Electric execs get charge out of tech possibilities

Top executives from investor-owned electric utilities across the U.S. gathered in Hollywood, Fla., last week for the annual financial conference held by their trade association, the Edison Electric Institute.

They spent hours meeting with analysts, investment bankers and ratings agencies regarding their utilities' financial returns and the outlook for capital spending, revenue and earnings. That's the sort of talk that's characterized the EEI meeting since it began 50 years ago.

But one topic is gaining attention in these industry circles: The potential for new technology to cause upheaval for utilities along the lines of what happened in the telephone industry, starting with the breakup of Ma Bell, and in the taxi business, with the more recent arrival of upstarts like Uber.

"We're in a time of change right now on many fronts. It's more change than I've seen in my career," Christopher Crane, the CEO of Exelon Corp., and a veteran of more than 30 years in the electric-power industry, told the assembly during a lunch program.

"You look at customer desires now. They want to manage their own energy consumption. They want distributed generation. They want the new technologies that allow them some control in their own homes," Crane said.

That challenge, along with increasing concerns over the potential for a devastating cyberattack on the grid and the increasing frequency of violent storms, not to mention stagnant demand for electricity in the U.S., make running utilities large and small that much more difficult now.

For Crane, the right course of action for a utility executive is to "adjust your business model to make sure you stay relevant." Those who see new technologies as "destructive" will fall behind, he added.

Crane is far from alone among his peers in acknowledging the need to keep up with the sweeping changes in store for the industry. In fact, most see the writing on the wall, especially in states like California and New York, where policymakers are pushing for even faster reforms in the way electricity is supplied and used.

That said, one of the most bullish voices for change is Tom Fanning, CEO of Southern Company, which operates in Alabama, Florida, Georgia and Mississippi, states where utility regulation remains conservative compared to other parts of the country.

"It's a fascinating environment," said Fanning, whose company, like Exelon, is one of the biggest providers of electricity in the U.S. "I think there will always be a consistent set of large infrastructure, like nuclear plants, big gas generating plants and big consolidated renewable farms. But on the other side, there will be this evolution to a more distributed infrastructure."

In fact, Fanning, unlike some of his peers, doesn't think such disruptions are necessarily bad for the utility business.

"My conviction is to play offense anywhere I can," Fanning said in an interview at the EEI meeting. "And so, we've encouraged our companies to play in that space."

Along those lines, Southern Company is increasing its investments in utility-scale solar operations and working with technology leaders like Google and Nest, the maker of smart thermostats, on ways to provide customers with more control over their electricity consumption.

What are the biggest impediments to utilities adapting to transformation?

"One of them is cultural," Fanning said. "The people in the business of make, move and sell (electricity) for Southern Company are wedded to the idea of 'look how good I am, why in the world should I change?' What I want to do is encourage the revolutionaries of our culture to always engage in creative destruction."

Fanning, who has worked at Southern Company for more than 30 years, is optimistic about the future.

"I think we'll be able to create a bridge of activity where we satisfy customers' needs and invent things they haven't even thought of, and still satisfy stockholder needs," he said.

Like Fanning, Lynn Good, the CEO of Duke Energy, another of the biggest utilities in the U.S., sees the transformation as inevitable but manageable.

"I don't see a sea change by 2020, but I see migration in the direction of modernization and more flexibility in the generating system going forward," she said.

Recently, Good learned the hard way how customer demands are changing when residents in the Asheville area of North Carolina objected to Duke Energy's plans to convert a coal-fired power plant to natural gas and install a 45-mile transmission line to connect the new facility to the grid. In the face of the public outcry, the company decided instead to build two smaller gas units, cancel the transmission line, and prepare plans for a new solar station at the site.

Duke Energy will also work with its customers in the region on ways for them to voluntarily cut their electricity use during periods of peak demand, such as heat waves.

"We thought we had put together a win-win by retiring a coal plant and putting natural gas and (new) transmission line together," Good said in an interview at the EEI meeting. "(But) we heard from our communities that transmission is not something that they wanted to embrace. They wanted to see a different mix of generation, and energy efficiency and load management."

Bill Loveless — @bill_loveless on Twitter — is a veteran energy journalist and television commentator in Washington. He is a former host of the TV program Platts Energy Week.