Utility executives identified aging infrastructure as the number one challenge facing the electric industry, in a recent Utility Dive survey, easily topping an aging workforce, regulatory models and stagnant load growth. In response, the industry is spending hundreds of billions to replace and upgrade infrastructure, rushing to meet consumer demand for higher quality power enabled by construction of a more modern grid.

"The last few years there's been more of an emphasis on transmission and distribution, and the driver there has been the advent of all these new technologies that are trying to connect with the grid," said Richard McMahon, Jr., vice president of energy supply and finance for the Edison Electric Institute, the electric utility trade organization. "There are also a lot of customer-driven desires utilities are trying to facilitate. There's a lot of spending on metering automation, as well as at the distribution level, distribution transformers to accommodate distributed generation."

Today’s grid may not be up to the task of reliably integrating high levels of renewables, distributed energy resources, and smart grid technologies, Utility Dive found. The American Society of Civil Engineers (ASCE) gave U.S. energy infrastructure a barely passing grade of D+ in 2013, at stark odds with the sophisticated grid management required by the rapid acceleration of utility-scale renewables, distributed resources and two-way devices.

"Distributed energy cannot be a profit center without the modernized grid infrastructure that’s needed for grid integration," Utility Dive concluded in the report.

Spending to remain above $90 billion

But the industry is moving quickly to meet the challenge, according to McMahon. Investor-owned utilities spent more than $100 billion in 2014 on infrastructure, and spending levels are expected to remain above $90 billion annually for the next few years.

"We are the most capital intensive industry and we're in the midst of a capital stock turnover," McMahon said. "There has been a lot of spending across the utility value chain, and we expect that to continue for at least three or four more years. ... The end result of all this will be a more resilient, reliable system, a cleaner energy fleet and a system that is meeting customer demands."

McMahon said in past years there has been substantial gas generation investment as a "natural replacement for coal," along with a boost in renewables spending. Some mandatory spending has also gone towards environmental mandates, including retrofitting existing plants.

Since 2012 about 41% of the spending was on generation, and about 6% on environmental efforts. The balance of the investment has focused on transmission and distribution, McMahon said.

"Customers want more and higher quality power, even at the residential level, than ever before. All of these investments are being made to meet customer demand and expectation in an affordable way," McMahon said. 

Outages on the rise

The American Society of Civil Engineers report that gave U.S. infrastructure a barely-passing grade pointed out that aging equipment "has resulted in an increasing number of intermittent power disruptions, as well as vulnerability to cyber attacks."

Significant power outages rose to more than 300 in 2011, up from about 75 in 2007, and the report found many transmission and distribution outages have been attributed to system operations failures, though from 2007 to 2012 water was the primary cause of major outages.

"While 2011 had more weather-related events that disrupted power, overall there was a slightly improved performance from the previous years," the report said. "Reliability issues are also emerging due to the complex process of rotating in new energy sources and 'retiring' older infrastructure. 

ASCE said that for now, the United States has sufficient capacity to meet demands, but from 2011 through 2020 demand for electricity in all regions is expected to increase 8% or 9%. The report forecasts that the U.S. will add 108 GW of generation by 2016.

"After 2020, capacity expansion is forecast to be a greater problem, particularly with regard to generation, regardless of the energy resource mix," the report said. "Excess capacity, known as planning reserve margin, is expected to decline in a majority of regions, and generation supply could dip below resource requirements by 2040 in every area except the Southwest without prudent investments."

Black & Veatch, in its 2014 Strategic Direction report on the industry, predicted the spread of new technology and increased customer expectations "propelled by a confluence of market dynamics and shifting technologies, will result in a leaner, more nimble electric utility industry that will be able to better deliver on its primary mandate: reliability."

Will Williams, a director in Black & Veatch management consulting, said utilities are "getting smarter at quantifying and targeting investments. Also, regulators are recognizing the need the to invest in this aging infrastructure."

Williams pointed to New York's "Reforming the Energy Vision" proceeding, legislation in Indiana to promote grid modernization and California's risk-based planning approach as regulatory models that are recognizing the need for investment.

"From the regulatory point of view there's an acute focus on making sure that plans to invest in the infrastructure are well-targeted, so they don't put too much of a burden on the customer," Williams said. Keeping costs down is "the key balance" as customers demand better service.