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AEP CEO Mike Morris: Electrify the Economy

Mike Morris of American Electric Power suggests moves to address the nation’s energy woes.

In his 2005 book, The Bottomless Well, Peter Huber explained how America’s energy economy was shifting from fossil fuels to the electron. He argued that the nation’s top energy priority should be the construction of a 21st-century national electric grid, one that will “let cheap power chase high demand around the clock and across the country, and hasten our transition from an oil-based economy to an electron- based one.”

Mike Morris, CEO of Columbus, Ohio-based American Electric Power (AEP), is one of the people most responsible for turning that vision into reality. AEP runs the largest electricity transmission system in the nation, serving 5.2 million customers in 11 states, and also ranks among the largest generators of electricity.

AEP has outlined plans to build a new 765-kilovolt (kV) transmission line stretching from West Virginia to New Jersey. The proposed transmission superhighway would span approximately 550 miles and substantially improve the ability to transfer electricity from west to east. Such an undertaking represents a down payment on a national electric backbone, the economic effect of which would be an infrastructural advance comparable to Eisenhower’s interstate highway system of the 1950s and the opening of the Erie Canal during the 19th century. And the best part, according to Morris, is that “we don’t need a bailout to get it done. We simply need a piece of legislation that would allow the federal government to have the role that it already has in every other asset that deals in interstate commerce.”

Further, if the electrification of cars is to be practical  it will utilize power plant facilities 24/7, running them in off-peak hours, recharging batteries while one’s car is parked. The strain on electric power will be such that electricity will need to be transported longer distances and from where it is relatively cheap to places where demand is greatest at different times of the day. The existing transmission is not up to this task without severe problems. Yesterday’s typical high voltage technology energy delivery system loses about 7 to 8 percent of the energy that is generated to the point of delivery. However, modern conducting, metallurgy and computer control on the flow of energy down the transmission grid reduces those line losses to less than 1 percent.

Prior to joining AEP, Morris was CEO of Northeast Utility System from 1997 to 2003, where he led the company through a period of tremendous growth and innovation. He also served as president and CEO of Consumers Energy and, prior to that, as president of Colorado Interstate Gas. Recently he spoke at a Manhattan Institute forum in New York City where CEeditor-in-chief J.P. Donlon moderated a discussion of energy challenges and the need for a national electric grid.

Before we talk about the need for a backbone for the national grid, it’s hard to find anyone who can say anything nice about the current grid. Former energy secretary Bill Richardson called it “a third-world grid.” The president of the American Civil Engineers group said most of the equipment is very old. And the president of the Brotherhood of Electrical Workers said a lot of this stuff is so antiquated that if we don’t do something to fix the existing grid, we could face a 2005 style blackout, or roaming blackouts. You mentioned once that South Africa faced a similar problem with its grid infrastructure, which led to severe power disruptions and economic turmoil. How bad is it?

When former Secretary Richardson made that comment it was cute but not accurate. Our grid is among the most robust in the world. It is old. But so am I. If you’re well cared for, you can continue to work and work well. Last year, the investor-owned utilities put about $10 billion to work on the interstate transmission grid. But Ed Hill, who runs the International Brotherhood of Electrical Workers, is right, we need to continue to put that capital to work. American Electric Power and the 130 or so investor-owned utilities across this country take this obligation – to ensure that the lights stay on – very seriously. New York has had outages in the ’60s and the ’70s, but ConEdison has a duplicate loop cable system of 345,000 volts underneath the city that serves you all very well 99.9 percent of the time. Now I appreciate that if one experiences the 0.1 percent time when it isn’t, it becomes a bit aggravating. But the regional model we use is good. That’s why we’re advocating a larger backbone grid, which would carry electricity from coast to coast and border to border.

In signing the American Recovery and Reinvestment Act, President Obama will ramp up funding for renewable energy, but the dirty little secret about renewables like wind power is that it requires an expensive grid to take power from where the windmills are generating it, presumably in the center of the country if Boone Pickens has his way, to either coast. AEP’s proto-backbone 765kV transmission grid seems to be a start. But don’t we need a backbone grid of at least that capacity for the entire nation? If so, how will it get built? How long will it take? How much will it cost and who’s going to pay for it?

Without question we ultimately need a backbone grid, not only to allow renewables to come into the equation but to minimize the amount of capital that’s put in the next generation fleet to move power around. It will allow us to rationalize how many power production facilities we’ll need. It will allow companies to retire facilities that would require higher investment to maintain in a carbon-constrained environment.

As to how much it’ll cost, transmission usually costs a few million dollars a mile. So you can get to multiple billions of dollars in a hurry. We’ve seen numbers as big as $60 to $80 billion. But it is financeable with private capital. Because it doesn’t come cheap, we would have to do this project by project. It would be impossible to undertake this all at once. For example, the 100-mile line that we did from West Virginia to Virginia took 16 years from beginning to end. (Thirteen-and-a-half years to get authority to build it and the rest of the time to physically build it.)

Now who would pay for it? It would be the customers who use the kilowatts in the system. But think about this. I used to be CEO of Northeast Utilities, that serves all of Connecticut save New Haven, the western half of Massachusetts and all of New Hampshire save a couple of small parts in upstate New Hampshire. Northeast Utilities has built $2 billion worth of transmission because they have a multistate agreement in the New England states that allows for this. Electric rates went up by mills per kilowatt hour – not cents per kilowatt hour. Why? Think of this national grid with literally billions of kilowatt hours flowing over it. When you spread the cost over that many users what you see on your electric bill becomes a pretty small item.

Given that most of your plants are coal fired and that half of the country’s energy need is met by coal, are you concerned about the heightened political attacks on coal by environmental interest groups and the new administration?

It’s very difficult to counter those kinds of campaigns, and everyone has their own ideas about fossil fuels. I would remind people that several decades ago when concern over acid rain was high the industry used technology to capture 90 percent of the sulfur oxides and nitrogen oxides; every decade since, the air has gotten cleaner. Ultimately, we will come up with better technology to capture the carbon. To me, that’s the definition of clean coal. Perfectly clean? No, but there’s no energy source that is perfectly clean. Where do you think the metal that went into the manufacture of windmills comes from? Those who argue that we should shutter all coal plants in the U.S. simply have not thought through the energy issue on a much broader global basis. Just last week China announced that they’re going to up their coal production and utilization by 30 percent. They use 70 percent coal-based electric generators today. India, Indonesia and Brazil burn coal and will continue to do so. Today, 43 nuclear facilities – all CO2 free – are being built around the world but not one in the U.S. This needs to be rectified. If I have the opportunity to speak to the President, I’ll tell him to temper the administration’s thinking to be more realistic about the balance between coal and renewables.

About Jennifer Pellet

As editor-at-large at Chief Executive magazine, Jennifer Pellet writes feature stories and CEO roundtable coverage and also edits various sections of the publication.