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Technology Fuels Energy Sector's Rapid Evolution

David Hatch

To many Americans, energy companies are corporate dinosaurs. While other industries have undergone dramatic changes in recent decades, oil and gas companies remain tethered to fossil fuels and an infrastructure built to support the extraction and delivery of diminishing resources. As regulated monopolies, utilities often don't come off much better: They routinely struggle to restore power following major storms and are notorious for less-than-exemplary customer service. Intermittent spikes in gas prices and disasters such as BP's 2010 oil spill in the Gulf of Mexico have further sullied the industry's reputation.

[See Duke Energy Uses Charlotte as its Living Lab.]

Much of the criticism, of course, is well-deserved. "As you can imagine, these are not companies that customers typically love," says Rick Nicholson, group vice president at IDC Energy Insights. "They're tolerable." A closer examination, however, reveals an important trend that could alter some public perceptions. Once-lumbering energy conglomerates are quietly reinventing themselves with advanced technologies to cut costs, empower consumers, and reshape how they harness and distribute energy.

The three corporations selected by U.S. News as America's "Most Connected" energy companies--Sempra Energy, Duke Energy, and Chevron--reflect this embrace of innovation. Sempra and Duke are conducting some of the nation's most ambitious efforts to engineer intelligent energy grids and encourage conservation, while Chevron relies on NASA-style mission control centers to tether its global operations together.

These companies are at the forefront of a wider energy revolution that affects everything from how oil companies locate the fuel that reaches gas tanks to pinpointing the most efficient time of day to operate home appliances. "The energy industry may well be the highest tech industry in the world," says Joe Stanislaw, a senior advisor on energy and sustainability for Deloitte. "When you're drilling down two, three, four, five miles, that's like going to the moon."

"It is one of the most technology-centric industries," agrees Judson Jacobs, research director at IHS CERA, an analysis firm that specializes in energy issues, "and it really doesn't receive the credit for what it is."

[See From Microgrids to Smart Meters, Sempra Pushes Energy Tech.]

Sempra's San Diego Gas & Electric subsidiary boasts a diversified technology portfolio that includes a groundbreaking test of a microgrid, a self-contained power grid. Designed for remote communities, military bases, and universities, a microgrid can function on its own using locally derived energy such as solar power if a major grid fails--and could have important industry-wide applications. The utility also connects with customers through an extensive smart meter network that provides homeowners with an array of online tools to monitor energy usage.

On the East Coast, Duke Energy, which serves the Carolinas, Indiana, Kentucky, and Ohio, has partnered with a consortium that includes Charlotte, the city where it's based, Cisco, and Verizon to create a "first-of-its-kind" model for urban sustainability in the downtown core, which the company hopes to replicate elsewhere. Occupants of about 70 commercial buildings can track and manage their energy consumption via kiosks in lobbies and over the Internet. The Envision Charlotte initiative aims to cut consumption by 20 percent over five years through behavioral changes and upgrades to buildings, such as automated systems that adjust thermostats and switch off lights.

Chevron, meanwhile, has attracted buzz in tech circles with plans for at least a half-dozen state-of-the-art mission control centers, collectively dubbed the "i-field," that allow the company to remotely oversee global operations that span from Argentina to Australia. This digital oil field, one of several established by major oil and gas producers, uses advanced sensors, data analytics, and cutting-edge communications to identify and remedy problems and better pinpoint energy reserves, capabilities that lower costs and increase safety.

To generate fresh ideas and connect with wired consumers, industry stalwarts increasingly seek collaborations with a growing array of edgy startups that inject bold, creative thinking into staid, button-down boardrooms. SDG&E, Pacific Gas & Electric, and Commonwealth Edison, part of Exelon, are among the more than 70 utilities worldwide to partner with Opower, an Arlington, Va.-based company that seeks to "reinvent" utility engagement with customers through online tools, text messages, and home-energy reports.

[See At Chevron, Digital Technology Spouts Gusher of Savings.]

To be sure, there have been challenges and missteps along the way for energy companies. Worried about adverse health effects from smart meters, which wirelessly transmit energy usage data to utilities, a small but vocal chorus of homeowners has resisted the switch to these devices and demanded the right to retain old-fashioned analog meters. PG&E, SDG&E, and Duke are among the utilities that have faced such opposition. The energy sector was generally late to social media, which remains populated with Facebook user groups and Twitter feeds critical of major energy producers, and is just beginning to harness the vast potential of cloud computing, experts say.

Meanwhile, Stanislaw, the Deloitte advisor, emphasizes that innovation is not limited to the production side. Large corporate users of energy, from BASF to Walmart, are adopting sweeping measures to dramatically reduce consumption and costs. Walmart, for example, has implemented energy management systems that allow it to monitor usage in real-time and make adjustments instantly and remotely to stores and warehouses, he says.

While smart meters are a concept most consumers can easily grasp, Patricia DiOrio, director for IHS CERA and a power industry expert, emphasizes that smart grids involve far more than these devices. She sees a greater immediate impact on consumers from the "operational benefits" of smart grids, such as the ability to streamline the reading of power meters and identify and resolve outages more quickly, improvements she describes as "huge for utilities."

In fact, many advances within the energy sector are occurring behind the scenes, in remote oil and gas fields, on drilling rigs at sea and in the engineering of the grid, making it difficult for energy companies to recast themselves to the public as high-tech visionaries. For consumers, the experience of pumping gas or turning on the lights remains the same--even as everything else about the energy business rapidly changes.

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