Lack of growth in power demand challenges utilities

08/12/2014 3:01 AM

08/12/2014 8:01 AM

Reddy Kilowatt, we need you.

Somewhere there must be a utility executive wistfully recalling the long-retired animated spokesman made out of lightning bolts with a light bulb for a nose. The mascot helped propel demand for electricity, leaving utilities with the job to make sure it had enough power to meet demand while the profits poured in.

That things are no longer so simple is made clear in the annual Black & Veatch report and survey released today on the electric utility industry. It singles out several issues facing utilities from cybersecurity to environmental regulations to an aging workforce.

But one change is striking at the core of the industry. The business model that began in 1882 when Thomas Edison opened the Pearl Street Station power plant in New York City to serve hundreds of customers is being turned on its ear.

Instead of centralized power plants, so-called distributive power such as roof-top solar energy units on homes and businesses, or manufacturers that build small power plants to produce their own electricity, are gaining traction. Large plants still deliver most of the country’s power and they aren’t going away, but the rise of distributive power is already playing a role in flat or sluggish growth for electricity demand for most U.S. utilities.

And the utility industry, according to the report, is increasingly taking the competition seriously. Nearly half of the 573 persons in the industry responding to the survey said they expect up to 10 percent of U.S. power generation will come from distributed generation in the next five years.

“The changes we (once) thought might happen are real and perhaps inevitable,” said John Chevrette, president of Black & Veatch’s consulting management business.

Toss in the effect of energy efficiency and some other changes in the economy and you have serious talk that electricity usage in the U.S. may have seen its peak year just before the recession. About 75 percent of those responding said electricity usage was flat or sluggish despite a rebounding economy.

The federal Energy Information Administration recently said it wasn’t expecting electricity consumption to grow in step with the economy as it once did.

But that’s not good for utilities, at least not under their traditional setup, which relied on building power plants, hiring employees and making other investments to meet growing demand. State regulators would then allow a rate of return to be collected on those costs. But if demand is flat or shrinking instead of growing, utilities could be squeezed, especially if expenses such as maintaining their distribution system and the electric grid are steady or even grow.

Chevrette said some utilities are beginning to looking at distributive generation as a possible opportunity by providing financing for consumers’ installation, and using existing crews to maintain the equipment.

The report also spotlights other developments:

Utilities still favor natural gas for replacing coal-fired plants that are decommissioned. But their worries are growing about higher gas prices, and about half of those surveyed believe that exporting natural gas will boost domestic prices for the commodity. Energy efficiency and renewable energy are favored when smaller amounts of power need to be replaced.

Nuclear power plants are facing higher regulatory and safety compliance costs, and there is growing interest among utilities in retiring smaller and single-unit facilities.

Finding replacements for an aging workforce isn’t an immediate concern. But 70 percent of utility leaders said they expect it to be a problem in the next five years.

A couple of years ago, protecting power plants and the electric grid from computer hackers wasn’t among the industry’s Top 10 of concerns in the survey. It’s now in the Top 5 and more attention and money are being given to protection from the potential problem. One theory is that hacker intrusions such as happened at Target stores last year showed the country’s vulnerability in other areas, too.

Environmental regulations remain a major concern among utilities, especially in the Midwest with its large fleet of coal-fired plants. About 53 percent of those responding to the survey from the Midwest said the regulations were the biggest threat to their long-term business operations. That was the highest of any region in the U.S.

For the industry overall, the proposed regulations by the U.S. Environmental Protection Agency to curb carbon emissions would be a major shift, but the Midwest, Southwest and Southeast would be the most affected.

To reach Steve Everly, call 816-234-4455 or send email to severly@kcstar.com.

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