From Pretender to Leader: Duke Lives Up to Its Own Publicity

Duke Energy has long been one of the most visible Smart Grid advocates, with CEO Jim Rogers a mainstay on the speaking circuit. To outsiders, Duke is the poster child for the greening of the electric power sector. To insiders, however, Duke has been, if not a joke, at least a smirk.

I’m pleased to say that Duke is now starting to live up to its own publicity.

(See below for a link to a Jim Rogers speech if you want to assess his aw-shucks charm for yourself. And to Smart Grid Central’s profile of the Charlotte, NC-based utility if you want more details on the utility’s size and scope.)

Getting press and politicians to pay attention was always easy for the engaging and articulate Rogers. Getting his own troops to take him seriously was much harder. Formed by a 2006 merger with Cincinnati-based Cinergy, Duke was deeply divided, with little collaboration between its AMI, distribution, and transmission organizations. It had the usual siloed departments, further complicated by the us-versus-them fights that are inevitable when companies combine.

As a result, Rogers’ public pronouncements were often accompanied by yawns and business-as-usual inside the company. Purchasing and piloting authority was scattered between departments who rarely took the time to consult with each other, much less to create a coherent roadmap. The transmission department was a partial exception. It followed a disciplined approach, beginning with a roadmap, and then methodically putting it into place, including filing rate cases in several jurisdictions.

As a result of this lack of direction and coordination, many vendors went in for pilot programs with Duke, but few came out with large-scale deployments. We used to joke that the hard trick was to find a Smart Grid vendor that had not had a pilot with Duke.

Now, however, Duke has become a leader in deeds as well as words.

Changing Course

In the last year, Duke has started to put its Smart Grid concepts into play. And it has finally stopped playing the field and begun to select long-term partners —most notably Cisco Systems, Convergys, and Ambient.

In late June, for instance, it announced it would join forces with Cisco —the world's largest networking company —to fast-track development of a state-of-the-art Smart Grid. The three-year partnership will develop an end-to-end communications architecture based on Internet Protocol and other open standards. The two companies will jointly evaluate a variety of hardware and software, and oversee installation and testing of throughout Duke's service territory. In addition, they will develop and install home energy management devices to help customers control and reduce electricity consumption.

The resulting system stands to become one of the most comprehensive and interoperable architectures in the electric utility industry. That’s the kind of pioneering leadership Rogers has always implied but until now has not delivered. The company is also collaborating in China on new clean coal technology, and cautiously exploring nuclear options at home.

Improving Relations with Regulators

Duke is also starting to improve its formerly contentious relationship with regulators. It reached a settlement with consumer and business groups regarding its Indiana Smart Grid proposal, where it seeks regulatory approval to install 800,000 smart meters and other Smart Grid technology.

In Ohio, Duke Energy later this year will launch a five-year deployment, including more than 700,000 electric smart meters and 450,000 natural gas smart meters. The company also is laying the groundwork to bring the Smart Grid to three other states it serves —North Carolina, South Carolina, and Kentucky.

What Others Are Saying

Duke’s capital expenditures are pegged at $25 billion over the next five years. With Ohio regulators recently approving a rate increase, prospects are good that much of that money will be allowed into the rate base where it will earn a regulated return.

In July, Motley Fool’s CAPS community gave Duke a four-star rating, indicating they thought it stood to beat the market in the months ahead. Oppenheimer Analyst Shelby Tucker also names Duke (along with PG&E) as a top pick for the long term and reiterated a Perform rating in September after a visit to the company. Even so, Tucker warns that Duke may miss consensus forecasts. Like all utilities, Duke must struggle in the short-term with lower demand due to the continued weak economy. In July, the Energy Information Agency (EIA) said total U.S. electricity demand would drop 2% in 2009 before rising by 0.8% in 2010.

Progressive, pioneering utilities are rare in our conservative industry, but badly needed as we begin the Smart Grid transformation. From where I sit, it’s great to see Duke stepping up to this important role and keeping the promises Rogers has been making for years. Use the Talk Back form below to let us know what you think.

   Jim Rogers’ 2008 talk at the Aspen Institute (YouTube video)

   SGN profile of Duke Energy

   CNET story on Cisco’s Smart Grid plans and Duke partnership

   Motley Fool commentary on Cisco

   SGN story about the EIA forecast