ORLANDO — Flat load growth and new technologies are challenges but not mortal threats to utilities, NARUC panelists said last week.
Citing utilities’ political clout and outsized role in regional economies, Hempstead said: “We think before it becomes an intractable problem it will be dealt with in some way.”
New rate designs were among the solutions proposed in sessions on the challenges posed to current utility ratemaking and business models.
New Regulatory Models
“There’s no doubt that the regulatory model has to change,” Alan James, chairman of Macquarie Capital’s energy infrastructure group — owner of Duquesne Light Co. — told regulators. “I would ask you to look across the stakeholder groups and not just be focused on the customer.”
Trackers — direct pass-throughs of costs to customers — are popular with utilities and a “positive” for credit ratings, said Hempstead.
But they face resistance from stakeholders such as Maryland People’s Counsel Paula Carmody, who pronounced herself “not a fan of trackers or forecasted rates.”
Former PSEG executive Anne Hoskins, appointed to the Maryland Public Service Commission in August, said she’d like to find ways to align regulators’ goals with the incentives of utility executives. “What are the metrics that they will respond to in compensation agreements?” she asked.
More Nimble
Other speakers said utilities must become more nimble and capitalize — rather than being victimized by — new technology.
“Allow utilities to invest in these disruptive technologies and they will indeed do so,” said Julien Dumoulin-Smith, a director in UBS Investment Research’s Utilities group.
James and Hempstead said that utilities should embrace commercial-scale solar power, until now the domain of independent developers.
Massachusetts Commissioner David Cash cited a “huge underinvestment” in research and development by utilities compared to similar size companies. “What is the energy app that customers are going to want?” he asked.
Bundling electricity with home security and other services”sounds very compelling to a consumer,” responded Carol Choi, vice president of integrated planning and environmental affairs for Southern California Edison. “But it’s much more challenging to achieve.”
Maryland Commissioner Kelly Speakes-Backman said innovation is difficult for utilities because regulators are risk-averse. “Regulators don’t like unknowns. The way to avoid that is not to allow it.”
Divergent Views
James predicted utility share prices will come under pressure as the economy improves and investors move away from “defensive” investments.
Other speakers said they saw reason for optimism.
“Zero load growth is a challenge,” acknowledged Choi. “You like to see people using your product.” But she said the electrification of transportation offers growth prospects.
“Resiliency investments are an upside area for utilities if they get it right,” said Dan Bakal, of CERES, a non-profit organization that advocates “sustainability leadership.”
Moody’s Hempstead said utilities are benefiting from reductions in regulatory lag, increases in trackers and improvements in “regulatory tone.” “We’ve got almost the entire industry on review for an upgrade,” he said.
