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POWER ENGINEERS SUPPORTING TRUTH
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PURPOSE & PROCEDURE PANEL SESSION ON ETHICS (July 2003 – IEEE/PES)
Jack CasazzaWhy have a session to discuss problems of the electric power engineering and ethics? There is a long paper in the proceedings of this meeting giving detailed background. I hope you will read it after listening to this panel.
Three weeks ago I attended a meeting of the National Association of Corporate Directors that deals with the responsibility of board members and stresses the failures of many boards to exercise their responsibilities. At this meeting I learned that $7 trillion in value has disappeared from USA corporate books in the last 3 years because of illegal and unethical actions by various professions. I serve on the Board of Directors of a company involved in the operation of a power system, where I am assigned to the Audit Committee. We have new legislation, the Sarbanes-Oxley act, which deals with the accounting profession and requires a much more thorough review of corporate financial statistics. The SEC is discussing new procedures requiring lawyers to report any incidences of which they become aware of financial misdeeds. What has this to do with electric power systems, electrical engineering and electric engineers?
The electric power business and electric power systems have been a major contributor to what has happened. Electricity costs have skyrocketed, reliability has declined, companies have gone bankrupt, investors and pension funds have suffered major losses, some have cost their jobs, accounting deceptions and fraud are rampant. Lester G. Tesler, Emeritus Professor of Economics, University of Chicago, recently stated in the Wall Street Journal, “The difficulty in electricity….stems from several reasons. First, the grid requires expert control by engineers to work at all, not to say efficiently.”
Some have been concerned about the engineer’s ethical responsibility for many years. After reading the transcripts of the California Senate Hearings, and after reviewing material from the FERC investigations I decided to file ethical charges against IEEE members who had been involved. After reviewing the IEEE procedures, potential penalties, the time and effort involved, and discussion with the IEEE officials involved, I became convinced that this would do little good to cure the problem. John Estey, President of the Power Society suggested this panel session as an alternate.
All electrical engineers involved in the electric power industry need to ask: “What role did we play? What role should we have played? By our actions, or lack of actions, did we contribute to the great harm that has been done to the USA? What should the IEEE, the Power Engineering Society, and engineers as individuals do to help meet our future needs economically and reliably. This is the time for such questions, and hopefully, the development of answers. Their importance is demonstrated by the stature and importance of the panel present here today.
The IEEE has a longstanding Code of Ethics, which involves two key obligations of all electrical engineers:
1. To accept responsibility in making engineering decisions consistent with the safety, health, and welfare of the public, and to disclose promptly factors that might endanger the public or the environment.
2. To improve the understanding of technology and its potential consequences.
A major ethical concern for electrical engineers is their obligation to their employer and company versus their obligation to the public. Some call this “entrepreneurship vs. ethics” and believe that if it is not illegal and if it increases profits it should be done. Some believe that the engineer needs to be concerned with the overall public welfare. The role of the engineer has changed in many cases from one of lowering the total costs of electricity to increasing the profits of their company. Many say engineers are required to comply with company policies, to perform the assignments they are given by corporate management and are not responsible for the results of their work. (Let me digress to ask if the maker of an explosive device needs to be concerned about how it might be used?)
In this session our distinguished panel will discuss a number of illustrative ethical situations facing companies, the IEEE and individual engineers. These case examples are based on real world events that have occurred and continue to occur with fictitious names, locations, etc. It is not the intent to make specific accusations at this session, but to use these cases to illustrate the nature of the problem. While much of the discussion will relate to California, similar situations have occurred in other parts of the country and in other countries. Engineering ethics is a matter for national and international concern. We hope that we can arouse the interest and support of those present and ultimately all the Power Society membership. True ethical behavior requires the concern of the full membership.
The panel is being asked a number of questions as a basis for their discussion of the specific case problems. Hopefully, some conclusions can be reached concerning potential answers.
SOME QUESTIONS FOR PANEL DISCUSSION ABOUT FUTURE IEEE ROLE
1) What should be the roles of the individual, the IEEE/Power Society, the company, the university and the government in enforcing ethical behavior by engineers?
2) Medical, legal and accounting professions have procedures for punishing violation of their code of ethics. Should the IEEE or Power Society have such procedures?
3) How can the IEEE and PES best coordinate with existing activities related to engineering ethics including the:
National Society of Professional Engineers? National Institute of Engineering Ethics? National Academy of Sciences? The Other IEEE Societies? Those of Other Nations?
4) Should the Power Society undertake educational activities to provide additional emphasis about the ethical responsibilities of power engineers?
5) Who should monitor and control whether engineers are meeting their ethical responsibilities?
6) Do the IEEE code of Ethics and/or the IEEE By-Laws need modification?
7) How can the Power Society members who speak out about unethical practices and are punished in their career be protected?
8) Do we need additional government legislation or should the profession police itself?
SOME PAST PROCEDURES FOR INCREASING PROFITS
A number of questionable procedures were developed for increasing profits for specific Companies which increased overall electric power costs. Engineers were in some cases involved in the development or use of these procedures, and in some cases aware of them. Investigations have been conducted by the California Senate and the Federal Energy Regulatory Commission (which made public 3000 pages of evidence). Those show the market was “rigged” and tactics often involved providing false information. While most of these schemes originated in California, variations of them have been used in other regions of the country.
The various schemes were given “’nicknames” for easy identification. A brief description of them is below:
The “dec” game – companies obtaining transmission service that they did not intend to use so that they would be paid for reducing power transfers they never intended to make.
Use of “sleeves”- the sale of power to another region and then buying it back creating phantom transmission congestion and increasing profits.
Deathstar, Black Widow, Big Foot, Cong Catcher, Farney’s Perpetual Loop and Red Congo – schemes to capture congestion fees through imaginary transactions. They involved filing generating schedules to trigger payments for congestion without any intent to actually operate the generation involved.
Load Shift – Deliberate overstatement of loads in various zones to create congestion. Payments for relieving congestion were received for restating loads to correct estimates.
Get Shorty – sell in advance ancillary services (i.e, spinning reserve, reactive supply, etc.) which it did not have while counting on buying such services later at a lower price, producing profits, but creating reliability risks.
Wheel Out – schedule power flow over transmission ties known to be completely constrained in order to earn congestion payments by canceling the scheduled transfers later.
Fat Boy, Inc’ing Load - a trader artificially increasing the load to be supplied, scheduling generation to meet this load. The load does not materialize leaving the supplier with excess generation for which it is paid the “dec” prices to reduce. By anticipating when the “dec” price is favorable, the trader can generate profits.
Ricochet – buy power in one region cheaply, sell it to an intermediary in another region then buy it back at a much higher price.
Hockey Stick – a bidding procedure in which bidders who see tight markets put out a very high bid for a small amount of electricity. This establishes a very high “market clearing price” which is the price for all power sold in the hour.
Were these schemes feasible without the participation or knowledge of engineers familiar with power system technology and operation?
SCHEDULING GENERATOR MAINTENANCE
The operators at Plant X had reported minor problems at two generator units. Unit #2 had had an increase in turbine vibration measurements and the boiler for Unit #6 had a small steam leak. The plant management reported to headquarters that the units could be kept operating safely.
At company headquarters, software for analyzing optimum scheduling of generator maintenance outages indicated that significant additional profits could be made by removing these units for maintenance at that time. A decision was made to take the units out of service.
James, an engineer in the company’s system control room, was concerned. A very high load was forecast for the next day. James reported this and questioned the decision to shut down the two units. He pointed out that his discussions with the plant engineering staff indicated the units could be kept operating safely. He was told the significant profits to the company could be made if the units were shut down now rather than later and these profits were very important. He was ordered to shut down the units. --------------- At Plant Y, two generator units were out of service. George, the engineer scheduling generation for the company checked when these units would be returned to service. He was informed they could be operating in 4 days if they could go to 3 shifts per day, 7 days per week work but would be returned in 10 days based on normal single shift maintenance scheduling with no overtime. The scheduling engineer, aware of predicted high loads in the next week, asked for the expedited maintenance scheduling. Review by the company business executives showed significantly higher profits if the slower schedule was adhered to, eliminating overtime and increasing the prices they would be paid for power produced at their other generator units, and turned down the request.
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Harry prepared the schedule for the annual maintenance outages for the generator units owned by his company. In past years the practice had been not to schedule maintenance during heavy load seasons. The new vice-president had sent instruction to schedule maintenance so as to minimize company overtime costs. This required scheduling maintenance during heavy load periods, increasing reliability risks and overall system production costs. Harry pointed this out but was told company profits were paramount.
What should James, and George, and Harry do?
POSTPONING GENERATOR OUTAGES Harry is an electrical engineer employed in the electrical operating department of a nuclear power plant. He learns from luncheon discussions with friends in the nuclear department in the plant that a small crack has been found in the reactor vessel wall. This has been reported to the company officials who reached a decision to keep the unit operating because of the company’s contractual obligations. Removal of the unit from service will require the purchase of expensive power from outside sources, causing large financial losses.
What should Harry do?
PAYMENTS FOR ELECTRIC ENERGY
John , an electrical engineer employed by a power marketer, requested permission to participate in a panel session at the annual Power Society meeting in Chicago on bidding procedures for sale and purchase of electric energy.
His Boss asked “What are You Going to Say?”
John replied, “I am going to discuss the objective of having generation operated so all units will have about the same incremental production costs.”
The Boss: “Make sure you support our company position in this matter. As you know we want as much energy as possible to be paid for at the highest bid price accepted rather than our actual bid price. We also claim this will produce nearly the same schedules as schedules based on incremental production costs.”
John doesn’t believe this will produce the minimum cost result. He believes paying the actual bid price will come closer.
What should John do?
BIDDING FOR TRANSMISSION RIGHTS
James was responsible for determining transmission requirement for his company which would be used in bidding for these rights. He would be given generation and load schedules. Based on load flow studies he would determine the transmission paths involved and the power delivery requirements for each one.
While not responsible for the generation and load schedules involved, he was quite aware of the overall system load and generating capacity conditions. He recognized that the schedules he was being given were fictitious and he was developing transmission requirements far in excess of need.
What should James do?
SOFTWARE DEVELOPMENT NEW PROCEDURES
The development of deregulation and restructuring procedures required the development of new procedures for the operation in a competitive market. Many contracts were signed covering the development of these procedures and software. The consulting firms obtaining these contracts often hired utility personnel to assist in this work.
One such was Bill, a retired executive of a utility who had been involved in system operation. Bill was hired to provide his views on the procedure being developed. To obtain this assignment, Bill was required to sign a confidentiality agreement requiring that he not discuss the procedures that were being developed with others in the consulting firm or with anyone outside the firm.
As procedures developed Bill became concerned. He told those he reported to that the procedures could lead to extensive “gaming” in which prices could be artificially increased. His comments were ignored.
Bill did nothing believing the confidentiality agreement required his silence.
What should Bill have done?
SOFTWARE DEVELOPMENT UNIVERSITY
The Electrical Engineering Department at the state university had a well qualified faculty. They were actively involved in a number of research projects relating to the restructuring of the electric power industry.
They had received a large research grant from a power provider for development of software for use in bidding for transmission rights. The power provider wanted software that would enable them to maximize their overall profits.
The university developed such procedures and software. They involved bidding for transmission rights they did not intend to use so profits on their energy sales would be increased. Mel, one of the university engineering staff involved, pointed out these procedures could cause an overall increase in the cost of electricity in the region. The sponsoring company was not concerned.
What should Mel do?
FUNDS FOR RESEARCH CONFLICTS
Kevin was director of the electric power research activities at the State University. One of his key assignments was to obtain the funding needed to support this activity. From time-to-time grants were offered by organizations Kevin knew had strong interest in electric power policy deliberations and were very active in the political area. Nevertheless, he accepted these grants
Kevin also served on the Board of Directors of two companies involved in the electric power business. In this role he participated in deliberations on future company strategies and policies involving contractual arrangement for power plant sales and large power purchases. He had become increasingly concerned, however, that he was making recommendations as a board member that were quite favorable to companies who were providing large research grants.
What should Kevin do?
CONSULTING CONFLICTS
A large independent power producer visited the offices of Tom’s consulting firm to discuss a possible assignment. They met with Tom and his vice president. They indicated they were looking for a location to install a new generating unit. They wanted a study to select several locations based on criteria they supplied. Among these criteria were a suitable site, proximity to gas supply, proximity to transmission. In verbal discussion they stated another objective, a location where they could create transmission constraints that would prevent its competitors from selling into its intended market. They pointed out that this could significantly increase its profits.
Tom’s Vice President provided terms and conditions for its consulting services, they got the job and Tom was made project engineer. Tom was concerned about the ethics of the assignment since creating transmission constraints could increase costs of electricity to the public.
What should Tom do?
FALSE STATEMENTS
Tom worked for a large company that had a large public relations staff. This staff published press releases, made speeches, and generally provided information about the company. Tom, an electrical engineer who worked in the planning department was bothered more and more about some of the information they provided, particularly their claims about the benefits on savings from some of the things they were doing. Tom knew that some of these statements were false and were misleading the public. Tom mentioned this to his superior who told Tom this was not our concern.
What should Tom do?
COMPANY CODE OF CONDUCT
A company has a code of conduct. It specifies compliance with written Company Policy at all times and specifies procedures if any employee discovers non-compliance with company policy.
Is this adequate?
What if company policy specifies or allows legal actions which might harm public?
What if company is engaged in business activities, etc., which employee believes are harmful to overall public?
What should employee reaction be to company ethical code?
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To participate in Pest activities contact: Jack Casazza |