Competition, Energy Efficiency Forge the Utility of the Future

Article excerpt

REVOLUTION is under way in the utility industry:

* Executives who once scoffed at conservation's potential are pushing energy efficiency as a primary solution to America's growing power needs.

* Deregulation has spurred competition from independent power producers.

* Renewable energy sources will displace much of the oil burned to make electricity, utility planners say, although the use of coal and natural gas will not drop.

Two California utilities - Pacific Gas & Electric and the Sacramento Municipal Utility District - embody the radical shift away from a "more power is better" attitude. Energy efficiency and environmental goals are the new focus.

"This industry used to operate on economies of scale - the larger the capacity, the cheaper it was," says Stephen Metague, manager of electric resources planning for Pacific Gas & Electric (PG&E) in San Francisco. "Technology has now pushed us into a position where that is no longer the case."

More and more, the utility's function will be to carry power from an outside producer, maintain the quality and availability of electricity, and provide billing and other retail customer services, according to industry chief executive officers and experts. The utility of the future will be more focused on electricity services rather than strictly on power production.

Utility regulators have prodded utility executives forward by changing rules so the utilities can profit by helping customers conserve electricity. Power not used by one consumer is available for new homes, appliances, or factories to come on line. Big utilities thereby avoid the need to build new expensive and financially risky power plants to meet new demand.

Dramatic changes at the customer end of the electric supply grid are matched by a revolution on the production side of the grid.

"We are on the threshold to go beyond both nuclear and fossil fuels," says S. David Freeman, general manager of the Sacramento Municipal Utility District (SMUD). "Don't sell your utility stock yet," he says. But "the days when electric power utilities can sit back with their monopolies and let the revenues roll in are long over."

Just as deregulation has remade the airline, telephone, and trucking industries, utilities got a jolt of competition in 1978. That was the year Congress passed laws guaranteeing independent power producers (IPPs) access to the utility grids that deliver electricity to consumers. Last year's National Energy Policy Act, signed by President Bush, opened the power market further to IPPs.

Electric companies were concerned about the reliability of service, rate stability, and quality of power supplied by independent producers. "It wasn't too long ago that utilities were very nervous about that, but it's working," Mr. Metague says.

"The central station generator has served its function, and may disappear in the future," Metague adds. …