by Bob Shively, Enerdynamics President and Lead Instructor

As we settle in to 2016, it seems the months ahead will be pivotal for the electric industry and particularly utilities. Last week we discussed two industry trends that we predict will  gain steam in 2016: 

• Trend #1: Markets, regulators, and utilities get real about decarbonization of the power sector
• Trend #2: Utilities can no longer ignore distributed resources

Continuing this discussion, here are two more trends that will help define the electric utility in the year ahead:

Trend #3: Importance of rate cases and resource plans will increase

In many states, rate cases have not been required on regular intervals, and utilities have contently maintained current rate structures and levels. But with ongoing concerns about distributed resources coupled with capital needs for distribution modernization, most utilities will see the need to file rate cases if they haven’t already. 

 Meanwhile, utilities have historically considered only centralized resources in their resource plans and have treated distributed resources (DR) as a reduction in load. With the growth in DR, this likely won’t result in optimal planning outcomes. Given the many issues associated with flat load growth, the need for capital spending, concerns about equity associated with distributed resources, and some regulators beginning to question the current utility business model, outcomes of current rate cases and resource plan filings may determine the future of business for many utilities.  

 Trend #4: Inexorable growth of competitive markets

An important yet little-known fact is that the amount of power bought and sold under competitive markets has continued to grow significantly in recent years. On the wholesale side, organized competitive markets have grown significantly through:

• MISO’s expansion into Arkansas, Louisiana, Mississippi, and eastern Texas, which brought an additional 50,000 MW of generation into MISO’s markets
• SPP’s expansion into six upper Midwest states that added 5,000 MW into SPP’s markets
• the growth of the Energy Imbalance Market in the west, which allows over 26,000 MW across eight states to participate in a real-time market run by the California ISO

Meanwhile usage by end-use customers buying their power directly from marketers has grown from less than 5% to close to 25% of total U.S. usage over the last decade. And in many regions, large customers continue to push for the rights to contract for their own power supply. Many non-traditional companies such as Google, Apple, Comcast, and AT&T are developing customer-focused services that chip away at the concept of utilities as the provider of energy services. Utilities must plan a business future that clearly defines a successful role for utilities in a world of multiple competing service providers. 

 So what does all this mean for the big picture of the industry?

In a recent publication, the Edison Foundation[1] identified three long-term trends that they believe will drive a utility transformation:

• The transition to a clean energy future
• A more digital and distributed grid
• Individualized customer services

We agree, and we believe that the trends we’ve identified for 2016 will make it the year that a complete redefinition of the electric utility and its role begin to take shape. 

Footnotes:

[1] See Key Trends Driving Change in the Electric Power Industry at http://www.edisonfoundation.net/iei/Documents/IEI_KeyTrendsDrivingChange_FINAL.pdf