Frontlines

Something seems deeply disturbing about the utility industry these days. An almost palpable tension rises whenever the utility CEO is asked how he will build enough power plants to meet the skyrocketing demand for power. Some consultants predict that sometime after this decade the time will come when utilities won’t be able to build enough to meet demand, no matter what they try.

FERC Chairman Joseph Kelliher gives mixed signals that leave developers wary of committing to investments in new infrastructure, given his clear desire to affect positive change, while appearing to argue for policy decisions that are politically safe but arguably inconsistent.

How will utilities in the next 10 years manage a multi-billion-dollar infrastructure buildout, higher interest rates/cost of capital, diminishing free cash flows, state renewable mandates, and political pressures to keep rates or power prices low, all while complying with carbon emissions programs that emphasize higher-cost fuels? Meeting the challenges may depend on whether a national carbon program that regulates carbon emissions is established.

The July 11, 2006, edition of the Wall Street Journal contained an excellent opinion piece which posed the question: “What does ‘energy security’ really mean?” What is so striking about his article is that his analysis easily could describe power industry politics between low-cost states (suppliers) and high-cost states (consumers).

Constellation Energy CEO Mayo Shattuck has complained that he and the utility have unfairly been demonized in the public and in the press. In one interview with a Maryland paper, Shattuck showed distress over the verbal abuse his executives had received from angry ratepayers. And who can blame him?

This month’s cover story focuses on how utilities intend to find the talent they’ll need over the next few years to replace all those retiring baby boomers. And part of that puzzle naturally involves executive pay: how to attract the best and brightest without going overboard on rewards for performance.

There’s been a lot of talk in the industry about new super powers for market enforcement, conferred by Congress on FERC in last year’s energy legislation. But this hasn’t been the case entirely. Many believe that FERC still labors at a disadvantage.

Hollywood and the media are way ahead of the politicians when it comes to the greenhouse effect and global warming. But even as utilities try to be good corporate citizens and help devise a federal or national plan, the question remains as to whether the domestic economy can achieve even a modest reduction in CO₂ releases—enough to put even a small dent in current predictions of global climate change.

With the possible exception of keeping the lights on, the merger game dwarfs just about every other question facing today’s electric utilities. The last big wave of consolidation hit in the late 1990s. Now the forecast calls for a repeat performance, but don’t bet the farm. There’s a hitch, you see. It’s today’s high commodity costs.

NERC up until now has been, in its own words, “a self regulatory organization, relying on reciprocity, peer pressure, and the mutual self-interest of all those involved in the electric system.” Nevertheless, can this tradition of kind, gentle, and voluntary consensus-building stand NERC in good stead as it seeks to transform itself in to a steel-fisted czar that would enforce mandatory standards?