A Dow Jones Newswires Column: Powercosm
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 |
