Utilities: Survival course for dinosaurs (advice from one of our own

Steve Klein recently served as a utility industry panelist at a conference where he introduced himself as a living, breathing dinosaur. It was not his intent to imply that he was really old, or not hip to the latest trends. Rather, he was making the point that this description was now being applied to electric power utility executives..

Citibank published a report titled “Energy Darwinism” that led industry analyst Jesse Berst to coin the prophetic phrase “Utilities are Dinosaurs Waiting to Die.” The original report argues that the utility industry’s dismissive attitude toward disruptive technological changes mirrors that of those who failed to recognize the game-changing impact of the Internet and cell phones. The report suggests that today’s electric power utilities could lose a substantial portion of their market to energy efficiency, solar, and other distributed generation technologies. Citibank further emphasized that history tells us such changes are never gradual.

Earlier this year, Marlene Motyka, an alternative energy advisor for Deloitte LLP, wrote an op-ed titled, “Why We Should Pity Utilities.” She highlighted the fact that utility “companies are caught in a vise: squeezed by simultaneously rising expenses combined with falling demand for electricity.”

Motyka was only addressing a portion of the vise. To complete the entire squeeze play, you also have to factor in legislative and regulatory pressure on utilities to fund large expansions of the nation’s transmission grid, as well as renewable portfolio standards, to ultimately promote large-scale commercial wind and solar development that likely will only add to the oversupply problem.

As I write this I am reminded of a clean tech venture capitalist who served with me on a panel that was charged with helping the previous governor of Washington establish a state energy strategy. Every time I made what I thought was an insightful comment from the utility perspective, he would whisper sarcastically to me, “Spoken like a true power company executive.” The electric utility industry is being accused today of resisting consumer demands by protecting its traditional business model in much the same way that Ma Bell sought to maintain control of its big black rotary telephone. Are we simply protectionists or dinosaurs that don’t want to adapt and accommodate technological advancement? Are we irrationally trying to preserve our version of the rotary phone?

I don’t want to be perceived like Ma Bell, but I do believe there are foundational elements of our industry that were put in place years ago and have served the nation and its citizens well. Unlike other parts of the world, everyone in America has access to safe, reliable, and affordable electricity at the flick of a switch. On the other hand, I would argue that we must adapt to the changing needs of our customers even if that means facilitating the application of new technologies that threaten our traditional business model.

I believe the best strategy going forward also happens to reflect my view of where we are heading as an industry. First of all, conservation and renewables are a legacy of the Pacific Northwest and should continue to be the first and foremost tools in our tool belt. As public utilities, we need to lead the way in making sure our communities are economically and ecologically sustainable through wise and efficient use of resources. Consumer-owned utilities do not exist merely to sell kilowatts and return generous cash dividends to detached shareholders; our dividends are evident through our unique values of local control, economic development, environmental and community stewardship, and overall quality of life. Public power utilities will have to become more creative to continue to be able to sustain strong conservation programs despite flat or declining energy load.

Utilities should also embrace the fact that a growing number of their customers want to avail themselves of distributed resources such as solar. We should develop community- based programs to educate and assist those who want to participate directly in supporting local renewable generating sources. Such programs can provide education and appropriate incentives as well as promote local economic development, similar to the many successful public power conservation efforts.

Rather than simply saying “no” to those in your community who look to the local utility for guidance, you should find ways to say “yes.” You can structure your program and rate design to address the potential revenue and nonparticipant impacts. I don’t expect distributed generation to grow as fast and have as large an impact in the Northwest as other parts of the country because of our comparatively low retail rates and underlying renewable resource base made up of non-carbon-emitting hydro. Resistance is not the best approach; it is better to work with customers, legislators, and regulators to meet this growing consumer interest. Our proactive stance will position us to better influence the solutions to adequately address reliability, safety, and economic impacts.

I see our role as power utilities changing over the ensuing years, but I also see certain fundamental aspects remaining unchanged in terms of utilities remaining mass market service providers. The grid system will become more and more complex, developing a multitude of interfaces with variable distributed generation as well as innovative service offerings and pricing schemes ranging from demand response to energy storage. This represents a challenging area upon which all electric utilities should be strategically focused. More buildings will become smart; they will have their own generating sources and energy management systems, and will be able to communicate on a real-time basis. The local distribution utility will still provide some level of central station generation, but it will be supplemented by local distributed generation as well as strategically sited utility- and customer-owned energy storage.

I think lots of people are interested in environmental sustainability and are willing to have a passively managed solar panel on their roof, but most consumers are not interested in becoming experts and committing the time necessary to effectively manage inverters, batteries, communications protocols, etc. That’s where the local utility comes in. We can provide a smart grid system that has the ability to balance and optimize all of the inputs and outputs to ensure that each customer has the energy they need when they need it.

We can no longer be satisfied with our form of Ma Bell’s black rotary dial phone, which is represented by an unsophisticated, one-way electric system highway. We cannot ignore the interests of our customers, who are demanding technological change and the provisioning of new services. With change comes opportunity, and I believe public power is well positioned to lead the way to the future utility service model, rather than going extinct like the brontosaurus and the black rotary telephone.

Steve Klein is the general manager of Snohomish County PUD in Everett, Wash. He can be contacted at sjklein@snopud.com. More




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