Slow start for Duke Energy CEO Jim Rogers’ big plans

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.

March 7, 2009

New York Times Op-Ed Contributor

Home-Grown Power

By IAN BOWLES

Boston

PRESIDENT Obama has laid out an ambitious agenda for dealing with our energy needs and climate change: he proposes to double the supply of renewable energy within three years, establish a cap-and-trade program to reduce carbon emissions and use federal stimulus dollars to help homes, businesses and governments use energy more efficiently. This is the right blueprint for increasing the number of green jobs, encouraging economic growth, ensuring that the United States has the energy it needs at reasonable prices, and reducing the risk of global climate change.

But as Congress translates this grand plan into legislation, lawmakers should resist calls to add an extensive and costly new transmission system that would carry electricity from remote areas like Texas, the Great Plains and Eastern Canada to places with high energy demands like Boston, Chicago and New York. This idea is being promoted by energy companies and by elected officials who see it as an economic development opportunity for their particular state or region. Long-distance transmission lines are needed, they argue, to ensure that the president’s energy goals are met.

But there are better — and cheaper — ways to get more clean power flowing to the big cities.

Renewable energy resources are found all across the country; they don’t need to be harnessed from just one place. In the Northwest, the largest amount of green power comes from hydroelectricity. In the Northeast, the best source may be the wind over the ocean, because it blows harder and more consistently there than on land. Offshore wind farms have been proposed for Delaware, Massachusetts, New Jersey and Rhode Island. In the Southwest, solar energy can be tapped on a large scale. And in the Southeast, biomass from forests may one day be a major source of sustainable power. In each area, developing these power sources would be cheaper than piping in clean energy from thousands of miles away.

Unlike our federal highway system, which is needed to transport goods across the country, or the “information superhighway” of the Internet, which is the fastest way to carry information around the world, long-distance transmission lines have no inherent value. On the contrary, the farther electricity is transported, the more of it is dissipated. “Line loss,” as this is called, gobbles up an estimated 2 percent to 3 percent of electricity nationally.

And of course, the longer the power line, the more expensive it is to build. In New England, we estimate the cost per mile at $2 million to $10 million. The closer electricity is generated to where it’s used, the better.

Another component of President Obama’s clean energy vision is the creation of a smarter power grid. But that has little to do with high capacity transmission lines that carry electricity in bulk over hundreds of miles. Building a “smart grid” means upgrading the local grid from a simple delivery system to an information system that can let consumers know the times when power is cheapest, thus enabling them to adjust their use to save money. This flattens out electricity loads and minimizes periods of peak demand. Smart grids will also be able to identify and fix power failures instantly, and someday may even send signals to specific household appliances like thermostats, washing machines and refrigerators to switch them on when demand is low or turn them off during times of peak energy use.

The cost of building transmission lines to connect new power plants to the grid ought to be covered the way we cover it in the Northeast, by folding it into the price of the power that the lines deliver. That allows the market to help keep prices as low as possible.

In Massachusetts, we get about 5 percent of our power from hydroelectric plants in Quebec. Our distribution utilities are negotiating to install a second transmission line for Canadian hydropower, which would be paid for through long-term power-purchase contracts approved by the New England states whose residents use that power. Developers of remote wind-power farms in eastern Canada have said they would also like to sell us electricity, but unless the combined cost of the power they could provide and its transmission is competitive with our other renewable energy choices, their projects won’t get approved. That’s the way it should be.

For a clean energy future, we need a smart grid and we need more renewable energy. The Obama administration is offering welcome support for both. Beyond that, what we need is a level playing field that enables energy providers to compete fairly with one another. The cost of transmission should be incorporated into the overall cost of bringing clean energy to market. Then let the chips fall — and wind turbines rise — where they may.

Ian Bowles is the secretary of energy and environmental affairs for Massachusetts.