Alex Glenn on Securing our Energy Future

So I'll make you a deal. I won't say any engineering jokes if you guys don't say any lawyer jokes. Okay, so see if this works. In 14 years after the end of the Civil War, Thomas Edison invented the incandescent light bulb, right? Shortly after that, he did what? He powered J.P. Morgan's home with a small generator through DC current, right? And what his ideal was is to have many generators throughout Manhattan powering the city. What also happened during that time is he had competition. The principal competition was from Mr. Westinghouse, right? Mr. Westinghouse had acquired a patent from an eccentric and a brilliant Serbian engineer for alternating current to make it a practical deliverer of power, and that was Nikola Tesla. And what happened after that is Westinghouse and Edison had a war, right? And what ultimately won was not Edison and his company. Edison General Electric was ultimately bought and they dropped his name, which ultimately became General Electric, which adopted AC current. Why do I say that? That's been the foundation of our electric utility grid for the last 120 years, right? So today, what I wanted to talk about is a utility perspective of where are we today with the grid and where do we think it's going. So to give you a background just of my context from an investor-owned utility, so Duke Energy, who are we? Duke Energy is the largest electric utility holding company in the United States. We serve about 25 million people and businesses. We have six regulated utilities in Florida, South Carolina, North Carolina, Indiana, Ohio, Kentucky, but we also have a large international presence in Central and South America where we have mostly hydro facilities. And then we're also the seventh largest producer of renewable energy, wind, solar, and we have the largest battery storage project in the United States where we partnered with the Department of Energy at our Notrees, Texas wind farm. It's 36 megawatts, enough to power a small city. So that's kind of who we are on the regulated utility side, which is about 85 percent of our business. Our fuel mix has changed dramatically since 2005. We've gone from five percent of our energy generated from natural gas to 24 percent on our total fleet.

So what do we see as the trends that are reshaping the industry today? You heard some of them today. Energy efficiency being one, a lower usage by customers. We're seeing aging infrastructure. Most of our T&D system in the utility industry is 40 to 50 years old. The average life of a transmission pole is 35 years. We're seeing changing behaviors and customer preference, a slower economic recovery, and really two things driving what we see as the future is low natural gas prices and technology. And I'll talk about that. First, natural gas. Natural gas, a very volatile fuel, or has been. This chart shows in 1998 that gas was around two dollars per MMBTU, but it was going up to ten dollars, $14 in the price spikes, incredibly volatile. What that means in volatility, one dollar per MMBTU for our customers in Florida means an increase in their fuel bill of $200 million or four percent. So what happened in 2008? We had the greatest recession that we've had in the history of the country next to the Great Depression, right? And we have the shale gas revolution that has changed the face of the utility industry in Florida and in the United States. So as we look at this, if you look at the green and the middle blue color, the blue in Florida, Texas, California, and in those blue states, 44 percent to 98 percent of the energy is generated by natural gas. In the green states, it's 14 percent to 43 percent, and those percentages are going up. So we're relying on new construction with the most volatile fuel source. Now, locally with shale gas and the deposits that we have, for the foreseeable future, and by that I mean five years, the price looks fairly low and fairly stable. So as a utility executive, what do we do in planning for the future? How do we serve our load? Because we have to serve 24 hours a day, seven days a week on an instantaneous basis. Here's what we look at on major resources. There's no silver bullets. Solar, solar has great potential, right? Its cost to build are still more expensive than traditional forms of generation. The time to build is quick. The fuel costs are zero, right? There's no CO2 emissions. The Achilles heel of solar right now, though, is its availability. I can't flip on the switch and have a solar plant and the capacity and the energy coming out of that right away. Natural gas, available 85 percent capacity factor. Cost to build in the medium range, takes a little bit longer, about three years to site and build a natural gas plant. Nuclear, available 24/7, 90 to 95 percent capacity factor, extremely high cost to build and the time to build and license. If we look at Southern Company and SCANA, it has taken them 10 years to permit and build, and they're not completed yet. What about coal? Coal is off the table. Cannot build a coal plant in the United States, nor would anyone undertake that right now. So these are our major generating alternatives. Wind is up there as well with solar. Obviously, now I get asked a lot about solar, and no, this is not my EKG right here, okay? The black line, this is Florida, and this is, I'm going to show you three average days in the state of Florida and what solar produces and how we use it. And these are from actual solar facilities that we at Duke own in Florida. The black line is our load, that's our demand. The bottom axis is 7 a.m. to 8 p.m. and the green line is wind, solar is producing energy. That's a mostly sunny, sun-cloud day, which is generally what we get in Florida. As you can see, it never meets our peak demand. Why is that? In Florida, it's odd, and in different states, it's different geographic regions, right? But we peak in the wintertime at about six in the morning when we have absolutely no solar. This is what we look like on a typical Florida day. Anybody here live in Florida? Anybody here live in Central Florida? So what is this dip right there? It's an afternoon thunderstorm in Florida. We rarely get afternoon thunderstorms, particularly in Central Florida, right? Right. This is a typical summer day, and you can see for that block of about an hour, it dips down and produces nothing. So what are we doing? We're turning on our CTs, our combustion turbines, our jet engines, our peaking units to meet the peak demand, right? And this is what New Jersey looks like. I apologize for people who are from New Jersey today, right? I used to live in D.C., I grew up in Connecticut. I know what cloudy, rainy days are, and we get that for a week or two straight, right? In Florida, that's the output that we have for solar. So what's the key to solar? Storage. That is really the Holy Grail.

So what do we believe the future may hold? What are our principal beliefs at Duke Energy? One is it's going to be a much more distributed world, much more distributed world, but it's going to coexist with central station generation. Because why? Until that storage gets cost-effective and scalable, you need those central power plants. You need those peaking plants to be able to turn on and fire up a jet engine that can produce power within one minute, right? Technology is going to be a huge driver, and I'll talk about this in a minute. And then finally, customer expectations have completely changed in the last five years, completely changed. So we have an emerging technologies group at Duke Energy, and I was meeting with them last November. And what this slide shows is on the left side, it's what's the technical availability, and then on the bottom, what is the time to a significant business impact, and the size of the circle is the size of the impact to our business, right? And so the farther you are to the left and the bigger the ball, the higher the impact on our business. And as you can see, a year ago, we're looking at solar, the Internet of Things, and LED lights. Storage, we're looking at it five years out, that maybe, maybe starting to be cost-effective. Just in a matter of ten months, look at what happened. It's not just that things are moving to the left at a rapid pace, but the amount of new technology and the impacts on our grid. You all sitting in this room have the most wonderful opportunity to change the world. You really do. And it's all here: solar PV, LED lighting, low voltage power electronics, the Internet of Things that we'll talk about, smart cities, energy storage. They're all here, and it's just a question of when are some of those huge game changers going to become cost-effective. So the Internet of Things, I'm going to show you a quick video from our director of emerging technologies, Justin Hanley.

And this is all happening now. It's all happening now. One of the things, though, what's going to drive some of the changes in the industry, in addition to technology, in addition to battery storage, it's going to be you in this room, right? Right now, we touch the customer in five different ways. We start service, we stop service, we give you a bill, we tell you what your usage is in that bill, we have payment options, right, that we provide. There's outage services, we roll bucket trucks, and there are some additional products and services, maybe it's home wiring, maybe it's surge protection. Okay, but who's driving the changes to how we interact? Everybody in this room is customers, right? And how are you interacting? You're interacting with media, you're interacting with FedEx, right, with Amazon, Zappos, and how you want to get services. Twitter, right, Facebook. So we're getting bombarded as customers from different types of technology, and you want your service that way, and that's going to change. And people aren't the same. So who are these people? Well, I look at our customers. We used to look at them monolithically. You have residential customers, you have commercial customers, and you have industrial customers, right? That's not the case anymore. Customers want an individual dealing with their utility. Who are those handsome boys? I'm wondering. So those are my three boys, and there they are, Gen Y and Millennials. My youngest is a junior in high school, Patrick, and he's a millennial. He acts totally different and wants totally different things, right? He's using Uber now, he's using Uber all the time. So what does he want from an electric utility company, right? If he reports an outage, does he care? He wants to see the bucket truck, where it's rolling, when it's coming to the house, right? Who's that handsome young man? Generation Xers, right? They want different things. I want comfort and convenience. All right, this is my brother, and so this is my brother. I said, 'I need a picture of you, John,' and so he asked me, 'What are you going to use it for?' And I said, 'Well, I'm going to go to a conference.' So he's a baby boomer because it's all about him, right? So he gives me his picture on his wedding day like 20 years ago just to kind of tweak me a little bit, right? But baby boomers, right? It's time is money. We want to get going, we want to move. And then there's my dad. What does he want other than for me to pay his electric bill, right? They want budget, they want discounts, they want to be able to hit zero and talk to a real person very quickly, right? And we have to serve all of these people, and you got to balance all their expectations because baby boomers think about different things. They prefer traditional forms of communications, bill inserts, right? I'm looking at a couple people in this audience who are probably Generation Xers, and when's the last time you actually read a bill insert? Never, right? Right. But my dad, he's combing through that, seeing where's the coupon. Yeah, free light bulbs, exactly. What have you done for me lately? Where's Millennials? Right, they want technology, they want to be on the go, and they want mobility. So some interesting facts about customer satisfaction. So as you're in your business, right, and you are working with electric utilities, these are critical slides. What drives customer satisfaction with an electric provider? And it's proactive communications. As you see, this is J.D. Power scores. So 647 is basically third, fourth quartile performance in J.D. Power. So when you call your utility, you get it, your satisfaction is 647. Whereas if we email you, if we text you, if we call you, right, your satisfaction goes up exponentially. That's top quartile performance. Now what's kind of scary about this is the person who didn't get any information, just totally in the dark, right, actually has better satisfaction than if they call the utility. Kind of scary, right? But that's my dad because he's calling the utility and he's pressing zero and he's not getting anybody. But it's not just proactive communication, right? It's information. Everybody wants more information. When I order on Amazon and I click the FedEx, I can see when the package is delivered, right? When it's in the distribution system, when it's on the truck, and when it has been delivered. Look at this. If you have no information that you give to your customer, your satisfaction is fourth quartile. If you give them five points of communication—estimated time of restoration, cause of outage, time the outage began, etc.—you're in the top quartile of service in your industry. This is kind of a busy slide, hard to read, but there's two things to focus on. On the left-hand side is the time of the outage from six minutes to 30 minutes in the top left-hand corner to the bottom left is more than a day. Look at the power quality and reliability index, and this is people saying how satisfied am I with you getting my power back on. If you give five points of communication, you have top quartile performance if the person's out for a day or longer versus no communications and you get them on in 30 minutes and you were the lowest performing in the industry. It's phenomenal. If you talk to people, right, your satisfaction goes up. So we have to develop our technology, our billing systems, our distribution systems, our smart grid to be able to handle all of this and to keep it secure. Here's value-added billing features again. So overall billing payment, if we just send you a bill, it's pretty good. If we don't provide you an estimated bill, it gets better. A fixed budget, you have an account online, bill contains consumption, receive electronic bill, your satisfaction goes up. But if you get to select your own due date, right, in Florida, 50 percent of our customers are retirees in two of our most populated areas, right? They want to be able to select their own due date. When's their Social Security check coming in, right? Increases customer satisfaction. That takes automated meters, right? That takes new technology to be able to do that. If you have more technological offerings, people's satisfaction is higher. If we get a reminder when the bill is due, right, confirm that payment's received. I look at Verizon. So going back to my three lovely boys who each one of them have a smartphone, what does that mean? That means I get a text from Verizon three days into my billing cycle that I've got 50 percent of my data used. That's what that means, right? They're telling me that, hey, look out, so I can manage my children, which obviously I'm not very good at doing, right? They'll give me one, 'You're at your limit. Would you like to buy one more gig for $10?' And I'm happy about it. I'm happy that they're telling me that I'm using too much information, right? Improve satisfaction. We as an electric utility have to do that. That's what people expect. So today's grid, going back to the story of Edison versus Westinghouse and Tesla, this is today's grid by and large. We've got, it's linear, it's a one-way street. It's changing a little bit right now, right? We've got battery storage, electric vehicles, you've got distributed generation now, right? Have we come full circle? You know, Edison wanted multiple generators close to the load. Are batteries going to do that, right? What's the next grid going to look like? These are questions, but it's going to be two-way, it will be distributed, it will be more renewables. The game changer will be storage. If we can cost-effectively store energy, right, that makes solar incredibly powerful, that makes wind incredibly powerful, right? Because then I don't have to build those jet engines that I turn on to meet the peak. I can use it from a battery, right? I can use it from a fuel cell, I can use it from a car. It's exciting times. So Charles Darwin said, 'It's not the strongest or the most intelligent who survive, it's those who adapt to change.' And General Eric Shinseki, he was Chief of Staff of the Army in Afghanistan and Iraq in 2003, and what he said was, 'If you don't like change, you'll like irrelevance even worse,' right? And that's where we are. So welcome to Florida. Enjoy your time here in this amazing conference because you guys will be the makers of tomorrow's grid. Thank you very much.