IEEFA Energy Finance 2016: Utilities ‘Fearful of Somebody Getting Between Them and Their Customers’

A Moody’s Investor Services executive said today that that U.S. electricity-generation industry faces broad disruptions driven by the rise of new technology, more environmental regulation and an inexorable march toward less carbon-intensive production.

“The transition to to a low-carbon future is well under way in the regulated utility industry,” said Jim Hempstead, associate managing director at Moody’s Global Project and Infrastructure Finance Group.

Hempstead, speaking at a morning session of IEEFA’s Energy Finance 2016, said implementation of the EPA’s Clean Power Plan, which continues to be fiercely criticized by coal-fired electricity generation interests, has been baked into utility industry plans already and will ultimately have a negligible business effect.

He said growth in renewables is likely irreversible.

“We see a lot of activity in renewables” accompanied by renewable-energy expansion into states that have not yet embraced wind or solar and a shrinking footprint for coal-fired electricity, he said. Hempstead emphasized that the coal-fired electricity industry “is not going away” but will be reduced to “core supercritical plants” that will provided base-load power in some areas while “smaller, marginal less-efficient units, they’re all going to get shut down.”

He cited a “clear bias” among regulators toward redesigning U.S. electricity infrastructure in a way that supports distributed generation and electricity storage, developments that imperil current models.

“The utilities are most fearful of somebody getting between them and their customers.”

Cathy Kunkel, an IEEFA energy analyst, said utilities can expect to face greater opposition to traditional electricity-distribution models as “grassroots campaigns” gain momentum against a business-as-usual mindset.

Kunkel cited effective public furor in the District of Columbia, where opponents to the Exelon-Pepco merger—a deal that would likely increase electricity prices and thwart renewable-energy trends—have managed to repeatedly delay consummation of that merger.

“Grassroots pressure has certainly made a difference, regardless of the ultimate outcome,” Kunkel said, arguing that public campaigns that focus on “fundamental economic issues” at the heart of such deals will become increasingly effective.