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<<<<< Powercosm idea in the DJ Power Points:For New Economy, Reliability Trumps Price
By MARK GOLDEN
A Dow Jones Newswires Column
NEW YORK -- Power shortages, deteriorating transmission systems and the
rising price of electricity have U.S. utilities scrambling to buy supplies, power
marketers like Enron trying to get rich trading the commodity and merchant
power companies' stock prices reaching new highs.
But all of this is chump change, according to the two gurus of power technology
anointed last year by uber-seer George Gilder - Ronald Reagan's supply-side
tutor who has been forecasting the success of Internet technologies for the past
decade or so.
The U.S. electric supply system will become as precise, quick, clean and smart
as a microprocessor chip, because the computer-centered economy demands it
and because the new economy companies are willing to spend the hundreds of
billions of dollars necessary to get there, according to the Gilder Group's Mark
Mills and Peter Huber.
As the computer bores even further into the running of small businesses and
homes, high-end power technology will follow.
For decades, the U.S. electrical system has been designed to be 99.9% reliable,
which means that the average customer goes without power for almost nine
hours a year. For an economy driven by CPUs, that's nowhere near good enough,
Mills says.
For any given customer, nine hours of outages may mean a day-long outage every
few years or a couple of hours-long outages in one year. Either way, it always
includes innumerable split-second interruptions in power.
Your lights, air conditioner and toaster won't notice the split-second
interruption. But with that same imperceptible outage, your computer chip is
"toast," Mills said at Merrill Lynch's power technology investor conference in
New York this week.
The new economy - not just dot.coms, but all highly automated industries from
paper mills and pharmaceutical companies to tire manufacturers - needs at least
five more nines added to the utilities' 99.9% power.
Mills sees a new industry that will provide those nines growing to $500 billion a
year in the U.S., in the process remaking the financially stagnant $200 billion
electric utility industry.
"What does it cost a company like Schwab, processing millions of dollars in
transactions a minute, to go off line for an hour?" Mills asks.
The answer is lots. The new economy is willing to pay big money for the added
reliability because a single outage typically costs a company millions of dollars.
When a split-second power outage crashes a computer network, the computers
have to be re-booted - at best. They might need to be replaced.
In a paper mill, for example, the automated process moves along at 25 miles per
hour. A hiccup in power supply can bring it all to a screeching halt, creating a
pile-up that reduces the product on the line to garbage and can shut down
production for a day or two.
Still, a $500-billion industry? Mills admits he's prone to hyperbole. But that
doesn't make him wrong.
"Discount Mill's numbers any way you want, and they're still huge numbers," said
Gregory Yurek, president of American Superconductor Corp. (AMSC).
American Superconductor's technology, by the way, was the first to get the
Huber-Mills thumbs-up for leading the revolution.
Many U.S. factories and large office buildings have added a couple of nines
already with backup generators, backed up by batteries that get companies
through the several minutes it takes for the generators to start up after the
utility's electricity goes off.
The diesel-generator industry, lead by Caterpillar Inc. (CAT), is already worth $5
billion a year.
Companies like Teledyne Technologies Inc. (TDY), Honeywell International Inc.
(HON) and the soon-to-go-public Capstone Turbine Corp. are producing more
sophisticated small, gas-fired turbines for small and medium-sized businesses.
Fuel-cell manufacturers like Plug Power (PLUG) and Avista Corp. (AVA) expect
to help homeowners get off the utility grid entirely, with commercial production
starting next year.
Companies like Bolder Technologies Corp. (BOLD) and Evercel Inc. (EVRC)
are working on better batteries to keep computers going while on-site generators
heat up.
American Superconductor, Emerson Electric Co. (EMR) and Siemens AG
(SMAWY) were highlighted by Mill as companies that build systems that handle
switching and smooth out large voltage fluctuations.
So what will happen to the electric utilities of today? Mostly, they will continue
to supply 99.9% power - crude oil to power technology's refineries. The worst
utilities will go the way of Digital Equipment or Wang, Mills said. Most others
will limp along.
But a very small third group will see high-nines power as their core business and
prosper. DTE Energy (DTE), Keyspan Energy (KSP), NiSource (NI) and Public
Service Enterprise Group Inc. (PEG), are moving into the distributed-power
business, according to an analysis just published by Merrill Lynch.
Mills said in an interview that the only "utility" company really moving into the
high-nines business is Calpine (CPN). But Calpine, which builds plants to sell
power into deregulated electricity markets, isn't a traditional utility at all.
The biggest void is for companies that can design, install and manage the
available new technologies. A few utilities are doing it, but the small firms that
know what they're doing can't handle the demand, Mills said.
At the very least, the embryonic industry is inspiring a lot of talk. Some 350
people showed up at this week's conference, about 100 more than Merrill Lynch
expected. The Silicon Valley Manufacturing Group is hosting a summit Friday on
exactly these issues with California utilities and regulators. Huber and Mills's
own three-day conference next week in San Diego starts Wednesday.
Don't bother booking a flight. The conference sold out in three days.
(Huber and Mills website is www.powercosm.com.)
-By Mark Golden; Dow Jones Newswires; 201-938-4604;
mark.golden@dowjones.com
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A bounty of companies to DD.
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