2011 Utility of the Year: OG&E

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by Kristen Wright, senior editor

OG&E Chairman and CEO Peter B. Delaney

This year editors at Electric Light & Power named an electric utility five years older than its state as the magazine’s Utility of the Year. The winner is OG&E Electric Services (Oklahoma Gas & Electric, or OG&E). The utility contributed to record earnings in 2010, installs 1,500 smart meters a day and keeps customers smiling all the while.

Headquartered in the capital of Oklahoma City, the state’s largest electric utility serves some 783,000 retail customers in Oklahoma and western Arkansas. It generates, transmits, distributes and sells electric energy and has some 6,500 MW of capacity.

OGE Energy Corp.—the parent company of the regulated electric utility as well as OGE Enogex holdings LLC, a midstream natural gas pipeline business—and its subsidiaries employ 3,400 people.

To learn more about the Sooner State’s winning utility, we interviewed Peter B. Delaney, chairman and CEO of OGE Energy Corp. and OG&E and CEO of Enogex LLC.

ELP: In 2011, OG&E won the south’s top spot among midsize utilities in the annual J.D. Power and Associates’ Electric Utility Residential Customer Satisfaction study—the third time since 2003. Those in the utility industry might find this unbelievable, but the survey occurred during your deployment of 230,000 smart meters. How can other utilities follow your lead and keep customers happy during their rollouts?

Delaney: We’ve been executing on initiatives to improve customer experience. With our smart grid initiative, our approach is based on a true partnership with our customers. We’ve set a goal of not building any new, incremental fossil generation until at least 2020. In order to meet that objective, we’ll be relying on our customers to be better managers of their energy consumption. Our role is to help ensure that they have the tools and information to be successful. Throughout our deployment, this particular message has been key. We’ve kept our customers informed every step of the way by providing information prior to the installation of the meters, and keeping an open line of communication afterward. For example, we’re doing our best to ensure our customers are comfortable with the upgrade to a new meter, including taking a photo of the old meter with its reading before replacing it in case a customer has any concerns with the next bill.

We’re also working at the grassroots level providing information to stakeholders throughout our communities with local small group meetings and paid media. In addition, we have a great customer service team dedicated to smart grid that takes a proactive approach with customers, helping educate them about the benefits of smart grid, including ways customers can reduce their energy bills.

ELP: You’re deploying about 1,000 meters a day until you achieve 100 percent penetration, right? Have you tweaked your smart meter deployment strategy as you’ve gone along?

Delaney: We’re actually deploying around 1,500 meters a day right now and have surpassed 440,000 meters deployed systemwide. A large part of our strategy is centered around planning the installation routes, which we’ve tweaked throughout our deployment. For example, we recently moved up our deployment in west Oklahoma City to keep pace with WAN installation. The backbone of the smart grid system was already in place and could accommodate the installation of these new meters. This change will allow us to complete the entire OKC-metro area by the end of the year with the goal of completing systemwide deployment by the end of 2012.

ELP: How has your smart grid initiative helped consumers and the utility? Have reliability and quality of supply improved?

Delaney: One of the principle benefits of smart technology is that it puts valuable information in the hands of our customers. For the first time, they are able to see on a near-real-time basis how much energy they’re using and what that monthly bill will be in advance of the bill arriving in the mail. We’ve made the information available via an online tool called myogepower.com. A few days after a smart meter is installed, customers can log on to view their energy information in hourly intervals, helping them understand how and when they use energy. It opens the door to customers’ embracing variable pricing options. As we introduce more of our customers to these types of products, we can enhance our partnership and help reduce demand. By sharing that responsibility, we can help them make informed decisions and engage in a smart energy lifestyle, saving energy and money.

Reliability improvements also will be a principle benefit. One of the key aspects of our deployment is the installation of automated equipment on our distribution facilities to locate, isolate and help repair system faults. Once the deployment is completely integrated into our operations, we expect that customers will see increased reliability of service, including faster outage detection and restoration.

ELP: By the end of the year, wind power will make up 10 percent of OG&E’s generation, and consumers may opt to purchase it. I know the Choctaw Nation signed an agreement with OG&E in April that allows tribal office buildings near the Oklahoma-Texas border to be 100 percent wind-powered. The tribe, according to its newspaper, expects to pay $15,000 more in annual operating costs for using its standard 1.4 million kilowatt-hours. How did the agreement come about? Are other customers signing up as eagerly?

Delaney: We’re not able to get into the details of any one agreement, however, our commercial and industrial customers continue to take advantage of our wind power option. Companies of all sizes—global manufacturers, state government, universities, local retailers—are looking to wind as a cost-effective renewable energy supply. On the residential side, we’ve seen our program growth level off as natural gas prices have remained relatively stable near historic lows.

ELP: OG&E generates most of its electricity from coal-fired power plants. What, in addition to wind power, is the company doing to fight climate change?

Delaney: Our principle focus is more efficient operations and higher utilization of existing assets through our smart meter-enabled demand response programs. These programs help our customers to be better managers of their energy consumption. We’ve set a goal of not adding new, incremental fossil-fired generation until at least 2020. Achieving that goal will serve multiple positive outcomes. First, it allows time for cleaner generation technology to advance. It also allows time for the myriad regulatory issues to sort themselves out so that we make decisions that are in the best interest of our customers.

ELP: OG&E completed the 120-mile Woodward-to-Oklahoma City line and is working on additional high-voltage, cross-country transmission projects that will total more than 560 miles when completed in 2015. How far along are you?

Delaney: We actually have seven 345kV projects—more than 600 miles—at various stages of completion. About one-third of those miles will be complete in 2012. Another 135 miles will come online in 2013 with the balance wrapping up in 2014.

ELP: OG&E surpassed its 2010 demand management goals, with further reductions of 13 MW. What all are you doing in that arena?

Delaney: In early 2008, OG&E responded to the market by introducing new, rapid-deployment, energy efficiency—DSM—programs in both Oklahoma and Arkansas.

We chose programs on two criteria: 1) that they would be able to be implemented in a short time frame, and 2) that they would allow customers of all classes to have choices of measures that would help them reduce energy usage as well as allow them to better manage their energy costs.

The customized OG&E program has three distinct components: First, help the customer with their immediate need of paying the current electric bill. Second, help mitigate future billing issues by having OG&E perform a series of weatherization and safety upgrades to the homes. Finally, we recognized that education of the customer was critical to achieve long-term behavioral changes that would allow these customers to manage their usage.

We also offer a unique, four-part, interactive energy audit program for the remaining residential sector. The company provides an on-site energy audit, followed by an air conditioner tuneup. After the tuneup is complete, the customer is eligible for an incentive to help seal leaks in air distribution systems. Finally, incentives are offered for in-home appliance replacements.

In the commercial sector, OG&E offers a flexible lighting rebate program allowing customers to upgrade to higher-efficacy lamps. This program was so successful that funds for the three-year program were exhausted midway through the program.

ELP: The commute from one side of Oklahoma City to the other can take 45 minutes with no traffic; it’s the second-largest U.S. city by land area, according to the city’s visitors bureau, besting Dallas, Houston and New York City. Given that and the state’s high truck sales, do you expect much penetration of electric vehicles (EVs)?

Delaney: We do expect electric vehicles to penetrate our markets, but it will take time. We’ve had several opportunities to visit with the folks at General Motors, and they tell us they’re seeing a slow but steady number of Chevy Volts being ordered in the state. The GM experience, I believe, is a good example of what the overall trend will be in our region. We’re hoping to take delivery of our first Volt in November.

We’re also aware that PHEVs such as the Leaf are also growing in number. We’re evaluating several strategies to support their adoption and share the benefits of EV technology with our customers.

ELP: How does OG&E promote energy efficiency?

Delaney: Our energy efficiency programs, as well as our other product and service offerings, are promoted under the banner of “Positive Energy Together,” which helps reinforce the partnership we are building with our customers. We’re using traditional venues such as TV, print, radio and direct marketing, as well as newer Web-based approaches. The tag line in each of these ads is “With all your power, what would you do?” The line is taken from a song by The Flaming Lips, a globally recognized, Grammy Award-winning rock band that’s based here in Oklahoma City. It adds a definite twist to traditional utility advertising.

ELP: What is your biggest challenge as chairman and CEO?

Delaney: The biggest challenge and perhaps one of the most important components of a successful enterprise is alignment from top to bottom of one’s employees around our values, strategy and vision of the future. Alignment requires not only a common understanding, but a shared context and buy-in by employees with very different beliefs, experiences, training and education. It requires a focused effort of all the leaders, officers, managers and supervisors to continually engage their colleagues, relating their work and initiatives to our strategy. This is a continuous journey demanding perseverance, commitment and conviction.

ELP: What are you most proud of at OG&E?

Delaney: Without a doubt, it’s our members, which is how we refer to ourselves as employees. Their dedication to serving our customers and communities is unparalleled, deeply committed to a belief about the importance of reliable, affordable electric service to the economic well-being of those we serve. Keeping the power on under all conditions is in their DNA.


 

Why OG&E?

Electric Light & Power editors examined many metrics to select the 2011 Utility of the Year, including the following that made OG&E stand out.

Financials

In 2010, only 18 investor-owned utilities had positive returns. OGE Energy Corp. yielded a 1.02 percent return. In addition, the company achieved record earnings in 2010 and increased dividends for the fifth straight year. The company raised the dividend 5 cents per share, up from 3-cent increases in each of the previous four years. In 2011, OGE’s indicated dividend of $1.50 per share would be 13 percent higher than in 2006, reflecting OGE’s prospects for continuing earnings growth. In 2010, total shareholder return was 28.1 percent.

Energy efficiency programs for customers, such as weatherizing more than 4,000 homes, contributed nearly 2 cents per share to bottom line earnings.

In 2010, OG&E operating revenues were $2.1 billion; gross margin on revenues were $1.1 billion; operating income was $414 million; net income was $216 million; diluted earnings per share were $2.18; return on equity average was 10.3 percent; and total electricity sales were 28.1 million megawatt-hours.

Capital Investment

In 2011, OG&E executed the largest single-year capital investment program in the company’s history. In addition, projects totaling $1.4 billion are planned: new transmission lines, the company’s largest wind farm, smart grid, natural gas gathering lines and two new processing plants.

Generation

OG&E generates electricity from low-sulfur Wyoming coal, natural gas and wind. More than 10 percent of the company’s total generating capacity comes from wind. The Crossroads wind farm brought 227 MW of capacity online in 2011, bringing OG&E wind power to at least 750 MW—it surpassed the company’s 2007 goal to quadruple its wind capacity by 2012.

Transmission

OG&E is a member of the Southwest Power Pool. The utility’s transmission and distribution systems cover 30,000 square miles. OG&E completed a 120-mile line spanning from Woodward, Okla., to Oklahoma City and is working on seven additional high-voltage, cross-country transmission projects totaling more than 600 miles. Completion is expected in 2014.

Customer Satisfaction

J.D. Power and Associates in 2011 ranked OG&E highest in overall business customer satisfaction among mid-size utilities in its region.

Smart Grid

OG&E has installed more than 440,000 smart meters, and the work continues at a rate of about 1,500 a day. By 2012, the company expects all 783,000 customers will have the new meters served by a secure communication network that’s also being installed.

OG&E began its smart grid deployment in Norman Public Schools. Using information from OG&E’s initial smart grid study in 2010 to guide energy-use decisions, Norman Public Schools has saved an average of $7,300 a month on energy.

Demand Management

In 2010, OG&E’s demand-management programs surpassed the company’s goals with further reductions of 13 MW.


 

OG&E Timeline

■ 1902: OG&E incorporates under the laws of Oklahoma Territory.
■ 1949: OG&E becomes first company to use gas turbines combined with steam turbines to generate electricity.
■ 1963: OG&E builds the world’s largest combined-cycle power plant (235 MW) at Horseshoe Lake Station, more than tripling the power generated by other plants.
■ 1977: OG&E implements SCADA.
■ 1983: OG&E uses computerized meter reading.
■ 2003: OG&E is the first electric utility in Oklahoma to offer wind power as a choice for its retail customers.
■ 2011: OG&E wins Electric Light & Power Utility of the Year award.

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