Utility Market Transformation

Free markets are ruthless, creating both wealth and disruption. Just ask the multitudes who have toiled in telecommunications, railroads, and journalism. Now, it’s time for the utility industry to evolve and to maintain its relevance.

That’s the topic of discussion to be held at the Public Utilities Fortnightly’s conference on November 17-18 in Scottsdale, Arizona, where a plethora of industry experts will gather to discuss and to debate exactly what role utilities will play in a redefined energy market place.

At issue is just how the centrally-designed generation and transmission network will change in the coming decades. With newfound pressures to be cleaner, more efficient and more reliable, customers are looking to onsite generation that can be supported by energy storage and microgrids. While those dynamics are not about to replace the existing infrastructure, they will shake things up – and give access to new market participants, which could either partner with the utilities or try to totally supplant their market positioning.

“The threat to the centralized utility service model is likely to come from the new technologies or customer behavioral changes that reduce load,” says a study by Edison Electric Institute. “Any recovery paradigms that force cost of service to be spread over fewer units of sales ... enhance the ongoing competitive threat of disruptive alternatives ... Customers are not precluded from leaving the system entirely if a more cost competitive alternative is available.”

In prior conversations with this writer, David Owens, senior vice president of the institute, said that utilities are not about to abandon new business opportunities. To that end, he emphasizes that power companies have the expertise to build out sophisticated transmission networks, which translates into potentially lucrative new revenues streams associated with microgrids.

And after the microgrid is devised and built, (think of it as an intelligent local network, often favored by campuses, office parks, and military bases) it still must be connected to the interstate grid and has to run reliably, adds Owens. “Utilities will be full service providers.”

Those views will be echoed and expounded upon during the Fortnightly conference by Brian Wolff, who is executive vice president of public policy. He will add that utilities spend at least $25 billion yearly maintaining and modernizing the grid.

And if increasing numbers peel away from the centralized system and increasingly rely on onsite generation, then that leaves fewer customers to support the existing operations. More than likely, those will be the ones who can’t afford rooftop solar panels or the businesses who don’t necessarily need an onsite generator that is backed up by a storage device and a microgrid.

It’s about finding the “sweet spot” in which utilities feel as though they are fairly compensated for grid upkeep and keeping the surplus power to meet demand for customers when the weather is not agreeable. And, it’s also about fairly compensating customers for the electricity that they generate but do not use, which is then sent back to utilities – called “net-metering.”

Advocates of distributed generation and the net-metering laws that support those technologies say that utilities benefit by not having to buy expensive electrons on the spot market during peak usage. That’s when such distributed generation has the most value. They construe a 2013 updated study done by SAIC for the Arizona Public Service to mean that distributed resources actually save that utility millions each year, which entails the avoidance of infrastructure costs.

“As much as we hear people say that they want to be off the grid, it not economical,” says Raiford Smith, vice president of corporate planning for San Antonio, Texas-based CPS Energy, during a conference sponsored by Siemens in Boston last week. However, “if you are not responsible to your customer, someone else will be. If our customers want it, we should find a way to deliver it.”

“The pace will be dictated by the foresight of a utility,” adds Thomas Zimmerman, chief executive of Siemens Smart Grid Solutions. “If a utility wants to push the envelop, that will accelerate the pace. If a utility wants to protect its rate base, however, the pace will be much slower.”

While the various stakeholders in the New Energy Economy have different economic, political and technical interests, they all generally agree that change is in the offing. Whether such an evolution is faster or slower is less relevant than the precise roles that utilities carve out for themselves. That’s a task that they are setting out to achieve right now and one that the industry and the Edison Electric Institute will fully flesh out during Fortnightly’s November conference.

Ken Silverstein is Editor-in-Chief of Public Utilities Fortnightly. Reach him at ksilverstein@fortnightly.com.

For information about the Fortnightly conference addressing these topics, visit www.fortnightly.com/utcc