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Not Your Grandfather's Utility

Fortnightly Magazine - September 2011

This isn’t your grandfather’s electric utility anymore. Gone are the days when electric resource planning meant simply deciding where the next coal- or gas-fired unit would be located and when it needed to be on-line.

The build-out paradigm, whether we know it or like it, has changed forever.

In the past, the customer compact was simple. Consumers, power companies and regulators seemingly all agreed that electric systems must be safe and reliable, and deliver quality power. After that, least-cost installations, operations and maintenance generally ruled the industry—and for good reason. Consumers wanted affordable rates to go along with safe, reliable and high-quality electricity.

Then, some years back, state regulators began pursuing various types of mandatory programs that at least some consumers asked for and wanted—such as renewable and alternative energy standards, and energy efficiency requirements. Today all but 14 states have some form of renewable or alternative portfolio standards or goals in place, many of which allow some amount of energy efficiency gain in lieu of meeting the standard conventionally.

In 2006, Al Gore’s documentary An Inconvenient Truth set off a whirlwind of debate regarding the science of climate change and man’s contribution to it. Shortly thereafter, a handful of congressional leaders picked up on the cause and over the course of the following four years, bills were proposed in both the U.S. House of Representatives and the Senate meant to directly deal with the release of greenhouse gases (GHG) into the atmosphere that were thought to be significantly contributing to the climate crisis. In fact, in 2009 H.R. 2454 (also known as the Waxman-Markey bill) was actually passed in the House by a narrow margin, and heated debate raged in the Senate until as recently as January of this year.

Without arguing for or against the science, the power industry hunkered in the corner awaiting the hammer that seemed inevitable to strike in the very near future. The industry’s primary concern is largely one of cost. By some estimates, the reduction of GHGs via the seemingly modest shift in the nation’s energy mix to 20 percent renewable by 2020, for example, would cost our country’s electric power companies, and ultimately its consumers, $1 trillion incrementally—in necessary capital investments and premature decommissioning efforts—compared to actions along the status-quo path.

These numbers present two very significant concerns for electric utilities: How do we finance such costs in the first place, and how can we be assured of getting full and appropriate recovery of those costs from state regulators if the mandate comes from the federal level?

But wait—in 2011, TEA Party Republicans helped to form a new and vocal order in Washington. GOP efforts have, for now, all but eliminated talks of carbon pricing, cap-and-trade or a federal renewable energy standard (RES). Even regulation of GHGs by the Environmental Protection Agency (EPA)