Friday, May 21, 2010 | Modified: Tuesday, May 25, 2010
Charlotte Business Journal - by John Downey Senior staff writer
Four years into an avowed effort to change the utilities-industry business model, Jim Rogers’ report card is filled with incompletes.
Observers give the Duke Energy Corp. chief executive high marks on vision and theory. He also scores well on visibility as his reputation has grown considerably since arriving at Duke four years ago.
That reputation is largely deserved, says John Gartner, a senior analyst with Pike Research, which follows the new energy industry.
“For the head of a big utility that makes its profits from traditional energy, he is perceived as being outside the industry norm and more in line with people with environmental concerns,” Gartner says. “I think he is making progress, but it’s going much slower than he or the company might like.”
That judgment isn’t universal, however.
“They shouldn’t be in the mode of just selling kilowatts — I agreed that he’s got the proper frame for the issue,” says Stephen Smith, executive director of the Southern Alliance for Clean Energy. “But I don’t have the sense that he is leading in that in a big way as much as maybe his rhetoric would indicate.”
Rogers has been clear on what he views as the future model. The industry must decarbonize, decentralize and sell energy efficiency as well as energy.
And he thinks Duke can lead the way.
But Duke’s ambitious Save-A-Watt initiative, giving power companies incentives to promote conservation and energy efficiency, got trimmed considerably in all five states the company serves. Indiana regulators have given a clear “go slow” sign on Duke’s efforts to push smart-grid programs to improve transmission efficiency and promote energy-control technology into customers’ homes.
In North Carolina, Duke proposed a modest foray into distributed energy that could move the company away from total dependence on large centralized plants. But state regulators cut in half its $100 million program to install solar panels on customer rooftops.
“It’s going to be a messy process,” Rogers concedes as he surveys how far Duke has been able to deliver on his vision. “You’re not going to always get what you want. And you are not always going to get even part of what you want when you want to get it.”
To expect strong operational results already on programs such as Save-A-Watt and smart grid would be expecting a lot. But even setting up the framework — regulatory, legislative and even internal — has been slow, observers agree.
John Buckley, who works in Charlotte for Power Plant Management Services Inc., says the recession has undoubtedly played a role in slowing initiatives in the energy sector.
State utility regulators and legislatures have become less open to experiments in rate structures and other initiatives as costs have become a bigger issue. And inside Duke itself, Buckley says, business constraints can make change a hard sell.
“It is probably unfortunate for Rogers that he really got his feet under him just about the time that the economy has slowed down,” he says. “If I was scoring him on how much he has accomplished, I would have to take into account the backdrop he’s operating in.”
Rogers says he isn’t discouraged. Partial victories are the nature of the business, he notes. “In West Texas, they say the pioneers get the arrows; the settlers get the land. In many senses of the word, we are pioneers.”
But he wants the land as well. In talking about his partial victories, he emphasizes the victory. Indiana cut Duke’s smart-grid proposal in half. But Ohio approved the whole proposal. North Carolina cut the solar program. However, “we move forward as best we can with the approval we got, and we prove the program,” he says.
The fight over Duke’s Save-A-Watt initiative has been typical of the fitful progress.
Within months of his becoming CEO when Duke bought Cinergy Corp. in 2006, Rogers began talking about making conservation and efficiency a profit center. Duke filed a proposal in North Carolina in spring 2007 to essentially make the same return on energy it saved as it did on energy it sold.
But regulators had doubts about how that fit into state laws governing the financial returns for utilities. Consumer and environmental groups that generally supported efficiency also had reservations.
The Southern Alliance for Clean Energy, based in Tennessee, took a leading role in challenging Duke’s initial proposal. Analysts with that group contended the program could lead to unjustified profits for Duke.
As the push faltered in North Carolina, Duke proposed Save-A-Watt in South Carolina, Ohio and Indiana. The company finally reached a compromise in Ohio late in 2008 that capped potential profits and cut its rate of return. That became the model adopted in each of the states Duke operates in.
Smith, the Southern Alliance for Clean Energy director, gives Rogers credit for moving Duke along on efficiency issues. But he disputes the idea that Rogers and Duke are national leaders on such issues. He ranks them toward the bottom on the national scale.
Even in the efficiency-challenged Southeast, Smith says Florida’s utilities have shown more innovative spirit. And several municipal power companies are well ahead of Duke. He says some, such as Georgia’s Southern Co. and Progress Energy Carolinas may lag more than Duke. But doing well in a slow class, as Smith put it, does not make Duke a showcase utility. “I know he’s turning a battleship. But he’s still been there long enough that if he was really going to be a revolutionary in the industry, you would see some action matching his words.”
While some doubt Rogers’ commitment to efficiency and sustainability issues, Gartner — the Pike Research analyst — sees evidence that it is real.
Where Duke can act without the need for regulatory approval, for instance, it has weighed in on the side of new initiatives. It has committed to buying electric vehicles for its fleet. And Duke’s largest investments in renewable energy have come at its unregulated Duke Energy Generation Services, which develops and operates power plants for commercial clients. DEGS ranks No. 10 in wind-power capacity in the United States.
In addition, Duke has started investing in solar farms and has a joint-venture agreement with Chinese company ENN Group to develop solar projects.
Regulators — and the regulated side of the business — will come around, Gartner thinks.
“But it’s a contentious issue all public utility commissions are facing, and the companies are facing themselves,” he says. “There is an upfront cost for renewable energy. How do you provide for a return for investors when you make that shift? And how do you incent public companies to sell less of their product?”
Rogers says Duke will make progress step by step, despite resistance to change.
“If you have the vision and you believe in it and you believe it’s good for your customers and it’s good for your state and it’s good for your country, the fact that you get your nose bloodied, that is just part of being in the process.”
This article brought to you by the Indiana Renewable Energy Association.
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