I appreciate the opportunity to come here and talk about what is happening today in the electric power industry in the United States. I'm especially glad to be talking to engineers. With deregulation upon us, we are all hearing a lot from utility managers and marketers, stockholders, politicians, consumer groups, government analysts and media pundits about what will change, what it will mean, what it will cost, how prices will be set and profits will be retained, and about all the new options and pitfalls that end users face. I don't deny that these things are important. But they overlook one overriding fact: without engineers there would be no power to sell or buy and no way to deliver it. The real power behind the U.S. electric power industry is and always has been engineering expertise. That's why I jumped at the invitation to come here. You are the people I need to talk to.
Later in this session, you will be hearing presentations that focus on specific industry standards and how to apply them in your work. My purpose is quite different. I am here to paint a general picture of the role standards play in the global marketplace, and why that role is important. More specifically, I am here to warn you that a crisis is brewing. It's a crisis that shows every indication of dramatically weakening the economic and technical health of the U.S. electric power industry. It has the potential to make our best technology unmarketable, to force us to adopt new standards for our domestic power grid, and ultimately to shift thousands of engineering jobs overseas. It is a crisis that has already struck other U.S. industries and left them desperately scrambling to recover.
I am also here to talk about an opportunity. If we exploit this opportunity, it could dramatically strengthen the economic and technical health of the U.S. electric power industry, open up profitable markets around the world, spur the kind of innovation the industry has not seen for decades, and preserve and create thousands of engineering jobs. I have seen U.S. industries take advantage of this kind of opportunity, and, as a result, they lead the world. It should not surprise you that the crisis and the opportunity are two sides of the same coin. That coin is already in the air. How it falls—heads or tails— depends, in part, on what you do when you leave this hall today.
I have had this photograph hanging in my office for years. To me, it symbolizes a lot of things. Electricity as the energy of American life and progress. The enduring success of the U.S. electric power industry. The projection of American technology into the world. The awe-inspiring mystery of electricity itself. More recently, it has come to symbolize that this country is about to get zapped—twice. First, by deregulation.
This is no surprise. The voltage for this zap has been building since large-scale users began developing their own generation and co-generation capabilities in the 1970s and then won the right to sell their surplus power to the utilities. Today non-regulated power suppliers are their own power generation industry. They outnumber electric utility companies 34 to 1, provide almost 10 percent of the nation's generating capacity, and contribute more than half of the nation's investment in new generating facilities. As you might expect, most of these non-regulated players have grown up meaner, leaner and more efficient than their regulated counterparts—after all, that's how capitalism is supposed to work in this country. So the electric utility companies, seeing the writing on the wall, have been selling off their generating operations, often to overseas giants. But they have held on to their individual patches of the grid, betting that there are future profits in providing transmission and distribution services to all those upstart power suppliers.
To consumers, whose only real option for seventy years has been whether to pay their electric bills on time, this will mean a wave of mail promotions and telemarketing campaigns from electric power suppliers all over the country. But what does it mean to electric utility engineers? Right now it means chaos. 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 and controlling what. Many of you in this room probably don't have a clear idea of where they will be or what they will be doing four or five years from now. And the companies you work for don't know either.
Like I said, chaos. Keep in mind, though, that a jolt like this doesn't have to be a bad thing. The breakup of the long distance telephone service monopoly years ago initially triggered untold confusion. It also opened the sluices of market competition, spawning dozens of new companies and new technologies, accelerating the development of today's wireless communications, and creating thousands of new engineering jobs. Virtually overnight the frumpy old "telephone company" became the vibrant and glamorous "telecommunications industry," and TV personalities were tripping all over each other to become on-camera mouthpieces. We could use a little glamour in the electric power industry. Over the past twenty or thirty years, demands on the system have changed dramatically, yet power production technology has changed very little. Much of the infrastructure is aging and edging toward its design limits, yet cost-cutting has favored "maximum asset utilization" over equipment replacement. There has been little or no motivation to innovate. Experienced 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 a long distance call used to be just a long distance call. Deregulation is likely to change all that. I don't know if we'll ever hear Candace Bergen purr about "10 cents a kilowatt-hour," but already we are getting an idea of what the future of electricity will look like. For years, high-tech gurus have been predicting "smart homes" and "smart offices" that will maintain optimum energy usage as demand changes. And when those mass mailings and telemarketing campaigns start up in earnest, we'll see power suppliers offering features that not even Thomas Edison could have dreamed up. The dowdy old "electric company" is about to become the sexy new "Energy Industry." So, where does all this leave the electric utility engineer? Potentially, with a wide open field. A fundamental shift like this one in an industry that is indispensable to our society needs solid technical expertise to ensure continued reliability as well as innovation. And that means fresh engineering challenges and opportunities.
But there is a problem, and here is where we add some dangerous amperage to the zap of deregulation. Although we have all seen this tectonic shift coming for years, we have somehow managed not to prepare for it. And I mean to tell you, we are not prepared. The success of this new "Energy Industry" relies on the development of a truly nationwide grid that will deliver 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. Thousands of seamless interfaces will be required where power needs to be monitored, measured and controlled. New metering and switching technologies must be developed and tested. Definitions of and parameters for power quality must be decided. Most important, the people involved—everyone who generates, transmits, distributes and meters electricity, many of them now competitors—will have to cooperate like family in a marketplace that, at least in the beginning, will probably resemble a free-for-all.
Through all this, demand for electric power is expected to continue rising dramatically. DOE estimates that the U.S. electric power industry must increase capacity 45 percent by the year 2020—an average of 1.3 trillion additional kilowatt hours of power each year every year. And, of course, the flow of power must remain 100 percent reliable. This nation depends on it. Ninety-nine percent is not good enough. Ninety-nine percent reliability means that the power would be off in this country 14½ minutes a day.
What has been the industry's response? To gradually dismantle the very system needed to meet the challenge. I am talking about the voluntary standards system. For decades the electric power industry supported technical standards committees in organizations like ANSI and IEEE and almost 600 others. When needed, they created 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 U.S. voluntary standards system has been neglected. The traditional players in the industry have largely stopped sending technical experts to committee meetings—in part because they don't want to commit time and money to anything until they see where the industry is headed; in part because there are, quite frankly, a lot fewer technical experts in the ranks than there used to be. On the other hand, 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, because they have no idea how important it is.
The bottom line is that virtually all of the voluntary organizations involved in creating standards are now severely underfunded. Many will not survive. When they disappear, so too will some of the very best forums for exchanging and discussing ideas, forging professional relationships, and building a solid technical foundation for the future. It astonishes me that the U.S. electric power industry, now at a crucial moment in its history, is about to take a dramatic leap into the future with its eyes closed. Then again, that's kind of the way we things here in the U.S. We're not very comfortable or practiced at planning things years in advance. Our philosophy is more "see a problem, solve it; see a problem solve it; see a problem ..." A technical challenge pops up, established companies and entrepreneurial whiz-kids rush in, each with their own solution, and there ensues a great bloody brawl in the marketplace.
We let customers decide which widget is best, and to be honest, we have done all right. When the dust clears, the winning widget, more often than not, is a good choice. And we make that widget the basis of standards for the industry. This means that every good idea has a shot at changing our standards and becoming the new industry leader—which is a pretty good incentive for innovation. Seems simple. And really there should not be any good reason why fighting it out in the marketplace can't work when deregulation hits the electric power industry.
But there is. I mentioned that we are about to get zapped twice. The first one—domestic deregulation and the neglect of our voluntary standards system—should certainly be enough to shock us. But it won't kill us. The second zap might.
Let me tell you a story about the glamorous and wildly successful "telecommunications industry." Telecom is big business. Nobody needs to tell you that. Pagers, cell phones, PCS devices—ten years ago nowhere; today everywhere. Since I started talking, I'll bet that at least a dozen of you here in this room have been paged or gotten phone calls or even faxes. If it weren't for wireless voice mail, this whole speech would be punctuated by ringing noises. 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 because wireless promises not only more convenient communication for current telecom users but also the possibility of extending reliable communications services to even the most remote regions of the world.
The U.S. response 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 ambushed. 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 competitors formulated an international standard for the current generation of wireless devices and services. It is called GSM. It is different from any of the current U.S. technologies, and faster than anyone could dial 911, it was on its way to being signed, sealed and delivered—which would have given the Europeans a virtual lock on the world market. Only a desperate, all-out effort by U.S. industry averted a disaster at the last minute. Needless to say, shockwaves are rippling through board rooms all over this country. For decades we have dominated practically every technical market around the world. In almost every case, the U.S. standard has become the de facto international standard, no matter how long the world had to wait.
But no more. The rules have changed. The reality of the global economy is that it only works if the playing field is level for everyone. International technical standards are one way to level the field. They help ensure interoperability and give buyers some confidence that a piece of equipment offered by a manufacturer in Bangkok will work side-by-side with what they bought last year from a manufacturer in Kansas City. The idea is to get everyone pointed in the same direction before the race begins, so that the eventual winner is the fastest dog, not the one who has an edge because he set the rules. From a business point of view, that seems fair. But from a technical viewpoint, it is dangerous. Instead of standards being set after rough-and-tumble competition identifies a clear technical winner, in the new international arena the standards are set first and then everyone starts to compete. This means that unproven, inferior technologies could become international standards.
To make matters worse, member nations of the World Trade Organization, including the U.S., have agreed that any country that decides to buck the system by sticking to its own standards can be viewed as "raising barriers to trade" and severely fined or otherwise penalized. So now, not only can we have unproven, inferior technologies as international standards but everyone has to adopt them. You can understand how the U.S. telecom folks feel. Not only did they suddenly find themselves trailing in the global market, they were almost forced to adopt someone else's standards for their own operations here in the United States. What a predicament that would have been! They 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 they neglected to send sufficient technical representation to the standards meetings.
Does this sound familiar? Anyway, invigorated by its success in telecommunications, 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. Ladies and gentlemen, this is the crisis I alluded to earlier. I am here to warn you that the wolves are at the door. They are betting that, in all the confusion of deregulation here at home, you will not hear them howling until it is too late.
Fortunately, I'm from the Government, and I'm here to help. Let me start by putting the threat in perspective. The electric power industry is going global. We think of it as global now, but there is a lot of room for growth, especially when you consider the fact that, at most, only half the people in the world have daily access to electric power. Many companies in Europe long ago wrote that fact into their business plans. They have been steadily building a global infrastructure that is paving the way for marketing efforts in the future. They have been buying up both generating and equipment manufacturing capacity around the world. They have deeply penetrated largely undeveloped and underdeveloped markets. They have 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 in Britain, Australia and South America, for example. But this rather modest international experience has not really prepared us for what is about to happen. With so much time and effort already invested in the global market, European companies and consortia are eager to exercise as much control as possible over the international standards for the industry. They know that writing the standards will not only allow them to build and market the technologies they are most familiar with but, because of the new "Barriers to Trade" rules, will also effectively lock out of the world market 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? 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. Most 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 IEC membership of 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, giving a very broad voice to their technical recommendations.
But again, their voice sounds so strong because ours is so weak. IEC is an international organization of nations seeking the best solutions for the long term. The widely recognized technical leadership of the United States has, until recently, been there as a reliable guide. Not having that leadership at the table any more has left most members with little choice but to follow the European lead.
These data are for ISO, but the picture is essentially the same for the IEC and other international standards organizations. Clearly, the financial support behind U.S. members lags far behind the support that delegations from other nations enjoy. With its financial crisis, the Russian Federation can be forgiven. But how can we, as the world's largest electric power market and the world's most robust economy, justify our position? Are our stakes in the global market no greater than those of Denmark and The Netherlands?
Money isn't the only area where our participation is flagging. In 1998, the U.S. National Committee of the IEC proposed only 32 of the 232 new work items brought before the organization. That's fewer than either France or Germany, which means that fewer of our recommendations for standards were considered.
Despite all that, when we do speak up, our opinion counts. Only twice in the last quarter of 1998 did the U.S. cast a ballot for a Final Draft International Standard only to have the final decision go against us? Just twice. In other words, most IEC members vote with us—which, as you can see, is not true of the three most prominent European members. There is also a perception that an individual company or engineer can't move mountains—that if you want to get standards passed, you need a consortium. Well, don't tell Kodak that. Kodak's intensive participation in ISO committees years ago enabled Big Yellow to have its old ASA standard crowned as the new international standard—a coup that ensured Kodak's continuing leadership in the industry. And don't tell Alex McEachern that. As many of you know, Alex is the CEO of Dranetz/BMI, which has much of the world market of power quality monitors. He is determined to protect that market from unfair standards practices, and for that reason volunteers as the U.S. delegate to the IEC Committee on Measurements. Armed with determination and a notebook computer, Alex seized the opportunity to become the recorder and editor of the committee's minutes. This initiative has put him in the position of being able to influence the process and, through his vote, preserve competition in the market. He is a shining example of what individual initiative can achieve in the international standards process. A shining example of what must be achieved—and soon —if we are to avoid living under and doing business under standards that will weaken our domestic operations, handicap us in the global market, and sentence our engineers to designing variations on themes created overseas.
As I said, I'm with the Government, and I'm here to help. But the Government is no longer the snarling attack dog it used to be. The National Technology Transfer Advancement Act signed in 1996 puts you, private industry, in charge of standards. That Act, and other new laws, give NIST 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 crisis, we can not act for you. Look at us as an alert but largely toothless watch dog. All we can do is bark a warning.
What you do about that warning is up to you. But here is my advice:
Go back to your company and spread the word. Have your managers and marketers look into what I've been saying and figure out what it might mean to your organization.
Encourage your company to identify key technologies. At this point, none of us can see very far down the road. Still, certain technologies will be key no matter where the road turns. Identify those technologies now, and look at them in terms of the future.
Decide on a standards position for those technologies. Know what standards you want to pursue, based on the current and projected needs of the system and the area you want to work in.
Support and participate in the voluntary technical standards process here in the United States. IEEE, ANSI, ASTM, SAE, NEMA, UL—hundreds of organizations have standards committees. Have your company send its best technical people—not managers or marketers, but engineers who can make sound technical judgments. Get involved. Be heard. Stay current on what other people in the industry are thinking and where the industry is headed. It is among the best investments any company can make for the future.
Support and participate in international standards efforts. The IEC is where the action is right now, and the U.S. National Committee of the IEC is badly in need of reinforcement, but it is not the only international standards body that our industry should be involved in.
Finally, make industry standards your personal business. As I hope you realize from what I've said, standards are rapidly becoming the key to the global marketplace. Engineers who know the standards and how to apply them are becoming an increasingly valuable commodity. Engineers who help write the standards and are part of the international network of engineers who influence standards are even more valuable. Taking a personal interest in standards could prove a very wise career move.
The 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. It all depends on how we play the hand we have been dealt. Right now, we are not even at the table. The game has started largely without us. A few pots have already been won. Still, it is far from too late. We hold the cards we need to win—talent, experience, a strong engineering tradition—and the other players know that once we make up our mind to play, the game changes.
As a nation, as an industry, as companies and as individuals, this is one we have to win. We must maintain control of our future. The importance of the electric power industry to our society is too great to allow any other outcome.