New Ideas For A Brighter Future

Electric utilities are on the forefront of a technological transformation, changing the way they deliver power and how consumers use it — and creating a smart, low-carbon economy.

By Eric R. Blume, Editor and Publisher, Electric Perspectives

Energy is a central subject around the country. It is top of mind in Washington, making up a large part of President Obama's stimulus bill, budget and speeches. You hear about it in your state, your community and even your home, where electricity charges your cell phone, lights your lamps and powers everything from the computer to the air conditioner.

Across the country, no less than an energy transformation is occurring, and shareholder-owned electric companies are at the center of it. One of the nation's greatest infrastructure challenges is the continuing need to supply affordable, reliable electricity to homes, schools and businesses in the coming years, especially during a time when the challenge of global warming collides with our need to power a better standard of living for a growing population.

Electric power is the key to a "smart," low-carbon economy. Cutting carbon emissions while keeping consumer costs from rising rapidly will demand new ways of generating, transmitting and using electricity — and electric companies will need to continue developing the technologies and programs that support:

• energy efficiency efforts that allow consumers and energy companies to reduce energy use, lower costs and minimize environmental impacts;
• generation technologies, including renewable energy resources, advanced nuclear plants and more efficient coal technologies, coupled with carbon capture and storage;
• the development of plug-in hybrid electric vehicles, which move the nation away from imported oil and provide new jobs; and
• a Smart Grid that helps consumers make more informed choices about how they use energy and helps utilities ensure reliability and system efficiency.

Shareholder-owned electric companies also are committed to working with Congress to craft legislation that will substantially cut the nation's greenhouse gas emissions.

Over the next 20 years, the changes promise to be astounding. The transformation the industry is making will continue to create jobs, stimulate economic growth and power a greener, lower-carbon economy and electricity industry.

Good for Customers, Good for the Environment

The electric utility sector is among the most capital-intensive sectors in the country. Even with a credit crunch and a recession, it will have made about $230 billion in capital expenditures between 2008 and 2010. This spending is not discretionary — it involves generation, transmission and distribution investments, without which reliability becomes an issue.

But those investments also will bring more renewable energy to the grid, as well as other cleaner-generation technologies and ways to give customers more control of their energy use. Looking out over the next 20 years, the industry expects to spend between $1.5 trillion and $2 trillion dollars and in so doing, help create that smart, low-carbon economy.

Energy Efficiency in Action

Take a look at energy efficiency. The stimulus bill focused on it, and the industry is enthusiastically pursuing it. For example, the bill funded simple, low-tech conservation measures that assist customers in managing their electricity use, such as insulating attics, replacing drafty windows and installing energy-efficient light bulbs and appliances. The bill also encouraged the strengthening of the nation's construction codes. Houses and buildings account for over 40% of America's total energy use, as well as three-fourths of its electricity use. Energy efficiency can benefit consumers and businesses today, as they lay the foundation for long-term energy and environmental savings tomorrow.

More programs are under way. The industry is urging state regulators to adopt policies that encourage efficiency investments and help utilities recover the costs. If electric companies can make energy efficiency a sustainable business, then utilities can in turn help customers control electricity use and lower their bills. Electric companies have the expertise and the resources to do it.

Advanced Generating Technologies Are Key

The most important tool the industry has to achieve carbon reductions, strengthen energy security and keep costs under control is the development of climate-friendly technologies, and electric utilities are pursuing a full suite of them. In 2008, renewables like wind, solar, geothermal and biomass accounted for almost 80% of all new-generation project announcements and added to the small but growing share of total installed generation. Advanced nuclear technologies represent a significant source of on-demand, zero-emissions electricity. Advanced coal technologies with systems that can capture, transport and store CO2 emissions are in development and will continue to allow the U.S. and the rest of the world to take advantage of one of the lowest-cost, most abundant fuels in this country.

Smart-Grid Technology Benefits Everyone

Transforming the nation's transmission and distribution grids is a big job, but it can help create jobs now and empower the grid to meet the demands of the 21st century. Digital electric meters and technologies are enabling two-way communication capabilities between utility and customer, which is mutually beneficial. Utilities will be able to detect and repair outages and connect customers faster. Plus, customers will be able to manage their homes' appliances more efficiently and conveniently. Couple those things with innovative approaches to rate making and rate design, and the Smart Grid also can help reduce a company's peak demand period, which saves money for both customer and utility and helps protect the environment.

The most important tool the industry has to achieve carbon reductions, strengthen energy security and keep costs under control is the development of climate-friendly technologies,
and electric utilities are pursuing a full suite of them.

The Transportation of the Future

This same Smart Grid can additionally support electric transportation technologies, particularly plug-in hybrid electric vehicles (PHEVs). The PHEV is three to four times more energy efficient than today's internal combustion engines. Consumers can charge up their PHEV overnight and have a car ready for their morning commute. Someday the Smart Grid could even allow utilities to draw power from a PHEV's battery during the day, giving consumers a credit on their electric bill. This will further help to reduce stress on the grid during peak periods and thereby reduce price volatility. As the transportation of the future, PHEVs are good for customers and the environment and are key to reducing our nation's dependence on foreign oil.

Reducing Carbon Emissions

All of these technologies and approaches support the industry's commitment to work with lawmakers to build legislation that will substantially cut the country's greenhouse gas emissions. Fortunately, utilities have the experience of working in the highly successful sulfur dioxide (SO2) allowance market, which has resulted in a more than 50% drop in SO2 emissions.

However, making dramatic cuts in carbon emissions will come with a big price tag for consumers. As the debate over federal climate change legislation intensifies, policymakers are weighing options to mitigate higher energy costs under a greenhouse gas cap-and trade program. One of these is the mechanism by which emissions allowances initially are introduced into the market. The best approach is to allocate a substantial portion of allowances directly to power sector local distribution companies (LDCs, the local retail "wires" companies that serve electricity customers) from the start, rather than selling them through government auction. This is the most efficient way to soften economic impact on electricity customers and reduce price volatility while maintaining the environmental benefit of putting a price on carbon.

Further, oversight by the state public utility commissions (PUCs), which regulate the LDCs, would ensure transparency and public accountability — and the PUCs would see that the benefits are spread among all customers via rate adjustments, after-the-fact rebates paid in proportion to a customer's electricity use, or other methods. State PUCs would make sure not only that the benefits accrue directly to electricity customers, but also that allocations do not result in "corporate welfare" or "windfall profits" for power companies, as notoriously occurred in some jurisdictions under the EU's carbon emissions trading scheme.

In the system supported by the shareholder-owned electric utility industry, the vast majority of allowances would go to LDCs, based on an even split between base-year emissions (including those associated with purchased power) and retail sales. Merchant coal-based generators would receive the remaining share, equal to half their base-year emissions, to help defray compliance costs.

To cut carbon emissions while protecting consumers from exorbitant increases in energy prices definitely will call for measures other than allocating allowances. Setting a limit on the price of carbon — one that has both a firm floor and a firm ceiling — certainly would help. Likewise, allowing companies to reduce some emissions through offsets — cost-effective activities such as planting trees and capturing methane from landfills — could prove beneficial.

Leading the Way

Long-term electricity demand is almost certain to continue its steady upward climb. Increasingly electricity-intensive households and a growing population will see to that.

A robust economy — one that is energy-efficient, low-carbon and powered by affordable, reliable electricity — must accompany that climb. Ensuring a brighter future requires a transformation in the way electricity is generated, delivered and used — and shareholder-owned electric companies are leading the way.