toward coming up with the best redesign for our system, including investigating the use of various storage technologies.

AEP's Smith Mountain Dam in Virginia is a pumped-storage project that uses an upper reservoir--Smith Mountain Lake--and a lower reservoir--Leesville Lake.

Crosswhite: Southern Co. supports the concept of distributed generation. Distributed generation does not have to be disruptive to grid operations if projects are planned and implemented with utility involvement. Cogeneration and heat and power facilities have been operating for years at customers’ plant sites, offsetting some of the electricity needs of the customers’ operations while allowing those customers to sell excess power to the local utility. More recently, companies such as Georgia Power have initiated Green Energy Programs designed to encourage customer distributed generation while minimizing ratepayer subsidization. This distributed electricity production is sold to Georgia Power at a premium rate and, in turn, delivered to customers willing to pay a premium for renewable energy. All customers realize the benefits of the Green Energy Program without a general increase in rates. Historically, the economics of distributed generation technologies have limited the amount installed on Southern Co.’s system. To this point, there has been no significant impact to grid operations. However, with technology and production efficiency improvements, distributed generation—solar in particular—could become a more viable power generation option in the future.

Southern Co. is currently participating in an Electric Power Research Institute initiative to study the effects of solar generation on the distribution electric grid in the Southeast. Southern Co. personnel are also actively engaged with industry groups to study the effects of a large volume of distributed generation on transmission and distribution systems. We are very optimistic that advances in smart grid technologies will enable utilities to be prepared for any issues resulting from these new generation sources.

Powers: At this point, in our service territory, we aren’t seeing much disruptive generation being used. In some locales, such as California, where there are different electricity pricing structures and more solar intensity, it is possible to argue that solar on peak is competitive. We just don’t see that yet in the states where we operate. Incentives that buy down generation technology costs could always make disruptive generation more competitive, but it’s a matter of public policy and somebody pays for those incentives – either other customers or as a form of tax. It remains to be seen what the appetite of the country is for those types of incentives.

ELP: For several years, we’ve heard about the mass exodus of human capital and the difficulties that utilities face replacing the lost work force. Is this an issue for your utility?

Kurmas: DTE Energy’s average age of our workers and forecasted attrition is similar to the utility industry as a whole. A 2011 industry survey conducted by the Center for Energy and Workforce Development (CEWD) reported that 36 percent of the utility industry was eligible to retire and the average age within the industry was 46.1. In comparison, DTE Energy’s projected attrition rate through the end of 2017 is 31.9 percent with an average age of 47.9. The issue of attrition is seen as an opportunity for DTE Energy, and much is being done within the company to maximize this opportunity. Within the next five years, backfilling natural attrition will yield a significant turnover of staffing. This volume of movement provides us with the ability to reshape our work force and actively recruit for the skill sets, knowledge and behaviors that will help DTE Energy reach its future aspirations. Our focus areas for the next few years include:

  • Aligning work force data analytics with enterprise planning and forecasting.
  • Prioritizing critical needs to minimize the risks of skill shortages in key talent pipelines.
  • Leveraging relationships with academic institutions to feed entry-level workers and increase employee skill sets.
  • Balancing experience ratios and executing knowledge transfer strategies.

Velazquez: Like many companies, we have an aging work force that in greater and greater numbers will be retiring. It is both a challenge and an opportunity to renew our work force with a new generation that brings new ideas and perspectives. That continued influx of diversity of thought is important to any business, especially one like ours where we have very low turnover. We are focused on making sure that we are able to transfer as much of the knowledge from the experienced individuals as we can. I think that the utility industry is more attractive today to potential employees than it has been for some time, due not only to the state of the economy (unlike many companies currently hiring) but also the influx of advanced technology into our business is making it more attractive. We are currently hiring across the board and actively recruiting for both the trades and professional ranks.

Crosswhite: Southern Co. and other utilities value a well-qualified, diverse work force. In fact, our company is a recognized leader in work force development in the utility industry. As such, Southern Co. partners with universities, technical colleges, the military and local, state and national agencies and associations on recruitment and career awareness initiatives. To ensure well-qualified employees are continually in place to provide reliable and affordable electricity, Southern Co. has implemented a variety of programs, including pay and benefit plans, recruitment and work force development initiatives, retention, leadership and employee development programs, and diversity and inclusion strategies. Our deep skills and high percentage of long-tenured employees are evidence of our success in providing a desirable workplace with competitive pay and benefits and ongoing development opportunities. People come to Southern Co. for a career, not just a job.

Gould: The retirement bubble that the industry has been hearing about for years is delayed because of the economy, but its arrival is inevitable, and all indications are that it will be more pronounced than before because of this pent-up backlog of potential retirees. Exelon’s strategy has been to plan for the future by staying committed to an active recruitment process. We continue to invest in and support our university relations and internship programs as pipelines for new hires—an approach that has served us well for more than a decade. And we continue to partner with local schools in the communities we serve for career days and other events. We also recognize that we must retain and develop the talent we have. We have been very strategic in maintaining programs that specifically address developing leaders from within the organization, always guided by our belief that we succeed as an inclusive and diverse team. Collectively, utilities need to promote our industry as an appealing sector in which to work. If we want to recruit the kind of people who seek a fast-paced environment where they can apply creativity and ingenuity to their jobs, then we need to convince them that they have such a place in our business.

Powers: We have heard of this mass exodus for a long time and due to several factors including the economic downturn, it has not come to fruition in any catastrophic way. But it is something that we need to keep our eye on and try to get in front of, and I think the industry is addressing it. I served as chair of the Center for Energy Workforce Development, which has done a lot to reach out to the education community, military and others to coordinate education programs and make sure state and federal incentives are linked up to the jobs that utilities have available. I think there is a potential issue out there, but I believe we will be able to find qualified people to fill the jobs when the need comes.

ELP: What are the top challenges you face as the operations executive?

Kurmas: The top challenge for DTE Energy currently and for the next few years is customer affordability. The absence of electric load growth driven by the recent economic recessions, coupled with increased generation investments to comply with environmental regulations and other mandates such as the renewable portfolio standard have resulted in significant pressure on customer affordability.

Secondly, the aging distribution and generation infrastructures pose an additional challenge. The distribution infrastructure requires conversion and modernization of the overhead system while the generation fleet requires control system and facility upgrades. Both infrastructures are faced with growing maintenance challenges while maintaining prudent capital expenditure levels and competitive rates.

Finally, customer satisfaction has become a major focus in recent years for many utilities. With increasing customer expectations, utilities’ focus areas need to expand from delivery of reliable and affordable power to include strategic investments in many customer-facing operations in order to ensure speedy resolution of customer issues, proactive communications with customers, as well as development of innovative, community-based energy programs to improve customers’ overall quality of life.

Velazquez: We are challenged by the need to renew our work force. Although this is often seen as a hard asset-driven business, in the end we will be successful based on the great people we are able to attract and retain. We are challenged by the need to enhance infrastructure. In recent years, customer growth has slowed, as has average use by customers. The usage trends are chiefly due to the slow economy and the success of energy conservation programs. At the same time, the utility is being called upon to invest heavily in the system for reliability reasons.

While the company has taken great efforts to control costs and has been as efficient as possible, in recent years, costs have risen faster than revenues. That can be a hard sell to customers and regulators. We are challenged by the need to meet the changing and increasing needs of our customers.

What was once an acceptable level of reliability and customer service is no longer. Customers have entered the digital age, and we are transforming our century-old electric system into a smart grid to meet their expectations, which are shaped by that as well. We are committed to meeting our customers’ expectations. Our first responsibility is to ensure our customers receive safe, reliable and affordable electric service.

Crosswhite: Amid increased uncertainty across the industry, it is important that we find ways to preserve all generation options, or all the arrows in the quiver. Southern Co. is focused on providing clean, safe, reliable and affordable energy to our customers, both now and in the future. We are also a leader in the construction of new generation. Continuing to provide a benchmark to the rest of the industry by bringing new generation online in an efficient manner is imperative to Southern Co.

Powers:

  • Rapidly changing environmental regulations from the EPA.
  • Low load growth that exacerbates the rate impact of capital investments.
  • Increasing expectations for reliability, balanced against how much customers are willing to pay for improvements to the system.

ELP: From an operations standpoint, what are your utility’s biggest opportunities?

Kurmas: The electric utility industry has entered a period of high capital expenditures on infrastructure, which will result in higher electric rates and increasing pressure on customer affordability. From an operations standpoint, our biggest opportunity transpires in our ability to further improve productivity through continuous improvement efforts, effective project management, a high-performing culture and highly engaged employees.

In addition, the changing natural gas industry and the resulting changing power market dynamics including sustained low market prices present unique opportunities for utilities to develop and execute generation strategies and operational tactics to maximize customer benefits in both the short and long term. Furthermore, utilities’ ability to strategically deploy limited capital while effectively leveraging technological advancements is essential for utilities’ long-term success.

Finally, a constructive regulatory and legislative environment presents another important opportunity for utilities to address their critical challenges going forward.

Velazquez: Our biggest opportunity is to actualize for our customers the many benefits of the smart grid. Our first responsibility is to remain focused on improving reliability and customer service, which I view as doing the basics of the business well and is critical for our customers. That includes adding Web-based technology, adding customer service representatives and increasing their training, replacing and upgrading electrical equipment, trimming trees and investing in a reliable smart grid. Our commitment is to continually and measurably improve.

Crosswhite: I believe that our greatest asset at Southern Co.—our people—also presents some of our biggest opportunities. Our culture fosters an environment of knowledge transfer, promoting bench strength and breadth of understanding.

We have a lot of exciting projects taking place within the operations organization, enabling our employees to learn and grow every day. Put simply, when our people excel, so does our company. Another great opportunity is presented through our ongoing research and development.

Southern Co. is on the leading edge of developing new generating and environmental technologies that will continue to move the industry forward in the coming years. We have the unique opportunity to help shape an evolving industry relied upon by virtually every American. It’s a huge responsibility that provides the chance to make a difference for our customers and our company.

Powers: The challenges we face can also be our biggest opportunities. We have an opportunity to invest capital and increase our earnings, but there needs to be a balance between the opportunities to grow earnings and the impacts on rates that they represent.

More in Home