Fireside Chat: Tomorrow’s Utility in the Age of Distributed Generation

Death spiral, anyone? Three perspectives on the future of utilities in a high-PV-penetration world.

Three energy experts weighed-in on The Utility Death Spiral at Tuesday morning's first panel at a sold-out GTM Research event in San Diego, California. The "utility death spiral" describes an increase in distributed generation and storage that threatens the volumetric energy sales model of the traditional regulated utility.

GTM Vice President of Research Shayle Kann moderated the panel and asked big questions about the role of the regulator and the future of the utility business model.

Jon Wellinghoff, former FERC chair and now a Partner at law firm Stoel Rives

Wellinghoff said, "We are in the transition to distributed resources. But we are seeing a transformation -- we are moving out of the traditional monopoly system. We're seeing wholesale markets grow." He added that the expansion of new retail and wholesale markets "will reveal the value of distributed resources." He suggested that "the role of the regulator is to oversee the transparency of the market, to see that it operates in a fair and open fashion." He added, "We will transition to a market-based system, moving from [one that is] rate-based and monopolistic" to an "open and competitive system."

In moderator Shayle Kann's "perfect world," Wellinghoff saw a situation where services and products were "unbundled" and competition occurred "where it can happen." He envisioned the distribution system being left a monopoly with fixed charges distributed across all customers.

Wellinghoff pointed out, "Ultimately, the impact on bottom-line revenues and net profits [is] still small -- even in Hawaii." He said, "There is still a need to recognize fixed charges in a distribution system somehow... [but] you should have a fixed charge for everyone," adding, "A fixed charge for solar is nonsensical."

The former FERC commissioner added that energy storage along with new battery chemistries could prove even more disruptive to the traditional utility.

Craig Cornelius, Senior Vice President, Business Development, NRG Solar

Cornelius spoke of NRG Solar as being both "kind of a utility" and "kind of not a utility." He admitted to being a load-serving entity.

"As a company, we think of ourselves as a business that needs to generate its returns more creatively," adding, "We've never had the protections of a local monopoly incumbent."



He suggested that NRG was "about new markets and new market segments." He said, "We have an EV-charging company plus ways of looking at solar and storage -- different than most regulated monopolists in the sector." To that end, he noted that NRG was exploring unconventional natural gas generation, fuel cells, energy storage systems and energy efficiency.

 

David Shuford, Vice President, Policy and Business Evaluation, Alternative Energy Solutions, Dominion

The Dominion VP said that distributed generation was a threat to the utility business as well as an opportunity. He noted that Dominion is one of only a few utilities that has successfully implemented a fixed charge for solar customers of a certain size.

"It came about as a legislative compromise," said the VP.  

Shuford spoke about what really worries utilities. He said that "you're lucky...if you can project a 2 percent load growth" as a regulated utility. He added that if through increased penetration of PV, energy efficiency or demand response "you cut into that 2 percent," then "utilities will spring into action."

The Dominion VP reminded the audience that utilities "make money when they build things," adding, "If we are not building things, people will invest in other businesses."

He suggested that "long before we get into a death spiral, we will look at DG as an impact on load growth." He said that the impact on earnings can manifest in many ways. "We can try to get rate design changed so that it's fixed and not volumetric," adding, "Putting more in the fixed category makes us less subject to volatility."

He suggested that utilities getting into the solar sales and installation business is not what consumers want. He said that solar and DG customers want to be free of the utility. He noted that solar power and desire to minimize exposure to the utility is one of the few issues that can unite solar advocates and the Tea Party.  

 

We've written extensively on the changing role of the utility and the new type of energy consumer on the grid edge. Calling this shift a "death spiral" is fear-mongering and "a myth" according to Forbes. The panelists at the U.S. SMI conference suggested that "regulators will step in to make sure it doesn't happen."

Nevertheless, something transformative is occurring in the electrical utility industry -- and utilities will have to lead or adapt to the new normal of high-penetration distributed generation.

Watch the first part of "Fireside Chat: Tomorrow's Utility in a Distributed World" at the U.S. Solar Market Insight Conference 2013 (and watch the second part here):



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