The Status Is Not Quo: What the new year could mean for electric utilities

Published On
Jan 15, 2021

With this new year comes a new presidential administration with vastly different environmental and economic priorities. For electric utilities, this could result in a significant ratcheting up of environmental regulations and emissions targets. It could mean shifting electricity demand patterns, if habits established during pandemic-related, work-from-home lockdowns continue in a post-vaccine world. The industry has undergone a massive transition over the last decade, incorporating a range of new distributed solar and storage resources while also seeing a pivot by state utility regulators toward rates based more on performance and less on capital investment returns.

In short, utility planners have a lot on their plates. However, several big, long-term issues stand out.

Carbon pricing

Trump administration regulators fought to roll back rules on emissions related to electricity generation. President Joe Biden, however, has stated plans to reimpose power plant guidelines established by his former boss, Barack Obama.

Regardless of recent regulatory loosening, many utilities have been moving forward with emissions reductions. Meeting Biden’s goal of carbon-dioxide-free electricity by 2035 will require more aggressive attention. Carbon pricing is seen as critical to this effort’s success.

Regional cap-and-trade-style carbon markets are already in place on the East and West Coasts. But in October, the Federal Energy Regulatory Commission, which  oversees electricity rates and services and wholesale power sales that cross state lines, started conversations with utilities and other stakeholders about supporting future carbon-­pricing efforts.

Generation divestment

Many electric utilities are actually two distinct businesses: one supplies electricity over local distribution wires to customers within a defined service territory, while the second sells wholesale power produced by generating stations that might be located anywhere in the United States. In states with regulated electricity markets, utilities might be vertically integrated—that is, they buy power from their own plants. In deregulated states, utilities must separate wholesale generating business from their retail utility sales. In both cases, the largest utility companies also own fleets of generating stations, along with natural gas pipelines and other assets, operated under separate subsidiaries throughout the country—though that is now changing.

Just over the last couple of years, a number of leading utilities have made moves to sell off their generation assets to become pure-play retail power suppliers. Power generation has simply become a riskier business, as renewable energy is rapidly grabbing market share from once-­profitable coal, natural gas, petroleum and nuclear plants. More utilities are seeking to remake themselves into carbon-neutral businesses, so they’re shedding their power subsidiaries, which might well own fossil fuel-based generating stations.

In August, New Jersey utility PSEG announced plans to sell its 6,750-megawatt portfolio of fossil fuel plants, while retaining its nuclear generation capacity. Chicago-based Exelon, which owns six utilities and is also the nation’s largest operator of nuclear power plants, is looking into splitting off nuclear generation into a separate company. Virginia-based Dominion Energy, owner of South Carolina’s SCANA Energy electric utility, sold its 7,700 miles of natural gas pipelines and storage facilities to Berkshire Hathaway in July. Dominion also abandoned plans for the multibillion-dollar Atlantic Coast Pipeline project it had been developing with North Carolina’s Duke Energy. Detroit-based DTE Energy announced in October that it was exploring spinning off or selling its nonutility assets, including gas storage and pipeline operations.

Revenue shifts

When pandemic-related lockdowns sent office workers home, electricity demand dropped rapidly, forcing utilities to rethink revenue projections. In November, the U.S. Energy Information Administration projected 2020 power sales to commercial customers would drop by 6.4% compared to 2019, and by 8.8% to industrial customers. However, residential sales for the year are expected to be up by 2.5%, as more of us now are working from home.

Interestingly, despite reduced sales, utility earnings grew by 8.9% in the second quarter, during the peak of business lockdowns. This could be partly because residential rates are higher than those for commercial and industrial businesses. This could have long-term implications if working from home becomes a standard practice.

About the Author

Chuck Ross

Freelance Writer

Chuck Ross has covered building and energy technologies and electric-utility business issues for a range of industry publications and websites for more than 25 years. Contact him at chuck@chuck-ross.com.

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