The energy transition, or road to net-zero carbon emissions, is well underway in the U.S. and various parts of the world. According to the U.S. Congressional Budget Office, CO2 emissions in the U.S. electric power industry increased annually up until about 2005, after which they began to decline.
Between 2005 and 2021, CO2 emissions from the electricity generation sector decreased 35% despite a rise in electricity demand. While these figures a commendable, they are the initial and easiest first steps taken. About two-thirds of the decline resulted from phasing out older and less efficient coal-fired power plants and replacing them with modern natural gas combined-cycle power plants. While this shift significantly reduced carbon emissions, cost was as much of a driver as environmental issues. The surge in the supply of U.S. natural gas due to fracking technology resulted in reduced prices, making natural gas the preferred fuel for numerous power generators. Most progress to net zero thus far represents the low hanging fruit. Going forward, decarbonization and maintaining reliability will cost more, potentially threatening customer affordability.
The 2023 Itron Inspire event, hosted in San Antonio last fall, highlighted this reality. New innovative technologies and solutions were displayed in the Knowledge Center (exhibit hall) and discussed in various general and breakout sessions. While both exhibits and conference discussions reinforced that solutions to many challenges are available, the conference also emphasized that ensuring reliable and affordable electricity throughout this transition demands more than just technological advancements. It will require utilities to actively engage and partner with their customers, as well as regulators. Tom Deitrich, Itron’s president and CEO, who opened the general session, stressed the importance of collaboration, telling the audience that success can be achieved if everyone works together. He emphasized the need to comprehend and propagate "the art of the possible."
Customers Can’t be Ignored
The well-known boxer Mike Tyson once said, “Everybody has a plan until they get punched in the face.” Dan Pfeiffer, Itron’s vice president of government & regulatory affairs, used this quote to drive home the fact that not all plans work out as designed. He compared challenges in the energy sector to taking a punch in the face.
“The punch in the face (for electric utilities) is reliability and affordability,” Pfeiffer said. He emphasized that reliability and affordability pose significant challenges for electric utilities and their customers. Pfeiffer highlighted the importance of fair and reasonable planning and spending decisions, especially concerning customer affordability. In addition, he acknowledged that future steps to decarbonization will likely entail increased costs.
Pfeiffer also said the energy transition should focus not only on achieving net zero carbon, but also on grid resiliency. Rob Chapman, EPRI’s senior vice president of energy delivery & customer solutions and chief sustainability officer, offered a similar viewpoint in another panel discussion. Chapman acknowledged the importance of affordability for consumers.
“If done right, the energy transition can be affordable for all,” Chapman said. He suggested the industry must change the narrative when it comes to customers. “Yes, their electric bill will go up, but their energy use will decrease, which will ensure affordability and lessen their energy burden,” he said.
Spencer Gill, Hydro One’s vice president and executive lead of asset management and grid modernization, emphasized the importance of understanding his customers’ plans to electrify. He expressed concern that customers' choices are “chipping away” utility operators' control over the grid. Gill stressed the urgency for utilities to gather information about consumer behavior, especially related to electric vehicle adoption, for effective grid planning. He emphasized the need for utilities to understand their customers better and collaborate with a "coalition of the willing" to implement their plans successfully. Gill also spoke about the importance of identifying who is advising utility customers. Often electricians and building contractors, rather than utilities, guide homeowners on necessary installations, he said.
“Consumer behavior is worth money, it has significant value,” Gil stressed.
Regulator’s Role in the Energy Transition
Federal and state regulations and policies are forcing much of the energy transition, leaving utilities little choice but to spend money to comply. The policy makers pushing for decarbonization and electrification are not, however, the same individuals who dictate how the incurred costs can be recuperated from customers. Pheiffer emphasized the necessity for utilities and public utility commissioners to collaborate on creating innovative cost recovery mechanisms, moving away from kilowatt-hour costs, and shifting focus toward assessing total system costs.
Paul Kjellander, a former Idaho Public Utility Commissioner, former NARUC president, and current industry consultant, was on stage with Itron’s Pfeiffer and offered his take on the regulatory environment. He said the role of regulators in driving the energy transition cannot be overstated. Kjellander stressed that regulators, irrespective of whether their states have mandated carbon reduction policies or not, understand that utilities must incorporate carbon reduction in their planning.
Itron’s Resourcefulness Insight Report, a compilation of research conducted annually, incorporates opinions and insights from utility executives. Realizing that upgrading and building the infrastructure that is necessary to support the energy transition will require input and approval from utility regulators, Itron added 10 state public utility commissioners to its annual Resourcefulness Insight Report in 2023. Kjellander, involved in interviewing these commissioners, revealed that while some serve in states with carbon reduction goals and others do not, all recognize the necessity for utilities to implement carbon reduction strategies. “They can read between the lines and understand that Wall Street has spoken. If utilities aren’t moving in that (decarbonization) direction, they can’t get money,” he said. “It doesn’t matter if policies are in place or not, regulators must get on board.”
Kjellander, like Pfeiffer, advocated for cost recovery strategies based on innovation, proposing performance-based recovery as a viable option. He also emphasized the value of subsidies, saying few new programs or projects have succeeded in any industry without subsidies.
Regulators understand that the low hanging fruit has been picked and that meeting future goals will be more expensive, but affordability and reliability trump everything else, Kjellander said. They and the utilities they regulate must keep this at the forefront of all decisions, because if they lose public trust, they have lost everything.
Pfieffer, Gill, Spencer and Kjellander all acknowledged that obstacles and opportunities lie ahead. They agreed that overcoming challenges and seizing opportunities will require open communication and extensive collaboration among utilities, regulators, and customers.
Itron Inspire and Resourcefulness Report
Itron’s annual Inspire event, focused on its utility and smart community customers, brings together industry leaders and provides them an opportunity to explore technology and services to drive business transformation, reimagine customer engagement and ignite innovation. Apart from the pivotal roles customers and regulators play in this transition, Itron Inspire 2023 covered other essential and trending topics and technologies.
For nearly a decade, Itron has created its annual Resourcefulness Insight Report, which is based on research and interviews with utility executives. It reveals their opinions and insight on the biggest issues and trends impacting the industry. The 2023 Resourcefulness Insight Report digs deeper into the themes discussed in this story and provides valuable insights into other important subjects as well. For those interested, the 2023 report and previous editions are available for download at Itron's official website, or specifically at www.itron.com/rir.