Utilities can — and MUST — play a leading role in the clean-energy transition, and in their own sustainable transformation.
Depending on how you look at it, the glass is either half full or half empty. The “half full” view says that if utilities can rise to the challenge and meet the 2030, 2040 and 2050 sustainability goals they have laid out, worldwide emissions could fall precipitously. The “half empty” response counters that the utility industry is constrained by regulation that stifles innovation. Adding to the difficulty, the utility industry is constrained by downward cost pressure, meaning large rate hikes are not an option.
As someone who has dedicated 35+-years to a career in the utility space and seen the best and worst tendencies — and everything in between — in our industry, I may surprise you by saying I’m not in the half-full camp. I think there’s evenmore in the glass. The challenge ahead is likely the biggest we’ve ever faced as an industry, but it is also a once-in-a-lifetime opportunity to grow, radically improve, and make a lasting positive impact on society, all fueled by the following macro-drivers:
Sustainability: Decarbonization efforts in service of reaching net zero carbon emissions are the clarion call of the industry. Mass adoption of renewables at scale — wind, solar, battery storage, and an emerging set of new energy sources — is in motion. At the same time, collaborating with business and residential customers using distributed energy resources, such as solar and demand response, will only grow in importance. Feeding into all of this is increasing demand for EVs, part of an electrification wave that could drive utility growth for decades.
Safety and Reliability: While utilities are fighting the consequences of climate change — more severe fires, droughts, floods, and temperature extremes — they are doing so from a position of weakness, and with aging infrastructure. A smarter, more resilient grid must be built to literally weather the storm, and it will cost billions.
Equity: It has always been an issue, but because of COVID-19 and its ongoing variants, low and moderate income (LMI) residential customers and small and medium sized businesses (SMBs) have gotten clobbered, and they need, and are demanding, more from their utilities to handle energy expenses and gain access to sustainability programs.
But we can’t just spend our way out of this. The limited ability of utilities to raise rates fundamentally changes the math of transformation. With hundreds of billions in needed capital investment on one side and affordable rates on the other, O&M costs have moved to the middle, becoming the fulcrum. Simply put, utilities’ numbers for sustainability, safety, reliability, and equity don’t and can’t add up without a massive decrease in O&M expense and optimized capital expenditures.
Thinking Big, Armed with Data
But how is that going to happen? That is literally the multi-billion-dollar question, one that necessitates a fundamentally new-and-improved approach. That approach is rooted in data. The strategic use of data is now a must-have capability for every utility in search of increased customer engagement, infrastructure optimization, and sweeping cost reduction.
Just look at the Sustainability Transformation Plan laid out by Evergy. The plan accelerates Evergy’s transition to cleaner energy (80% reduction in CO2 emissions by 2050), increases capital investment in “critical utility infrastructure” to nearly US $5 billion, anticipates 5-6% rate base growth and 6-8% EPS through 2024, and promises increased benefits for customers and communities. And it reduces O&M costs by 25%.
That’s thinking BIG.
But there’s a reason this big thinking is more than wishful thinking. The prevalence of AMI and other utility and customer data, the maturation of predictive data science, the evolution of AI and machine learning solutions, and the growing understanding of how to put them all together to move the needle quickly and efficiently means there has never been a better time for utilities to play offense.
Instead of a cadence-based approach to managing the grid, the industry is moving to a data-driven “risk-spend efficiency” approach to optimize capital investments and O&M spend, managing reliability proactively at a more granular level. In addition to cost savings, this data-driven approach also enables a more collaborative regulatory process I call “results-based compliance,” which ties spending directly back to reliability measures. It relies on data, not a calendar, to optimize spending on vegetation management, for example.
With data in hand, the time is NOW for utilities to dive in and accelerate their own transformation to becoming a more sustainable utility.
Because utilities matter. They always have — just ask anyone without power or safe drinking water — but they matter now more than ever. In addition to keeping the lights on, the coolers cooling, and the water flowing, utilities are now poised to play a starring role in the very survival of the planet.
The good news is it’s doable, and doable now.
Ted Schultz is the chief executive officer of E Source. He has more than 35 years of industry experience and is known for his focus on providing value to customers. Prior to joining E Source, he served as CEO of TROVE Predictive Data Science, senior vice president of utility solutions at Ecova, and vice president of marketing and energy efficiency at Duke Energy. Ted has held several advisory board positions at the national level, including with the Edison Foundation, National Action Plan for Energy Efficiency, EPRI Energy Services, and JD Power Smart Grid Services. He currently serves on the Marketing Executives Conference.