6 thought leaders on the future of utility business models & regulation
Insights from former FERC Chairman Jon Wellinghoff, Exelon's chief sustainability officer, and much more
The future of the utility business is anything but certain, as Utility Dive's State of the Electric Utility report for 2015 shows. From the rapid growth of distributed generation to the impact of new carbon emission regulations, electric utility companies across the country are searching for ways to remain financially secure and grow in the 21st century.
To get a better picture of the utility of the future, Utility Dive asked utilities and other thought leaders for their perspective. Here's what a few of them told us.
1. Electric vehicles will drive utility growth
James Avery, Senior Vice President of Power Supply, San Diego Gas & Electric: We at SDG&E are the future of what these other utilities will be experiencing … We’re poised for one of the most rapid growths that our industry has ever seen. When you think about a decarbonized future, about 40% of our carbon emissions in this country come from transportation.
In San Diego, an electric vehicle on the grid is roughly the equivalent to three quarters of the electric load of the average home. Every home has one plus cars sitting in the driveway, and if you were to convert all of those vehicles over to electricity, there is potential to more than double the electric load on the grid.
Now, it won’t turn out to actually double … but that conversion of transportation over to the electric sector is a significant opportunity, and one of the most exciting things is that it’s a flexible load. In the past, the loads we had were dynamic … but now we’re sitting in a situation where an electric car is completely schedule-able. I can determine when and how to charge that vehicle … We can provide incentives in the form of pricing signals to the customer so they can make real world decisions about what the price of energy is on a real time basis.
2. The utility of the future will look more like Comcast
Abhay Gupta, CEO and Founder, Bidgely: There are multiple technologies that are creating disruptions in the old business model of [the] utility, including solar, storage, electric vehicles, many advances in home energy management … What we are seeing more and more is that the utilities are embracing and partnering into these technologies because likely what the industry has realized is that utilities can’t resist them. Large forces, large companies come together into these markets and things happen with or without utilities’ involvement.
What I think the utility of the future will look more like … [is] the internet and phone and mobile companies of today like AT&T and Comcast. Basically they will be so-called service providers to customers. So when a customer wants to buy a solar system or a thermostat or any other home energy management system, … the customer is not going into a generic internet search for the best thing. Rather, the customer will go to their utility looking for the right information because it does impact their energy consumption. All of these things will tie seamlessly into either being offered directly by the utility, or by one of the partners of the utility.
Today, obviously, the consumers are not very tied with their utilities because they have very little interaction. But in order to influence me as a consumer, to make large financial decisions like putting solar on my roof, or me buying an electric vehicle or smaller ones buying a thermostat... in all of these scenarios a utility has to have more engagement or trust building with me. Besides the partnership and product placement, I think this is the most important part that utilities have to accomplish.
3. The centralized grid will coexist with renewables, distributed generation, and energy efficiency
Chris Gould, Senior Vice President of Corporate Strategy and Chief Sustainability Officer, Exelon Corporation: Our analysis indicates there five key trends driving the energy system of the future:
- Some conventional generation is being replaced by renewables and distributed generation.
- The intelligent electric network is emerging, as smart meter installations increase.
- Consumer behaviors are pushing toward a decentralized system, with rising penetration of distributed generation.
- Natural gas supply and consumption will increase for the foreseeable future.
- Water scarcity for power generation is increasing, driving constraints on the choice and siting of power generation.
In short, we believe the energy system of the future is one in which the current grid and central power generation coexists with distributed generation, renewables and energy efficiency for at least the next 10 years, and gas and water play increasingly integral supply roles for energy production.
As the energy industry undergoes this transformation, Exelon is executing a strategy to grow and diversify the company through targeted investments in core markets and promising technologies with the potential to reshape the energy landscape.
Examples include our partnership with Bloom Energy to build fuel cell projects at 75 commercial facilities and our investment in NET Power, which is building a demonstration power plant using a new natural gas power system that produces zero atmospheric emissions. We also embrace distributed generation, such as rooftop solar, fuel cells and battery storage, and our utilities in Baltimore and Philadelphia have more than 6,900 net-metered customers with over 100 megawatts of distributed energy.
4. The industry is missing a vision
Karl Rabago, Executive Director, Pace Energy & Climate Center: We are missing a vision, and we have this tendency to look at things like New York and the REV and say ‘What a visionary concept.’ But then they say ‘Oh, well that’s just New York’ and we discount everything California and New York do as if we’re not going to do it … In fact, [the problems facing electric utilities] are applicable to everyone. New York and California as usual are doing it first, but you’re going to get there because the drivers are at the fundamental level. It is about things like flattening growth curves and distributed resources eating your lunch.
We have probably all the tools we need in the electric utility sector to get our way out of this, and the three I’d point out are:
- Move to performance based regulation.
- Let’s shift off of costs and onto value based pricing as a fundamental structure. The utilities have always said they provide far more value than the price reflects, so they should want the upside opportunity.
- We need to keep this chronically insular industry open to infusions of new thinking. We need to find ways for third parties to participate in the mix.
5. Do utilities want to become SolarCity?
Tom Kovalak, Project Manager, New Business Development, Sacramento Municipal Utility District: The biggest issue I think … will be the whole distributed energy side. What’s going to happen with all these rooftop solar units, [and] the CHP units being installed? … You lose the revenue the day they install it and flip the switch. What do you do with that? You still have the same infrastructure out there. Do you penalize them like they’re doing in Wisconsin and charge them enough that it has an adverse effect on them for going to that renewable resource? That goes over like a lead balloon. Or do you say we’re just going to cut our losses and try to grow in other ways, like the co-ops getting into nontraditional business models?
Do we want to as a utility industry to become SolarCity, do we want to sell solar systems or lease them out? That’s what we battle with every day in my little department. We meet about it every day – how are we going to attack this? Watch the revenue slip away with every new house that is built? Or do we say we’re going to get into the business and then deal with all of the fallout from that because obviously all the solar installers are going to say “You have an unfair advantage” … Do we care, or are we going to be politically correct and say we don’t want to get into that space?
6. Independent operators will run the distribution system
Jon Wellinghoff, partner at Stoel Rives LLP and former chairman of the Federal Energy Regulatory Commission: At the distribution level you’ll have an independent distribution system operator that will be operated by an independent board that will be under the jurisdiction of the state utility commission, and that IDSO will operate the distribution system and plan for the distribution system. It will be an open, transparent platform that will be available to all entrepreneurs and entities who wish to provide goods and services to the platform, including distributed generation, advanced grid technologies, energy efficiency and demand response providers … they will all be competitive providers on that platform providing to the costumers … and the utility will simply own the asset and make pay on the asset.
[The utility] will be a stakeholder in the planning process and in the operational process of the independent entity like they are at the RTO level, but they won’t operate the system and they won’t plan for upgrades to the system that will be done independently.
So if we want to maintain those utilities, then we maintain them as the owners of those assets and entities who maintain and invest in those [grid infrastructure] assets, and that’s their only function. If [a utility] wants to become competitive, if they want to provide competitive services like distributed generation, battery storage, and other advanced technologies … Then let them go out and be competitive with everyone else.
What we would see [under this model] is the ability to incorporate into those distribution systems much higher levels of distributed generation, much more innovative technologies like local battery storage technology, advances in demand response and efficiency that could actually be compensated for their full value.
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