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Survey says: Electric utility industry undergoing structural evolution

June 05, 2012
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The electric utility industry is starting to change how it operates, according to Black & Veatch’s sixth annual Strategic Directions in the U.S. Electric Utility Industry report. Factors ranging from electric vehicles and renewable energy growth, to water supply issues and efforts to improve customer access to information, are driving this shift, the report says.

"Utilities are evolving in a manner that will redefine core functions such as power production, distribution and customer service," John Chevrette, President of Black & Veatch''s management consulting division, says. "Driven by new technology and regulatory shifts, we are seeing the impact across all aspects of the electric industry."

Key findings from this year''s report indicate:

Regulation (economic and environmental) will remain the primary motivator for utility leaders concerning investment decisions. Additionally, electric customers will be the ones who pay for changes through increased rates. More than 65 percent of utility leaders stated that customer rates had risen in the past year. More than half believe that rates will rise "significantly" because of environmental compliance programs.

The potential benefits of smart grid programs include better power quality and reliability, improved customer service and opportunities to reduce power consumption. However, regulator and customer understanding of this potential lags behind the pace at which the new technology is being deployed. Currently, "customers'' lack of interest and knowledge" is ranked as the top impediment for smart grid investment.

The nexus of water and energy continues to be a major issue for the industry. Nationally, water supply is second only to carbon emissions legislation as the industry''s top environmental concern. In drought-stricken Texas, it is the top concern.

Utility leaders are starting to "see gold" in green programs. The industry''s view on renewable energy is shifting from one of doubt to one of opportunity. More than two-thirds of respondents stated that renewables could provide benefits in the form of customer and regulatory relations, investment incentives and future revenue generation. More than 40 percent have begun the process to modify their service models to account for distributed generation resources, such as rooftop solar.

Utility leaders, on average, estimate that electric vehicles will account for 7 percent of overall electric load by 2025. The 7 percent projection, however, requires exponential growth in electric vehicle sales.

Solar is the top-ranked traditional renewable technology for the second year in a row. Most notably, it was the top-ranked renewable technology in all geographic regions of the country.

The industry''s view on coal is rapidly changing. Last year, 81.5 percent stated that they believe there is a future for coal in the United States "when fiscal realities are fully considered." This year, less than 60 percent believe this statement.

"The combination of a persistently sluggish economy, growing environmental concerns and uncertain regulatory outcomes, is creating the greatest earnings pressures in recent memory," Chevrette says. "Moving forward, utility leaders must balance the competing needs of sound financial performance and increased regulatory requirements while striving to exceed customer expectations."

The Black & Veatch Electric Utility report is based on an industry survey and expert analysis. Survey data was gathered from qualified electric utility industry participants from 22 February through 23 March 2012. Statistical significance testing was conducted and represented results have a 95 percent confidence level.

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