Today, utilities are stuck between a rock and a hard place. When regulators hold rates flat, utilities find themselves in a bind. They are forced to respond with cost cuts and downsizing. The consequence, in too many utilities, is a lack of technical talent and an infrastructure in sad repair.

Utilities too often compounded the problem by unsuccessfully chasing higher returns through for-profit subsidiaries. Right here in the Kansas City area we have three major utilities, two of which took major positions in unregulated businesses and both have suffered mightily for their decisions. One is hemorrhaging money from the home-security company it purchased. The other, with its bond rating near junk status, closed down its power-trading business. Other utilities are witnessing their banking, retail, real estate and energy-services entities hitting the rocks.

What particularly irks me is the loss of utility talent in the regulated utilities. Of course, financial crises typically result in jobs lost in both regulated and unregulated divisions. How can we leverage our remaining talent, while increasing the odds that for-profit subsidiaries could actually make a profit? If we don't come up with a strategy to keep expertise in our companies, we will find ourselves susceptible to the next slick pitch for hardware or software delivered by con men and consultants.

Fortunately, I see several utilities that have kept deep technical talent. Let's look at DTE Energy, in my view, a premier utility. Over the years, I've been astounded at the willingness of this company not only to invest in technology, but more importantly, to apply what it's learned in its regulated business. Technology has been huge for its regulated utility, Detroit Edison, which has leveraged dynamic capacity ratings, installed superconducting cables and implemented distribution automation.

While Wall Street panned DTE Energy for what was considered an antiquated approach, the company stuck to its game plan.

I spoke with Bob Buckler, COO of DTE Energy, to find out why his company's for-profit subsidiaries are doing better than most. States Buckler, “Leveraging existing skills is critical. Every single one of our nonregulated businesses came out of skill sets developed in our core utilities. Also, we've discovered we need the right mix of individuals in for-profit companies. We've discovered that we must have both utility and entrepreneurial personnel if we are to succeed.

Today, DTE's nonregulated businesses generate a net income close to US$200 million a year, a third of DTE's total, and unlike other utilities, it is making money.

Here are a few of the for-profit initiatives now reaping rewards for Detroit Edison:

• The company started taking gas out of landfills back in 1984. DTE leveraged this experience, creating one of the largest waste-energy businesses in the country.

• DTE took its knowledge of western coal to create a coal rail transportation business. It is now one of the largest trans-shippers of coal in the United States.

• Early on, DTE concluded distributed generation would be a disruptive technology. States Buckler, “Instead of fighting distributed generation, we decided to embrace it.” Today, start-up d/tech generated $50 million of revenue this year by offering a portfolio of distributed-generation products.

Back in the regulated utility, I talked with Ron May, vice president of distribution operations, about the difficulty in introducing technology into line functions.

“Of course, we focus on the day-to-day details of running the company, but we can't ignore technology,” states May. “Unless we leverage innovation in our business processes, we have no future.”

American Electric Power (AEP; Columbus, Ohio, U.S.) is also into technology in a big way. CEO E. Lynn Draper puts it this way, “We are committed to strategically integrate technology and business.”

AEP is willing to invest in intellectual capital if it can build sustainable value. Notice that Draper is not chasing quick returns, instead looking for long-term success. Refreshing, isn't it?

So where is AEP headed? The company is presently focusing on three key corporate issues:

• Make environmental challenges to AEP's core coal-based business.

• Grow the value of regulated asset business.

• Stay ahead of the “disruptive technology” curve.

I met key executives, managers and engineers within AEP to determine if this business-focused technology initiative is real. I already knew AEP's impressive history of rolling out the latest in technology. Over the course of two days, I found innovation to be a part of AEP's culture. AEP has decided to focus on major technology trends that will deliver fundamental shifts in cost points. It also anticipates generating income from intellectual property rights. I toured AEP's research and testing facilities and found them second to none.

Having come from a 22-year stint at a research center, I was envious of the equipment and intellectual horsepower available at its John E. Dolan Laboratories (Groveport, Ohio, U.S.) supporting both regulated and unregulated initiatives. With a deep technical bench, AEP is leveraging its talent in revenue-generating businesses. For example, the unregulated-subsidiary AEP Pro Serv Inc. offers a full range of engineering, design, permitting and construction services to utilities nationwide.

AEP and DTE are onto something. Both companies look for ways to leverage technology to reinvent their core utility businesses. The also leverage what they know in unregulated subsidiaries.

We've seen too many utilities set their sights on the moon and the stars, only to find their spaceship stranded in outer space. We need to take time to stop and regroup. Let's come back down to earth and consider the talent right down the hall.

AEP Firsts

1917	First major mine-mouth generating facility
1926	First transmission line lightning-protection research
1946	First testing of 500-kV transmission line — Tidd Project
1953	First 345-kV line in operation
1962	First natural draft cooling tower in Western Hemisphere
1969	First 765-kV line in operation
1973	First mini-substation using SF6 gas insulation
1976	First major research in the United States on pressurized fluidized bed construction
1984	First use of live tank SF6 puffer-type circuit breaker
1991	First conversion of completed nuclear plant to coal-fired station
1998	First commercial operation of Unified Power Flow Controller

DTE Energy Rolls Out DG Offerings Through d/tech

Paul Horst, a former entrepreneur of the year in Michigan, runs d/tech, a start-up company that creates a portfolio of hassle-free distributed-generation (DG) solutions.

d/tech developed plug-and-play offerings, often focusing on combined heat and power. It also has a mini system operations center where DG units can be dispatched and where the condition of units operating in the field can be monitored.

The d/tech model is built around the idea that customers want to buy kilowatt-hours and process heat, and they want to buy it in the same fashion they've always bought electricity, on a monthly bill.

DG installations include fuel cells (Plug Power), internal combustion engines and turbines that provide combined heat and power. d/tech also sells DG to support the T&D system.