Are Electrical Utilities in a Death Spiral?

by Emil Morhardt

In the prior century, electricity sales in the US characteristically increased by 10% each year. No longer; since 2000, annual increases have been constrained to about 1.5%, and since the depression of 2007, have been decreasing rather than increasing at all. I am tempted to say “Good for us!” Saving energy seems like an entirely good thing, except that to modernize our aging grid, not to mention transitioning to a smarter grid, the utilities are going to require money. Since sales are down, this probably means increased electricity prices, and if customers are offended and install solar panels and wind turbines to compensate, prices could increase further. You get the idea.

Steven Nadel and Garrett Herndon of the American Council for an Energy-Efficient Economy have just released a comprehensive report discussing this dilemma. They used the U.S. Energy Information Administration’s projections through 2040 as a baseline, and generated a number of scenarios of their own. Their “worst-case scenario”—the biggest decline in electricity sales—amounted to a 10% decrease over the next 30 years. Ergo, no death spiral, but no concerted effort to decrease electricity usage either. It seems as though we could do a lot better.

The authors are not opposed to this idea; they go on to make many suggestions to reduce electricity use further—preferentially through increased efficiency—all of which are predicated on the idea that the utilities will need to get their money anyway—it is apparently just a fact of life that the only way to reduce electricity bills is to go further in the direction of time-of-use rates, variable demand charges, and/or minimum bills. (Those of us living in California have noticed a similar phenomenon with water utilities. Whenever we have a drought, such as now, usage is restricted, so the price per gallon needs to go up, since there isn’t much, if any, reduced cost of operating the utility. If you use very much, the price goes up dramatically. The interesting thing about water is that the usage never recovers—people get used to conserving it, and continue to do so after the drought is over. And the prices never go back down. Probably something similar has been happening with electricity usage and prices.)

So, according to these authors (who work for an organization that promotes energy efficiency), the idea of a utility death spiral is extremely unlikely. No need for the utilities to reign-in rooftop solar panels and other distributed generation initiatives. It isn’t clear how many utilities buy this idea, though.

It would be good to hear from a utility specialist on this topic.

Nadel, S., Herndon, G., 2014. The Future of the Utility Industry and the Role of Energy Efficiency. Washington, DC: American Council for an Energy-Efficient Economy. http://aceee. org/research-report/u1404.  Report here: http://bit.ly/XQrvQ9

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