The Business of Power Quality

After deregulation began allowing competition for power quality contracts in the “new” electric utility industry, energy service companies (ESCOs) have been able to bid for power quality work in certain states alongside electric utilities and electrical contractors. But that was okay; there was supposed to be plenty of work to go around, right? According to a study from Business Communications Company, Inc., Norwalk, Conn., the U.S. market value of major power quality-related products was projected to spike from $3.8 billion in 2000 to $7.1 billion through 2006, an average annual growth rate of 11% (Figure below). But perception and reality are two very different concepts. The irony of this situation is as more power quality products and systems hit the market, the more customers seem to revert to a crisis-only reaction mode in responding to power quality problems.

Although the sky won't fall if electric utilities and general industry continue to downplay the warnings of power quality experts, there are some serious economic consequences to taking a reactive stance to power quality issues. Researchers Kristina Hamachi-LaCommare and Joe Eto of the Lawrence Berkeley National Laboratory, Berkeley, Calif., report that electrical power outages and blackouts cost the nation about $80 billion a year. According to their report issued earlier this year, the commercial sector accounts for $57 billion of the total, while the industrial sector accounts for almost $20 billion. Jacksonville Electric Authority (JEA), Jacksonville, Fla., the largest community-owned utility in Florida, surmises that the average loss of revenue during system downtime due to power quality issues totals just more than $1 million per hour (Table below).

From these statistics, it's evident that despite the seeming lack of interest in preventive, proactive power quality strategies by many end-users, there's an underlying demand for power quality experts to protect critical systems in commerce, industry, and at home. Whether at the electric utility, ESCO, or private consultant level, power quality professionals that can provide troubleshooting and crisis intervention may soon be called upon to also provide preventive and proactive power supply strategies to their customers.

Since the advent of power quality as an industry, private consulting firms have had to adapt to changing trends. The market has demanded that companies like Santa Clara, Calif.-based PowerCET shift its focus from offering monitoring services to prevent outages to specializing in the forensics of failures. ESCOs and electric utilities, by contrast, entered into power quality as an additional way to make money. They set up business units to sell power quality services through contracts in much the same way that they sold electricity. However, when the customers declined to pay for the preventive measures, these companies closed the doors on their power quality divisions.

Despite this trend, wise power quality professionals can learn from the rise, and sometimes fall, of these approaches to establishing a power quality business. It's true that there is money to be made, but entering the industry with sales as the sole objective doesn't seem to work anymore. One must believe in power quality as a way to make the world safer, cleaner, and more efficient — and have the patience to wait until the rest of the world catches on.

The adaptable private consultant. “If you have enough money to do it right, do something else,” says Bruce Lonie, president of Santa Clara, Calif.-based PowerCET. This seems like unexpected guidance, coming from someone whose business has experienced success in the power quality and electromagnetic environment since 1986 — that is until you hear the full story of PowerCET. In order to survive, Lonie and his staff have had to creatively grow the business in ways that weren't necessarily in their original plan.

About 20 years ago, Lonie went from working on commercial power-conditioning products in Chicago to trying to build the next-generation power monitor. When neither of those endeavors took off, Lonie and Tom Shaughnessy, vice president of PowerCET, started their power quality and electromagnetic environment consulting business in Lonie's basement. Soon after, they moved to California, but the business still struggled.

“We were pretty naive,” says Lonie. “We thought our friends and salespeople who were reselling power-conditioning equipment would refer business to us. But what you learn very quickly is that all the consultant does is extend the process, so the last thing in the world they want to do is get the customer asking more questions.”

PowerCET needed a new plan, so in addition to its original consulting business, the entrepreneurs began offering education and training — the C, E, and T of PowerCET. “The seminars have been the way we've marketed our consulting business,” says Lonie. “After people spend a week with you in your class, they think of you as an expert in the industry. So when they have a problem they can't solve, they have a tendency to call you in.”

Marketing is a vital tenet in PowerCET's business plan. Every customer in its customer base is contacted at least twice a year. “The biggest problem people have in getting into this business is they don't have a good business plan,” says Lonie. “They don't understand how to market, and they're not committed to advertising.”

As an example, he uses retirees from electric utility companies who buy energy analyzers and power monitors to set up their business but don't invest in a marketing plan. “They're the Maytag repairman waiting for somebody to call them,” says Lonie.

PowerCET's ability to adapt to the marketplace didn't end with providing additional services. About 10 years ago, Lonie used his savvy in forging strategic relationships to write a field handbook about power quality analysis for a power-monitor manufacturer. Following the success of the book, the manufacturer approached PowerCET to teach a course based on the handbook. Instead of agreeing to teach just the one course, self-proclaimed opportunist Lonie offered to teach all of the courses. “Basically, they outsourced their training to us at that point,” he says.

Since then, PowerCET has developed curriculum and teaches classes for other power-monitoring manufacturers. Working with competing companies isn't always easy, but PowerCET's consultants are adamant about not recommending one manufacturer over another. “You walk a fine line because all the different products have pluses and minuses,” admits Lonie.

When people ask him which power monitor is his favorite, Lonie's answer is very diplomatic. “Tell me what you want me to do first, and then I'll tell you which one I think is best-suited to the application,” he says.

Sometimes the power-monitor reps don't like the answer, but PowerCET has built its reputation on giving the best advice for each particular situation. “People trust us, and that's the way we work,” he says. “Your reputation is everything.”

Despite the company's success in this area, in the last 10 years PowerCET's revenue from training has decreased from $500,000 to $200,000 a year. So Lonie adapted again. Using his standing with the power-monitor manufacturers, Lonie brokered a deal to begin reselling monitors. PowerCET bundles the monitors with accessories for a complete package and resells them. “We're finding people like to buy them from us because we have the application-specific knowledge and experience,” says Lonie. Since last June, PowerCET, which brings in a little more than $1 million a year, is averaging $50,000 a month in system sales. In addition, when not using its own monitors, PowerCET rents them out. Lonie estimates that 20% of its gross revenue comes from the rental business.

According to Lonie, it's not unusual for consultants to also be salespeople. “Whether you're selling uninterruptible power supplies, lightning rods, or service entrance surge suppressors, it's important for consultants to remain unbiased when making recommendations to a client. “We feel that if you're selling the solution you're recommending, then your recommendations are suspect,” he says. That's the main reason PowerCET doesn't sell mitigation equipment.

But Lonie's quick to add that not every problem he identifies has been fixed. Sometimes the client chooses to live with the existing situation because the fix is too expensive and complex for them to accept, he explains. For instance, Lonie has a client with an engine-generator system with an automatic transfer switch that was engineered incorrectly. When the company has a power outage, all the breakers trip because the switch doesn't have any delay built into it. “They know this, but it's going to cost them $25,000 to fix the problem,” says Lonie. “Plus, they have to schedule some down time. They can't bring themselves to spend the money right now.” So even though the company knows they're going to have a problem — and Lonie has told them it's not a matter of if, but when — they don't want to take less-expensive proactive measures before they're forced to take on the expense of an unscheduled outage, which has the potential to double the cost of the fix.

This situation isn't an isolated incident. Lonie can cite cases where his company has given the results of an investigation to a company only to be called back two years later about the same issue. “We go back to the file and find out it's the same problem, so we point that out to them,” he says. “We usually send them a copy of the report.”

The problem is not many businesses are receptive to paying $5,000 for a report at the end of a month of monitoring, especially if the business isn't experiencing any major problems. There's no compelling reason for them to do so until they start having severe problems.

The vanishing ESCO. Ram Mukherji, principal of Mukherji Consulting, Covina, Calif., tells a different story about the rise and fall of a power quality business. An ESCO initially recruited Mukherji from a conference on power quality and asked him to start a power quality business unit for the group, which had invested money in a company that was trying to “double up” a flywheel-type energy storage system.

To begin, Mukherji had to work within the company's existing hierarchy. “You have to have a promoter in a high-up place to support your business,” he says. “That's the No. 1 thing: You've got to have a sponsor. It was a big corporation, and it took me two years to get the blessing from the top bosses.”

Like most businesses, his first step was to create a written business plan. Once the ESCO management team approved the plan, Mukherji began recruiting employees — he warns against hiring too many at first — and creating business units across the country. He and his team formed four centers: Southern California, New York City, Philadelphia, and the main office in Houston.

Once the offices were open for business, Mukherji brought a marketing person on board to start selling its services and acquiring contracts. “There were bumps in the road on the way, but the business unit was formed, and we were making money,” says Mukherji. Unfortunately, the ESCO began upping its revenue requirement for the business unit. “Later on, the company's appetite for the money was becoming too high,” he says.

According to Mukherji, the ESCO saw the benefits of the power quality business unit, but they didn't have the patience to see it through. They wanted a more immediate return on their investment and when that didn't happen they shut the division down and laid off all the employees.

When power quality strategies are first put into play, they may not produce as much revenue as the company stakeholders believe it should. Mukherji says these ventures need to be viewed as more of a long-term investment. “When Ford built his first car, he didn't make the money the company is making today,” Mukherji says. “It takes time.”

The tug-of-war between solving power quality issues and making money may be an intrinsic aspect of ESCOs. An ESCO must make money based on the services it provides to its customers. They don't manufacture a product. The electric utility's attitude toward power quality is more organic to providing the electricity in the first place. “Don't make money, solve the problem, and get away,” he says is the utility's mission behind power quality.

Mukherji attests to the reluctance to enter the power quality field that smaller service companies are currently exhibiting. He attributes the hesitation to a lack of concern, but is hopeful that the tide may turn in favor of power quality in the near future. “After the breakdown of big companies like Enron, the little service companies are playing a wait and see game,” he says. “But that won't last for too long.”

Like most advocates of power quality, Mukherji worries that the problems are going to grow exponentially if they're not addressed. He predicts that the abundance of electrical products in the workplace and at home will soon further degrade the reliability and quality of the grid. “And once the power grid is ‘polluted,’ it can cause shutdowns.”

This means firms that offer power quality-related services will be in demand.

The electric utility infielder. “I don't know really what to say for someone who is starting out and competing with someone who is already established with the local utility,” says Daniel D. Dull, president, Pure Power Engineering, Beavercreek, Ohio. If what some experts say about electric utilities and ESCOs abandoning their power quality business units is true, Dull's experience may be a model for how to make a start in the power quality industry.

Dull began his career in power quality at his local electric utility, working with both commercial and residential customers. It wasn't until his utility disbanded its power quality organization a few years ago that he decided to start his own power quality-consulting firm. Members of Pure Power's customer base are either a direct remnant or indirect result of Dull's work at the utility. “Most of my clients come to me via word of mouth, based upon my reputation in the local community,” he says.

According to Dull, this void electric utility companies are leaving is only getting bigger. “Utilities are very much accustomed to a very regulated business, and they're very good at their core business practices, but the power quality business was too competitive,” he says. “They just didn't have the market savvy to respond to customers in a competitive environment.”

Therefore, the power quality market could soon be wide open to a business-minded engineer or electrical contractor, especially one with former ties to an electric utility. “It seemed like when utilities were real concerned — seven or eight years ago — about competition forthcoming, they all tried to get closer to their customers and thought that they could make some money at power quality,” explains Dull. “Then as the market changed, the utilities realized that they weren't able to make a great revenue stream from power quality.”

Dull agrees that the problems power quality programs attempt to prevent are pervasive. He forecasts that most businesses will have to either live with their power quality issues or hire an outside consultant to help them resolve their problems. He concedes that businesses won't take action until the problem is “severe enough that it really begins to put a crimp in their business practices.”

Almost 95% of Dull's clientele hire him after there's been a breakdown in their business process due to a power failure. “They want forensic diagnostics,” he says. “As I term it, they got their religion because they were burned.”

Dull wishes more of his clients would take a proactive stance on the issues of power quality and reliability. He combats the apathetic attitude toward power quality by teaching classes for the Association of Energy Engineer's Certified Power Quality (CPQ) program. His hope is that the individuals who oversee the purchase of and management of power at businesses across the country will realize these issues once they take a class like the one he teaches. “The portion that I teach is pretty much the basics, and it's really more of what I consider proactive planning: proper wiring, grounding, bonding, and surge suppression. Those areas are really something every facility needs to take a look at and make sure they have in order in their house, so to speak.”

Dull describes his students as a fairly even mix of facility folks, consulting engineers, and electric utility engineers. He emphasizes the importance of preventive measures, which would only be at cross purposes with his consulting firm if he were sure all of his students would take his warnings to heart. “All of them seem to be pretty receptive in the class,” he says. “What they actually do when they leave the class and go back to their workplace, I don't know.”

Timing is everything. Power quality's ugly stepsisters — reliability and interference — are still the big moneymakers for players in the power quality game. Let's face it, who doesn't love the excitement of a blackout or the adrenaline rush caused by a well-timed lightning strike? The mere mention of the basics of power quality, including grounding, conditioning, and monitoring — especially monitoring — can make the most experienced facilities manager weep at the prospect of requesting a $10,000-plus purchase order for a problem that may occur sometime in the distant future. It's a touchy subject, to say the least.

Luckily for seasoned power quality experts, there are many possible ways to make a living in the industry. But for those looking to prosper in the business arena, timing is everything. In working toward supporting a clean grid and monitoring and analyzing facilities to create efficient, power-delivering systems, the field doesn't just provide an opportunity to start a career; it also offers the chance to foster a mission.