NEWS: Not Your Grandpa’s Utility Business Model (But Maybe Mine)

Here at Advanced Energy Perspectives, we have known for some time that the utility business model is undergoing a necessary evolution. Utilities have been integrating variable energy resources and starting to incorporate energy storage, advanced metering, demand response, and other advanced energy technologies at an increasing rate, even without national policy forcing their hands. Back in 2014, we said the days of “your grandpa’s utility business model” were over. This week, thanks to a new survey of utility employees, we heard the same thing – right from the horses’ mouths.

“It's no longer a question of whether the utility sector is undergoing a transformation,” opens Gavin Bade, in the article describing Utility Dive’s third annual “State of the Electric Utility” report. Bade writes that the debate is “all but over” – only 3% of respondents said their utility’s business model did not need to change. This growing awareness, writes Bade, leaves two new questions: “what will it become, and how can utilities get there?”

Utility Dive's survey, which canvassed more than 500 employees of electric utilities across the U.S., points to utilities acknowledging that the sector will need to reduce carbon output and come up with new revenue streams, but it’s less clear how they’re going to do it within their existing business and regulatory frameworks.

More than a third of respondents described the existing regulatory framework as the top issue that was holding back their business model transformation, and 41% described it as one of the top three pressing challenges for their utility. This is an issue that AEE is helping utilities, regulators, and advanced energy companies grapple with through our 21^st Century Electricity System initiative, with dialogues in places like California and New England, and through regulatory proceedings like New York’s Reforming the Energy Vision.

Also interesting is how the survey respondents believe the utilities' power mixes are going to change over the next 20 years: About half of respondents expect a moderate increase in natural gas, wind, utility-scale solar, and distributed energy resources, while most other resources will stay about the same (except coal, which 54% expect to significantly decrease).

This response, in particular, is reflected in this week’s news: PG&E launched a new community solar program and two Arizona utilities announced utility-owned distributed solar initiatives. If Arizona’s Corporation Commission approves, APS will install 20 MW of solar power over their service area (the utility would grant a $30 credit on customers’ utility bills in exchange for use of their roofs) and Tucson Electric Power will lock customers into a lower bill. In Texas, Austin Energy has plans to manage solar plus storage on the grid, and Pennsylvania is piloting a time-of-use project.

In all this discussion of “your grandfather’s electric utility,” I thought about my own grandfather. He’s 92 years old and ornery as ever, using his solar water heater and paying his net electric bill from Tucson Electric Power. Over Christmas, he told me a story: He had recently seen photos taken on the old family farm in Gotebo, Oklahoma (I promise it’s a real place). Where before the cows and horses had been let out to pasture, a new feature dotted the landscape: towering wind turbines. “They’re huge, Lexie,” he said. “They look like tree trunks, only not a lot of trees grow on the plains. So they’re even bigger.” Photo: the author [right] and her grandfather [center] at the Grand Canyon in 1990.

Maybe the utility of the future is a little like my Grandpa’s utility after all.

Meanwhile, in member news, AEE board member Bill DiCroce has been promoted to President and CEO of Veolia North America. Congratulations, Bill! And GE’s energy startup Current has scored its first big business win, a deal with JP Morgan Chase to install energy-efficient LED lighting at some 5,000 bank branches in the U.S. That should shed some light on the subject.