Tuesday, May 27, 2008 - 2:30 PM EDT
Duke Energy seeks to modernize power delivery systemBusiness First of Louisville
Under a plan proposed Tuesday, Duke Energy Indiana will modernize its power delivery system, including installing digital "smart meters" on the more than 800,000 homes and businesses it serves in its 69-county service area over a five-year period.
In the plan, filed with the Indiana Utility Regulatory Commission, Duke said the meters would have two-way communication capabilities, allowing Duke to read meters from a central location rather than using meter readers.
The move also would allow the utility to reduce voltage levels along its power delivery system, with no customer impact, allowing Duke to conserve enough energy to power an additional 40,000 homes for a year.
In a news release, Duke Energy (NYSE: DUK), also said it plans to add sensors along transmission lines that could detect and prevent power line troubles or outages before they happen.
North Carolina-based Duke said in the release that it would release more details, including cost estimates, in June.
The company also said that it has plans for similar initiatives in Ohio, Kentucky, North Carolina and South Carolina "in the future."
Tuesday, May 27, 2008
Electricity Users Would Have to Pay for Smart Meters Under Plan
Electricity Users Would Have to Pay for Smart Meters Under Plan
Posted on: Thursday, 22 May 2008, 21:00 CDT
By Elizabeth Souder, The Dallas Morning News
May 22--Oncor Electric Delivery Co., a unit of Energy Future Holdings, wants to install a new, high-tech electricity meters in every home and business in North Texas by 2012.
If regulators approve the plan, residential customers would have to pay around $2.35 per month for the next 11 years for their new meters.
The regulated power line company says the meters can collect so much data about how customers are using electricity that most customers can use the meters to help trim their usage by around 5 percent. That's enough to cover the monthly meter fee.
"Consumers will be able to see how much electricity they use throughout the day and, using that information, make smarter decisions about how they consume electricity and when, in order to save money on their electric bills," said Oncor chief executive Bob Shapard in a statement.
Oncor said in a press release Thursday it aims to install 3 million of the advanced meters in North Texas. Company spokesman Chris Schein said the project will cost around $690 million.
Oncor plans to file the plan with the Public Utility Commission next week, he said. The commission must approve the plan before Oncor may charge customers for the meters.
If the commission agrees to the plan, every Oncor customer will get a new meter, like it or not.
The commission has instructed regulated power line companies to upgrade to high-tech meters, sometimes called "smart meters," that can transmit information about customer usage throughout the day. Mr. Schein said the meters Oncor chose meet all of the PUC's requirements.
With the information the meters collect, retail electricity companies, such as TXU Energy or Reliant, can offer new customer products. For example, a retailer could charge customers a higher price for power used during peak hours of the day.
Some retailers say they will offer home electricity monitors, allowing customers to see their usage real-time, and control their electricity costs before the monthly bill arrives.
The meters will also allow Oncor to detect outages remotely, and help the company fix problems more quickly.
The company had proposed a different plan for deploying new meters involving broadband-over-power line service. That idea collapsed earlier this month when Oncor announced it bought all of the BPL equipment from its partner, Current Communications.
Current had planned to work with Oncor to install BPL meters in 2 million North Texas homes, allowing people to sign up for Internet service through their electricity wires. Now, the Internet service won't be available at all.
Posted on: Thursday, 22 May 2008, 21:00 CDT
By Elizabeth Souder, The Dallas Morning News
May 22--Oncor Electric Delivery Co., a unit of Energy Future Holdings, wants to install a new, high-tech electricity meters in every home and business in North Texas by 2012.
If regulators approve the plan, residential customers would have to pay around $2.35 per month for the next 11 years for their new meters.
The regulated power line company says the meters can collect so much data about how customers are using electricity that most customers can use the meters to help trim their usage by around 5 percent. That's enough to cover the monthly meter fee.
"Consumers will be able to see how much electricity they use throughout the day and, using that information, make smarter decisions about how they consume electricity and when, in order to save money on their electric bills," said Oncor chief executive Bob Shapard in a statement.
Oncor said in a press release Thursday it aims to install 3 million of the advanced meters in North Texas. Company spokesman Chris Schein said the project will cost around $690 million.
Oncor plans to file the plan with the Public Utility Commission next week, he said. The commission must approve the plan before Oncor may charge customers for the meters.
If the commission agrees to the plan, every Oncor customer will get a new meter, like it or not.
The commission has instructed regulated power line companies to upgrade to high-tech meters, sometimes called "smart meters," that can transmit information about customer usage throughout the day. Mr. Schein said the meters Oncor chose meet all of the PUC's requirements.
With the information the meters collect, retail electricity companies, such as TXU Energy or Reliant, can offer new customer products. For example, a retailer could charge customers a higher price for power used during peak hours of the day.
Some retailers say they will offer home electricity monitors, allowing customers to see their usage real-time, and control their electricity costs before the monthly bill arrives.
The meters will also allow Oncor to detect outages remotely, and help the company fix problems more quickly.
The company had proposed a different plan for deploying new meters involving broadband-over-power line service. That idea collapsed earlier this month when Oncor announced it bought all of the BPL equipment from its partner, Current Communications.
Current had planned to work with Oncor to install BPL meters in 2 million North Texas homes, allowing people to sign up for Internet service through their electricity wires. Now, the Internet service won't be available at all.
SmartGridCity in Boulder won't include Internet
Friday, May 23, 2008
Denver Business Journal - by Greg Avery Denver Business Journal
A game-changing technology sending high-speed Internet and communications over powerlines instead of telephone or cable television wires is at the core of the $100 million SmartGridCity program Xcel Energy started May 12 in Boulder.
The utility's main contractor, Current Group LLC -- a company that counts John Malone's Englewood-based Liberty Media, Google Inc., Earthlink Inc., Duke Energy Corp. and Goldman Sachs among its investors -- has led the domestic push for broadband-over-powerline (BPL) in the United States.
But Xcel doesn't plan to offer Current Group's BPL for Internet. Instead, Xcel is using the technology to make the power grid in Boulder a two-way communications system capable of detecting problems on powerlines, manage electricity more precisely -- potentially even down to household devices -- and give customers the ability to tailor their electricity use and make it more "green."
The Minneapolis-based utility (NYSE: XEL) will wire Boulder's 50,000 households with "smart" utility meters, and put sensors in transformers around the city and connect them to a control center. The system will let customers check the details of their power use through a website and, eventually, "program" their homes to minimize consumption and use power more when it's being generated by renewable resources.
"This is a response to what people have been asking for a long time," said Ethnie Groves, an Xcel spokeswoman.
After failures to fulfill its promise as a broadband alternative to fiber optic and cable television networks, BPL is finding new life in "smart grids."
Germantown, Md.-based Current Group is one of the more high-profile companies developing the technology. Current will install transformers on Xcel's powerlines to ethernet cable, install devices at the transformer that can pull digital data traffic from the raw electricity in the lines and hook Boulder homes to the smart grid through a new meter that acts like a modem.
About 15,000 Boulder homes should be connected by August, with the rest of the city's electrical meters transformed by year-end.
Xcel immediately will gain the ability to detect localized problems, such as a tree brushing a powerline, and do something to prevent an outage instead of relying on customers to call about a downed line.
"This gives them a predictive maintenance system as opposed to the run-to-failure systems that's state of the art today," said Brendan Herron, vice president of corporate development and strategy for the 275-employee Current Group.
Eventually, Xcel could have the ability to stagger the cycles of air conditioners in a neighborhood to keep demand down or to change the settings of home thermostats by a degree or two to achieve a broad reductions in demand.
What the system won't do is connect customers to the Internet on Xcel lines. But it could. Current Group says its BPL is capable of Internet speeds up to 8 megabits per-second for upload and download, slightly faster than the broadband speeds cable TV offers.
"The technology works well; it mainly depends on the regulatory environment and whether the utility is interested," Herron said.
About 50,000 households in Cincinnati get Internet from Current Group in partnership with the utility Cinergy. Current's biggest project has been with Texas utility Oncor, formerly TXU.
The Texas project involved installing a smart grid for the electric company in return for using its power system to offer broadband to the entire Dallas-Fort Worth area of 1.8 million households. Current Group partnered with satellite broadcaster DirecTV Group Inc.-- which Liberty Media (NASDAQ: LCAPA, LCAPB) controls -- to offer television, Internet and Voice-over-Internet Protocol telephone bundles. Satellite TV companies have long sought a broadband technology, which would let them compete better with cable television and telecom giants.
But Oncor announced May 2 that it will pay Current Group $90 million to buy the equipment so far installed on its smart grid. The utility system no longer would offer Internet services or TV, but would license the SmartGrid from Current and use it to manage its system. An Oncor spokesman told the Dallas Morning News the company had no interest in becoming a telecommunications company.
Current Group is content to focus on making power grids more intelligent networks, Herron said.
The smart grid technology has been encouraged by acts of Congress and has drawn interest from some the nation's biggest investors.
The Electrical Power Research Institute has estimated that smart grid technology could reduce electricity production by 10 percent domestically and cut electricity-related greenhouse gas emissions by 25 percent.
Friday, May 23, 2008
Denver Business Journal - by Greg Avery Denver Business Journal
A game-changing technology sending high-speed Internet and communications over powerlines instead of telephone or cable television wires is at the core of the $100 million SmartGridCity program Xcel Energy started May 12 in Boulder.
The utility's main contractor, Current Group LLC -- a company that counts John Malone's Englewood-based Liberty Media, Google Inc., Earthlink Inc., Duke Energy Corp. and Goldman Sachs among its investors -- has led the domestic push for broadband-over-powerline (BPL) in the United States.
But Xcel doesn't plan to offer Current Group's BPL for Internet. Instead, Xcel is using the technology to make the power grid in Boulder a two-way communications system capable of detecting problems on powerlines, manage electricity more precisely -- potentially even down to household devices -- and give customers the ability to tailor their electricity use and make it more "green."
The Minneapolis-based utility (NYSE: XEL) will wire Boulder's 50,000 households with "smart" utility meters, and put sensors in transformers around the city and connect them to a control center. The system will let customers check the details of their power use through a website and, eventually, "program" their homes to minimize consumption and use power more when it's being generated by renewable resources.
"This is a response to what people have been asking for a long time," said Ethnie Groves, an Xcel spokeswoman.
After failures to fulfill its promise as a broadband alternative to fiber optic and cable television networks, BPL is finding new life in "smart grids."
Germantown, Md.-based Current Group is one of the more high-profile companies developing the technology. Current will install transformers on Xcel's powerlines to ethernet cable, install devices at the transformer that can pull digital data traffic from the raw electricity in the lines and hook Boulder homes to the smart grid through a new meter that acts like a modem.
About 15,000 Boulder homes should be connected by August, with the rest of the city's electrical meters transformed by year-end.
Xcel immediately will gain the ability to detect localized problems, such as a tree brushing a powerline, and do something to prevent an outage instead of relying on customers to call about a downed line.
"This gives them a predictive maintenance system as opposed to the run-to-failure systems that's state of the art today," said Brendan Herron, vice president of corporate development and strategy for the 275-employee Current Group.
Eventually, Xcel could have the ability to stagger the cycles of air conditioners in a neighborhood to keep demand down or to change the settings of home thermostats by a degree or two to achieve a broad reductions in demand.
What the system won't do is connect customers to the Internet on Xcel lines. But it could. Current Group says its BPL is capable of Internet speeds up to 8 megabits per-second for upload and download, slightly faster than the broadband speeds cable TV offers.
"The technology works well; it mainly depends on the regulatory environment and whether the utility is interested," Herron said.
About 50,000 households in Cincinnati get Internet from Current Group in partnership with the utility Cinergy. Current's biggest project has been with Texas utility Oncor, formerly TXU.
The Texas project involved installing a smart grid for the electric company in return for using its power system to offer broadband to the entire Dallas-Fort Worth area of 1.8 million households. Current Group partnered with satellite broadcaster DirecTV Group Inc.-- which Liberty Media (NASDAQ: LCAPA, LCAPB) controls -- to offer television, Internet and Voice-over-Internet Protocol telephone bundles. Satellite TV companies have long sought a broadband technology, which would let them compete better with cable television and telecom giants.
But Oncor announced May 2 that it will pay Current Group $90 million to buy the equipment so far installed on its smart grid. The utility system no longer would offer Internet services or TV, but would license the SmartGrid from Current and use it to manage its system. An Oncor spokesman told the Dallas Morning News the company had no interest in becoming a telecommunications company.
Current Group is content to focus on making power grids more intelligent networks, Herron said.
The smart grid technology has been encouraged by acts of Congress and has drawn interest from some the nation's biggest investors.
The Electrical Power Research Institute has estimated that smart grid technology could reduce electricity production by 10 percent domestically and cut electricity-related greenhouse gas emissions by 25 percent.
Thursday, May 22, 2008
DS2 announces availability of the DE21P: the ultimate new compact reference design for embedded Powerline applications
Valencia, SPAIN, 20th May, 2008 - DS2, the leading technology innovator and global supplier of high-speed powerline communications technology, announced today the availability of a new compact reference design, the DE21P module for embedded powerline communications applications that will help drive widespread acceptance of high quality powerline enabled connectivity for home networking and IPTV applications. The DE21P enables product differentiation and can be used for widely different products including set top boxes, home gateways, remote speaker systems, IP cameras, or personal computers.
DS2´s DE21P Embedded Powerline modem Reference Design is designed for use with Aitana, DS2´s leading 200 Mbps chipset solution for reliable high speed multimedia home networking, consumer electronics and service provider IPTV applications. DS2´s 200 Mbps solution is already used by leading service providers including British Telecom, Portugal Telecom, and Telefonica in commercial self install IPTV services and is available through leading retail stores for multimedia home networking applications from manufacturers that include Buffalo, D-Link, Conceptronic, Corinex Communications, Logitec and Netgear.
The Reference Design facilitates full connectivity through optimized module pin out including:
- MII for high speed applications like Ethernet to powerline adapter
- UART interface allows for integration of service data
- TDM / I2S for optimum use in native audio applications
- Flexible power supply for the easiest integration with single, dual or triple supply
- GPIO for advanced features like One button security set-up that removes the need for PC configuration, and multi-color powerline link status indicator
The DE21P reference design provides everything required to move quickly into production of powerline enabled devices. It is the basis of a complete development solution including evaluation board with full connectivity and a powerful application programming environment that allows for the rapid development of custom applications.
Lee Hancock, Product Manager at Bel said, "DS2's reference design provides a solid platform for our Powerline modules so we're able to quickly develop economical, value-added products optimized for performance and reliability, enabling our customers to add networking capabilities without costly redesigns."
The DE21P Embedded Powerline Modem facilitates a fully plug and play networking experience. The embedded web page in each Aitana chipset provides a simplified configuration of home networking devices, while the new processing capabilities include on-chip support for native TR-069 client software in the powerline modem to provide a standard solution for service providers to manage their customers’ home networks. The DE21P has managed queues with multiple priority levels and strict bandwidth and latency guarantees. It supports the full mix of different types of service like Data, VoIP, IPTV or Video on Demand on the same network, and each DE21P node ensures that each traffic stream is allocated its required network resources.
"High performance turnkey PLC technology is the missing puzzle that the market has been looking for!” said Amy Lin, Senior Director of Global Sales and Marketing for Delta Electronics Magnetics and Microwave Business Unit. “With the DE21P embedded module, now we can just plug it in and start to enjoy the uncompromising home network signal quality synchronously. Delta will continue to co-work with DS2 to offer dynamic and innovative PLC solutions for all applications in all industries."
DS2´s DE21P Embedded Powerline modem Reference Design is designed for use with Aitana, DS2´s leading 200 Mbps chipset solution for reliable high speed multimedia home networking, consumer electronics and service provider IPTV applications. DS2´s 200 Mbps solution is already used by leading service providers including British Telecom, Portugal Telecom, and Telefonica in commercial self install IPTV services and is available through leading retail stores for multimedia home networking applications from manufacturers that include Buffalo, D-Link, Conceptronic, Corinex Communications, Logitec and Netgear.
The Reference Design facilitates full connectivity through optimized module pin out including:
- MII for high speed applications like Ethernet to powerline adapter
- UART interface allows for integration of service data
- TDM / I2S for optimum use in native audio applications
- Flexible power supply for the easiest integration with single, dual or triple supply
- GPIO for advanced features like One button security set-up that removes the need for PC configuration, and multi-color powerline link status indicator
The DE21P reference design provides everything required to move quickly into production of powerline enabled devices. It is the basis of a complete development solution including evaluation board with full connectivity and a powerful application programming environment that allows for the rapid development of custom applications.
Lee Hancock, Product Manager at Bel said, "DS2's reference design provides a solid platform for our Powerline modules so we're able to quickly develop economical, value-added products optimized for performance and reliability, enabling our customers to add networking capabilities without costly redesigns."
The DE21P Embedded Powerline Modem facilitates a fully plug and play networking experience. The embedded web page in each Aitana chipset provides a simplified configuration of home networking devices, while the new processing capabilities include on-chip support for native TR-069 client software in the powerline modem to provide a standard solution for service providers to manage their customers’ home networks. The DE21P has managed queues with multiple priority levels and strict bandwidth and latency guarantees. It supports the full mix of different types of service like Data, VoIP, IPTV or Video on Demand on the same network, and each DE21P node ensures that each traffic stream is allocated its required network resources.
"High performance turnkey PLC technology is the missing puzzle that the market has been looking for!” said Amy Lin, Senior Director of Global Sales and Marketing for Delta Electronics Magnetics and Microwave Business Unit. “With the DE21P embedded module, now we can just plug it in and start to enjoy the uncompromising home network signal quality synchronously. Delta will continue to co-work with DS2 to offer dynamic and innovative PLC solutions for all applications in all industries."
Tuesday, May 20, 2008
Penn State: Optical wireless and broadband over power lines (BPL): High speed, secure Wi-Fi alternative
Optical wireless and broadband over power lines: High speed, secure Wi-Fi alternative
Published: 10:33 EST, January 11, 2006
Penn State engineers have shown that a white-LED system for lighting and high data-rate indoor wireless communications, coupled with broadband over either medium- or low-voltage power line grids (BPL), can offer transmission capacities that exceed DSL or cable and are more secure than RF.
Colored LEDs or light emitting diodes are currently found in the numbers on digital clocks, remote controls, traffic lights and other applications. Recently, white LEDs have emerged in the market and the tiny white lights are being considered as replacements for incandescent and fluorescent bulbs.
Some researchers predict that by 2012, tiny white LEDs will deliver light brighter than a 60 watt-bulb yet draw only as much current as provided by four D-size batteries. A Japanese team recently suggested using white LEDs not only for lighting but also as light sources for wireless in-house communications.
Now, Dr. Mohsen Kavehrad, the W. L. Weiss professor of electrical engineering and director of the Center for Information and Communications Technology Research, and his team have shown that, in the system they designed, coupling white LEDs to BPL can deliver secure, wireless bit rates of a gigabit per second, a rate only exceeded by fiber.
Kavehrad will detail the Penn State system and its performance in simulation in a paper, "Hybrid MV-LV Power Lines and White Light Emitting Diodes for Triple-Play Broadband Access Communications," at the IEEE Consumer Communications and Networking Conference in Las Vegas, Nev., Tuesday, Jan. 10. His co-author is Pouyan Amirshahi, a doctoral candidate in electrical engineering.
In the Penn State system, white LEDs are positioned so that the room is lit as uniformly as possible. Since the LEDs are plugged into the room's electrical system, broadband data, voice or video delivered via the power lines can piggyback on the light that fills the room to reach any wireless receiving devices present.
Since light does not penetrate walls, as do the microwaves used in RF, the white LED system is more secure. In addition, there are no known health hazards associated with exposure to LED light.
Kavehrad notes, "Optical path differences can cause signal distortion in high-speed data transmission. This distortion is highly dependent on the room's dimensions and system configuration. However, if a system is designed appropriately, this distortion can be minimized. For example, in our proposed system, at worst, distortion limits the data rate to one gigabit."
Although white LEDs are not yet commercially available for this type of application, Kavehrad is confident that they will be. He says, "White LEDs are not there yet but by 2010, they will be available and economical. Their low-energy consumption will make them especially attractive. In the future, when you turn on the lights for indoor low-cost lighting, you could receive broadband via the same white light LED. "
Published: 10:33 EST, January 11, 2006
Penn State engineers have shown that a white-LED system for lighting and high data-rate indoor wireless communications, coupled with broadband over either medium- or low-voltage power line grids (BPL), can offer transmission capacities that exceed DSL or cable and are more secure than RF.
Colored LEDs or light emitting diodes are currently found in the numbers on digital clocks, remote controls, traffic lights and other applications. Recently, white LEDs have emerged in the market and the tiny white lights are being considered as replacements for incandescent and fluorescent bulbs.
Some researchers predict that by 2012, tiny white LEDs will deliver light brighter than a 60 watt-bulb yet draw only as much current as provided by four D-size batteries. A Japanese team recently suggested using white LEDs not only for lighting but also as light sources for wireless in-house communications.
Now, Dr. Mohsen Kavehrad, the W. L. Weiss professor of electrical engineering and director of the Center for Information and Communications Technology Research, and his team have shown that, in the system they designed, coupling white LEDs to BPL can deliver secure, wireless bit rates of a gigabit per second, a rate only exceeded by fiber.
Kavehrad will detail the Penn State system and its performance in simulation in a paper, "Hybrid MV-LV Power Lines and White Light Emitting Diodes for Triple-Play Broadband Access Communications," at the IEEE Consumer Communications and Networking Conference in Las Vegas, Nev., Tuesday, Jan. 10. His co-author is Pouyan Amirshahi, a doctoral candidate in electrical engineering.
In the Penn State system, white LEDs are positioned so that the room is lit as uniformly as possible. Since the LEDs are plugged into the room's electrical system, broadband data, voice or video delivered via the power lines can piggyback on the light that fills the room to reach any wireless receiving devices present.
Since light does not penetrate walls, as do the microwaves used in RF, the white LED system is more secure. In addition, there are no known health hazards associated with exposure to LED light.
Kavehrad notes, "Optical path differences can cause signal distortion in high-speed data transmission. This distortion is highly dependent on the room's dimensions and system configuration. However, if a system is designed appropriately, this distortion can be minimized. For example, in our proposed system, at worst, distortion limits the data rate to one gigabit."
Although white LEDs are not yet commercially available for this type of application, Kavehrad is confident that they will be. He says, "White LEDs are not there yet but by 2010, they will be available and economical. Their low-energy consumption will make them especially attractive. In the future, when you turn on the lights for indoor low-cost lighting, you could receive broadband via the same white light LED. "
Monday, May 19, 2008
Voices: Intellon’s Mark Hazen on the HomePlug AV powerline-networking alternative
How will today's diversity of powerline networking technologies sort out over time, how will the market potential be impacted until then, and how does powerline compete with, coexist with, and cooperate with other LAN and WAN interconnect approaches? Intellon's Mark Hazen fields these and other probing questions.
By Brian Dipert, Senior Technical Editor -- EDN, 5/15/2008
Last fall, powerline-networking provider DS2 weighed in with its thoughts on the technology's strengths, shortcomings and future directions (see "Voices: Chano Gómez on powerline networking's 'universal' hope"). In this follow-up interview, Mark E. Hazen, senior marketing communications engineer with HomePlug Powerline Alliance representative Intellon, DS2's primary competitor, shares his perspectives on a similar set of questions.
Click OVERVIEW
By Brian Dipert, Senior Technical Editor -- EDN, 5/15/2008
Last fall, powerline-networking provider DS2 weighed in with its thoughts on the technology's strengths, shortcomings and future directions (see "Voices: Chano Gómez on powerline networking's 'universal' hope"). In this follow-up interview, Mark E. Hazen, senior marketing communications engineer with HomePlug Powerline Alliance representative Intellon, DS2's primary competitor, shares his perspectives on a similar set of questions.
Click OVERVIEW
Saturday, May 10, 2008
Welcome to Smart Grid City, Colorado
Welcome to Smart Grid City, Colorado
HCN ONLINE - May 9, 2008 by Evelyn Schlatter
Boulder, Colo., is known for a lot of things, including the University of Colorado, the National Center for Atmospheric Research, and a distinctive hippie-progressive-outdoorsy vibe. And now, it’s about to get the nation’s first fully-integrated “smart grid.”
A smart grid is exactly what it sounds like: an “intelligent” power grid that uses broadband technology to better manage multiple sources of electricity and increase energy efficiency. In August, Xcel plans to start installing the new smart grid with its 50,000 “smart meters” that will serve about 100,000 residents. Minneapolis-based Xcel Energy picked Boulder for the pilot because the Front Range city is medium-sized and environmentally conscious. It also offers research institutions like the University of Colorado and the National Bureau of Standards and Technology, which is already involved in smart-grid research for the federal government.
Kara Mertz, assistant to the city manager in Boulder, explains that the smart grid will employ a fiber-optic loop around the city. That network will allow communication between households, the utility company and the grid about the amount and source of power in use. The system can also regulate itself. If there’s a power overload in one part of the grid, for example, it will automatically route power through different lines to prevent a shutdown. In addition, a smart grid allows a consumer to choose the power sources she wants to use – wind, solar, or coal.
The system will help consumers make more energy-efficient choices and utilize more renewable energy resources, says Ethnie Groves, spokeswoman for Xcel. “If consumers can see what their households are using on a daily basis, they’ll be better able to track their own usage and figure out ways to save money or be more efficient,” she says.
Smart meters allow consumers to adjust their home power usage automatically. “Basically,” Mertz says, “if you have a ‘smart’ appliance or a little conversion box on your outlet to work with older appliances, the smart grid can talk directly to those appliances … you can turn your dishwasher on from a distance so it runs during non-peak hours, for example.” In addition, says Mertz, the system can store power in battery stations around the city, from which consumers can draw during non-peak hours, and customers “can put power back into the grid from (their) own solar panels.”
Smart-grid technologies have been employed in other U.S. cities. In 2005, CenterPoint Energy in Houston installed 10,000 smart meters in customers’ houses. A smart-grid project exists in Dallas as well, and Pacific Northwest National Laboratories tested smart-grid technologies in 300 households in Washington state in 2006. And Pacific Gas and Electric is planning the country’s largest smart-meter initiative: Over the next five years, PG&E hopes to upgrade more than 10 million customer meters in Northern and Central California.
The cost of Boulder’s pilot system is estimated at around $100 million. To help offset that price tag, Xcel Energy established the Smart Grid Consortium last December, bringing together engineering firms, business leaders and IT experts.
“We’re planning to work very closely with Xcel throughout this process,” Mertz says. “We’ll really push them to figure out how to maximize the potential of this system.” According to Mertz, the city has committed to reducing its greenhouse gas emissions to 7 percent below 1990 levels by 2012. With the projected energy efficiency of a smart grid, “We could meet 25 percent of our goal,” she says. “And I’m vying to be one of the test homes.”
The author is an intern for High Country News.
HCN ONLINE - May 9, 2008 by Evelyn Schlatter
Boulder, Colo., is known for a lot of things, including the University of Colorado, the National Center for Atmospheric Research, and a distinctive hippie-progressive-outdoorsy vibe. And now, it’s about to get the nation’s first fully-integrated “smart grid.”
A smart grid is exactly what it sounds like: an “intelligent” power grid that uses broadband technology to better manage multiple sources of electricity and increase energy efficiency. In August, Xcel plans to start installing the new smart grid with its 50,000 “smart meters” that will serve about 100,000 residents. Minneapolis-based Xcel Energy picked Boulder for the pilot because the Front Range city is medium-sized and environmentally conscious. It also offers research institutions like the University of Colorado and the National Bureau of Standards and Technology, which is already involved in smart-grid research for the federal government.
Kara Mertz, assistant to the city manager in Boulder, explains that the smart grid will employ a fiber-optic loop around the city. That network will allow communication between households, the utility company and the grid about the amount and source of power in use. The system can also regulate itself. If there’s a power overload in one part of the grid, for example, it will automatically route power through different lines to prevent a shutdown. In addition, a smart grid allows a consumer to choose the power sources she wants to use – wind, solar, or coal.
The system will help consumers make more energy-efficient choices and utilize more renewable energy resources, says Ethnie Groves, spokeswoman for Xcel. “If consumers can see what their households are using on a daily basis, they’ll be better able to track their own usage and figure out ways to save money or be more efficient,” she says.
Smart meters allow consumers to adjust their home power usage automatically. “Basically,” Mertz says, “if you have a ‘smart’ appliance or a little conversion box on your outlet to work with older appliances, the smart grid can talk directly to those appliances … you can turn your dishwasher on from a distance so it runs during non-peak hours, for example.” In addition, says Mertz, the system can store power in battery stations around the city, from which consumers can draw during non-peak hours, and customers “can put power back into the grid from (their) own solar panels.”
Smart-grid technologies have been employed in other U.S. cities. In 2005, CenterPoint Energy in Houston installed 10,000 smart meters in customers’ houses. A smart-grid project exists in Dallas as well, and Pacific Northwest National Laboratories tested smart-grid technologies in 300 households in Washington state in 2006. And Pacific Gas and Electric is planning the country’s largest smart-meter initiative: Over the next five years, PG&E hopes to upgrade more than 10 million customer meters in Northern and Central California.
The cost of Boulder’s pilot system is estimated at around $100 million. To help offset that price tag, Xcel Energy established the Smart Grid Consortium last December, bringing together engineering firms, business leaders and IT experts.
“We’re planning to work very closely with Xcel throughout this process,” Mertz says. “We’ll really push them to figure out how to maximize the potential of this system.” According to Mertz, the city has committed to reducing its greenhouse gas emissions to 7 percent below 1990 levels by 2012. With the projected energy efficiency of a smart grid, “We could meet 25 percent of our goal,” she says. “And I’m vying to be one of the test homes.”
The author is an intern for High Country News.
Thursday, May 08, 2008
BPL Global Expands Broadband Over Power Lines in Caracas
BPL Global Expands Broadband Over Power Lines in Caracas
La Nueva Electricidad de Caracas (EDC) offers hundreds of customers access to high speed Internet over the existing electric infrastructure
PITTSBURGH, May 5 /PRNewswire/ -- BPL Global, Ltd., a smart grid technology company dedicated to leading the transformation of energy and information delivery, announced today that its BPL implementation in Caracas, Venezuela has been deemed successful by La Nueva Electricidad de Caracas (EDC).
The BPL deployment in Petare, a popular community in the East side of Caracas, has been operating in a trial mode serving numerous multi-dwelling units (MDU). It operates on the existing aerial medium voltage power lines, providing Internet service to low-income areas that are underserved. This project includes an elementary school with more than 1,000 students, enabling children access to the Internet.
The BPL activities fit with EDC's overall strategy of providing services that benefit the communities' goal to continually improve quality of life in Venezuela. EDC is helping the community by leveraging the existing power grid to provide citizens and less privileged communities with access to the Internet. Other services that EDC would like to offer include: VoIP, IPTV, VPN and IP communication services.
Since some areas have no Internet access, the services are expected to have a positive social impact. So far, enrollment of the broadband-enabled buildings has exceeded the 20 percent goal for the pilot.
"Our broadband solutions allow for much broader access to high-speed Internet," said Geraldo Guimaraes, executive director, Latin America for BPL Global. "We're excited about the economic and quality-of-life benefits these kinds of programs can bring to entire cities. The sophistication and versatility of our design makes it possible to work with a range of electrical infrastructures, operating environments and service requirements."
Recent estimates from the Computer Industry Almanac indicate that only 13 percent of the Venezuelan population, or 3.3 million people, have Internet access. The access provided through EDC and BPL Global will enable significant growth in the number of people with broadband access in Venezuela, especially areas of difficult access.
EDC is now expanding the served area in Petare to other primary schools and to Barrio Adentro (modules that provide medical assistance to the community).
As part of the engagement, BPL Global:
* Analyzed the Caracas electrical infrastructure, operating environment
and service requirements presented by EDC.
* Evaluated several best-of-breed BPL vendor solutions and designed the
best solution based upon the requirements of EDC and the
characteristics of the local electrical grid.
* Managed equipment sourcing from ordering, importing and inventorying,
to acceptance testing.
* Trained network operation center employees and field technicians.
* Provided ongoing back-up support to the EDC field team.
La Nueva Electricidad de Caracas (EDC) offers hundreds of customers access to high speed Internet over the existing electric infrastructure
PITTSBURGH, May 5 /PRNewswire/ -- BPL Global, Ltd., a smart grid technology company dedicated to leading the transformation of energy and information delivery, announced today that its BPL implementation in Caracas, Venezuela has been deemed successful by La Nueva Electricidad de Caracas (EDC).
The BPL deployment in Petare, a popular community in the East side of Caracas, has been operating in a trial mode serving numerous multi-dwelling units (MDU). It operates on the existing aerial medium voltage power lines, providing Internet service to low-income areas that are underserved. This project includes an elementary school with more than 1,000 students, enabling children access to the Internet.
The BPL activities fit with EDC's overall strategy of providing services that benefit the communities' goal to continually improve quality of life in Venezuela. EDC is helping the community by leveraging the existing power grid to provide citizens and less privileged communities with access to the Internet. Other services that EDC would like to offer include: VoIP, IPTV, VPN and IP communication services.
Since some areas have no Internet access, the services are expected to have a positive social impact. So far, enrollment of the broadband-enabled buildings has exceeded the 20 percent goal for the pilot.
"Our broadband solutions allow for much broader access to high-speed Internet," said Geraldo Guimaraes, executive director, Latin America for BPL Global. "We're excited about the economic and quality-of-life benefits these kinds of programs can bring to entire cities. The sophistication and versatility of our design makes it possible to work with a range of electrical infrastructures, operating environments and service requirements."
Recent estimates from the Computer Industry Almanac indicate that only 13 percent of the Venezuelan population, or 3.3 million people, have Internet access. The access provided through EDC and BPL Global will enable significant growth in the number of people with broadband access in Venezuela, especially areas of difficult access.
EDC is now expanding the served area in Petare to other primary schools and to Barrio Adentro (modules that provide medical assistance to the community).
As part of the engagement, BPL Global:
* Analyzed the Caracas electrical infrastructure, operating environment
and service requirements presented by EDC.
* Evaluated several best-of-breed BPL vendor solutions and designed the
best solution based upon the requirements of EDC and the
characteristics of the local electrical grid.
* Managed equipment sourcing from ordering, importing and inventorying,
to acceptance testing.
* Trained network operation center employees and field technicians.
* Provided ongoing back-up support to the EDC field team.
Thursday, May 01, 2008
Oncor to Purchase CURRENT’s Smart Grid Network: System Being Used to Improve Grid Reliability and Efficiency
May 01, 2008 04:00 PM Eastern Daylight Time
DALLAS & GERMANTOWN, Md.--(BUSINESS WIRE)--Oncor Electric Delivery Company LLC and CURRENT Group, LLC announced today that Oncor has agreed to purchase CURRENT’s existing Smart Grid network in Dallas, Texas as well as additional equipment for approximately $90 million. This transaction, which involves the largest broadband-based Smart Grid deployment in the world, will enable Oncor to provide Smart Grid services to up to one-sixth of its service territory. The two companies have also entered into a multi-year agreement whereby CURRENT will license its Smart Grid software systems and sell additional products to Oncor that will allow Oncor the opportunity to expand the Smart Grid network to cover up to one-half of its service territory.
“Through our use of the Smart Grid network, we have been able to detect distribution network issues before they impacted our customers,” said Jim Greer, Oncor Senior Vice President of Asset Management and Engineering. “The Smart Grid has become an integral part of our operations by providing us new and valuable real-time information on our distribution network. As such, we determined we want to own the Smart Grid network.”
The CURRENT Smart Grid™ solution includes broadband over power line (BPL) equipment and technology as well as fiber optics, embedded sensing and software analytics to monitor Oncor’s electric distribution system 24x7. The Smart Grid provides Oncor with real time information on the status of its distribution network and provides automated meter reading. With the system, Oncor is better able to manage its network, deliver more reliable power to end users, and predict potential network problems before they impact customers.
“Through its Smart Grid leadership Oncor has validated the benefits of monitoring and managing the distribution of electricity through a widely deployed Smart Grid,” said Tom Casey, CURRENT’s President & Chief Executive Officer. “CURRENT intends to use the proceeds of this transaction to continue to expand our deployments and enhance our Smart Grid portfolio.”
The Electric Power Research Institute projects that Smart Grid-enabled distribution could reduce electrical energy consumption and carbon dioxide emissions as well as improve reliability. The Texas Legislature and the Public Utility Commission of Texas have supported this technology over the last several years, enabling Oncor and Texas to emerge as leaders in deploying Smart Grids. The new federal Energy Independence and Security Act of 2007 sets out as the policy of the United States the implementation of Smart Grid systems to modernize the electric grid.
CURRENT and Oncor expect to close the transaction in the second quarter of 2008.
DALLAS & GERMANTOWN, Md.--(BUSINESS WIRE)--Oncor Electric Delivery Company LLC and CURRENT Group, LLC announced today that Oncor has agreed to purchase CURRENT’s existing Smart Grid network in Dallas, Texas as well as additional equipment for approximately $90 million. This transaction, which involves the largest broadband-based Smart Grid deployment in the world, will enable Oncor to provide Smart Grid services to up to one-sixth of its service territory. The two companies have also entered into a multi-year agreement whereby CURRENT will license its Smart Grid software systems and sell additional products to Oncor that will allow Oncor the opportunity to expand the Smart Grid network to cover up to one-half of its service territory.
“Through our use of the Smart Grid network, we have been able to detect distribution network issues before they impacted our customers,” said Jim Greer, Oncor Senior Vice President of Asset Management and Engineering. “The Smart Grid has become an integral part of our operations by providing us new and valuable real-time information on our distribution network. As such, we determined we want to own the Smart Grid network.”
The CURRENT Smart Grid™ solution includes broadband over power line (BPL) equipment and technology as well as fiber optics, embedded sensing and software analytics to monitor Oncor’s electric distribution system 24x7. The Smart Grid provides Oncor with real time information on the status of its distribution network and provides automated meter reading. With the system, Oncor is better able to manage its network, deliver more reliable power to end users, and predict potential network problems before they impact customers.
“Through its Smart Grid leadership Oncor has validated the benefits of monitoring and managing the distribution of electricity through a widely deployed Smart Grid,” said Tom Casey, CURRENT’s President & Chief Executive Officer. “CURRENT intends to use the proceeds of this transaction to continue to expand our deployments and enhance our Smart Grid portfolio.”
The Electric Power Research Institute projects that Smart Grid-enabled distribution could reduce electrical energy consumption and carbon dioxide emissions as well as improve reliability. The Texas Legislature and the Public Utility Commission of Texas have supported this technology over the last several years, enabling Oncor and Texas to emerge as leaders in deploying Smart Grids. The new federal Energy Independence and Security Act of 2007 sets out as the policy of the United States the implementation of Smart Grid systems to modernize the electric grid.
CURRENT and Oncor expect to close the transaction in the second quarter of 2008.
Tuesday, April 29, 2008
Roger Conrad`s Utility Forecaster: Follow the Money !!!
Follow the Money: April 25, 2008
$1.5 trillion: That’s what The Brattle Group, an economics/finance consultancy, projects the US electric utility will have to spend through 2030 on vital infrastructure.
That includes a forecast that the 30 percent growth in power demand currently projected by the US Energy Information Administration can be cut by a third on the basis of aggressive energy efficiency programs. But it anticipates massive spending to meet even that, as well as to provide needed upgrades to our country’s aging transmission system and to tackle carbon capture from fossil fuel plants, which still produce nearly three-quarters of US electricity.
Even under those lowered projections, the country will still need at least 150 gigawatts of new and replacement plant capacity through 2030. Brattle anticipates a cost of $560 billion for the new fleet, a large chunk of which should be renewable energy. That’s without changes in carbon policy, which appear almost certain and would cost an additional $200 billion.
It also projects a needed investment of $900 billion for transmission and distribution for a range of purposes. These include connecting new renewable-based power plants to the grid, adapting “smart grid” technologies to enable greater efficiencies and gearing up for a new generation of plug-in hybrid vehicles. Brattle also anticipates an impact from rising raw material and labor costs on overall capital expenditures.
Like many voices in the ongoing environmental/energy debate, The Brattle Group is an advocate as well as a reporter. Its opinion, as is apparent in the study available at www.brattle.com, is that heavy investment in renewable energy and more efficiency along the transmission grid to increase efficiency and limit waste is needed. High-voltage transmission investments are projected to reach $233 billion, while distribution projects come in at $675 billion.
Brattle’s contention is the renewable plants will be far easier to build and site than plants running on conventional fuels such as coal and natural gas. And it believes investment made to limit the need for new generating capacity or negawatts is generally less costly than actual construction, which is subject to delays in the permitting and construction process as well as cost overruns from rising raw material, labor and legal costs. Building negawatts basically means investing in transmission and distribution.
I have no problem with any of the report’s contentions. In fact, interest in negawatts continues to mushroom throughout the industry. One way is through the proliferation of advanced meter technology. The leader here is Itron, which has clients globally and recently won contracts for a major build-out of its systems in California.
“Smart” meters allow utilities to monitor where their power is flowing, which enables them to control waste and interact better with customers in conservation matters. To date, regulators in states where such meters have been proposed have been willing to pony up the rate increases to pay for them, with the idea that the negawatt benefits would pay off in spades. California in particular has been willing to fund major spending projects undertaken by the likes of Edison International utility unit Southern California Edison.
As these projects proliferate nationally, officials’ willingness to fund them—particularly should the US economy take a while to cycle out of its current slump/recession—may be put to the test. For now, however, the capital expenditures are flowing into rate base, boosting earnings and simultaneously reducing future operating risk by expanding negawatts rather than megawatts.
Broadband over powerlines (BPL) is another promising technology for creating negawatts. To date, much of the media focus on BPL has been on its ability to create a rival high-speed broadband network to the telephone and cable companies. Not only is that highly unrealistic and improbable, but it’s served to obscure BPL’s real utility as a means of heightening grid efficiency. In fact, an investment in BPL is likely to be far more profitable for a power company if it stays out of the communications business entirely.
Tiny Ambient Corp is a pure play on BPL. This week, it won a major contract from Duke Energy and received private capital funding of $3 million. With a total market capitalization of barely $10 million, however, it’s as small as the emerging BPL industry itself. If BPL really does take off, the usual suspects in such technology are likely to take over.
Whether sector investment is made to create megawatts or negawatts, The Brattle Group’s report is just more confirmation of the sheer magnitude of the task ahead. Investment will be faster in some areas and slower than others. Politics—including what party holds the White House after inauguration day next January—will play a huge role in where money is spent first and what solutions are discarded.
One thing is clear, however: This investment will have to be made, regardless of whether Democrats or Republicans are pulling the strings. If the US economy is in recession, the government will lead the way. If the economy is booming, it will be private enterprise. Either way, investors who follow the money in these projects will prosper.
Covering the Costs
The opportunity in electric power is staggering by any measure. And based on how things have shaped up in prior cycles, the dollars spent will vastly exceed projections, including The Brattle Group’s, which seem most outrageous now.
For one thing, there’s politics. Few issues are stirring the pot here in early 2008 more than global warming. As I reported here a couple weeks ago, some advocacy groups have taken extreme positions on the issue, such as opposing all new coal and natural gas power plants and going to court to see older ones closed down.
Their actions are no doubt well intentioned. But they’re also certain to add to system costs by delaying or preventing projects that could actually reduce carbon emissions—such as replacing old, inefficient and polluting coal-fired plants with new ones that emit virtually no acid rain, mercury and other pollutants and can later be retrofitted to reduce carbon dioxide (CO2).
Furthermore, insisting that every new plant be built to run on wind or solar is pushing up the price of needed components for this type of facility. That fact is made crystal clear in the robust profit reports of those who make them, such as SunPower and Vestas Wind Systems. Of course, even these companies are being challenged by higher raw material costs and capacity constraints to meet the kind of demand we’re seeing.
Inflation is another key concern. The double-digit inflation of the 1970s was a major reason the last power plant construction cycle wound up costing far more than envisioned. Those cost overruns subsequently led to massive disallowances by regulators, which in turn led to monumental writedowns, dividend cuts and even a handful of bankruptcies.
We can expect the same thing this time around. In fact, regulators in some states are clearly telegraphing they intend to take a very hard line on rate increases, no matter what they’re supposed to pay for.
This week, New Mexico regulators granted a $33 million rate hike to PNM Resources. That was less than half the $76.1 million originally requested. The allowed return on equity of 10.1 percent was equally meager and well below the 10.75 percent requested by the company.
Furthermore, regulators denied the utility’s request that changes in fuel and purchased power costs be automatically reflected in rates, as they are in most of the country—though regulators still plan to hear the utility’s request for an emergency fuel adjustment at a hearing slated for May 15.
The catastrophic plunge in PNM’s share price since early November 2007 is a clear sign of the high stakes involved in this rate case, mainly the extremely negative impact of unrecovered costs on its financial health. It’s also a clear warning for utilities elsewhere of the growing political pressures faced by regulators nationwide and the fact that officials will always be tempted to go for the expedient solution, rather than what makes sense long term.
Consolidated Edison got a similar shock in mid-March, as New York regulators granted only $425 million of its proposed $1.2 billion rate hike. Furthermore, 55 percent of the amount received is subject to refund, pending an investigation of $1.6 billion in utility capital expenditures for 2005-08. Return on equity was set at just 9.1 percent, one of the lowest in the country.
The decision triggered an immediate cut in the company’s credit ratings from Fitch, and Moody’s cut its outlook from stable to negative. Both raters cited the decision as raising doubt about whether or not regulators would support Con Ed’s credit quality, which is critical in view of its anticipated $2 billion a year in needed capital spending for vital system upgrades and conservation.
The New York Public Service Commission, of course, has been rocked by the political uncertainty in the state over the past year, as well as the weakening economy. That situation has likely been made worse by the sudden, ignominious departure of former Gov. Eliot Spitzer and his replacement by a relative unknown.
For example, even with the massive disallowances in this rate decision, state Assemblyman Michael Gianaris (D-Queens) is quoted as calling the increase “profoundly irresponsible.” He went on to call it “the highest rate increase in history” and charged Con Ed is in need of “dramatic reforms” to “fix” its management.
That’s obviously a politically appealing position to take, particularly when the economy is slumping and the price of energy is soaring in all forms. Unfortunately, it doesn’t do a lot to help Con Ed actually do something about the problem, such as massively investing in negawatts as management has proposed. And to the extent the added financial risk prevents or discourages Con Ed from investing the needed dollars, it could well make matters a lot worse.
Self-serving politicians are just part of the equation when it comes to paying for electricity. But they’re sure to become increasingly important going forward, as utilities ramp up capital expenditures in coming years to meet the combined challenges of updating basic infrastructure, meeting new demand with either negawatts or megawatts and complying with environmental regulations, particularly those dealing with regulating CO2.
The bottom line here is simply this: Companies that can recover their increased investment are going to see much higher earnings, dividends and share prices. In short, they’re going to be among the best investments around anywhere, particularly in an environment where companies, consumers and the economy as a whole is squeezed by rising costs for everything from raw materials to money.
On the other hand, companies that are forced to make huge expenditures they can’t recover are in for some rough sledding. They’re going to be absolutely horrendous investments.
In the US utility business, success or failure will boil down to working out a deal with regulators to recover costs and avoid rate shock for consumers. That, in turn, will depend on controlling the cost of capital spending and operating expenses, as well as maintaining good relations with the officials themselves.
The rules of the game will be slightly different when it comes to other infrastructure spending plays. But the basic premise is the same: If a company can earn a return on its investment—be it in bridges, roads, communications networks or water mains—the potential rewards are truly staggering. If, on the other hand, dollars go out but don’t come back in sufficiently, the fall from grace will be destructive in equal measure.
The global tab for infrastructure by 2030 is currently projected at $41 trillion. A lot of that is happening in Asia, where millions of people are leaving the rural areas for cities each year. The strain on resources from foodstuffs to basic metals is immense, which is why Yiannis Mostrous and I have launched Vital Resource Investor (www.vitalresourceinvestor.com).
But the surge in needed spending also extends to developed countries outside the US. Canada, for example, has an estimated infrastructure deficit of $335 billion to fill in the next few years. That’s the legacy of 40 years of underinvesting in everything from roads to water treatment facilities.
Moreover, given the country’s recent prosperity and huge federal budget surpluses, it’s easy to see the money is there to take on a project of this immensity. The country’s nonresidential construction cycle, for example, has been on the upswing now for more than four years, with very little impact from the US recession.
Again, the key is finding ways to ensure the money will flow once the investment has been made and the assets are up and running. That will require management skill and investor vigilance to ensure they’re still succeeding.
The companies that succeed will reward investors with big returns for many years. And that’s worth the trouble of finding them.
A Taste of Stagflation
Covering costs—or rather passing costs through to customers—is the biggest test for any business going forward. And it’s only going to become more so, at least for the next few quarters and possibly for several years.
For one thing, the decades-long massive gains in productivity we’ve seen for the US and world economy may be petering out. One reason is these gains were based on a scenario of very low labor costs in countries such as China, which put downward pressure on wages globally as they increased trade with the rest of the world. Without downward wage pressures, productivity gains depend on technology, which has advanced in some areas—particularly the Internet—but are generally a lot more difficult to come by.
Back in the ’70s, the price of energy and commodities was far more significant to US GDP than it is now, largely because the manufacturing sector was much larger relative to GDP. The low inflation of the ’80s and ’90s was due in large part to their lessened importance to the overall economy as manufacturing’s share of GDP shrank and prices fell.
Here in the latter half of the ’00s, however, energy and commodities have again taken on massive importance. Manufacturing is a smaller slice of the overall US economy than ever. But we’re more connected to the rest of the world than ever, too, and use of these vital resources has never been greater. As a result, rising prices are starting to have the same impact on the overall US economy—and individual companies—that they did during the ’70s.
Not every industry is being squeezed yet. But there are certainly some very good examples popping up.
The $10 billion combined first quarter losses of merging Delta Air Lines and Northwest Airlines Corp are pretty clear signs of the massive crunch on airline industry profits. The airlines have seen a massive increase in the cost of jet fuel but have been unable to pass it along to consumers in ticket prices. That’s in part due to competition in the industry, and it may also be due to airlines’ fears that demand will prove more elastic than expected, i.e., rising ticket prices bring a drop in traffic and revenue.
Another industry on the ropes now is refining. The cost of oil and natural gas has risen sharply in recent months. However, refiners have been unable to push along those increases to the price of gasoline.
That no doubt seems incredulous to many consumers, given the spike in prices we’ve already seen at the pump over the past few years. But it’s plain as day from the collapse in margins at refiners in recent quarters. And it shows little sign of abating.
Producers of vital resources such as copper have seen unprecedented revenue increases from rising prices over the past year, even if they’ve been unable to maintain production levels. Some, however, have felt a squeeze in certain regions of the world, from the spiking cost of electricity needed for effective mining. And of course, the power producers themselves are feeling the pinch from rising coal and natural gas prices this year, even though the price of electricity itself in wholesale markets continues to rise.
Financing costs are emerging as another squeeze in certain industries. The Federal Reserve hasn’t been shy about cutting the federal funds rate, with another reduction likely next week. Neither has it been averse to pulling other levers to shore up the financial system.
Nonetheless, borrowing costs have risen sharply over the past few months. Even investment-grade credits are paying premiums over the benchmark Treasury note yield that are twice as high as in mid-2007. And non-investment-grade credits are paying 700 to 800 basis points above equivalent Treasury paper, several times the spread before the credit crisis erupted.
The situation is graver still with companies that rely heavily on credit lines based on the London Interbank, or LIBOR, rate, which has spiked in recent weeks. These companies’ rising interest costs will have to come out of something.
If they pay high dividends, they may have to cut them. If they don’t, it will come out of growth budgets. Either way, it’s bad news for investors.
Financial services are an obvious point of vulnerability. And judging from the first quarter earnings results we’ve seen thus far, there are almost certainly more asset writedowns and losses ahead.
This sector has already been pounded in the stock market. And with every successive blow doing progressively less damage to the group, it’s increasingly likely the worst is well baked into share prices already.
That—plus the fact that financials will be the biggest winners when visibility clears on the credit crunch and economy—is a good reason to hang onto the best, such as Regions Financial and Well Fargo, in a small corner of your portfolio. Both companies have successfully navigated their ways thus far through the crisis. Both should be watched closely for weakness but look increasingly like the worst is behind them.
In contrast, there are sectors getting relatively little notice where rising financial costs could have a much larger impact and where the potential damage isn’t reflected in share prices. Last week, I underscored the importance of really examining first quarter financials, not just for headline numbers but particularly for exposure to near-term refinancing risk.
Credit conditions will almost surely improve over the next year or so and almost definitely over the next five. But the more debt a company has coming due in the near future, the more at risk it is to a spike in costs. And nothing is more exposed to rate swings now than a credit line tied to LIBOR.
In the May issue of Utility Forecaster—available for subscribers May 3 at www.utilityforecaster.com—I survey my entire universe of 215 essential service companies for their five-year debt exposure. One company that looks vulnerable is Consolidated Communications, which has credit lines and less than five-year debt that are greater than its entire market value. In addition, the credit lines it took on to finance recent acquisitions are tied to LIBOR.
Ironically, the telecom business itself has thus far been remarkably resilient in the face of the weakening US economy and credit crunch. AT&T, for example, reported blockbuster numbers, showing continued robust growth in wireless but also progress expanding its wireline broadband business. Even Consolidated has been covering its generous distribution by a healthy margin, which should help it navigate any difficulties from LIBOR.
There are other industries as well that appear to be standing up to cost pressures and are earning more money than ever. Entergy Corp’s huge first quarter earnings gain is a pretty good sign all is well in the power business, at least as long as producers can recover their fuel costs and run their plants well.
General Electric’s booming infrastructure business is the best possible sign for that sector, though financial services underperformance hurt the bottom line. Goodyear’s tire business also appears to be absorbing cost and recession pressures, judging from the robust profits announced today.
My general rule is anything that does put up good first quarter numbers can be considered stress tested. The economy may get weaker still in coming months. But they’ve proven themselves able to function amid the weakness.
If we’ve seen anything over the past few months, it’s that not everything is going to measure up. The silver lining, however, is we can have a lot of confidence in what is. Moreover, there’s a lot of risk priced in now with the S&P 500 nearly 200 points off its 52-week high.
There will almost surely be more damage ahead, particularly from companies that don’t measure up as businesses and cost-vulnerable sectors. But as long as companies perform, the risks from here are low, and there’s a lot of upside ahead when the overall situation—inevitably—shifts back in our favor.
$1.5 trillion: That’s what The Brattle Group, an economics/finance consultancy, projects the US electric utility will have to spend through 2030 on vital infrastructure.
That includes a forecast that the 30 percent growth in power demand currently projected by the US Energy Information Administration can be cut by a third on the basis of aggressive energy efficiency programs. But it anticipates massive spending to meet even that, as well as to provide needed upgrades to our country’s aging transmission system and to tackle carbon capture from fossil fuel plants, which still produce nearly three-quarters of US electricity.
Even under those lowered projections, the country will still need at least 150 gigawatts of new and replacement plant capacity through 2030. Brattle anticipates a cost of $560 billion for the new fleet, a large chunk of which should be renewable energy. That’s without changes in carbon policy, which appear almost certain and would cost an additional $200 billion.
It also projects a needed investment of $900 billion for transmission and distribution for a range of purposes. These include connecting new renewable-based power plants to the grid, adapting “smart grid” technologies to enable greater efficiencies and gearing up for a new generation of plug-in hybrid vehicles. Brattle also anticipates an impact from rising raw material and labor costs on overall capital expenditures.
Like many voices in the ongoing environmental/energy debate, The Brattle Group is an advocate as well as a reporter. Its opinion, as is apparent in the study available at www.brattle.com, is that heavy investment in renewable energy and more efficiency along the transmission grid to increase efficiency and limit waste is needed. High-voltage transmission investments are projected to reach $233 billion, while distribution projects come in at $675 billion.
Brattle’s contention is the renewable plants will be far easier to build and site than plants running on conventional fuels such as coal and natural gas. And it believes investment made to limit the need for new generating capacity or negawatts is generally less costly than actual construction, which is subject to delays in the permitting and construction process as well as cost overruns from rising raw material, labor and legal costs. Building negawatts basically means investing in transmission and distribution.
I have no problem with any of the report’s contentions. In fact, interest in negawatts continues to mushroom throughout the industry. One way is through the proliferation of advanced meter technology. The leader here is Itron, which has clients globally and recently won contracts for a major build-out of its systems in California.
“Smart” meters allow utilities to monitor where their power is flowing, which enables them to control waste and interact better with customers in conservation matters. To date, regulators in states where such meters have been proposed have been willing to pony up the rate increases to pay for them, with the idea that the negawatt benefits would pay off in spades. California in particular has been willing to fund major spending projects undertaken by the likes of Edison International utility unit Southern California Edison.
As these projects proliferate nationally, officials’ willingness to fund them—particularly should the US economy take a while to cycle out of its current slump/recession—may be put to the test. For now, however, the capital expenditures are flowing into rate base, boosting earnings and simultaneously reducing future operating risk by expanding negawatts rather than megawatts.
Broadband over powerlines (BPL) is another promising technology for creating negawatts. To date, much of the media focus on BPL has been on its ability to create a rival high-speed broadband network to the telephone and cable companies. Not only is that highly unrealistic and improbable, but it’s served to obscure BPL’s real utility as a means of heightening grid efficiency. In fact, an investment in BPL is likely to be far more profitable for a power company if it stays out of the communications business entirely.
Tiny Ambient Corp is a pure play on BPL. This week, it won a major contract from Duke Energy and received private capital funding of $3 million. With a total market capitalization of barely $10 million, however, it’s as small as the emerging BPL industry itself. If BPL really does take off, the usual suspects in such technology are likely to take over.
Whether sector investment is made to create megawatts or negawatts, The Brattle Group’s report is just more confirmation of the sheer magnitude of the task ahead. Investment will be faster in some areas and slower than others. Politics—including what party holds the White House after inauguration day next January—will play a huge role in where money is spent first and what solutions are discarded.
One thing is clear, however: This investment will have to be made, regardless of whether Democrats or Republicans are pulling the strings. If the US economy is in recession, the government will lead the way. If the economy is booming, it will be private enterprise. Either way, investors who follow the money in these projects will prosper.
Covering the Costs
The opportunity in electric power is staggering by any measure. And based on how things have shaped up in prior cycles, the dollars spent will vastly exceed projections, including The Brattle Group’s, which seem most outrageous now.
For one thing, there’s politics. Few issues are stirring the pot here in early 2008 more than global warming. As I reported here a couple weeks ago, some advocacy groups have taken extreme positions on the issue, such as opposing all new coal and natural gas power plants and going to court to see older ones closed down.
Their actions are no doubt well intentioned. But they’re also certain to add to system costs by delaying or preventing projects that could actually reduce carbon emissions—such as replacing old, inefficient and polluting coal-fired plants with new ones that emit virtually no acid rain, mercury and other pollutants and can later be retrofitted to reduce carbon dioxide (CO2).
Furthermore, insisting that every new plant be built to run on wind or solar is pushing up the price of needed components for this type of facility. That fact is made crystal clear in the robust profit reports of those who make them, such as SunPower and Vestas Wind Systems. Of course, even these companies are being challenged by higher raw material costs and capacity constraints to meet the kind of demand we’re seeing.
Inflation is another key concern. The double-digit inflation of the 1970s was a major reason the last power plant construction cycle wound up costing far more than envisioned. Those cost overruns subsequently led to massive disallowances by regulators, which in turn led to monumental writedowns, dividend cuts and even a handful of bankruptcies.
We can expect the same thing this time around. In fact, regulators in some states are clearly telegraphing they intend to take a very hard line on rate increases, no matter what they’re supposed to pay for.
This week, New Mexico regulators granted a $33 million rate hike to PNM Resources. That was less than half the $76.1 million originally requested. The allowed return on equity of 10.1 percent was equally meager and well below the 10.75 percent requested by the company.
Furthermore, regulators denied the utility’s request that changes in fuel and purchased power costs be automatically reflected in rates, as they are in most of the country—though regulators still plan to hear the utility’s request for an emergency fuel adjustment at a hearing slated for May 15.
The catastrophic plunge in PNM’s share price since early November 2007 is a clear sign of the high stakes involved in this rate case, mainly the extremely negative impact of unrecovered costs on its financial health. It’s also a clear warning for utilities elsewhere of the growing political pressures faced by regulators nationwide and the fact that officials will always be tempted to go for the expedient solution, rather than what makes sense long term.
Consolidated Edison got a similar shock in mid-March, as New York regulators granted only $425 million of its proposed $1.2 billion rate hike. Furthermore, 55 percent of the amount received is subject to refund, pending an investigation of $1.6 billion in utility capital expenditures for 2005-08. Return on equity was set at just 9.1 percent, one of the lowest in the country.
The decision triggered an immediate cut in the company’s credit ratings from Fitch, and Moody’s cut its outlook from stable to negative. Both raters cited the decision as raising doubt about whether or not regulators would support Con Ed’s credit quality, which is critical in view of its anticipated $2 billion a year in needed capital spending for vital system upgrades and conservation.
The New York Public Service Commission, of course, has been rocked by the political uncertainty in the state over the past year, as well as the weakening economy. That situation has likely been made worse by the sudden, ignominious departure of former Gov. Eliot Spitzer and his replacement by a relative unknown.
For example, even with the massive disallowances in this rate decision, state Assemblyman Michael Gianaris (D-Queens) is quoted as calling the increase “profoundly irresponsible.” He went on to call it “the highest rate increase in history” and charged Con Ed is in need of “dramatic reforms” to “fix” its management.
That’s obviously a politically appealing position to take, particularly when the economy is slumping and the price of energy is soaring in all forms. Unfortunately, it doesn’t do a lot to help Con Ed actually do something about the problem, such as massively investing in negawatts as management has proposed. And to the extent the added financial risk prevents or discourages Con Ed from investing the needed dollars, it could well make matters a lot worse.
Self-serving politicians are just part of the equation when it comes to paying for electricity. But they’re sure to become increasingly important going forward, as utilities ramp up capital expenditures in coming years to meet the combined challenges of updating basic infrastructure, meeting new demand with either negawatts or megawatts and complying with environmental regulations, particularly those dealing with regulating CO2.
The bottom line here is simply this: Companies that can recover their increased investment are going to see much higher earnings, dividends and share prices. In short, they’re going to be among the best investments around anywhere, particularly in an environment where companies, consumers and the economy as a whole is squeezed by rising costs for everything from raw materials to money.
On the other hand, companies that are forced to make huge expenditures they can’t recover are in for some rough sledding. They’re going to be absolutely horrendous investments.
In the US utility business, success or failure will boil down to working out a deal with regulators to recover costs and avoid rate shock for consumers. That, in turn, will depend on controlling the cost of capital spending and operating expenses, as well as maintaining good relations with the officials themselves.
The rules of the game will be slightly different when it comes to other infrastructure spending plays. But the basic premise is the same: If a company can earn a return on its investment—be it in bridges, roads, communications networks or water mains—the potential rewards are truly staggering. If, on the other hand, dollars go out but don’t come back in sufficiently, the fall from grace will be destructive in equal measure.
The global tab for infrastructure by 2030 is currently projected at $41 trillion. A lot of that is happening in Asia, where millions of people are leaving the rural areas for cities each year. The strain on resources from foodstuffs to basic metals is immense, which is why Yiannis Mostrous and I have launched Vital Resource Investor (www.vitalresourceinvestor.com).
But the surge in needed spending also extends to developed countries outside the US. Canada, for example, has an estimated infrastructure deficit of $335 billion to fill in the next few years. That’s the legacy of 40 years of underinvesting in everything from roads to water treatment facilities.
Moreover, given the country’s recent prosperity and huge federal budget surpluses, it’s easy to see the money is there to take on a project of this immensity. The country’s nonresidential construction cycle, for example, has been on the upswing now for more than four years, with very little impact from the US recession.
Again, the key is finding ways to ensure the money will flow once the investment has been made and the assets are up and running. That will require management skill and investor vigilance to ensure they’re still succeeding.
The companies that succeed will reward investors with big returns for many years. And that’s worth the trouble of finding them.
A Taste of Stagflation
Covering costs—or rather passing costs through to customers—is the biggest test for any business going forward. And it’s only going to become more so, at least for the next few quarters and possibly for several years.
For one thing, the decades-long massive gains in productivity we’ve seen for the US and world economy may be petering out. One reason is these gains were based on a scenario of very low labor costs in countries such as China, which put downward pressure on wages globally as they increased trade with the rest of the world. Without downward wage pressures, productivity gains depend on technology, which has advanced in some areas—particularly the Internet—but are generally a lot more difficult to come by.
Back in the ’70s, the price of energy and commodities was far more significant to US GDP than it is now, largely because the manufacturing sector was much larger relative to GDP. The low inflation of the ’80s and ’90s was due in large part to their lessened importance to the overall economy as manufacturing’s share of GDP shrank and prices fell.
Here in the latter half of the ’00s, however, energy and commodities have again taken on massive importance. Manufacturing is a smaller slice of the overall US economy than ever. But we’re more connected to the rest of the world than ever, too, and use of these vital resources has never been greater. As a result, rising prices are starting to have the same impact on the overall US economy—and individual companies—that they did during the ’70s.
Not every industry is being squeezed yet. But there are certainly some very good examples popping up.
The $10 billion combined first quarter losses of merging Delta Air Lines and Northwest Airlines Corp are pretty clear signs of the massive crunch on airline industry profits. The airlines have seen a massive increase in the cost of jet fuel but have been unable to pass it along to consumers in ticket prices. That’s in part due to competition in the industry, and it may also be due to airlines’ fears that demand will prove more elastic than expected, i.e., rising ticket prices bring a drop in traffic and revenue.
Another industry on the ropes now is refining. The cost of oil and natural gas has risen sharply in recent months. However, refiners have been unable to push along those increases to the price of gasoline.
That no doubt seems incredulous to many consumers, given the spike in prices we’ve already seen at the pump over the past few years. But it’s plain as day from the collapse in margins at refiners in recent quarters. And it shows little sign of abating.
Producers of vital resources such as copper have seen unprecedented revenue increases from rising prices over the past year, even if they’ve been unable to maintain production levels. Some, however, have felt a squeeze in certain regions of the world, from the spiking cost of electricity needed for effective mining. And of course, the power producers themselves are feeling the pinch from rising coal and natural gas prices this year, even though the price of electricity itself in wholesale markets continues to rise.
Financing costs are emerging as another squeeze in certain industries. The Federal Reserve hasn’t been shy about cutting the federal funds rate, with another reduction likely next week. Neither has it been averse to pulling other levers to shore up the financial system.
Nonetheless, borrowing costs have risen sharply over the past few months. Even investment-grade credits are paying premiums over the benchmark Treasury note yield that are twice as high as in mid-2007. And non-investment-grade credits are paying 700 to 800 basis points above equivalent Treasury paper, several times the spread before the credit crisis erupted.
The situation is graver still with companies that rely heavily on credit lines based on the London Interbank, or LIBOR, rate, which has spiked in recent weeks. These companies’ rising interest costs will have to come out of something.
If they pay high dividends, they may have to cut them. If they don’t, it will come out of growth budgets. Either way, it’s bad news for investors.
Financial services are an obvious point of vulnerability. And judging from the first quarter earnings results we’ve seen thus far, there are almost certainly more asset writedowns and losses ahead.
This sector has already been pounded in the stock market. And with every successive blow doing progressively less damage to the group, it’s increasingly likely the worst is well baked into share prices already.
That—plus the fact that financials will be the biggest winners when visibility clears on the credit crunch and economy—is a good reason to hang onto the best, such as Regions Financial and Well Fargo, in a small corner of your portfolio. Both companies have successfully navigated their ways thus far through the crisis. Both should be watched closely for weakness but look increasingly like the worst is behind them.
In contrast, there are sectors getting relatively little notice where rising financial costs could have a much larger impact and where the potential damage isn’t reflected in share prices. Last week, I underscored the importance of really examining first quarter financials, not just for headline numbers but particularly for exposure to near-term refinancing risk.
Credit conditions will almost surely improve over the next year or so and almost definitely over the next five. But the more debt a company has coming due in the near future, the more at risk it is to a spike in costs. And nothing is more exposed to rate swings now than a credit line tied to LIBOR.
In the May issue of Utility Forecaster—available for subscribers May 3 at www.utilityforecaster.com—I survey my entire universe of 215 essential service companies for their five-year debt exposure. One company that looks vulnerable is Consolidated Communications, which has credit lines and less than five-year debt that are greater than its entire market value. In addition, the credit lines it took on to finance recent acquisitions are tied to LIBOR.
Ironically, the telecom business itself has thus far been remarkably resilient in the face of the weakening US economy and credit crunch. AT&T, for example, reported blockbuster numbers, showing continued robust growth in wireless but also progress expanding its wireline broadband business. Even Consolidated has been covering its generous distribution by a healthy margin, which should help it navigate any difficulties from LIBOR.
There are other industries as well that appear to be standing up to cost pressures and are earning more money than ever. Entergy Corp’s huge first quarter earnings gain is a pretty good sign all is well in the power business, at least as long as producers can recover their fuel costs and run their plants well.
General Electric’s booming infrastructure business is the best possible sign for that sector, though financial services underperformance hurt the bottom line. Goodyear’s tire business also appears to be absorbing cost and recession pressures, judging from the robust profits announced today.
My general rule is anything that does put up good first quarter numbers can be considered stress tested. The economy may get weaker still in coming months. But they’ve proven themselves able to function amid the weakness.
If we’ve seen anything over the past few months, it’s that not everything is going to measure up. The silver lining, however, is we can have a lot of confidence in what is. Moreover, there’s a lot of risk priced in now with the S&P 500 nearly 200 points off its 52-week high.
There will almost surely be more damage ahead, particularly from companies that don’t measure up as businesses and cost-vulnerable sectors. But as long as companies perform, the risks from here are low, and there’s a lot of upside ahead when the overall situation—inevitably—shifts back in our favor.
Subscribe to:
Posts (Atom)
Posts
