With regulators reluctant to OK rate hikes, utilities can better justify an increase – if it compares well with the utility’s peer group.
A Time to Lead
The financial crisis calls on utilities to invest in America’s future.
True story: At the dinner table recently, my 11 year-old son—who’s running for 6th grade student council—bemoaned the arguments he’s having with other candidates. I asked what they’re arguing about, and he said “Everything.”
“Oh really? What’s your position on the mortgage bailout.”
“It sucks!” he blurted.
I countered, “But if we don’t do it, the financial system will collapse.”
To my astonishment, he answered, “Well, sometimes it takes some pain before things can get better.”
Pundits and politicians say the current financial crisis represents a tipping point, and possibly the end of American preeminence in the global economy. Germany’s Finance Minister Peer Steinbrück said in a teleconference in late September, “The U.S. will lose its status as the superpower of the world financial system.” And in an article titled “How to Lose an Empire—Gracefully,” Forbes magazine Executive Editor Paul Maidment wrote, “While it is difficult to imagine the U.S. accepting a diminishing status gracefully, it will have to find a destiny in that seam where finance and commerce meet politics and strategy.”
But if these people are right, the financial crisis marks not just a challenge, but a moment of opportunity for America—and especially our energy and technology industries—to chart a path to a better future.
Before the financial crisis began, America faced a colossal challenge to make our energy economy more secure and sustainable—the “green revolution,” in the shorthand offered by Thomas L. Friedman in his best-selling book, Hot, Flat and Crowded . That challenge remains, and the financial crisis has raised the stakes. What will happen now? Will America seize the challenge, and marshal the forces of innovation and investment to address it? Or will we retreat from the challenge, and allow other countries to surpass America in terms of efficiency and productivity?
This question hits home for our industry in particular, because U.S. utility companies are uniquely positioned to capitalize on the opportunities of the green revolution—and in the process, to lead America out of its financial quagmire. But are we willing to lead?
‘A Crisis is a Terrible Thing to Waste’
In the past couple of years, the U.S. power and gas industry has begun an unprecedented wave of infrastructure investment—much of it aimed at making the utility system smarter, cleaner and more efficient. At the same time, utilities and regulators are seriously considering some major changes in the way electric power is produced and sold to customers, mostly to facilitate conservation and efficient use of resources.
In the months and years ahead, these changes and investments will encounter increasing resistance. After all, smart infrastructure will cost more to build than dumb infrastructure, and that’s money ratepayers can scarcely afford to spend during this period of economic stress. And experiments in time-of-use pricing, revenue decoupling and retail competition increase regulatory risks, which companies can scarcely manage during the best of times—much less uncertain times like these.