White House Chronicle

News Analysis With a Sense of Humor

Wind of Change Challenging Utilities

by Leave a Comment

On Feb. 3, 1960 in Cape Town, British Prime Minister Harold Macmillan shook up what was still the British Empire in Africa by telling the Parliament of South Africa that “the wind of change is blowing through this continent.”

His remarks weren’t well received by those who that thought it was premature, and that Britain would rule much of Africa for generations. The British ruling class in Africa – the established order — was shaken.

But Macmillan’s speech was, in fact, a tacit recognition of the inevitable. It was the signaling of a brave new world in which Britain would grant independence to countries from Nigeria to Botswana and Kenya to Malawi. Britain would not attempt to hold the Empire together. His speech was seminal, in that Britain had signaled that things would never ever be the same.

To me, the appearance of investor and entrepreneur Elon Musk at the Edison Electric Institute’s annual convention in New Orleans was a “wind of change” moment for the august electric utility. It was a signal that the industry was coming to terms, or trying to come to terms, with new forces that are challenging it as a business proposition in a way that it hasn’t been challenged in a history of more than 100 years.

But whereas Britain could swallow its pride and start a withdrawal from its former possessions, the electric industry faces quite a different challenge: How can it serve its customers and honor its compact with them when people like Musk, who is the non-executive chairman of the aggressive company SolarCity, and a passionate advocate of solar electricity, and Google are moving into the electric space?

At EEI’s annual convention, Musk didn’t tell his audience what he thought would happen to the utilities as their best customers opted to leave the grid, or to rely on it only in emergencies, while insisting that they should be allowed to sell their own excess generation back to the grid. Musk also didn’t venture an opinion on the future of the grid — and his interlocutor, Ted Craver, chairman and CEO of Rosemead, Calif.-based Edison International, didn’t press him.

Instead Musk talked glowingly about the electrification of transportation, implying — but not saying outright — that the electric pie would grow with new technologies like his Tesla Motors’ electric car.

The CEOs of EEI’s board were ready for the press by the time they held a briefing a day after Musk’s opening appearance. They spoke of “meeting the challenges as we have always met the challenges” and of “evolving” with the new realities. Gone from recent EEI annual meetings was CEO talk of their business model being “broken.”

The great dark cloud hanging over the industry is that of social justice. As the move to renewables becomes a flood, enthusiastically endorsed by such disparate groups as the Tea Party and environmentalists, the Christian right and morally superior homeowners, and companies like SolarCity and First Solar, the poor may have difficulty keeping their heads above water.

The grid, the lifeline of U.S. social cohesion, remains at threat. Utilities are jumping into the solar business, but they have yet to reveal how selling or leasing rooftop units — as the Southern Company is about to do in Georgia — is going to save the grid, or how the poor and city dwellers are going to be saved from having to pay more and more for the grid while suburban fat cats enjoy their sense that they’re saving the planet.

My sense is that in 10 years, things will look worse than they do today; that an ill wind of change will have reduced some utilities to the pitiful state of Amtrak — a transportation necessity that has gobbled up public money but hasn’t restored the glory days of rail travel.

People like myself — I live in an apartment building — have reason to fear the coming solar electric world, for we will be left out in the cold. The sun will not be shining on those of us who still need the grid. It needs to be defended. — This column was previously published in Public Utilities Fortnightly.

Disruptive Technology Hits Electric Industry

by 6 Comments

If you are reading this by electric light, you are connected to the electric grid Unless, that is, you are one of an infinitesimal number of home owners who installed solar panels.
 
The penetration of solar panels may be statistically insignificant today, but to the electric industry these panels, and other self-generating schemes, are like dry rot: a threat to the whole edifice.
 
It is not just those panels that are beginning to disrupt the electrical grid, but the whole panoply of alternative technology; wind, geothermal heat, micro-hydro turbines and scattered natural gas turbines all fit into a new category of electric generation known as “distributed generation.”
 
The change is so threatening to the investor-owned electric utilities and their not-for-profit colleagues in the public power sector that it has begun to dominate discussions on the Web and wherever utility executives gather.
 
Early this year the Edison Electric Institute (EEI), which represents the investor-owned utilities that provide 70 percent of U.S. electricity, issued a white paper discussing the disruptive changes that are beginning to threaten the old electric paradigm. The theme of change also dominated the EEI annual convention in San Francisco earlier this month, with CEOs talking about a “new business model,” although they were hard put to say what this will be.
 
The root cause of the problem is that the new entrants into generating treat the grid as kind of open marriage: there when it suits them. A home owner, might be self-sufficient in electricity, and even generate enough to sell a small portion back, to the grid 90 percent of the time; but during prolonged bad weather, or if the home system is down for maintenance, that home owner expects to flip a switch and go back on the grid. The local utility, all the while, has been standing by hoping to sell that home owner a few watts until the home system returns to power.
 
This applies even more so to large users of electricity, including factories and big retailers. Many of the factory customers generate nearly all of their own electricity already and big retailers are getting in the game. Walmart is covering its store roofs with solar cells. McDonalds has eyed self-generating for years, but not without the comforting assurance that the grid will always be there.
 
All of this distorts the financial as well as the physical infrastructure of the utility industry and produces social problems as well. Ted Craver, CEO of Edison International, the parent company of Southern California Edison, told the EEI conference that as California is “ground zero” for rooftop solar, you have to ask “are you creating a system of those who have means for self- generating and shifting the burden to the have-nots? It is a social fairness question.”
 
The system is also skewed, Craver noted, by subsidies for alternative generation. He called for a flexible system that allows for these new realities.
 
Another threat, according to Tom Fanning, CEO of the giant Southern Company, comes to the ability of utilities — one of the most capital-intensive industries is the world– to raise money. “Our industry raises about $90 billion a year and we need policies that support that,” he said.
 
There are other problems facing the electricity industry, which are cataloged in an amusing and readable book by economist Steven Mitnick, “Lines Down.” While Mitnick is more optimistic about the future of the grid than many, he says it needs fixing. It has been starved of investment and needs upgrading, particularly hardening against the storm outages that are standard in America but not in Europe, Japan and South Korea.
 
The future of the grid is not in the hands of the utilities alone, but also the regulators, federal and state, and politicians. That means that the new paradigm may be a long time in coming, while another aspect of the U.S. infrastructure deteriorates. — For the Hearst New York Times Syndicate