How U.S. Power Generators Are Preparing for 2014

Pundits, journalists, and researchers can opine about what the future holds for power generation, while engineering, equipment, and service companies can comment on how their businesses are building for the new year. But in the end, it’s generating companies that must address complex, ever-changing realities and keep the power flowing.

The business environment for generating companies worldwide continues to become increasingly complex, and not just as a result of regulations. Even in the U.S., the concerns and constraints faced by generators are many and varied. Some, like new federal regulations, are shared by all. Others derive from regional and state-specific factors. To provide our audience with a big-picture view of what some major power producers see in the year ahead, we have developed a new partnership.

The POWER Generating Company Advisory Team consists of a variable number of seasoned industry leaders who have both power plant management experience and higher-level business side responsibilities. Members agree to serve two-year terms, contribute their insights to our January forecasting issue, and consult with the editor when we plan the coming year’s content calendar.

Our inaugural group includes representation from three different North American Electric Reliability Corp. regions that have both shared and unique operating concerns:

• Melanie Green, Director, Strategic Planning & Analysis, CPS Energy
• Randal S. Livingston, Vice President of Power Generation, Pacific Gas & Electric (PG&E)
• Sharon Pfeuffer, Director and Chief Engineer, Fossil Generation, DTE Electric

In mid-November, the team members responded via email to the following set of questions. Their comments have been edited for style.

Several federal and state regulatory changes will affect U.S. power producers in the coming year. Which ones are you and your company most focused on, and what do you expect their impacts will be?

Melanie Green: Obviously, as a power generator we are closely monitoring all the pending environmental regulations that could significantly impact our business, for example, greenhouse gases (GHG), Clean Water Act 316(b), and coal combustion residuals being the highest visibility. While we participate in the process, we are also preparing project options to comply with the potential outcomes. Fortunately, we have seen some positive moves in terms of 316(b) compliance requirements here in Texas.

Additionally, as a member of the Electric Reliability Council of Texas, we are monitoring the discussions surrounding resource adequacy and potential changes to market design. Current issues revolve around incenting development of new generation in a very soft market, primarily driven by low gas prices and significant wind capacity.

Randal Livingston: At the federal level, we will be closely following the Environmental Protection Agency’s (EPA’s) roll-out of the GHG new source performance standards. PG&E has one of the cleanest energy portfolios in the nation from a carbon standpoint and currently operates under California’s cap-and-trade program for carbon emissions.

At the state level, California will reach an unprecedented level of renewable portfolio standard (RPS) generation, led by solar, and the operational impacts of this are still being evaluated. PG&E will continue to work to integrate these intermittent resources into our customer supply, which will drive a need for greater flexibility on all electric resources in the state.

The California Public Utilities Commission also recently established a policy decision on a 1,325-MW energy storage target that the state’s largest investor-owned utilities must meet by 2020 through new storage facilities.

It is still too early to quantify the impact the storage mandate will have on the energy business, as some storage technologies are still in the early stages of deployment. What’s important to note is that energy storage is just one component in California’s overall strategy of integrating renewables and that the comprehensive solution needs to be affordable for customers.

Sharon Pfeuffer: We will be watching the EPA CO2 rules for existing generation sources; we’re expecting the impacts to be significant for existing coal generation, and will favor gas generation. With the recent ruling in U.S. District Court as well as the Steam Electric Guidelines coming out of the Clean Water Act, we’re also expecting the EPA to move more quickly on ash regulations, which will certainly impact the cost of, and how, we manage ash at our coal-fired plants, as well as our wastewater streams.

Combining these regulations with Mercury and Air Toxics Standards (MATS) and National Ambient Air Quality Standards (NAAQS), as well as the economic realities of an aging fleet, we continue to look at our portfolio both for environmental compliance and reliable, cost-effective generation for the customers we serve.

It seems that every talking head is saying that the large U.S. shale gas reserves and currently low natural gas prices are “game-changers” for the power industry. How do you see the shale effect playing out in the next couple of years for your company?

Green: Texas has an abundance of shale gas, which is benefitting the consumer by keeping gas cost well below earlier forecasts. As we continue our move to a cleaner fleet, the ready availability of gas will maintain a dependable, long-term energy resource for the power sector and our customers.

Livingston: With short- and longer-term gas futures dropping, electric wholesale prices have likewise declined. This will continue to put pressure on some of the less-economic assets to either provide additional value (for example, operational flexibility), become more economic, or retire. Assets with greater degrees of flexibility and dispatchability can expect to be higher valued in the marketplace.

Pfeuffer: As gas generation becomes more competitive, there’s no doubt it will put increasing pressure on coal-fired generation. As we look at projections on natural gas prices, coming regulations, and renewables, we will be firming up plans to add combined cycle gas generation to our fleet, probably early in the next decade.

What, if any, supply chain concerns does your company have for 2014?

Green: One change I have seen over time is the increased challenge of managing parts and goods deliveries with many of our plant components being sourced overseas. This can create significant delays in obtaining replacement parts and really forces us to become much better at inventory management. Identification of critical spare components and looking for new opportunities to “co-opt” with other utilities in shared ownership of large spare parts (like transformers) is one solution.

Livingston: Events like Hurricane Sandy and Katrina and other similar large-scale events have emphasized the need for multiple supply chain sourcing. As a result, we are identifying additional suppliers in 2014 that can support our supply chain needs in the event that our vendors are not available to supply a product due to circumstances beyond their control.

Pfeuffer: If I had to pick one, I would say vendor quality control. We’ve seen an increasing trend of reliability challenges related to vendor QA/QC. This has had impacts across our company, in steam turbines, generators, transformers, and wind. In response, we’re amping up our own efforts to monitor vendor quality.

Describe the anticipated changes to your fleet for 2014 in terms of additions, retirements, refuelings, and dispatch priorities.

Green: CPS Energy currently has an extremely well-balanced and diversified fleet with nuclear, coal, gas, and significant renewable capacity in terms of wind and solar. CPS Energy has committed to shut down two of its large coal plants by 2018 and transition towards highly efficient combined cycle natural gas plants. In addition, CPS Energy is the largest wind off-taker in the state, with over 1,000 MW in its portfolio, and is the largest solar off-taker, with nearly 100 MW in its portfolio and another 350 MW in development. This enables us to continue to serve our customers with a variety of products to keep costs low.

Livingston: There will not be any significant changes to the makeup of PG&E’s utility-owned generation fleet in 2014, but we can expect a number of changes in California’s electric supply overall. The recent retirement of San Onofre Nuclear Generating Station (SONGS), the build-out of many new solar generation assets, primarily photovoltaic (PV), and the addition of recent dispatchable gas-fired plants will all change the face of daily dispatch. California is closing out of one of its driest years, and depending how 2014 shapes up, the water and snowpack could have a large impact on our available hydro generation.

Pfeuffer: We will be retiring our Harbor Beach Power Plant at the end of this year and will be idling Trenton Channel Unit 8 in 2014. We continue to optimize fuel blends that will lower cost to our customers and allow us to be environmentally compliant.

If increased levels of renewable generation in the territories you serve affect how you operate your generation fleet, what do you see as the results of those operational changes in the near future?

Green: CPS Energy has over 1,000 MW of wind under contract and nearly 100 MW of solar in our portfolio. In addition, we are actively engaged in projects that will add another 350 MW of solar. We have a strong demand response program as well. All of these resources are components of a strong generation plan. Regardless of how much renewable generation is available, as of today, it is still an intermittent source. We must manage our baseload fleet to provide the foundation services and continue to integrate our growing renewable commitments. To successfully execute on this plan, we must continue to do a great job of forecasting our demand.

Livingston: As an increasing proportion of new solar PV comes online to meet the RPS, California will see a dramatic increase in supply in the 0800 to 1600 timeframe. Other dispatchable generation will need to be able to ramp up and down around the daily “shoulder periods” and back down at noon. We are working towards increasing dispatchability of our own solar PV facilities and exploring how energy storage can support renewable integration.

Pfeuffer: We have continued to add to our renewable portfolio, primarily wind generation in the “thumb” region of Michigan, and will meet our target of 10% renewable generation by 2015. We’ve been able to integrate wind without measurable impact on the rest of the generation fleet.

What will staff in your power plants notice that’s different in 2014, and why—procedures, equipment, staffing levels, focus on enhanced physical and cyber security, other?

Green: We continue to focus on improving safety processes and procedures for our employees and improving overall engagement. The coming year will include new training initiatives and opportunities for growth, continued emphasis on knowledge transfer, and increased flexibility of our staff.

We will be focused heavily on becoming compliant with the North American Electric Reliability Corp. Critical Infrastructure Protection (NERC CIP) version 5 standards and are looking at not only implementation but also the additional training requirements to meet the standards.

With the announced retirement plans for two of our coal units, we are working to manage our workforce and staffing levels to prepare for that event. Recognizing that plant operations is a highly specialized skill set, we need to maintain high levels of performance and prepare for the shutdown in a manner that will enable us to continue to utilize that talent in our fleet.

Livingston: Our plant staff are already seeing the differences in dispatch with more cycling on and off, with units coming on later in the day. They are being continually challenged to provide better turndown characteristics and faster ramping rates. We’re implementing new controls and procedures to help with this and the skills, knowledge, and ingenuity of our employees will be key in accomplishing this.

Pfeuffer: We will be adding activated carbon/dry sorbent injection (ACI/DSI) to several of our plants as part of our MATS compliance strategy, and the equipment will start to show up at our plant sites in 2014. We will also be adding additional measuring/monitoring equipment to our flue gas streams to support our compliance efforts. As far as staffing, we’ll continue to try to match attrition to the changes that we see coming in our fleet, with a focus on the cost to our customers.

What workforce and training needs do you anticipate in 2014 and why?

Green: Results of employee surveys have indicated a strong desire for additional opportunities. In response, we have recently rolled out our CPS University to further provide opportunities for our team to improve both their technical skills and develop leadership skills. We have a robust e-learning program of computer-based training modules that works extremely well with our workforce, enabling them to stay current on required training at their work locations. We find that investments in our staff development directly translate to improved performance and engagement.

Livingston: Skilled craft and technical workforce will continue to be in demand, both for employees and the suppliers who support this industry. We need to continue to bring in and train entry level employees and modernize our training programs to be relevant to both the technology and generational differences we’re all experiencing. At the same time, we need to continue to be able to capture and pass on the knowledge and experience of our current workforce to a new generation.

Pfeuffer: We are taking a sharper, more focused look at the skills and training of our leaders. We’ve changed the training program for our new leaders and are now focused on our existing leaders. We’re putting a lot of our training focus on human performance (HP) and continuous improvement, as well as our regulatory required training.

Our training areas of focus include business and technical skills as well as soft skills, supporting our aspirations in the area of employee engagement. Our approach to professional development includes targeting knowledge transfer and how technology can be applied to facilitate this effort, redeveloping an in-house training program for difficult-to-staff positions like instrumentation and control (I&C) technicians, and linking HP events and resets to our professional develop of all employees. This very much includes a stronger effort towards our skilled trade positions.

What changes in how you interact with original equipment manufacturers (OEMs), engineer/procure/construct firms (EPCs), and other industry partners would be most helpful to you in 2014 and beyond? Do you have a wish list for products, services, or contracts?

Livingston: OEMs and other partners that work to understand our business and work with us in an open, transparent way will always be valued. If a unit is down for an overhaul and we can’t verify where a critical part is or when it’s due back, it’s a real problem. Partners that work with us to figure out how to do something rather than explain why they can’t will be valued.

I also think that our partners who collectively generate power for California and the nation can continue to work together better. Continuing to support our professional associations, their committees, work groups, and councils is critical for operating these facilities safer, more reliably, and more affordably for our customers.

Pfeuffer: We would like to see a much stronger focus on QA/QC, in addition to a focus on cost. We’ve had several projects with significant performance challenges related to what we are calling “vendor quality.”

What other concerns keep you up at night when you look ahead to the new year?

Green: It’s always about the people. With so much change occurring in the power industry, it is essential that we continue to maintain our focus on safety as our highest priority. Building strong work teams, encouraging new ideas, and promoting creativity in how we accomplish our goals are all components of a healthy organization.

Livingston: This will be an exciting year for us in the West. It will be an important transition year in the expansion of California-certified RPS resources, a transition for some of California’s legacy resources, like SONGS, and some of the natural gas once-through cooling units, and if we have another dry hydro year, we’ll have some very unique challenges ahead of us. I know this industry is up for it!

Pfeuffer: We work really hard to minimize the environmental impacts of producing electricity, while at the same time trying to improve costs for our customers, many of whom struggle to pay their bills. Balancing those two priorities is increasingly challenging. I also worry about trying to capture the knowledge of the really talented people who are retiring, many of them with 35 to 40 years of experience in our industry. ■

— Gail Reitenbach, PhD is POWER’s editor (@GailReit, @POWERmagazine).