The Challenge of Powering the Future: An End-to-End Approach toward the Next-Generation Utility

While environmental and societal pressure on the industry will continue to intensify, the targets remain uncertain and the methods with which to meet these requirements and finance them remain less than clear. The only thing that is clear is the magnitude of the challenge ahead.

The United States is facing massive requirements for investment in its electric system—from generation to distribution. Our future investment requirements are estimated to be between $400 billion and $1 trillion dollars over the next 20 years to upgrade our electrical infrastructure.

The rate impact to the average retail customer would be between $75 and $200 per year and this does not even consider any additional cost resulting from stricter environmental legislation. Needless to say, rate increases of this magnitude are untenable.

The current credit crisis also complicates the challenge of powering the future. Not only will this have an immediate impact on bad debt and revenue recovery, but like many other businesses, a utility needs financing to build and upgrade its asset base. What is unique about this industry, however, is that within the current regulatory construct, the deployment of capital is the most prominent avenue for growth. The credit crisis could result in delays to any proposed infrastructure investments and thus reduce rate base growth and, with that, earnings per share (EPS) growth.

While many utilities have embarked upon efforts to define a path towards the “next generation utility” we find that these efforts are often siloed initiatives driven by the generation, Transmission and Distribution (T&D) or customer segments of the organization. Addressing the upcoming challenge will require a coordinated and integrated set of decisions so as not to damage the end-to-end value chain.

Through this POV we intend to explore a set of eight critical “themes” across the generation, T&D and customer elements of the value chain that, in our opinion, will shape the future of our industry.