Utility fleet managers must contend with clean-air mandates and deregulation

As program manager for Detroit Edison, a $3.9-billion electric company in Southeastern Michigan and the seventh largest utility in the U.S., John Olsen is a man with a very full plate these days. Detroit Edison relies on a fleet of 2,000 vehicles to keep the lights on for 2-million customers throughout a 7,600-mi. service territory.

Olsen is responsible for bringing Detroit Edison's fleet into compliance with the Energy Policy Act (EPAct) of 1992, designed to reduce the nation's reliance on imported oil. The legislation, which applies only to light-duty vehicles, requires that certain fleets (electric and gas utilities, for example) buy alternatively-fueled vehicles. Specifically, EPAct mandates that by the end of next year, 90% of the light-duty vehicles purchased by federal, state, and "fuel-provider" fleets must be powered by alternative fuels - natural gas, electricity, methanol, etc. But this is much easier said, or mandated, than done.

"There aren't enough options. We can't get enough vehicles to meet the mandate, and there's no significant refueling infrastructure available to support those that we can purchase," Olsen said at a recent meeting of the Edison Electric Institute's Fleet Management and Policy Committee. "That's why it's so difficult to comply with EPAct rules right now."

And that's not his only worry. Even as Olsen attempts to bring Detroit Edison's fleet into compliance with EPAct rules, the industry itself is changing rapidly. The electric utility industry is being deregulated, forcing companies like Detroit Edison to become more cost-competitive. So in addition to meeting EPAct mandates, Olsen must also try to keep costs down.

"We have to run a fleet even more economically than ever," he said. "That's why we need some flexibility when it comes to EPAct."

The pressure on Olsen and other utility fleet managers comes from the Federal Energy Regulatory Commission Order 636 and the National Energy Policy Act of 1992. These two pieces of legislation gave consumers the right to purchase electricity and natural gas from the lowest bidder, opening a once-regulated market to competition on the wholesale and retail level.

This process, which is called "wheeling," grants open access to transmission-line networks that crisscross the country, giving both industrial and residential customers the opportunity to buy energy from suppliers anywhere, instead of relying solely on their local utilities.

Each state has the final say about how much and how fast they open their electricity markets, but most are moving forward, in some shape or form, towards deregulation.

According to the Energy Information Administration, some 16 states have enacted restructuring legislation - California, Nevada, Montana, Arizona, New Mexico, Oklahoma, Illinois, Virginia, Pennsylvania, Delaware, New Jersey, Connecticut, Rhode Island, Massachusetts, New Hampshire, and Maine. Legislation or regulatory commission orders aimed at deregulation are pending in four more.

Utility companies have responded to the threat of competition in two ways. The first has been to cut back operating costs so they can slash the price of energy to industrial and retail customers. The second has been to merge with or acquire other utilities to gain market leverage.

For example, Baltimore Gas & Electric (BG&E), a $7.3-billion company serving 10 Maryland counties, shrank its total work force to 6,500 from 8,000. The company also trimmed its fleet to 2,500 vehicles and pieces of equipment from 3,000, and reduced its pool of mechanics to 30 from 100.

Deciding that size provides more strength in a free-market environment, BG&E is now a subsidiary of Constellation Energy Group, a multi-billion, multi-state collection of energy companies and power marketing firms.

Detroit Edison took the same route, forming DTE Energy, a holding company that will try to profit from deregulation.

Another piece of legislation that affects utility fleets is the Clean Air Act amendments of 1990.

According to the Gas Research Institute (GRI), the Clean Air Act amendments established the basic framework for attaining "healthful outdoor air quality" in the U.S. It identifies six ozone and carbon-monoxide nonattainment geog raphic areas where centrally fueled fleets with 10 or more vehicles must buy alternatively fueled units to help lower pollution levels. By the end of 2001, 70% of the light-duty vehicles purchased by designated fleets must be powered by some type of alternative fuel.

State governments have initiated their own clean-fleet programs to bolster federal efforts, most notably in California, where the California Air Resources Board (CARB) is dealing with some of the most polluted air in the country. CARB provides up to $1,000 in incentives for fleets that buy alternative-fueled vehicles, and up to $100,000 for fueling station construction.

Until now, commercial trucking operations have managed to steer clear of the Clean Air Act amendments and EPAct. But based on reports from the U.S. Dept. of Energy and the Environment Protection Agency, that could change. They're now looking at several specialized trucking niches that they believe are prime candidates for alternative fuels:

* Airport ground-service fleets

* Delivery vehicles and private fleets

* Law enforcement

* Longhaul trucks

* Postal service vehicles

* Garbage trucks

* Street sweepers

* Urban and school buses

For utility fleets, those mandates are a done deal - and it's up to Olsen and his colleagues to find a way to comply with them.

Management tactics Successfully meeting the diverse challenges posed by deregulation, EPAct, and other government regulations is what the Fleet Management and Policy Committee is all about, said Hal Hughes Jr., chairman of the group and transportation manager for TXU.

Hughes, who oversees a fleet of some 7,000 vehicles for TXU, a $16-billion utility serving the state of Texas, said that deregulation of the electric utility industry will force fleet managers to change their strategies.

"Why do we focus on such strategic issues instead of concentrating on engineering and operations matters at the fleet level? Because legislative issues such as EPAct will have far more impact on our fleets than engineering and operations in the future," he said. "We need to be in a position where we're not blindsided by them. We need to see the bigger picture."

Hughes added that fleet concerns sometimes take a back seat at utility companies, since corporate management focuses on dealing with the larger implications of deregulation and other issues.

"As utility fleet managers, we must take hold of issues such as EPAct and understand how it will impact our business," he said.

"When it gets down to issues that affect fleet operations, even though upper management considers those issues important, the fleet is way down the food chain," said Hughes. That's why he thinks tracking fleet-related legislative and regulatory issues should be the responsibility of utility fleet managers. "It's up to us to know and understand what those issues are and how they affect our company. We must be able to make recommendations to executive management as to how they should react.

"Don't get me wrong. Fleet engineering and operations issues are important ... and we concentrate on them every day in running our business," he continued. "But concentrating on the day-to-day issues won't matter if a legislative or regulatory issue comes up that could have a significant negative impact on our operation. We need to spend more time looking at the macroscopic issues - to give us a compass, if you will, to guide us in running our business."