Legal & Regulatory

Utility Managers Ponder Rules, Money, People

Rules, money, and people dominate the agenda of North America’s electric and gas utility leaders, according to the latest annual survey by Platts and Capgemini. The energy information publisher and the consulting firm questioned 100 senior executives in what is now the fifth in the Platts/Capgemini Utilities Executive Study series.

"Over the next 5 to 10 years," says the report, "utility executives plan to increase their focus on environmental regulation, pricing/rates, end users, consumer technologies such as electric vehicles and energy-efficient appliance, and infrastructure. Said one of the executives surveyed, anonymously, "We are hitting the next stair step [of infrastructure build] . . . the financial market is not there to support it, first of all because of the economy, and secondly because of the reluctance in the regulatory arena to get the kind of rate structure and rate relief we really need for that kind of capital. I think one of the industry’s, and even from the whole country’s perspective, a big question that is going to have to be answered is: Who is going to finance this stuff? Where is the money going to come from?"

Of 13 current issues facing the utility industry, environmental regulation led the list of concerns, with 57% citing this area as among the top five issues that keep them up at night. The second leading issue was infrastructure (47%), followed by non-environmental regulation (including Federal Energy Regulatory Commission rules and proceedings) at 39%, workforce issues (26%), and pricing and rates (25%).

The executives surveyed highlighted what they described as a lack of clear environmental guidelines. On a 10-point scale, uncertainty about carbon dioxide emissions rules scored a "9" or "10" by 51%, with 10 being the highest level of importance. Others ranking 9 or 10 included uncertainty about retrofits for meeting existing environmental standards (48%) and rules for building future generation and transmission for renewable energy (41%).

On financial issues, the executives were most concerned about recovering costs (57%) and credit quality (44%). One executive told the questioners, "Financing costs are going to get quite expensive. You’re going to have treasuries that are going to go from a 10-year end clause to two and a half, and it’s likely going to triple. So the cost of serving is going to go up and that’s forgetting about any green initiatives."

Looking at workforce issues, the survey respondents cited an aging employment base, the need to transfer knowledge and skills, training and development, and the need to increase the talent pool as key areas of concern. Said one executive: "It’s really quite scary if you look at the numbers. We’ve got a pretty robust apprentice program right now . . . some utilities don’t and they are going to wait and watch and see, and maybe they’re going to try and poach from other utilities. But the numbers are scary. There are thousands of people who are going to be leaving in the next few years."

Another commented, "I do think the nature of the younger workforce that’s coming today is different. They are much more technology-savvy, they are very socially aware and conscious, and they want to quickly get into a job where they can make a difference and do some really cool stuff. So we need to adapt our management practices and our organization structures to be flatter, push more decision-making closer to where the work gets done. This is really to challenge the young people coming in and set much higher expectations, because they can do stuff 10 times better than we ever could. If you don’t challenge them and tap into that, they are going to get bored and go somewhere else."

This year, the survey also asked the executives about their roles with smart metering programs, and 72% of the respondents said that they have been involved in smart meter rollouts. Their experience should raise eyebrows among the advocates of advanced metering. Only 14% reported that they have seen reductions in peak demand since installation of the smart meters. The vast majority reported either that they had not seen a peak reduction (43%) or didn’t know (43%). The same figures held when executives were asked if they had seen a reduction in overall energy usage since the rollout.

In response to the question, "In your opinion, will consumer use of smart meter information to manage energy consumption become mainstream?" only a third said "yes"; 46% answered "no" and the rest "don’t know."

Looking to the future, most of the executives said they expect greater focus on environmental issues and pricing and rates. Most anticipate greater use of renewables such as wind and solar, more natural gas, and less coal. They also highlighted cybersecurity as a growing concern, and more than half said the industry needs to increase its focus on that issue.

—Kennedy Maize is MANAGING POWER’s executive editor.

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