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Regulated Utilities Operate Out Of Greed Or Fear

Every day I see articles or studies on how microgrid will take off, and while I agree that there will be numerous disparate energy systems operating across North America, I just don’t see any useful involvement by current regulated electric utilities.

I worked with dozens of regulated utilities over 20 years, and my experience is that vast majority act out of greed or fear. Greed is an easy one to describe. They are monopolies in their service territories, and they will push the envelope on justifying greater capital investment in assets in order to earn more returns. I’ve even seen regulated utility intentionally deliver a convoluted rate filing application to the regulator with intentions of securing a higher operational expenditure approval than if they provided what was asked. Their higher rate application was approved. They find ways of justifying higher investments and costs because they can game the system at the expense of the rate payers. When they all do it, no one stands out.

Operating out of fear is more complicated. They want to and need to be relevant going forward or fundamentally their assets could be stranded over time. Not good for their investors. These regulated utilities and their regulators blanket themselves with various catch phrases and buzz words like smart grid, microgrid and do whatever they can to ensure that the expected growth of those sub-industries runs revenues through their fingers.

I see some operate out of fear by slowing down and frustrating the development of efficient and lower use energy systems when it will impact their capital deployment. One large utility told me that if I wanted to present an integrated community of lower energy use per home than they currently install in capacity, that I would still need to pay them the amount for capital that they wouldn’t get to install, or they wouldn’t connect the community. Seems odd when governments are changing building codes to do just that.

This 120 year old energy paradigm has avoided change quite well, but its achilles heel is that it forgot how to provide a customer-centric solution. It thinks as if it should be around until the end of time, but as renewables and efficiency systems can be deployed on a customer’s site, they will do anything to prevent it.

There was a hope by many utility CEOs that electric vehicles can fill their disappearing loads, but by now they’ve figured out that typical gas stations, malls and coffee shops will take over the distribution points of filling vehicles with electricity, not homes.

I have one piece of advice to save these regulated utilities particularly urban ones, and it’s quite simple. Put together designs of behind the meter solutions on your customer’s sites, and use that as the basis to which you must at least match your cost structure and profit. You’ll find that your entire system is based on a very high capacity rate and your costs have to likely be cut in half if you want to be cost competitive vs disparate alternatives.

I wouldn’t bet on regulated utilities becoming cost effective any time soon, and if anything I see them creating more barriers to entry for customers willing to cut the cord or at minimum, reduce their supply from regulated utilities.

I would like to believe that I’m just being alarmist, but every opportunity I’ve witnessed with regulated utilities prove my points.

The worst part of the travesty is that, in Canada anyways, most regulated utilities are owned by government, and while they should be the most interested in being customer-centric, they are also the most vulnerable to utilities’ profits paying for their plans. Simple test on that is this fact. Regulators can control returns on investment, and during the Great Recession, not one regulator rolled back return expectations from effectively 9%, when similar investments like bond-yields were earning around 3% annually. Could have been an easy move to lower returns and bench mark them to some industry index, but instead all utility owners, and governments, benefited from the highest values ever for those utilities because of those returns.

Would love to read feedback.

(originally posted on LinkedIn)

One reply on “Regulated Utilities Operate Out Of Greed Or Fear”

That’s what all of our civilized world is confronting with the last 100 or more years. People on top choose who comes up or not, from the trash heap of new ideas. If your chosen–you move on up, if not you stay in the jungle of great ideas that never get called==because Mr. Greed says so. I’m an Inventor and come across this every time I speak with a head of Colleges or Utilities companies for technical help with my drawings. Hey we don’t need better Ideas,, we have enough. That is stupid and dangerous attitude that this people in power have in there little heads.

Tony Rigitano Inventor.

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