The changing landscape of U.S. electric utilities

Image source: Duke University

At the annual Duke University Energy Conference yesterday, I had the opportunity to hear four women – all holding top management positions in the energy industry – speak about the evolution of electric utilities in the United States. Having worked in the energy sector prior to graduate school, I have been to my fair share of energy conferences. This is the first time I have attended an all female panel on energy that was not featured as a diversity event. The change in the demographic make-up of the panel itself is analogous to the dramatic changes we’re seeing in the changing landscape of electricity today. While the electricity sector in the U.S. still operates as it has for the last several decades – with investor-owned utilities, municipalities, and rural electric cooperatives running the show – today’s utilities are still facing political, social, and economic environments like we have never seen before. According to Anne Pramaggiore, President and CEO of ComEd, “we’re looking at a total transformation in this industry”. The dynamic between utilities and electricity users is changing. Trends in technology, distributed generation, and general environmental awareness have emerged over the last several years to help propel this change towards a cleaner electric grid.

Image source: Sanford Journal of Public Policy

But just as important, if not more so, is the enabling regulatory environment that has helped these changes take root and thrive. State and federal policies are pushing the U.S. towards a whole new electricity paradigm. “Policies are really the driver for both our programs and our [business],” Carol Choi believes.

As Senior Vice President of Regulatory Affairs at Southern California Edison (SCE), Choi pointed out that the utility has to balance managing today’s generation with planning for the future on a whole new business model. With a new state bill that requires California to reduce its carbon pollution to 40 percent below 1990 levels by 2030, SCE must adjust to new technologies and the pace of state and federal regulatory change.

“Public policy today is actually one of the most certain environments we’ve had in quite some time,” says Rebecca Kujawa, Vice President of Business Management for NextEra Energy Resources. As the world’s largest generator of wind and solar energy, this company needs regulatory support like production and investment tax credits so that these emerging technologies can hold their own against already-subsidized fossil fuels.

According to Kujawa, utilities “need stable public policy in order for those [investment] returns to work out”. So much has changed in such a short amount of time; without the current regulatory efforts at the state and federal levels, renewable energy in the U.S. wouldn’t be where it is today. But there needs to be faster progress; in 2015, only 13% of electricity was generated from renewable technologies (of which 6% is hydropower).

What’s the biggest barrier to transitioning to a cleaner, more distributed electricity grid? Storage. By far, batteries could provide the opportunity to fundamentally shift the way that utilities work with energy. As Choi noted, “storage can be a real asset for us to help with solar and wind - these intermittent resources – to help stabilize the system.” With new regulatory support for batteries and energy storage, perhaps public policy could help carry the electricity sector through this transitional stage.

There is still a long way to go, and many would argue – myself among them – that there is much more for policymakers to contribute. This initial regulatory support of renewable energy investment and technological development is the first step. Policymakers are helping shape the electricity sector by changing the business model. Utilities must find a way to move from a model with revenues generated by usage, to a model where revenues are generated from services.

Jeannie McKinney is a Masters of Public Policy Student at Duke University focusing on climate change, energy, and the environment.