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Electric Companies: Investing in America's Electric Future

Written by Dennis Wamsted


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 — during a time when the challenge of global warming will confront our need to power a better standard of living for a growing population.


To meet that need, shareholder-owned electric utilities are working to upgrade and expand the nation's electricity infrastructure. Over the next 20 years, the changes promise to be breathtaking, with a scope encompassing new technologies, advanced approaches to generate clean electricity and new ways for our economy to use electricity more efficiently.


Preparing for the Future

Customers will benefit from the "smart grid," which has the potential notonly to provide them with information on electricity prices and usage — information they can act on to save energy and money — but also to make the entire system stronger and more reliable.


The expanded infrastructure will accommodate new, customer-friendly technologies, like plug-in hybrid electric vehicles (PHEVs), which can give customers more value for their energy dollars while helping to reduce air emissions and the nation's dependence on foreign energy sources.


With enhanced abilities to transport electricity and control its distribution, utilities can expand generation options and customers can benefit from a more reliable, less carbon-intensive infrastructure.


Building technologies for advanced coal generation, efficient nuclear power, renewables like wind, solar and geothermal energy, and powerful energy efficiency programs will change the way utilities provide power, too. These new approaches will help the utility industry pursue its commitment to dealing with climate change and meet society's needs in an increasingly electronic world.


Electric utilities are already on the move, according to Edison Electric Institute (EEI), the industry's Washington-based trade group. From 2008 to 2010, for example, EEI estimates that the industry will invest upward of $200 billion in new infrastructure, including generation, transmission and distribution projects.


An analysis done by The Brattle Group for the Edison Foundation projects that, to keep pace with rising U.S. electric demand, the entire power industry may have to invest well over $1 trillion by 2030. A big question mark in utility investment scenarios is potential greenhouse-gas legislation and the unknown — but undoubtedly significant — costs of carbon regulation.


"It's a huge capital challenge for us as an industry," acknowledges David Ratcliffe, chairman, president and CEO of Atlanta-based Southern Company as well as the current chairman of EEI.


But the new electric future has already begun.


Michael G. Morris Chairman, President and CEO American Electric Power

As the owner of the largest electricity transmission system in the U.S., AEP takes very seriously its responsibility to lead the expansion and development of America's electric energy backbone. Toward that end, AEP is investing millions of dollars and partnering with other utilities in the development of a more robust interstate network to promote electricity grid reliability and support economic growth. We believe, as do our partners, that development of a "transmission superhighway" is critical to our nation's growth and security.


Based in Columbus, Ohio, AEP is one of the largest electric utilities in the U.S., delivering electricity to more than 5 million customers in 11 states. AEP ranks among the nation's largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the U.S. AEP also owns the nation's largest electricity transmission system, a nearly 39,000-mile network that includes more 765-kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.



Meeting Growth

Rising electricity demand is at the core of these infrastructure estimates. The latest analysis from the Energy Information Administration, the independent statistical arm of the U.S. Department of Energy, estimates that electricity demand will climb from roughly 3,700 billion kilowatt-hours(kwh) in 2006 (the latest year for which data are available) to more than 4,700 billion kwh in 2030 — a 29% increase or some 1.1% annually. Viewed in other terms, this is roughly equivalent to adding the total 2006 consumption in the states of California, Florida, Arizona, Pennsylvania and Texas to the U.S. grid in the next 20 years.


Energy Efficiency: The Bridge to the Future

Energy efficiency provides a tool to produce significant and immediate benefits for the environment, the customer and the industry itself. The electric utility industry has promoted the efficient use of electricity since the first energy crisis of the early 1970s and continues to expand its programs.


But we need to transform energy efficiency's role in the energy mix, making it the equivalent of fuel in a utility's portfolio of generation capacity. This requires developing new business models that enable efficiency to become a full-time business for utilities. Several electric companies and their state regulators have already begun this process.


New technologies like the smart grid (an infrastructure including interactive meters, advance electricity routing and more) will also help transform the role of energy efficiency. The ability of electric utilities and their customers to communicate with each other on a realtime basis will open the door to greater savings in energy and money, as well as a variety of potential new services.


Encouraging the widespread commercialization of PHEVs, besides saving customers money and reducing emissions, has the further benefit of reducing our dependence on oil and adding to our energy security.


Energy efficiency can be a boon to consumers who want to control their energy costs. It's also one way to forestall the construction of new base-load power or avoid it altogether. In its study, The Brattle Group found that, depending on how concerted and successful the nation's energy efficiency efforts are and how vigorously customers respond, the amount of new generation the industry will have to build could be reduced by 38% to 48%.


David Ratcliffe Chairman, President and CEO Southern Company

More and more people move to the South each day. In fact, the U.S. Census Bureau estimates that by the year 2030, 40% of Americans will live in the region that stretches from Texas to Virginia. Many of these new neighbors will look to Southern Company to serve their energy needs.


At Southern Company, we're poised to meet rising electricity demand by pursuing a balanced approach to energy. We are planning to build new nuclear power — a clean, safe and economical form of generating electricity. We're developing new technologies that will allow us to use coal, our nation's most abundant energy resource, in a cleaner, more efficient manner. Natural gas, the fuel of choice for electric generation in recent years, remains an important option for us, as does renewable energy, like biomass and wind. We continue to promote energy efficiency by working with our customers to reduce energy use in their homes and businesses.


Southern Company is implementing the most effective solutions to keep up with growing energy needs. The nation's economy, quality of life and ability to compete in the world's markets will depend on a reliable and affordable energy supply — and one that can meet the commitments of ever-increasing environmental standards.

New Approaches To Generation

As a nation, we need to recognize that energy efficiency programs and technologies also have costs, much the same way building new generation does. Moreover, while energy efficiency holds promise in a world looking for cleaner generation to meet rising demand, it is not the end of the story.


Along with increased energy efficiency efforts, the industry is transforming its supply options by expanding the use of renewable energy sources. Wind, solar and geothermal energy all enjoyed record growth in 2007. The industry considers these technologies key as it meets the challenges of demand and climate change.


Extending production tax credits is critical to boosting renewable energy development. Another factor is building transmission to reach renewable sources, which are typically remote. Public opposition and differences in state statutes and regulations have made transmission lines among the most difficult facilities to site. The lengthy permitting delays are problematic for both power companies and consumers. The delays raise reliability concerns as well.


Greater energy efficiency and renewable energy use are essential for reducing carbon emissions. But meeting projected demand requires new coal-based power plants, too. Coal today generates about half the country's electricity. It is and will remain a vital energy resource for keeping electricity reliable and affordable. Electric utilities are developing and demonstrating efficient coal plants that use supercritical pulverized coal, ultra-supercritical pulverized coal integrated gasification combined cycle, and circulating fluidized bed technologies.


"No single technology will provide all of the capacity that we need for the future. We need a portfolio of options."

David Ratcliffe, Chairman, President and CEO of Southern Company and Chairman of Edison Electric Institute


In tandem, the industry is also developing ways to capture and store carbon dioxide (CO2) emissions from coalbased plants. But there are significant cost and performance challenges facing large-scale carbon capture and storage (CCS) technologies. The projections are that CCS technologies for fossil fuel power plants may not be commercially ready for more than a decade.


Given the difficulty in some areas of building new coal plants, natural gas may be the choice to power new plants. About 20% of the electric industry's generation capacity is powered today by natural gas. That is expected to increase to 22% over the next 10 years, which will put pressure on the fuel's price. The industry supports expanding both access to the nation's domestic supplies and capacity for gas imports.


For a large base-load plant, nuclear energy is the only no-carbon option for generating electricity. The industry is expanding its nuclear capacity and developing advanced nuclear designs. In 2010, the Nuclear Regulatory Commission believes it could issue its first combined construction and operating license for a new nuclear plant in 30 years.


Policy makers and consumers need to understand that the industry's new capacity needs and society's climate change concerns cannot be solved with one technology. "We need a portfolio of options," says Southern's Ratcliffe.


That portfolio approach will be his company's route in the next several years, he says. Southern:



"No single technology will provide all of the capacity that we need for the future," says Ratcliffe, so Southern is going to use them all.


Tom Kuhn President Edison Electric Institute

The country's continued population and economic growth drove electricity output to more than 4 million gigawatt-hours last year. This was the first time that the industry eclipsed the 4 million mark in a given year since we began compiling the records 75 years ago. Over the next 20 years, electricity demand is projected to grow another 30%.


And, as any industry would, we welcome this growth. We also recognize that with this growth come challenges. To meet the growing electricity demand, we are making substantial investments in electric efficiency, generation and transmission.


Building this portfolio of technologies is essential for meeting the electricity demands of a growing population, economy and standard of living. And building this portfolio will be vital to doing so in a way that limits our carbon dioxide and other greenhouse gas emissions.


For more information on the key issues facing electric companies, please visit www.eei.org.

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