Business-as-Usual Will Stifle Nuclear, Coal Development

 

In a letter dated July 21, Duke Energy CEO James Rogers urged Senate Majority Leader Harry Reid (D-Nev.) to “include a carbon title in your base energy bill that allows this country to move forward.” Rogers argued that a business-as-usual approach to carbon regulation would stifle development of new nuclear and coal-fired power plants and make America dangerously dependent on volatile natural gas markets.

Rogers also referred Sen. Reid to a McKinsey analysis that showed U.S. GDP would grow more under a “utility first” carbon regulation scenario than it would without any carbon regulation, and that carbon allowances and efficiency improvements would actually reduce electricity bills on average by 7 percent.

Rogers’ letter arrives just as Senate Democrats were convening to debate whether to include a carbon title in an energy bill sponsored by the majority leader. The San Francisco Chronicle’s website quoted Senate sources predicting that a scaled-down bill would proceed in late July and would not include carbon regulation, but some legislators—including Sen. Joe Lieberman (I-Ct.)—are hoping to retain the carbon title in Reid’s bill.-Michael T. Burr

Posted: July 22nd, 2010 under Current News, carbon regulation, climate change, coal, efficiency, energy policy, green energy, natural gas, nuclear renaissance, renewables.
Comments: none

Today ABB announced it would pay $1 billion to acquire Ventyx from equity firm Vista Equity Partners (see press release below). The deal values Ventyx at a healthy 4-times earnings ($250 million). During a conference call, ABB executives emphasized the company’s growth potential and the greater reach Ventyx would give ABB into smart-grid related software markets, particularly in the United States.

ABB emphasized the complementary competencies and market positions of the two companies (see slide). ABB CEO Joe Hogan said the companies have almost no overlap in their businesses.

Hogan said the Ventyx acquisition will help ABB provide services in an under-served operational niche. “When you get into the nuts and bolts of utilities, which are areas we know well, companies like Oracle and SAP tend to have trouble,” Hogan said.

Interestingly executives made virtually no mention of Ventyx’s advisors group, which the company has been building for the past year. Lee Van Atta, a v.p. in the group, wrote “Gas Market Outlook” for Fortnightly’s April Energy Risk & Markets department.-MTB

>>>

ZURICH, May 5, 2010: ABB, the global power and automation technology group, has agreed to acquire Ventyx for more than $1 billion from Vista Equity Partners to become a leading provider of software solutions for managing energy networks.

Ventyx, based in Atlanta, Georgia, is a leading software provider to global energy, utility, communications, and other asset-intensive businesses, offering a broad range of solutions including: asset management, mobile workforce management, energy trading and risk management, energy operations and energy analytics. The company also provides software solutions for planning and forecasting electricity needs, including renewables.

ABB will combine its related network management business within the Power Systems division, with Ventyx to form a single unit for energy management software solutions. By providing ABB with broader access to the utility enterprise management market, the acquisition triples the energy management software market available to ABB.

“The big advantage for energy companies, utilities and industrial customers is that they will now have a single supplier of enterprise-wide information technology platforms and power automation systems,” said Joe Hogan, ABB’s CEO. “The advantage for our shareholders is a cash-generating acquisition in an exciting growth market, with a strong management team, a highly complementary offering and geographic scope, and an attractive return on capital employed.”

Ventyx has a large installed base in the US market and Europe and operates in more than 40 countries. Its customers include leading power utilities in the United States and Europe as well as industrial businesses. The company employs 900 people and reported 2009 revenues of about $250 million.

The acquisition is in line with ABB’s strategy to pursue growth opportunities that complement the company’s product, technology and geographical portfolio. It is subject to customary regulatory approvals, and ABB expects the transaction to be completed in the second quarter. ABB intends to pay for the acquisition in cash.

“Combining Ventyx’s leading software suite with ABB’s systems and unparalleled domain knowledge of the power industry will create a business that is ideally placed to offer solutions that will help to meet the challenges of rapidly evolving energy networks,” said Vince Burkett, Ventyx CEO.

One of Ventyx’s key software applications gives utilities and grid operators the information they need to better match electricity generation with consumption, even at the household level. By generating real-time information on electricity demand, pricing and availability, Ventyx’s software enables a practical business model for utilities to generate revenues from smart grids and carbon trading.

Ventyx’s load forecasting software can also help to integrate large amounts of unpredictable renewable energies, such as wind and solar power. The company provides other asset management applications to fully integrate a utility’s business and enterprise systems across the entire value chain, and a comprehensive service suite to facilitate efficient resolution of network failures.

-XXX-

Posted: May 5th, 2010 under Current News, M&A, finance, smart grid.
Comments: none

By Michael T. Burr

If you were following @FortnightlyMag on Twitter last week, you saw a stream of tweets in real time from Accenture’s International Utility & Energy Conference in Tyson’s Corner, Va. Below is an edited selection of those tweets, most of which are paraphrased quotations from the speakers indicated.

Gen. Colin Powell, former U.S. Secretary of State (April 20, 2010)

-Energy is the second most powerful force. The free exchange of ideas is the first. 1:27 PM

-Openness and democracy is the greatest weapon America has. 1:14 PM 

-China won’t become America’s enemy because they’re doing too well by being our partner. 1:25 PM 

-In my judgment and that of Kleiner Perkins, cars in America are moving to electricity. It’s a solution that makes sense. 1:03 PM 

-Fuel cells have a unique military application. #bloomenergy 1:55 PM 

-Fuel cells are a breakthrough. Think of them like cell phones. #bloomenergy 1:54 PM

-We need to be careful not to focus so much on terrorism that we forget what we can accomplish. Keep moving forward. 1:40 PM

Ray Kurzweil, inventor and futurist (April 19, 2010)

-People tend to disregard new technologies in the early years of logarithmic growth. 8:50 AM

-Exponential growth in IT is transforming every industry. Every industry will be an IT industry. 8:07 AM

-Nanotechnology is inherently an information technology, subject to exponential growth. 9:20 AM

-Solar and storage are the energy technologies that depend on nanotechnology, and they follow the law of accelerating returns. 10:40 AM

-The cost per watt of photovoltaic cells is a function of nanotech progress. 9:20 AM

-Solar energy production doubles every two years. In five years solar will reach the cost-per-watt crossover point and will be cost-competitive with the alternatives. 8:15 AM

Electricity storage is a bit behind solar. It’ll be eight to nine years before storage is cost effective. In 10-20 years, it’s a whole different landscape. 11:24 AM

-Decentralized power networks are inherently more stable than centralized networks. 8:35 AM

-We’re destroying jobs at the bottom of the skill ladder and replacing them with eight times as many at the top. 8:48 AM

Jonathan Silver, DOE loan program executive director (April 20, 2010)

-Government loans should finance technologies that private financing doesn’t support. When private financing comes in, DOE should get out. 7:55 AM

-The worst thing for private financing isn’t a bad set of rules; it’s uncertainty about the rules. 7:58 AM

-Clean tech investing is the driver of the VC industry today. 8:01 AM

-[On Fortnightly’s question RE: FutureGen status and plans:] Expect progress. Next question? 8:15 AM

Andy Karsner, former DOE Under-Secretary (April 20, 2010)

-Durable price signals are the most effective remedy for ‘capital constipation.’ 9:28 AM

-DOE has lost its focus on R&D toward scalable techs and is displacing private capital. 8:49 AM

-Congress has two approaches to policymaking — do nothing or overreact. 8:33 AM

-Congress is more likely to legislate energy policy in reaction to a crisis than it is to legislate with thoughtful deliberation. 8:35 AM

-”No policy” is a lot cheaper than “bad policy.” 8:46 AM

-The official US position on oil price policy is we don’t know and it’s out of our control. 9:12 AM

Andy Serri, Ameren (April 20, 2010)

-In Washington, the loudest party, the last to speak, rules the day. Subject matter experts aren’t in the room. 8:54 AM

Hugh McDermott, Better Place (April 19, 2010)

-As long as EV batteries carry a price premium, we will take that out of the equation w/ leasing. 3:27 PM

Mark Case, Baltimore Gas & Electric (April 19, 2010)

-BG&E’s “no losers” rebate program nets the same peak reduction as critical peak pricing and gives 100% of customers immediate benefit. 2:47 PM

-Peak rebate program will save customers $1,500 each over the 15 year meter lifespan. 2:44 PM

Chris Colbert, UniStar (April 19, 2010)

-We haven’t started construction yet and Calvert Cliffs is already big: $600 million just for permitting & licensing. 1:02 PM

-You have to convince yourself you’re not building just one reactor, but three or four. 1:35 PM

-We’re not just building a project; we’re building up the whole nuclear industry again, including the NRC. 1:30 PM

Gautham Chandra, Washington Gas Light (4/19/2010)

-We try to position ourselves to be the lowest cost platform to bring the best technology solutions to market. 10:49 AM

-The regulatory tide is moving gradually toward DG and distributed control of the grid. 11:27 AM

A.R. Mullinax, Duke Energy CIO (4/19/2010)

-We’re hedging our bets, investing in all the emerging solutions. 10:45 AM

-Once you break the electricity storage barrier, everything changes. 11:18 AM

Arthur Hanna, Accenture (4/19/2010)

-About 51% of US consumers say they don’t trust energy companies to make correct decisions to address US energy challenges. 9:33 AM

-… Yet 2/3 say the industry is responsible to solve energy problems. 9:35 AM

-The energy industry has a responsibility to take charge of educating consumers. If they don’t trust us, they’ll trust someone else. 9:48 AM

Geoffrey Colvin, Fortune magazine (4/19/2010)

-The most successful companies are very good at creating new solutions for customers’ new problems. 10:22 AM

Posted: April 26th, 2010 under Current News, R&D, Uncategorized, climate change, dynamic pricing, finance, geoengineering, green energy, investment banks, natural gas, renewable energy credits, renewables, smart grid.
Comments: none

By Michael T. Burr

 

President Barack Obama on Oct. 1, 2009, asked the Environmental Protection Agency (EPA) to draft new rules for regulating greenhouse gas (GHG) emissions.

 

The announcement represents a challenge to Congress to push climate legislation forward quickly—in advance of the United Nations Climate Change Conference in Copenhagen, Denmark, scheduled for December 2009. The House passed the Waxman-Markey American Clean Energy and Security Act in June, which would create a carbon cap-and-trade program and would impose a federal renewable energy standard. The Senate is considering similar legislation, but whether it will reach a floor vote this year remains uncertain.

 

Of course, these developments are huge news for the U.S. utility industry, but they aren’t happening in a vacuum. U.S. climate policy has evolved during the past several years through a series of lawsuits and state and federal policy initiatives. Here’s how we got here:

 

2003-Present, RGGI Forms: Then-Gov. George Pataki of New York proposed creating the Regional Greenhouse Gas Initiative (RGGI). During the next several years, RGGI evolved into a coalition of 10 states that have committed to implementing a CO2 cap-and-trade program. RGGI started auctioning emissions credits last year.

 

2003-2007, Massachusetts v. EPA: The EPA denied a petition by several states asking the agency to regulate GHG emissions from new motor vehicles as a pollutant under the Clean Air Act. Petitioners appealed the EPA decision all the way to the U.S. Supreme Court, which in April 2007 ruled the states had standing as injured parties to bring the lawsuit, and clarified EPA’s authority to regulate GHGs under the Clean Air Act.

 

2005-Present, California Kyoto Pledge: California Governor Arnold Schwarzenegger signed an executive order in 2005 committing his state to reduce its GHG emissions to 1990 levels by 2020. “I say the debate is over,” he told delegates at the United Nations World Environment Day Conference on June 1, 2005. “We know the science, we see the threat and the time for action is now.” Of course Schwarzenegger was wrong; the debate wasn’t over. The Bush administration EPA blocked the state’s GHG rules, but this summer the Obama EPA reversed that ruling and allowed California’s standards constraining auto GHG emissions to go into effect. More California rules are expected next year, and more than a dozen other states are using California’s regulations as a template for enacting their own GHG constraints.

 

2003-Present, Connecticut v. AEP: In 2004, another group of state attorneys general filed suit against several electric utilities. In that case, the plaintiffs alleged the utilities’ CO2 emissions contribute significantly to global warming, a “public nuisance” under common law. And last month, on Sept. 21, 2009, the 2^nd Circuit Court of Appeals agreed the states have standing to sue under common law, and that the case should go to trial to determine whether the defendants’ emissions constitute a public nuisance.

 

2009, EPA Reporting Rule: One day after the 2^nd Circuit’s decision in Connecticut v. AEP, EPA Administrator Lisa Jackson signed a final rule that will require GHG emitters to start measuring and reporting their GHG emissions beginning in January 2010. Although the rule doesn’t establish limits or require reductions, it sets the stage for federal GHG regulations—whatever form they might take.-MTB

 

Posted: October 2nd, 2009 under Current News, Uncategorized, carbon regulation, climate change, energy policy, regulation, renewables.
Comments: none

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Sept. 1, 2009

FOR IMMEDIATE RELEASE

Contact:
Michael Burr
burr@pur.com
320-632-5342
Public Utilities Reports Inc.

 

Fortnightly 40 Survey: Utility Balance Sheets Strained by Growing Expenses, Declining Sales

 Cost pressures portend contentious rate cases.

Vienna, Va.: Share values among America’s utility, gas and power companies have outperformed the broader market since the financial crisis began one year ago. Maintaining this performance, however, might become more difficult in the months ahead, according to a report published in the September issue of Public Utilities Fortnightly magazine (www.fortnightly.com).

The fifth-annual Fortnightly 40 study, sponsored by Accenture, ranked the four-year shareholder value performance of U.S. investor-owned utilities (IOUs) and other companies active in electric power and gas industries. The C Three Group of Atlanta, which along with Public Utilities Fortnightly developed the F40 financial model, analyzed the annual reports of 85 companies to compare a series of shareholder-value metrics — such as profit margin, dividend yield, return on equity (ROE), return on assets (ROA) and sustainable growth.

Companies leading the F40 ranking this year included DPL, Energen and PPL. Ranked among the top 40 for the first time was NRG (32), and returning to the ranking after a year’s absence were Mirant (21) and AES (37) — three companies with heavy exposure in wholesale power markets. Conversely, Alliant and Northwest Natural Gas slipped to the bottom of the F40 after ranking in the high 20s last year.

The F40 metrics — combined with supplementary 2009 data — showed the industry remains financially robust despite a substantial decline in stock prices. Cap-ex spending among the Fortnightly 40 companies grew by nearly 30 percent in 2008, topping $49 billion, and the entire industry’s cap-ex increased 17 percent to nearly $94 billion. At the same time, equity returns among the top 40 companies declined only slightly, from 15.4 percent in FY2007 to 14.6 percent in 2008.

Notwithstanding these strong figures, economic forces are putting pressure on balance sheets. Kilowatt-hour deliveries have declined rapidly in many parts of the country — with residential consumption falling by as much as 8 percent in the second quarter of 2009, and industrial sales dropping at double-digit rates. These trends, combined with the costs of ongoing cap-ex programs, pushed the industry’s total net cash flow deeper into negative territory, from -$10.2 billion in FY2007 to -$19 billion in FY2008. Yet, despite this decline in free cash, utilities have continued growing their dividend payouts — albeit at a slower pace in the first half of 2009.

To protect dividends, companies are delaying spending projects and tightening operating budgets. “We’ve consolidated spending decisions among our plants,” said Paul Barbas, CEO of number-one ranked DPL Inc., parent of Dayton Power & Light in Ohio. “We have an engineering team for our entire business that stacks up investments on a fleet-wide basis.”

Additionally, some utilities have cut their payroll, and a few have been forced to slash dividends — a move applauded by rating agencies but abhorred by shareholders. The Fortnightly 40 study concludes that future financial performance — including the sector’s generous dividends — will depend as much on regulatory relationships as it does financial management.

“Utilities need regulators to make them whole for lost revenues, and also to finance the industry’s transition to a greener operating model,” said Michael T. Burr, Fortnightly’s editor-in-chief and the F40 study’s author. “The result will be rising rates — an unpopular move in any economy, and a political nightmare during a recession. Continued strong performance will depend on balancing customers’ need for clean and affordable energy supplies against utilities’ need for low-cost capital.”

The 2009 Fortnightly 40 Ranking
Copyright 2009, PUR Inc., Vienna, VA, All Rights Reserved. Permission to cite the F40 table in whole or in part is granted to publications that acknowledge the source as follows:

Public Utilities Fortnightly magazine, September 2009 (www.fortnightly.com). Sponsored by Accenture, with methodology and analysis provided by the C Three Group.

1  DPL
2  Energen
3  PPL
4  National Fuel Gas
5  Exelon
6  FirstEnergy
7  Entergy
8  New Jersey Resources
9  Southern Company
10  Questar
11* CLECO
11* Equitable Resources
13  Edison International
14* MDU Resources
14* TECO Energy
16  Dominion Resources
17  Public Service Enterprise Group
18* Allegheny Energy
18* Sempra Energy
20  AGL Resources
21  Mirant
22  Nicor
23  OGE Energy
24  UGI
25  NStar
26  South Jersey Industries
27  Delta Natural Gas
28  Centerpoint Energy
29* DTE Energy
29* PG&E
31  El Paso Electric
32* NRG
32* SCANA
34  WGL Holdings
35  MGE Energy
36  Vectren
37  AES
38  Northwest Natural Gas
39* Alliant
39* Ameren

* Indicates statistical tie among category ranks. Because the 39th position was a tie, the 2009 Fortnightly 40 contains no 40th rank.

PUBLIC UTILITIES FORTNIGHTLY (www.fortnightly.com), published by Public Utilities Reports Inc., in Vienna, Va., is the journal of record for the U.S. utility industry, providing authoritative, in-depth analysis of trends in generation, transmission and distribution of electricity and natural gas. For more than 70 years, Public Utilities Fortnightly has delivered exclusive interviews and expert analysis to help utility-industry executives and regulators decide where to invest, how the industry will be regulated and what the future holds. Subscription Rate: $169/year.

Posted: September 2nd, 2009 under Current News, Uncategorized, credit crunch, investment banks, recession, utility stocks.
Comments: 1