Inside Power: NAES Corporation's George Wackerhagen Speaks to Inside Power

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Researched by Industrial Info Resources (Sugar Land, Texas)--Below is an interview with George Wackerhagen, Vice President, Power Plant Operations and Technical Services for NAES Corporation (NAES) conducted by Brock Ramey, North American Power Manager for Industrial Info.

Brock Ramey (BR):
NAES is an Operations and Maintenance (O&M) provider for both older and newer assets. The profile of the generation fleet has changed over the last couple of years. We've seen more renewables, specifically wind, and more natural gas plants and projects. Where has NAES seen their business grow and what are some of the challenges associated with that growth?

George Wackerhagen (GW), pictured right:

The predominant growth has been in gas turbine technologies in combined cycle and peaking applications. We've seen a need for both as the generation industry is investing to meet load profile and market needs. Like the economy in general, the generation industry has been slowly recovering from the economic downturn and adjusting to the mixtures of generation that have been placed in service in the past few years. The impact of wind, and to some extent, photovoltaic (PV), on the load and dispatch profile of the generation fleet has highlighted the need for peaking units. We've seen growth in this segment over the last 12 months, with the majority in gas turbines and reciprocating engines, due to advantages in dispatch response, permitting and compliance, and low gas prices. At the present time, the U.S. has about the lowest price for natural gas of any major industrialized country in the world. In terms of challenges, we're seeing the load profile and the economy as only slowly, and somewhat unevenly, recovering in various markets across the country. There are markets still not back to their historical peaks of a few years ago, and most have healthy reserve margins. As a consequence, new generation applications are certainly not uniform across the country.

We operate all kinds generation, other than nuclear facilities, and we've seen increased operating hours in gas-fired generation, certainly in combined cycle, as these facilities move their way up the dispatch curve. However, the market is not producing the high margins that we've seen in the past. As a result, owners are focusing increased attention on cost-effectiveness, and in total cost of operations. In addition to attention to detail on costs, we've implemented measures to improve our buying power and have driven millions of dollars of savings to plant owners from that aspect of our operations. Compliance sophistication is a particular focal point for NAES. Safety, environment, and NERC requirements abound, regulations never get easier, and implementing an effective compliance strategy in light of cost and personnel pressures is absolutely critical. Of course the fundamentals of our business also include driving the technical performance of the equipment. We use traditional performance measures such as availability, starting reliability, capacity, and heat rate to assess our performance. With many plants in operation, we are also able to take advantage of our scale and benchmark our plants so that we can better assess where additional attention should be best focused.

BR:
In talking about the industry as a whole, we've said that natural gas, both simple cycle and combined cycle, is doing a lot to drive the market right now, depending on region. Let's talk about coal to gas switching. As a former plant operator, even though I haven't been out in the field in a couple of years, some of it makes sense and some of it doesn't. So I've been trying to get a better sense from people in operations as to what the environment looks like and what the long term outlook is. Is this switching from coal to natural gas a long term solution?

GW:
We certainly see the industry studying that question very hard. The price of natural gas at around $3.50 per million British thermal units (MMBtu) when going head-to-head with coal certainly beats coal generation on an MMBtu basis. But, as you would know having a plant background, the answer is more nuanced than a simple price comparison. I also believe the answer may be different from one owner to another and dependent on a number of variables such as their generation mix, unit age, view of regulation/regulation certainty, future gas price expectations with and without export, financial capacity of fuel suppliers, and so on. In addition, there are any number of other factors such as technical conversion practicalities and costs, permit and permit strategies, mothball/retirement costs, and so on. We see a number of owners assessing conversion but we've only seen a handful of facilities convert from coal to other combustible sources, such as wood or waste of some kind. In those cases capabilities that are already in place, such as fuel handling, can be used or modified, and boiler issues can be addressed. If the conversion is to gas, we all know that the combustion of natural gas in a boiler is not near the efficiency of natural gas combustion in a state-of-the art combined cycle facility. That also undermines the economics, so while gas may be the cheaper fuel, conversion doesn't automatically result in cost-effectiveness when compared to a relatively new combined cycle facility.

BR:
We've spoken to some owners who have said they are going to do this for the short term and when things get better they are going to switch back. Has NAES seen things of that nature going on? I know that some have it easier than others in terms of switching and reversing because they may need relatively simple changes at their facility. Have you come across this?

GW:
I must say we haven't seen any appreciable amount of that going on. You always want to examine the value and viability of a short term switch, but I haven't seen a lot of analyses about the value of making a switch and then switching back. I guess I will plead some ignorance there because we haven't seen it with our customers.

BR:
As we mentioned earlier, NAES is a provider for both older and newer assets. We've heard a lot of about older units, oil, coal and some natural gas, being retired. What do you see being retired over the next decade or so? Is it coal as we are being told or are you seeing a mix?

GW:
We certainly see old coal and outdated coal facing imminent regulatory milestones in 2014 - 2015, so clearly it comes down to a choice of spending significant capital dollars to retrofit in comparison to retirement and investment to build new. There has been a trend in the industry to retire both smaller and older facilities as has been reported in various publications. We believe that the generation industry will see additional significant retirements in the next decade or so. In addition, we see some pressures on the older renewable facilities, biomass and waste burners for example, where the technology has aged. We see that the economics of those units competing against gas doesn't seem to be making as much sense in the marketplace, although there may well be other reasons for keeping those plants in service.

BR:
While we're on the subject of things that are getting older, we've talked to unions, plants and companies and we keep hearing that there is a lot of concern that senior management, seasoned mechanical engineers and plant people are getting ready to retire, or being forced to retire by plant closures. The concern is that there is a massive gap between people leaving and people coming in. As an O&M company, what is NAES seeing and doing about this trend?

GW:
We certainly see the aging of the generation workforce. Some of the baby boomers are approaching retirement age, and some have gone past retirement age and extended their work life beyond what we would have hoped because of economic conditions over the last 5 years. We do anticipate the departure of expertise and skill in the industry and you described good examples -- the seasoned plant engineer or executive, the skilled mechanic and operator -- where there are going to be vacancies that are certainly going to become more difficult to fill. But what we also have is a more advanced industry, especially in the gas turbine sector, and more advanced technology that comes with more mature training programs that will equip a skilled individual to come up to speed perhaps a little faster than in the past.

We do, as an industry, have to work harder to attract new entrants. One of the steps we are taking is to work with a number of local community colleges around the country. Ours is a business that takes sharp people who can react at all hours of the night and day and thrive in that kind of an environment. Community college graduates can fill some of the need. Controls systems today are very sophisticated and while it is not like playing a game, they do have some very good interfaces that speak to some of the younger tech-savvy crowd. This brings us to the other place where we have had to increase our recruiting activities, and that is in social media. Whether that is Facebook or LinkedIn or any of the others, our recruiting personnel are using those tools in advertising and soliciting the right kinds of candidates. Lastly, we have a significant fleet of assets spread across the country. We see this as a two-way resource -- our existing staff members are useful in finding local talent, and even more importantly, we can extend our existing talent through career growth and advancement opportunities. This presents an opportunity for those who work in our facilities to take on greater responsibilities as they take steps to equip themselves to deal with those gaps that we talked about.

BR:
It sounds like NAES is following the same path as various others in the industry in building relationships with community colleges and having academic fellowships like the OEM's and Department of Energy.

GW:
That is something we value and it is easy to find people who are doing that. Frankly, our tech schools and the community college system is really a great place to push those kinds of skills out into the marketplace in a concerted manner. Attracting talented engineering people from our colleges and universities is something that we must also keep doing. We need to help them appreciate the technical, economic and societal challenges and benefits of working in the power generation business.

BR:
Moving on to NAES operations, what challenges do you have in these O&M contracts? Are they similar across the board or are they different based on length or fuel types, owner type and so on? Are there challenges to maintaining these relationships with an owner?

GW:
O&M is our core business. NAES is the industry's largest third party operator of power plants, and to enhance the offering, we also provide related technical support services. We serve at the pleasure of the people who own those plants and contract with us to operate them. Contract term has not fundamentally changed, but our contracts are all about delivering to the needs of a customer in their particular situation and market for that particular plant. Meeting unique requirements means that we need to work hard to create performance-based contracts that ensure that what we deliver is aligned with the needs of the customer. Our teams are singularly focused on the performance, and in doing well we earn the right to stay and to continue to operate. Service delivery excellence requires that we use every aspect of our business - the leadership and technical skills of plant staff, the support services personnel who develop our operations programs, the use of fleet scale via implementation of advantageous purchasing, the capacity to share lessons learned and best practices, and the oversight and assessment of performance by management personnel.

BR:
Because you're in so many facilities compared to other providers out there, what sets NAES apart from your competitors? 120 plants is a big bragging point but what sets you apart?

GW:
The immediate words that come to mind operationally speaking are safety and compliance sophistication, technical performance optimization, and cost-effectiveness. In addition I would add alignment, confidence and trust. Ultimately, plant owners hire NAES because we deliver performance value and risk mitigation. Delivering on every plant for each owner takes every fiber of our organization. I cannot say enough how difficult it is to be at our best each and every day; the effort is tremendous. Over the years we have invested in ourselves and built a significant support infrastructure. What that looks like is a diverse set of experts in safety, technical writing, environment, human resources, maintenance management, performance engineering, vendor relationships, labor relations, and so on. Uniquely, we marry that technical staff to a fleet of project managers who make sure that we take lessons learned and best practices, make effective use of analytical tools like root cause analysis and benchmarking, to make sure that we deliver the performance we and our plant owners expect.

BR:
Do you see a big knowledge difference as an operator between dealing with the standard utility type of situation vs. something that may be owned by a hedge fund? I mean in terms of educating the owners and dealing with them on the day to day O&M of a facility?

GW:
The reality is NAES operates with all kinds of plant owners - from independent power producers, to private and public utilities that employ the most seasoned levels of experience, to the smartest financial investors who are taking advantage of the opportunities in the market. Each of them brings a different set of skills to the table. Frankly, we find that we have routine dialogue with the owners so that we are aligned with what they're looking for so that we are bringing our intelligence and experience to the table to match up with theirs. That takes every form you can imagine. It's always fun when we're dealing with the utilities and their experienced engineering staff and technical people and we have the kind of people who can step in and find the right solutions. At the same time, when our customer is a single small financial player or municipality, we have to listen to what they need and are trying to accomplish and then we bring our skills and experience to bear so that we can deliver against that particular need. The truth is that is no single answer fits every situation, and truly listening to owner needs means we must look at each situation and deal with it accordingly. The advantage of NAES is that we have the breadth and depth of capacity to customize and support against each situation. We are delighted to work with each and every one of our plant owners and we learn from them, as I suspect they learn from us. The best situation is where the combination of both entities results in an aligned effort singularly focused on driving performance value -- we are better as a collective group than we might be separately.

BR:
Since NAES operates the most modern coal facility in the country, is there anything about that is a particular challenge?

GW:
We certainly can't comment on individual facilities, but we operate every kind of coal facility out there. The new plants that we operate have excellent technologies. In comparison with older technologies, the emissions control and particulate capture are phenomenal. Coal certainly is a target and the price of gas is definitely adding additional pressure. With regulatory pressure and uncertainly, negative public opinion, and cost competition, coal faces a complicated future. Our nation certainly has significant coal resources and it turns out we have significant resources in gas as well, so I am hopeful we will use our abundance of resources wisely and do the right thing for our country.

George Wackerhagen
Vice President, Power Plant Operations and Technical Services
Mr. Wackerhagen is a Professional Engineer with over 30 years of experience in operating and maintaining energy facilities, including managing a global portfolio of power generation assets covering a broad spectrum of generating technologies and fuels: gas-fired, coal, hydroelectric, combustion and aeroderivative turbines, industrial boilers, reciprocating engines, and hydroelectric generation.

Mr. Wackerhagen joined NAES in 2009 and is responsible for the management and oversight of power plant operations, including personnel management, safety and environmental compliance, operations and maintenance, budgeting and financial management, training and quality control. He was previously employed as President of Brite Engineering Consultants, Inc., and at Duke Energy where he served as Vice President for a number of divisions including Residential & Small Business Customers, Energy Generation, Merchant Operations, and Power Plant Operations. He also served as President and General Manager at Duke/Fluor Daniel Operating Services LLC, where he was responsible for managing generation facilities for the City of Dover.

Inside Power is a new series featuring articles, interviews and reports highlighting multiple aspects of the Power Industry. From trends in electricity generation, transmission and distribution, to discussions with public and private utilities, engineering, procurement and construction companies, and technology providers, Inside Power seeks to provide insight into how the industry runs.

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