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Challenging Opportunities:
U.S. Standards in the Deregulated Electric Power Business

Gary Bachula
Deputy Under Secretary for Technology
U.S. Department of Commerce

Delivered at the Conference on "New Challenges for Measurements and Standards
in a Deregulated Electric Power Industry"
Key Bridge Marriott, Arlington, VA
December 7, 1999



First, I want to assure you that I'm not on the program just because NIST felt obliged to have someone from its parent agency make an appearance. I'm here to deliver a message. And the message is this:

To those of us whose business is the health of the American economy, the deregulation of the electric power industry is both the most promising and the scariest thing to happen since the invention of the credit card forty-one years ago.

It's scarier than a roller-coaster stock market. Scarier than overseas competition. Scarier even than an impromptu speech by Alan Greenspan.

Why? Two reasons.

First, deregulation of the U.S. electric power industry is major surgery on one of the fundamental resources of American life.

Not long ago about the only non-industrial items on the grid were light bulbs, kitchen appliances and electric typewriters. Today, everything plugs in. The backbones of government, business and industry -- and practically all the comforts and conveniences of home -- are electronic. The whole dot-com thing is nothing but electrons.

Ours is a world where we can't lose power, even for a heartbeat. So this open-heart surgery called deregulation has to go without a hitch, and during the entire procedure the patient has to stay on the job full-time.

The second scary thing is that deregulation -- as proven and promising as it is -- sets us down a path where there is no turning back. There's no changing our minds and throwing things into reverse when we hit the first pothole. Deregulation is a commitment, and we have to commit to making it work.

Now, I've been using the word scary, and I don't want to give you the wrong impression.

There are two kinds of scary. There's scary like The Blair Witch Project, where steadily increasing terror leads to panic ... despair ... doom.

Then there's the scary of a great adventure: that tingling uncertainty in your gut when you put everything on the line -- your expertise, your reputation, your livelihood -- and you face a new challenge. It's that mix of eagerness and jitters that all those aerospace engineers must have felt every time an Apollo spacecraft left the launch pad. Even when you know that you have what it takes and the payoff will be immense, the risk of being at the bleeding edge is -- well, scary.

And that's what I'm talking about. The excitement of reaching through uncertainty to achieve something monumental.

Why am I delivering this message to you?

Because you are the real power behind the U.S. electric power industry, and always have been. Without scientists and engineers, there would be no power to sell or buy and no way to deliver it. And at this crucial moment in the industry's history, what you do is going to mean the difference between "Deregulation: The Blair Witch Project" and "Deregulation: The Apollo Program."

Let's face it -- none of us is surprised at what's happening. Deregulation has been in the air since the 1970s, when large-scale users began generating and co-generating their own power and then won the right to sell that power to the utilities.

Today non-regulated power generators are their own industry. They outnumber electric utility companies 34 to 1. They provide almost 10 percent of the nation’s generating capacity and more than half of the nation’s investment in new generating facilities. And as you might expect, most of them have grown up meaner, leaner and more efficient than their regulated counterparts.

After all, that’s how capitalism is supposed to work.

The electric utility companies saw this new world coming years ago and started selling off their generating operations, in many cases to overseas giants. But they held on to their individual patches of the grid. They were betting that someday the real profits would be in providing transmission and distribution services. Not a bad bet.

It's a new world for electric utility scientists and engineers, too. For the first time in anyone’s memory, utility companies will not be controlling vertically integrated systems stretching all the way from the turbine to the end user’s meter. Different people will be designing, building and controlling different parts of the system. And right now, nobody knows who will be building or controlling what.

Many of you in this room probably don’t have a clear idea of where you'll be or what you'll be doing five years from now. And it’s no secret that the companies you work for don’t know either.

Remember when this happened in the long distance telephone industry? There was the same mass confusion. But that confusion spawned dozens of new companies and new technologies, created real market competition, accelerated the development of today’s wireless communications and Internet services, and created thousands of new engineering jobs.

Virtually overnight the frumpy old "telephone company" became the vibrant and glamorous "telecommunications industry." The electric power industry could use a little glamour.

Over the past thirty years, although demands on the system have changed dramatically, power production technology has changed very little. Much of the infrastructure is approaching its design limits, yet cost cutting has favored "maximum asset utilization" over equipment replacement. There has been little or no motivation to innovate. Veteran engineers have retired or been retired, and promising young engineers have been let go, leaving gaping holes in the industry’s technical expertise.

Electricity is just -- ho-hum -- electricity, the same way that long distance used to be just long distance.

Deregulation is changing all that. Don’t be surprised if soon you’re hearing Paul Rieser quip about "7-cent kilowatt-hours everyday, all day." The dowdy old "electric company" is about to become the sexy new "Energy Industry."

Where does all this leave you? With a wide open field. A fundamental shift like this in an industry that is indispensable needs solid technical expertise -- both to ensure continued reliability and to spark innovation. That means fresh engineering challenges and opportunities.

But there is a problem.

You see, the success of this new "Energy Industry" hinges on developing a truly nationwide grid that delivers electricity flawlessly from power suppliers anywhere in the country to customers anywhere in the country. This means that at the very moment that all the different segments of the industry are being unbundled and new technologies are about to be introduced, everything has to work together more closely than ever.

Each component and piece of equipment, every scrap of control hardware, and every line of computer code has to integrate smoothly into the whole. Seamless interfaces and new metering and switching technologies have to be designed. Parameters for power quality have to be decided. Most important, the people involved -- everyone who generates, transmits, distributes and meters electricity, many of them now competitors -- have to cooperate like family in a marketplace that, at least in the beginning, is likely to be a free-for-all.

Through all this, demand for electric power will continue rising dramatically and the flow of power must remain 100 percent reliable. Ninety-nine percent is not good enough. Ninety-nine percent reliability means that the power would be off 14-and-a-half minutes every day.

How has the industry responded to these daunting technical challenges? By allowing the very system it most needs to succeed to gradually erode. I am talking about the voluntary standards system.

For decades the electric power industry strongly supported technical standards committees in organizations like ANSI and IEEE and others. When needed, they formed consortia to establish technical standards. That ongoing work kept the industry coordinated and strong and made possible everything that has been accomplished to this point.

But for years now the standards system has too often been neglected. Traditional industry players no longer send their technical experts to committee meetings -- in part to economize; in part to withhold committing time and money until they see where things are headed; and in part because there are, quite frankly, a lot fewer technical experts in the ranks than there used to be. And when these companies don’t participate, they lose their say in the standards used by the industry.

The hundreds of newcomers in the industry -- all those start-up companies hoping for a piece of the pie -- feel no obligation to support the standards system. They don’t seem to realize how important it is.

The U.S. standards system is built on volunteerism. It does not rely on government funding. It depends for its survival on funding and technical expertise from industry, which, in turn, it supports by developing sound technical standards.

With most of these voluntary organizations now severely underfunded, many are likely to disappear. When they do, so will some of the very best forums for exchanging and discussing ideas, forging professional relationships, and building a solid technical foundation for the future.

At a crucial moment in its history, the U.S. electric power industry is about to take a dramatic leap into the future with its eyes closed.

But -- wait a minute. Isn't that the American way? Isn't blind leaping one of the cornerstones of free enterprise? A technical challenge pops up. Established companies and entrepreneurs rush in, each with their own solution. There ensues a great bloody brawl in the marketplace. Customers decide with their wallets which widget is best, and we make that widget the basis of standards for the industry.

What could be more fair? It's a system in which every good idea has a shot at becoming the new industry leader -- which is a pretty good incentive for innovation.

Is there any good reason why this approach wouldn't work in a deregulated electric power industry?

There sure is.

Let me tell you a story about the glamorous and wildly successful "telecommunications industry."

Telecom is big business. Pagers, cell phones, PCS devices, now wireless Internet -- ten years ago nowhere; today everywhere.

The market for telecom equipment and services in the U.S. is huge -- $320 billion in 1997. For overseas markets, add another $300 billion.

Obviously, the stakes are high. In the wireless arena, in particular, the potential for growth is staggering.

The U.S. response to this opportunity has been exactly what we might expect -- a number of competing wireless technologies battling for domestic market supremacy, each hoping to eventually emerge as the new U.S. standard and, by tradition, the international wireless standard.

But they were outmaneuvered. In the first round of this continuing market struggle, the European Community and its telecom giants Nokia and Ericsson, working through international standards committees, made a preemptive strike. While U.S. firms were distracted by their own domestic marketing scuffles, these savvy European competitors formulated an international wireless standard called GSM.

GSM is different from any of the current U.S. technologies. And faster than anyone could dial 911, it became the global favorite. Half of the world’s wireless customers use GSM technology. The other half is fragmented among 5 competing standards, including those backed by U.S. firms.

Competing U.S. interests realized almost too late the much greater threat posed by European competitors. Had they joined together behind one U.S. standard, they might have fought the European standard successfully right from the start. Instead, their "squabbles" ensured that all the U.S. proposals failed.

Needless to say, shock waves rippled through board rooms all over this country. For decades we have dominated technical markets around the world. Often, the U.S. standard became the de facto international standard, no matter how long the world had to wait.

But no more. The rules have changed.

Telecom folks claim that they were caught completely by surprise. But, in fact, they shouldn’t have been. The United States is a full voting member of the international standards committees on telecommunications. The industry got blind-sided largely because companies neglected to send sufficient technical representation to the standards meetings.

Does this sound familiar?

Anyway, invigorated by its success in telecom-munications, the European Community has set its sights on other global industries. And guess who is high on the list. That’s right. The electric power industry.

The official U.S. government position is that we have NOT defined what an international standard is..... but have essentially said that if a standard is used globally, then it's essentially international. Other governments disagree with this approach, but this is our position. The issue of raising barriers to trade occurs when a country selects/adopts a restrictive, design-specific standard that it knows benefits its own technology, rather than that of others. In fact the WTO does NOT specify ISO or IEC as international standards.... so having to adopt unproven, inferior standards is not an issue.

One of the great advantages of deregulation is that it frees American industries to compete full-force in the world marketplace. The airline and telecommunications industries are obvious examples. But for the electric power industry, the potential for global growth is even greater, especially when you realize that, at most, only half the 6 billion people in the world currently have daily access to electric power.1

Many organizations have called for global electrification by the year 2050. An article in the Fall 1999 EPRI Journal discusses the scope of such an undertaking. It will involve bringing electricity to 100 million more people every year over the next 50 years -- triple the rate of the past quarter-century. Just bringing average per capita consumption in developing countries to the level that existed in the United States in 1950 will require 10,000 Gigawatts of new capacity.

Talk about opportunity!

Many European companies have been gearing up for this opportunity for years. They've bought up generating and equipment manufacturing capacity around the world. They've deeply penetrated largely undeveloped and underdeveloped markets. They've mounted intensive university R&D programs, subsidized by their governments.

Ultimately their eyes are on a whole list of big prizes. Russia. South America. Africa. China. And, of course, the largest developed electric power market in the world, the United States -- which, it just so happens, is on the verge of requiring all kinds of new technologies, equipment and services.

To be fair, some U.S. energy companies have invested overseas, buying utilities and interests in Britain, Australia, Indonesia, South America and other countries. Duke Power is one example. But overall, America's experience in the international power arena lags far behind its European competitors. And those competitors would like it to stay that way.

That's why they are focusing so intently on determining international standards for the industry. Writing the standards will not only allow them to build and market their own technologies but, because of those new "Barriers to Trade" rules, will also effectively lock out everybody with competing standards.

And they’d like to get this done as soon as possible, before engineers in the U.S. really begin spreading their wings under deregulation and, as usual, come up with some new, brighter, better ideas that might just ruin everything.

Can you blame them? It’s a good business strategy.

If we, by sending our best technical experts to standards meetings, could ensure that our technical expertise shaped the standards, our manufacturers and service providers got a head start in the marketplace, and the world followed our lead, wouldn’t we do it?

Then why aren’t we? Why aren’t we supporting and participating in international standards committees?

Part of the reason, I think, is our perception of organizations like IEC and ISO. Many U.S. companies see these groups as Old Boys clubs, where the European members vote as a bloc for purely European interests. The fact is, EC members are not a bloc. Their views and technical approaches vary about as widely as their electric power systems.

The myth that the IEC is in Europe’s back pocket grew largely from the fact that the 15 European members -- out of the total membership of about 50 -- are participating aggressively and assuming leadership positions in the organization. Essentially, they are filling the vacuum we’ve created by not being there. Add to that the fact that multinationals like Siemens and ABB consistently send representatives to the IEC National Committees in many of the countries where they are active. This gives their technical recommendations a very broad voice.

In contrast, our voice is often a whisper. In 1998, for example, the U.S. National Committee of the IEC proposed only 32 of the 232 new work items brought before the organization.

The irony is that the IEC was formed in the United States at the beginning of this century. From the beginning its goal has been to support U.S. and international interests in the electric power industry. And history shows that when we participate actively, the IEC works for us -- even today.

For example, only twice in the last quarter of 1998 did the IEC's final decision go against the way we voted for a Final Draft International Standard. Just twice. The fact is that the majority of the IEC membership vote with us more often than they vote in line with the three most prominent European members. Why? Because of our technical strength. When we’ve done our homework and presented our case effectively, we are very convincing. We can and do succeed in the IEC.

Clearly, it is time for us to re-establish our roots, to re-assume our leadership role, to strengthen our voice -- not only in IEC but in U.S. organizations like NEMA and IEEE, as well. The alternative is to surrender industry standards by default to the very off-shore power companies that have targeted the U.S. market.

This is the point in my speech where I'd love to say, "Don't worry. I’m with the Government, and I’m here to help. I'm going to make everything okay."

Sorry. No can do.

The National Technology Transfer Advancement Act signed in 1996 affirms that you, private industry, are the most important players in developing standards. It also says that the U.S. government is supposed to participate to ensure that national needs are met.

NIST has the leading role in assisting the industry; coordinating government efforts to adopt industry standards as its own; providing information and advice to U.S. companies; and warning U.S. industry when our voluntary standards system is in danger of not serving the needs of the U.S. economy. But that’s all.

In this situation, we can not act for you. We can warn you -- and, of course, host a workshop like this one, where you can discuss new ideas, decide strategies and form partnerships for protecting your best interests.

There is hope. Several companies are reawakening to the importance of international standards and working to achieve what must be achieved if we are to avoid doing business under standards that will weaken our domestic operations ... handicap us in the global market ... and sentence us to designing variations on themes created overseas.

My advice is to follow their lead. Take advantage of opportunity. The opportunity of this event. And on a grander scale, the opportunity that deregulation is opening up. The presenters that follow me will tell you how. Listen. Discuss. Then go back to your companies and act.

But don't delay. Like all of the most promising windows of opportunity, this one is narrow and growing narrower.

The legendary American electrical engineer and inventor Charles Kettering once said, "The world hates change, but it is the only thing that has brought progress." Well, we are certainly in the throes of change. Whether that means we are also on the brink of progress remains to be seen.

The stakes are high. We must maintain control of our future. The electric power industry is too important to our society to allow others to decide how it will evolve.

To some, that's just plain scary. But we see it -- as I hope all of you do -- as America’s first great challenge of the new millennium. And that’s exciting.

Thank you.

NOTES:

1.  C. Michael Armstrong, CEO, Hughes Electronics Corporation, January 1997.