Back in my consulting days, at one point I was part of a major project with a regional investor-owned utility, helping them do an overall strategic and operational review of the entire business.  It was a great learning experience to see what such utilities think about and have to deal with from the inside perspective.  One thing that always stuck with me was when we looked at revenue-growth opportunities for them.  The answer was that there was really little that the IOU could do to significantly grow revenues within their regulated gas and electric utility business, other than to generally work to promote economic growth in their region -- not a lot of top-line high-CAGR possibility there...

But things have changed.  Among other reasons, the past decade has seen the emergence of a new significant growth opportunity for such IOUs:  Plug-in vehicles.  By transitioning energy demand away from gas stations and into plugs in garages, utilities could boost their revenue growth significantly.

Right now what I'm mostly hearing about are the fears from T&D (transmission and distribution) engineers at utilities about such a prospect.  They argue that putting a car on the grid is tantamount to putting a new house on the grid.  And they worry that clusters of early adopters creating hotspots of demand that would create local distribution problems.

This is a natural part of the utility adoption cycle.  Utilities are paid to provide electricity, but since in the U.S. electricity is seen as a god-given right of every citizen, utilities are heavily incented to avoid disruption first and foremost.  And T&D engineers are the ones most tasked with keeping the lights on.  So whenever there's any new concept available for adoption by a utility, it usually gets pushed over to the T&D engineering group for evaluation.

These engineers are often very smart.  But they have no incentive to go out on a limb, their pension rests on their ability to keep the lights on, and in my work with the utility I found that financial considerations like revenue growth were something they could nod their heads at but never truly embrace.  So the first reaction from these T&D engineers is always to highlight the potential downside scenarios, no matter how minor.

This is where we're at with utilities and plug-in vehicles, here in 2010.  Really, utilities can't handle adding more pseudo-houses to the grid?  Isn't that what happens with a new subdivision development in any case?  And especially because recharging a commuter's plug-in vehicle can be managed to occur mostly during the off-peak hours in any case.  These are the concerns of someone who's paid to think up concerns.  And they will be addressed and will pass.

Because soon, CEOs of investor-owned utilities will realize that adding new pseudo-homes to the grid in the form of plug-in vehicles is a really good way to grow revenue in a regulated business where other growth opportunities are few and far between.

I think we'll start seeing this shift happen over the next couple of years as all the moderately-priced plug-in vehicles start to enter the marketplace.  Right now when the vehicles aren't available to consumers in any case, it's easy for the conversation to be dominated by downside scenarios.  But once consumers start adopting plug-in vehicles -- even in small amounts -- the upside potential will start to get the attention of utility CEOs.

As always, it takes a few years for such mindsets to change.  But by 2020 I believe we'll be seeing this in earnest. 

• Forward-thinking IOUs will be embracing plug-in vehicles and encouraging -- even providing incentives for -- their customers to purchase such vehicles.

• This shift will be most rapid in states where retail-level deregulation allows homeowners to determine their electricity provider. Incentives for plug-in vehicles will become another point of marketing differentiation for the various electricity retailers vying to grab customers.

• A couple of more advanced utilities will partner with a provider of recharging stations (maybe a startup like a Coulomb, but more likely over time it will be one of the larger, already-established T&D equipment vendors) to come up with a low-cost solution they can push on their customers that will also have very simple timing rules so as to make sure and push the recharging into off-peak hours.

• We'll see the emergence of startups vying to establish recharging stations at major corporate HQs and other major commuter destinations, where consumers can plug in their vehicle and swipe a card and the recharging station will be intelligent enough to have the charge show up on their residential electricity bill.  But most consumers will still do most of their charging at home -- so you'll be seeing these stations over at the far corner of the parking lot, not at every single space.  The alternative vision is that of battery swapping stations -- this may happen more rapidly overseas but I don't see it having much momentum in the United States quite yet.

• Utilities, who to date have largely taken a live-and-let-live approach to dealing with the oil giants when it comes to legislative efforts, will start to more heavily promote gasoline taxes and other disincentives for the consumption of imported oil.  As major IOUs like Duke Energy, et al, start to see their future growth being in part impeded by the presence of low gasoline prices, they'll start trying to adjust the playing field so that they can more effectively cannibalize that market.  This will mean further efforts to differentiate natural gas (which the utilities will be increasingly relying upon) from oil (which they'll be trying to steal market share from) in the overall regulatory scheme.

• Electric vehicles and PHEVs will see adoption happen more rapidly than pundits currently expect, toward the latter half of the decade, driven by all of the above dynamics.  More vehicle volumes will help drive down up-front costs, particularly in the battery packs.  And utilities will be helping to defray, either directly or indirectly, the upfront infrastructure costs of purchasing and installing recharging stations.

• Adoption will be slower in areas where the utility is a muni or otherwise not profit-incented, as the fears of grid disruption aren't trumped by desires for revenue growth.  And also because such utilities are often found in rural areas where commuter cars are less prevalent in any case.  But as the successful examples of IOU programs demonstrate the viability of integrating these kinds of systems into the grid, such utilities will slowly start to accommodate customers who want to go in this direction.

By 2020, I believe a significant minority of the new-sale U.S. commuter car market will be plug-in vehicle.  And investor-owned utilities will be leading the charge.