The Continuing Saga of the Utilities’ Death Spiral

For those of you who are fighting numerous proposed high-voltage (HV) transmission projects, take some solace in the idea that “time is on our side”. There are lots of reasons for that, but one of them has always been that technology and the market would unfold and develop in ways that would, and should, make HV transmission largely unnecessary. As I’ve said before in other Geopostings’ blogs, I think that is exactly what’s currently happening with the disruptive challenge and the death spiral related to on-site solar and energy efficiency. Every day that passes increases the chances that more HV transmission will never be built. To elaborate on this, I’ve included a soon-to-be published op-ed in the Bozeman (Montana) Daily Chronicle by John Vincent (a frequent contributing author to Geopostings):

The Continuing Saga of the Utilities’ Death Spiral

– by John Vincent,  former Montana state legislator, Bozeman mayor,Gallatin County Commissioner and Montana Public Service Commissioner

Recently two opinion pieces published by the Bozeman Chronicle have addressed energy issues from a single perspective; increasing the supply of electricity. One article advocated for more power from wind. Another, while not dismissing wind power, made the case for coal fired generation.

Certainly reliable energy supply is important, the cleaner and cheaper the better.  But increasing supply isn’t what’s getting the most attention or generating the greatest concern in the utility industry today.

Here’s what is:  The industry is becoming more than a little troubled by the fact that energy efficiency and on-site and locally generated and distributed energy (which reduces demand for the power they sell) is beginning to threaten the way they’ve done business for over 100 years. They see this trend starting to cut into their profits, (profits made possible primarily by building large, centralized power plants and long distance transmission lines at handsome rates of return guaranteed by government regulation of electricity rates).

Consultants for the private utilities’ owned trade group, the Edison Electric Institute, recently acknowledged this threat. They call it a “disruptive challenge.” Others have dubbed it a “death spiral” for the utility industry.

What is “disruptive challenge” or the “death spiral”?

As more and more people and businesses use less and less energy and generate more of what they do use on their own, utilities will sell less power. Rates will have to go up in order to keep profits healthy and stockholders happy.

Customers who haven’t become more energy efficient, or who’ve been unable to find ways to utilize on-site or distributed energy systems, will bear the brunt of these higher rates. But because the cost of distributed energy and improved efficiency will continue to drop, increasing numbers of these customers will become empowered, motivated
and enabled to significantly reduce the amount of power they purchase from their traditional utilities.

The customer base for traditional utilities will shrink, profits will decline, expensive (and previously profitable) power plants and long distance transmission projects will no longer be needed and investors will look elsewhere for the kind of safe, profitable investments
government regulation of utility rates has guaranteed them for decades.  Utilities, as we know them, will no longer exist.

Because one key component of the “disruptive challenge/death spiral” is on-site solar, some may counter that what’s going on in the broader utility industry won’t apply to Montana.

Don’t bet the farm on it. New Jersey, under Republican Governor Chris Christie, trails only California in on-site solar installations; state of the art energy efficient office buildings using on-site solar are going up in Seattle; the chairman of the Federal Energy Regulatory
Commission said last week that on-site “solar will overtake everything” and so the cost of on-site solar will continue to drop. The utility industry’s Edison Electric Institute has warned its own constituency that they have a big problem on their hands; In Georgia, the Tea Party is going to bat for more on-site solar to reduce dependence on the grid; and Bloomberg BusinessWeek just  published an especially timely article, “Why The U.S. Power Grid’s Days Are Numbered”.

On top of all that, and of even more immediate concern for Montana, is the fact that substantial amounts of our state’s electric generation are exported to markets where, for decades to come,  85 to 100 percent of new energy demand is expected to be met through conservation and efficiency.

The grid isn’t going to disappear altogether and technology will make what remains of it smarter and more efficient.  But our reliance on the grid (the world’s largest machine but also a vast, interconnected system highly vulnerable to cyber attack and terrorism) will become a small fraction of what it is today. The signs are there for all to see and more than a few  industry leaders have started to adapt in order to survive and remain profitable in the coming decades.

We’ve seen this kind of paradigm change before, most recently in the phone industry. Land lines out, wireless in. A quantum leap. We are about to see it again in the utility industry. You can bet the farm on it.