I had an interesting conversation with Benjamin (Jamie) Wimberly, CEO of Distributed Energy Financial Group, LLC, a diversified firm providing management consulting services focused on innovative energy technologies and solutions as well as investment and marketing services. During that conversation, Wimberly provided an excellent analogy for the situation in which the U.S. utility industry now finds itself.
Wimberly said there are three tectonic plates that are moving under the industry. They are:
- Resource and Infrastructure issues—utilities have aged infrastructures, aged workforces and limits on resources imposed by regulation and the current economic environment.
- The Global Warming/Environmental/Political movement.
- Technological revolutions impacting the grid in ways that haven’t been seen since its invention more than 100 years ago.
Wimberly and I had a very pleasant conversation despite the fact that we tend to look at all these issues from different perspectives. He is obviously a promoter of tectonic plate No. 2. I am not. However, I think he grasps the situation quite well and his characterization of these issues as “tectonic plates” is right on. We also found we agreed on quite a few others issues, as well. The primary agreement is that something is going to have to give. The utility industry cannot deal with all three of these plates without massive infusions of capital and O&M resources, which would drive residential and commercial rates for electricity skyward.
One of Wimberly’s groups (EcoPinion) has just issued a new, very-well done study of consumer attitudes, which is available here
www.ecoalign.com. One of the things pointed out in this report, and another issued earlier, is that there is a serious disconnect between public perception of the issues and those in the Global Warming/Environmental/Political movement. The disconnect comes around the area of dollars and electricity rates. As Wimberly’s firm puts it in a press release accompanying the study:
“To a much greater degree than other EcoPinion surveys, questions on how to manage climate change result in statistically significant differences between men and women, among income classes, and especially between Democrats and Republicans,” stated Jamie Wimberly, CEO of EcoAlign. “If not handled in a bipartisan, cost-sensitive manner, the Obama Administration could face a consumer revolt.”
When tectonic plates within the Earth move, usually one of the results is earthquakes, sometimes volcanoes, sometimes whole new mountain ranges dramatically altering the landscape. A “consumer revolt” certainly would qualify as an earthquake or volcano.
Another thing that happens when tectonic plates move is that a lot of earth gets ground up between them. Utilities look to be not only sitting on those three plates, they also are, in many respects between them and subject to being ground up. While Wimberly’s firm’s surveys find about 50% of the public have bought into the global warming propaganda (propaganda is my choice of words, Wimberly says the environmental movement has highly “politicized” the issue), only about 10% of utility executives “strongly believe” in the “science behind global warming,” according to a recent survey conducted by Sierra Energy Group for Black & Veatch. About 70% have little or no faith in the science behind global warming.
When you add our dependence on foreign oil, the economic meltdown and the credit crisis to this mix, you have an awful lot of moving parts in and around those tectonic plates. Yes, Democrats now control the presidency and the Congress and have a split on the Supreme Court. They may think they can solve all these problems. The problem is where are they going to get the money? Through Wimberly’s surveys, the general public already is saying: “not out of my pocketbook.”
There just isn’t enough money to do everything that has to be done in the utility industry. As a historian by education, I would say it’s going to be fascinating to watch new mountains being pushed up, the landscape dramatically altered, volcanoes appear where there were none before and history altered. As a citizen who works in the utility industry, and have for many years, however, I fear what I see on the horizon.
Something’s going to have to give or there are going to be massive upheavals and those in power now had best tread lightly, the ground under them already is quivering as those tectonic plates shift. A few false steps, a tilt too far in one direction (obviously to the left), and they could have some mountains and revolts springing up where they least expect them.
The utility industry is slow-moving and if the powers that be move too fast, they’re going to have a broken industry (financially and otherwise) and they’re going to have some irate citizens when the lights start flickering on and off and it costs 50% more to keep them on anytime. Wimberly’s survey found intense price resistance among consumers at 10% more. Revolt was Wimberly’s choice of words, not mine, and he even put them in a press release.
Bankrupt utilities and angry citizens in revolt don't sound like much fun, even for a historian. Tread lightly, folks, especially those of you now in control in Washington. You may have won an election, but your problems are far, far beyond staying on "talking points" now. Talking points won't solve these problems, if they are indeed solvable at all. And while you may be able to create trillions more of dollars with a few keystrokes in Washington, something has to back up those trillions and that ultimately is the people. Those who work and pay taxes already are paying roughly 50% of their income in all federal, state and local taxes. They aren't going to be very happy with you pushing that even higher. Tectonic plates do shift and these don't look very stable right now.
I agree with the basic message in Warren's blog here. Without massive amounts of money injected into the utility industry, we will spiral down into a third-world society characterized by poor electricity system reliability and higher rates. If you think Washington's latest rescue of the banking industry was a tough pill to swallow, just wait for what unfolds in our electric utility industry.
If this perfect energy storm materializes as such, the days of electricity being a consumer bargain are numbered. The importance of adopting greater efficiencies and conservation for commercial facilities as well as residential consumers should steadily increase.
Given so much more money being sucked into the electricity system from rate payers, I predict too that the economic incentives of all this extra cash flowing will make Len Gould's IMEUC reform proposals on this website look incredibly appealing to private investors, the educated voters, and eventually our politicians. The inherent temptation to get a piece of the growing gravy train should inspire increasing demand for competition in the electricity generation business, and even increasing demands on our politicians to enable ways for consumers and industries to mitigate the pain on their energy bills.
When push does come to shove, the consumer prospective that will have to vanish is NIMBY; if you do not want to be freezing in the dark with wolves gnawing on your bones, get used to living near a 500KV line.
That is an excellent conversation, which is a very timely and important post related to the reinvention of the U.S. and global utilities.
As you know, under the EWPC market architecture and design breakthrough, the utilities will become regulated smart grid transportation only utilities. In addition, Customers will be able to select service plans from Second Generation Retailers in the open market, that will take into account their investments and operating costs in disruptive technologies that will be integrated to power system planning, operation and control.
As in earlier occasions, I have written an EWPC article as a stepping point of your fine contributions; this time it is "The Answer to Jamie's Tectonic Plates (please hit the link http://www.energyblogs.com/ewpc/index.cfm/2008/11/... )." Those plates are a good analogy for the global systemic crisis the utility industry is in. The summary is as follows "Utilities price control business model is that something that is going to have to give, to avoid the consumer revolt earthquake induced by the tectonic plates."
As the price control business models is going to have to give, Jim should expect that business model innovations will kick in. William approach of everyone for himself is been tried and certainly doesn't work, because on a society basis it is just too expensive. Will Bob keep worshiping the price control business model as it is being ground up by the tectonic plates ?
Regards,
José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity
http://www.watersmart.com/documents/OilandGasIndep...
Enjoy.