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Transition and opportunity for electric utilities

by on October 3, 2013

Note: This article was written by Mike Morris, non-executive chairman of AEP, and first appeared in IHS Energy Daily’s 40th anniversary issue Sept. 26, 2013. © IHS Used by permission.

Our industry is in the midst of change. We must invest billions of dollars to continue generating and delivering electricity efficiently, reliably and with less environmental impact, at a time when customers and the economy can least afford it. We need to harness the value of new technologies and give customers the right options for their energy use. Plus, we are just beginning to embrace electricity as a transportation fuel.

                            Mike Morris

I joined this industry in 1988 during another time of transition. Deregulation seemed imminent. Utilities faced stringent new environmental requirements from the 1990 Clean Air Act Amendments. Companies felt compelled to merge. And we were dealing with lingering concerns about nuclear safety.

Twenty-five years later, our industry continues to wrestle with some of the same challenges. Well-designed national energy policy could shape how and where we focus resources and also provide some of the certainty our investors seek. But since achieving any national policy objective in the current political climate is a long shot, utilities must navigate this transition without clear direction. We can do it successfully, but only if we keep in mind a few key tenets and focus on enhancing the value we provide for customers and the economy.

We must maintain fuel diversity.

No single fuel holds the answer for our future energy needs. If we learn anything from our history, it should be that over-dependence on one fuel is not the right long-term choice for our customers, our companies or our country.

Maintaining fuel diversity will be a challenge. Low natural gas prices, well-funded anti-coal campaigns and the aggressive regulatory stance of the U.S. Environmental Protection Agency (EPA) have all but eliminated coal as an option for new power generation.

Safety concerns after the Fukushima Daiichi incident ended the nuclear renaissance, and some existing U.S. nuclear plants are now being shuttered because they can no longer compete in deregulated markets.

We cannot abandon coal, a still plentiful, valuable fuel. Coal will continue to be burned around the globe, and it’s vital that we continue advocating for its place in our national energy future. With support, game-changing new technologies can allow us to use coal with less environmental impact.

We also must move past irrational nuclear safety concerns and address the energy market flaws that devalue existing generation to maintain the contribution of nuclear power to our national energy mix. Prudence and safety demand that we advance a long-term solution for nuclear waste storage. It’s inconceivable that after three decades, we still are no closer to a permanent storage site for nuclear waste.

Natural gas generation is sexy again, and it is currently the only viable near-term option for new power plants. With hydraulic fracturing supplying plentiful and cheap natural gas, we can’t ignore the ability of this fuel to contribute to our nation’s economic recovery and to help us quickly and inexpensively replace aging generation and cut emissions.

But, relying more on natural gas to power our economy requires that we fix issues around fuel delivery, scheduling and prioritization. If we don’t, we’ll face significant electricity reliability and price concerns in just a few years.

Development of green energy will continue, with renewables and efficiency becoming a growing part of the generation mix. However, every megawatt of renewable energy put on the grid today still requires sufficient 24/7 baseload power generation as backup. The same applies to distributed generation and rooftop solar. There is a place for them, but no customer is an island.

Many vital services, like water and sewage, depend on a well-functioning electricity grid. Transmission and distribution upgrades improve efficiency and resiliency and benefit all customers. The costs of maintaining and upgrading this critical infrastructure need to be shared fairly and equitably.

We must build a better grid.

We can’t ignore the critical need for transmission investment. Our nation won’t realize the full benefits of the transmission grid — enhanced efficiency, reliability and security and support for robust electricity markets — until we embrace regional and interregional transmission development through a competitive process.

We’ve made incremental progress, but parochial views about transmission ownership, planning and cost allocation are preventing our nation from having the most efficient, effective grid. State regulators should embrace their expanded role in the new transmission planning processes. Competitive regional and interregional planning will yield innovative solutions, ensure that we are making smart transmission investments and deliver lower-cost power for customers.

We need reasonable regulatory programs.

Fuel diversity and robust transmission become even more critical as we comply with the most aggressive EPA agenda since the formation of the agency, and try to keep the lights on.

The unprecedented set of EPA regulations focused on our industry will shutter up to a fifth of our nation’s coal-fueled generating capacity, add significant costs to nuclear plants and seriously tax grid reliability in just a few years—and that’s before they regulate carbon dioxide emissions.

It’s appropriate to seek continuing environmental improvement, but it’s time to begin balancing environmental desires with economic reality. A reasonable approach would account for the emission reductions already being made by our industry, include comprehensive analysis of the costs and benefits of the full suite of regulations, and be based on realistic compliance schedules that don’t impede economic progress. Done right, it is possible to meet environmental objectives in a way that greatly reduces the impact on consumers and the economy.

Twenty-five years after joining an electric utility, I’m still excited and awed to be part of this industry. We’re a noble business, whose product brings comfort, warmth, nourishment, entertainment, energy and light to billions around the globe. The next decade will challenge our resilience and creativity with unmatched pressures from our customers, regulators, investors and employees. But it also provides an exciting opportunity to truly change and shape the future of our business. I look forward to seeing how it unfolds.

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