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CEO Forum: Facing the Future

Three CEOs, three business models, one shared outlook.

Fortnightly - June 2012

in the future, but I don’t know if that’s because of worry about rate shock or because RPS policies were enacted during the Bush administration, by Democratic lawmakers who wanted to do something on the clean energy front. The momentum failed when the White House became Democratic.

We’re not predicating our renewable energy business going forward on new RPS requirements, nor do we believe it’s realistic for anybody in the wind or solar industry to get prices down to compete with gas at $2. The price of natural gas has been dropping for four years, but the average retail price of electricity has gone up; Connecticut ratepayers are paying 18 cents/kWh.

We think the addressable market for renewables is beyond the meter. People will be self-generating, and that will have profound implications for the system. You already see it happening in California with multi-tiered rates. People are paying 35 cents/kWh at the top tier. Anybody who’s doing that can put solar panels on their roof and pay less. The real opportunity is to target retail electricity markets in high-tariff states.

Fortnightly: FERC has been very active in recent years. What’s your perspective on the overall trend in wholesale market regulation?

Crane: FERC has been generally supportive of market competition. There seemed to be a push toward re-regulation a couple of years ago, and FERC successfully defended the deregulated markets. The re-regulation pendulum is swinging back dramatically. Almost by surprise, you’re seeing more states talking about deregulation. I think the reason is because state PUCs and people in public policy are recognizing that some of the game changers—like EV infrastructure and beyond-the-meter distributed solar—don’t naturally lend themselves to rate-base regulation particularly well. In part that’s because it can be hard for a PUC commissioner to let a utility put a bunch of EV stuff into rate base, recognizing that most EVs will be owned by people in upper income brackets.

Fortnightly: Capacity markets are emerging in some organized markets, but not Texas. What do you think of capacity markets?

Crane: Regulators in Texas changed the price cap for the summer, which is a sort of de-facto way to make it feel like a capacity market. They’re doing what they can to encourage new generation within the construct of an energy-only market. We’re watching that with great interest and we want to be supportive.

Fortnightly: What about demand response? Does that market interest you?

Crane: We’ve seen a big focus on it in the Northeast markets, and I think DR is very interesting. We’re looking at it from a business perspective. We support treating it as a resource, but the rules should be the same for DR as they are for generation. Will it be reliable, in a pinch? Sometimes questions are raised about that.

But DR is part of the future in the Northeast, and we’re looking to see if there’s an opportunity for us. We’re not sure whether it works as a stand-alone business or as a product in the tool chest. We’re looking at it.

Fortnightly: Do you view DR and