This week, Louisville Gas and Electric Company and Kentucky Utilities Company told the world they needed money. They trumpeted the fact that environmental regs on coal are going to cost them a mint or two, to the tune of $2.5 billion. In fact, they plan to increase rates for power consumers by nearly 19 percent to cover those costs. (The fine print tells you that will occur slowly over the next five years, not be implemented the moment of approval.)
And cleaning up coal can be expensive: Scrubbers and baghouse systems don’t come cheap. ($1.4 billion for scrubbers and over a million for baghouse systems.)
Paul W. Thompson, senior vice president of energy services for the two utilities stated, "While costs continue to increase as a result of the federal EPA regulations, we are committed to providing our customers a secure energy supply in the least-cost manner. We have carefully studied the options to meet the stricter regulations and have developed a compliance plan that will least impact our customers and the Commonwealth.”
Thompson went on to hedge that statement, however, by explaining that a number of utilities will be hit with these regs at the same time, leading to high demand for materials, which could increase costs higher than their original estimates.
The rate announcement led to a small angry explosion by Kentucky governor Steve Beshear, who released an answering statement of his own in which he lamented “that too many Kentucky families are still struggling in this tough economy” so he’s just darn “disappointed that the federal government’s war on coal, which I am fighting against every single day, is now threatening to cause drastic utility rate increases.”
In fact, he called the regulations “mandates” and labeled them “unfair” and “unfunded,” along with “devastating” to the state’s coal industry.
The utilities say they cannot help but pass on these costs from these regulations, but they are keeping the costs as low as possible for consumers. The government says that these regulations are necessary to fight air pollution and global warming and allow those consumers a better quality of life, along with helping health, allergy and asthma issues. The governor says that he’s protecting the consumer by fighting those air pollution mandates---a fight no one believes he’s going to win. Can the consumer be equally protected by all?
And even the Kentucky Coal Association has been in this tussle over customer interest.
See, this fight isn’t new. Those regulations have been on the books, with the due date coming, for quite awhile. And coal-heavy utilities have been weighing just what to do with their newly expensive (formerly cheap) generation sources that rely on those chunky black squares. But, no one really saves for this sort of thing; that’s what rate increases are for.
In fact, just last month the same two utilities discussed here hinted that they might switch some of their older coal plants over to natural gas to save money for that consumer, a move that brought another angry response, this time from Kentucky Coal Association president Bill Bissett who stated a firm belief that it’s still much cheaper to retrofit coal than to switch to gas and that he believes coal power will be around for “generations to come.”
The current release on the expected rate increase doesn’t include the direct statement that natural gas may take over the plants they want to close, but it does reinforce the concept that closing three plants is more than possible, it’s highly probably.
In the end, the regulations will not be removed, despite the governor’s protest. And, the utilities will likely get a percentage (or all) of what they are requesting for a rate increase. (For 2012, that’s about 2 bucks a month per bill.)
I’m curious, though, about where the Kentucky power consumer falls in this equation. Does he feel protected by the utilities, the feds, the governor or the association? And, does he want to fork over an extra 2 bucks a month for cleaner air to breathe, or does he think the costs should be born by stakeholders and not him?
One local TV channel’s website covered the rate news and quoted the company spokesman heavily as pointing a finger at the government and literally saying they were “forced” to do this and “we don’t have a choice.” But, I’m not sure their consumers believe that.
One comment on the article noted that “upgrades” to his own house and car came out of his own pocket. So, he didn’t understand why those costs were being passed along to him. Also in the comments section: pleas for better customer service if the rates go up, for executives of the utilities to take a pay cut rather than upping the rates on struggling consumers, and confusion about why these costs don’t come out of the utility’s profits
So far, it seems, the utilities will bear the brunt of consumer anger about being so thoroughly protected, not the government, a position I’m sure the utilities were hoping desperately to avoid.
Thursday, May 26, 2011
Thursday, May 19, 2011
The NERC CIP evolution
The North American Reliability Corp.’s critical infrastructure protection rules (NERC-CIP) continue to impact power utilities. That is about to change, but not lessen. It’s only bound to get more detailed and restrictive as NERC CIP grows and adapts to the industry and the smart grid.
“Security and compliance are spelled differently in the English language because they actually mean different things,” said Tim Roxey, director of risk assessment and technology division for the North American Reliability Corp. at a session during the UTC Telecom Conf. in Long Beach May 10-13, 2011.
“We have a culture of compliance when we should really have a culture of security,” he added, noting the continuing discussion about whether adhering to the CIP rules really makes a utility more secure. But, Roxey said, the industry needs to work with what it’s got at the moment, which is compliance and that’s where NERC CIP comes into the related security equation.
They’re starting with compliance and hoping to evolve into real security protection as versions change to meet smart grid needs. That process can be painful, complex and problematic. But, there has been progress.
“Do I really gotta? Yeah I really gotta,” Roxey joked, rolling through a short history of the CIPs.
“When I started in this industry, the communications infrastructure was a guy named Joe who basically lived in the substation and had a phone,” he said. “Now it’s this incredibly complex system.”
“It’s almost impossible for a company to remain compliant, let alone secure, because of the complexity,” Roxey said, noting that the complexity moves past just communications and that guy named Joe to all other areas covered by CIP.
Details and differences are the history of NERC CIP, noted the panelist that followed Roxey. And those differences and details created the complexity issue, which is connected to the compliance versus security argument.
“NERC CIP is all about compliance and not about security,” said Jerome Farquharson, practice manager at Burns and McDonnell. “Eighty to 90 percent of what a utility is doing with NERC CIP is paperwork.”
“Compliance doesn’t necessarily make you secure,” Farquharson added. “But, as we grow and change, we are trying to put more emphasis on security.”
Farquharson noted clarity about critical assets---what they are and where they start and stop in the utility structure---is a huge dream of the industry, though the standards haven’t quite gotten to that point of clarity yet. But, both Farquharson and Roxey do see that clarity coming.
So, NERC CIP is growing, and perhaps having a few pains with that cultural evolution. But, what a utility needs to focus on is what’s in front of them right now.
“At the end of the day, it is what it is,” Farquharson said, stressing that compliance is required, despite some issues with clarity. “We may not like the system. That’s fine, but we need to do it.”
Farquharson does see NERC CIP becoming the “de facto” standard in this area. So, a utility shouldn’t expect the standards to just go the way of the dodo.
Perhaps someone should call Joe down at the substation and make sure he has a pencil.
This is an excerpt from a longer article scheduled for the August issue of POWERGRID International magazine.
“Security and compliance are spelled differently in the English language because they actually mean different things,” said Tim Roxey, director of risk assessment and technology division for the North American Reliability Corp. at a session during the UTC Telecom Conf. in Long Beach May 10-13, 2011.
“We have a culture of compliance when we should really have a culture of security,” he added, noting the continuing discussion about whether adhering to the CIP rules really makes a utility more secure. But, Roxey said, the industry needs to work with what it’s got at the moment, which is compliance and that’s where NERC CIP comes into the related security equation.
They’re starting with compliance and hoping to evolve into real security protection as versions change to meet smart grid needs. That process can be painful, complex and problematic. But, there has been progress.
“Do I really gotta? Yeah I really gotta,” Roxey joked, rolling through a short history of the CIPs.
“When I started in this industry, the communications infrastructure was a guy named Joe who basically lived in the substation and had a phone,” he said. “Now it’s this incredibly complex system.”
“It’s almost impossible for a company to remain compliant, let alone secure, because of the complexity,” Roxey said, noting that the complexity moves past just communications and that guy named Joe to all other areas covered by CIP.
Details and differences are the history of NERC CIP, noted the panelist that followed Roxey. And those differences and details created the complexity issue, which is connected to the compliance versus security argument.
“NERC CIP is all about compliance and not about security,” said Jerome Farquharson, practice manager at Burns and McDonnell. “Eighty to 90 percent of what a utility is doing with NERC CIP is paperwork.”
“Compliance doesn’t necessarily make you secure,” Farquharson added. “But, as we grow and change, we are trying to put more emphasis on security.”
Farquharson noted clarity about critical assets---what they are and where they start and stop in the utility structure---is a huge dream of the industry, though the standards haven’t quite gotten to that point of clarity yet. But, both Farquharson and Roxey do see that clarity coming.
So, NERC CIP is growing, and perhaps having a few pains with that cultural evolution. But, what a utility needs to focus on is what’s in front of them right now.
“At the end of the day, it is what it is,” Farquharson said, stressing that compliance is required, despite some issues with clarity. “We may not like the system. That’s fine, but we need to do it.”
Farquharson does see NERC CIP becoming the “de facto” standard in this area. So, a utility shouldn’t expect the standards to just go the way of the dodo.
Perhaps someone should call Joe down at the substation and make sure he has a pencil.
This is an excerpt from a longer article scheduled for the August issue of POWERGRID International magazine.
Thursday, May 12, 2011
LIVE FROM UTC TELECOM: Let's look at data centers
Before a utility can discuss data security with a customer, it has to have and hold the data itself. Data was the centerpoint of all the sessions at UTC Telecom 2011 in Long Beach May 10-13. From use to security, it was all about those small little slices of very important information.
During the case study on data centers on Wed., May 11, experts questioned whether current data centers have the capacity to support the data that’s about to hit with the smart grid, specifically smart metering and demand response pilots and programs---all that information that impacts a consumer.
“We’re adapting our infrastructure for a very bright smart grid future,” said Bud Voss, chief technology officer at Comverge during the session. “Our data center needs and our back office needs are ever-changing.”
Comverge works with more than 500 utilities and with data needs for communications and the smart grid. Comverge currently operates a data center in Pennsylvania for their demand response program, though they are now building a main location in Atlanta, leaving the Pennsylvania operations as a back-up.
With the smart grid, there is a shift in data collection from one-way to two-way with info coming in and going out every 15 minutes. Voss noted that this creates a massive change, and, now, Comverge needs to analyze business data in real time, which requires expansion.
Comverge suggests adopting an architectural approach to improve security and scalability with the bigger and better data center the smart grid may require. This new and shiny process is all about creating a solid grid design capable not just of data use and sorting but takes into account potential disaster issues and even federal requirements like NERC CIP.
“You have to allow for access points and higher levels of traffic with the smart grid,” said Sanket Amberkar, senior manager of smart grid with Cisco Systems, which worked with Comverge on the data center update. Amberkar also stressed a need for robustness in this type of system and making sure they are scaled even with field deployments.
So, the first step to securing that customer data starts with making sure your data center is up to snuff.
Wednesday, May 4, 2011
Constellation-Exelon merger creates a few concerns
Last week, the boards of Exelon Corp. and Constellation Energy trumpeted their potential merger. Technically, since Exelon gets to keep their name and their headquarters and be the big boy, it’s a bit more like Constellation’s being swallowed up or virtually erased---although both companies claim they will retain the Constellation brand and keep it in Baltimore. (But, with the Exelon crowd getting the lion’s share of the stake in the combined company, it’s really Exelon’s game.)
The new company will control more than 34 GW of big, bad power with a generation mix of about 55 percent nuclear, 24 percent natural gas and about 8 percent renewable. Constellation currently controls about 12,000 MW of generation capacity, and the company delivers electricity through the Baltimore Gas and Electric Co., its regulated utility in Central Maryland.
Before this merger can reach the proposed 2012 finish line, a lot of companies, regulators and people in general will need to be placated. First, the blending must be approved by the stockholders of both Exelon and Constellation, and will the Constellation people be happy with a final stake around 30%? (Analysts have noted, however, that they consider this a better deal for Constellation’s shareholders than Exelon’s. So, perhaps they are thrilled with their 30%.)
Then, the merger has to get a stamp of approval from a bevy of government regulators, including the Federal Energy Regulatory Commission (FERC), the Nuclear Regulatory Commission (NRC), the Maryland Public Service Commission, the New York Public Service Commission, the Public Utility Commission of Texas, and a handful of other players.
Both groups have tried to head off potential issues at the pass. First, they’re dumping some coal-fired plants in Maryland to ward off possible calls of old-school monopoly (mostly because Exelon has some generation stuff in the PJM area, too). And, the companies have said that the individual utilities will feel little adverse effects with the merger.
BGE, ComEd and PECO will remain headquartered in Baltimore, Chicago and Philadelphia, respectively. And the companies claim that the merger will “benefit customers as all three utilities work together to share best practices to continually improve performance.”
But, no matter how hard they worked to mitigate the response, not everyone is a happy camper. According to the local Baltimore press, there’s a union-backed coalition already protesting the potential deal. While it has been widely reported that this combination would effectively eliminate the last Fortune 500 company in the city, what the coalition seems most concerned with isn’t the large overarching umbrella of Constellation and its Fortune status, but the local utility BGE.
In a press release, the coalition noted that BGE customers would get a single $100 credit with the merger but would not get protections against “already high bills” that they fear could be raised after the deal is finalized.
The mayor of Baltimore has said she’s all for the deal, believing it will bring in more jobs. But, the governor isn’t so sure.
While the state of Maryland isn’t actively protesting the merger like the union coalition in Baltimore, Governor Martin O’Malley made it pretty clear that he’d be keeping an eye on the proceedings, watching how it would impact his state’s ratepayers.
Given the concerns over outcome, the sheer number of regulators to please and the bad track record Constellation has for trying to market itself, things could get very messy. After all, it has tried this before, unsuccessfully with both Florida Power and Light and MidAmerican Energy and partially successfully (on the nuclear side) with EDF.
Will this merger idea with Exelon be the charm?
The new company will control more than 34 GW of big, bad power with a generation mix of about 55 percent nuclear, 24 percent natural gas and about 8 percent renewable. Constellation currently controls about 12,000 MW of generation capacity, and the company delivers electricity through the Baltimore Gas and Electric Co., its regulated utility in Central Maryland.
Before this merger can reach the proposed 2012 finish line, a lot of companies, regulators and people in general will need to be placated. First, the blending must be approved by the stockholders of both Exelon and Constellation, and will the Constellation people be happy with a final stake around 30%? (Analysts have noted, however, that they consider this a better deal for Constellation’s shareholders than Exelon’s. So, perhaps they are thrilled with their 30%.)
Then, the merger has to get a stamp of approval from a bevy of government regulators, including the Federal Energy Regulatory Commission (FERC), the Nuclear Regulatory Commission (NRC), the Maryland Public Service Commission, the New York Public Service Commission, the Public Utility Commission of Texas, and a handful of other players.
Both groups have tried to head off potential issues at the pass. First, they’re dumping some coal-fired plants in Maryland to ward off possible calls of old-school monopoly (mostly because Exelon has some generation stuff in the PJM area, too). And, the companies have said that the individual utilities will feel little adverse effects with the merger.
BGE, ComEd and PECO will remain headquartered in Baltimore, Chicago and Philadelphia, respectively. And the companies claim that the merger will “benefit customers as all three utilities work together to share best practices to continually improve performance.”
But, no matter how hard they worked to mitigate the response, not everyone is a happy camper. According to the local Baltimore press, there’s a union-backed coalition already protesting the potential deal. While it has been widely reported that this combination would effectively eliminate the last Fortune 500 company in the city, what the coalition seems most concerned with isn’t the large overarching umbrella of Constellation and its Fortune status, but the local utility BGE.
In a press release, the coalition noted that BGE customers would get a single $100 credit with the merger but would not get protections against “already high bills” that they fear could be raised after the deal is finalized.
The mayor of Baltimore has said she’s all for the deal, believing it will bring in more jobs. But, the governor isn’t so sure.
While the state of Maryland isn’t actively protesting the merger like the union coalition in Baltimore, Governor Martin O’Malley made it pretty clear that he’d be keeping an eye on the proceedings, watching how it would impact his state’s ratepayers.
Given the concerns over outcome, the sheer number of regulators to please and the bad track record Constellation has for trying to market itself, things could get very messy. After all, it has tried this before, unsuccessfully with both Florida Power and Light and MidAmerican Energy and partially successfully (on the nuclear side) with EDF.
Will this merger idea with Exelon be the charm?
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