How Utilities Can Revitalize Industry
De Vaul, Diane, Bartsch, Charles, Issues in Science and Technology
By linking energy efficiency and economic competitiveness, utilities can help businesses lower operating costs and upgrade their technologies.
During the first weeks of his presidency, Bill Clinton asserted that the nation's industries must modernize if Americans are to enjoy a rising standard of living. He noted that inadequate knowledge about new production technologies and inadequate capital for plant improvements were making it hard for manufacturers, particularly small and mid-sized firms, to improve their productivity and economic competitiveness. And though he said his administration would stress the benefits of government research, technology transfer, and financial assistance, President Clinton acknowledged that Washington needs new partners to help modernize U.S. industrial processes. Electric utilities are likely candidates. They have considerable technical expertise and access to large sums of capital that could help industry improve its productivity. Fortuitously, power companies also would benefit by such a partnership stimulating local economic activity and better managing electricity demands.
For many years, utilities, which are guaranteed a rate of return on their investments by public utility commissions, had an incentive to expand. But today, the high economic and environmental costs of building more power plants have convinced utility executives and state regulators of the benefits of adjusting demand for electricity. By helping customers become more efficient consumers, and by lowering extreme peaks in demand, utilities can forestall the expense of constructing new generating capacity or buying power from other producers.
Although many utilities pursue so-called demand-side management programs for their commercial and residential customers, most have not focused much attention on the industrial sector, in part because achieving industrial energy efficiency requires more specialized expertise than do routine energy audits to improve the insulation and lighting of homes and commercial buildings. Yet the reasons to target industry are compelling: Industrial firms consume more than 35 percent of the electricity in the United States, and investment in retooling manufacturing operations with energy-efficient and productive equipment could help spur economic revitalization.
Most demand-side management initiatives are designed to reduce a utility's peak demand and avoid the construction of new power plants. Economic development factors are typically neglected. In fact, if saving energy is the sole goal, the loss of manufacturing operations theoretically would be considered a positive outcome. But when companies cannot compete and shut down, the fixed costs of providing electricity shift to fewer customers, and rates go up. Employees who lose jobs also have difficulty paying personal energy bills. The result can be a downward economic spiral that few, especially utilities, would argue is desirable.
Utilities and their regulators, therefore, have recently begun to take a fresh approach to local energy policy, one that recognizes that manufacturers are less interested in energy efficiency than they are in productivity. By linking energy efficiency and competitiveness strategies, utilities can help lower businesses' operating costs and upgrade their process technologies. Pilot programs in a few states, in which utilities have assessed the potential for improving manufacturing efficiency and helped finance the purchase of more energy-efficient and technically advanced equipment, have markedly increased the competitiveness of local firms.
It has been well documented that technology is the key to improved productivity. Yet many manufacturers need technical and financial assistance to maintain peak productivity, because technologies evolve constantly and competitiveness is a quality that either improves or erodes. Improved productivity requires not only better manufacturing technology, but also know-how in using equipment, organizing work, and managing people. …