The Utility Industry: Stodgy and stuffy maybe, but malevolent? Give it a rest!

Recently I was doing some research for an article on how utilities are adapting to new generation technologies. In the process I came across some of the usual anti-utility sentiments: utilities are suppressing renewable technologies because they make more profit by burning coal; they’re against conservation and efficiency improvements because they want to sell more energy to make the big bucks; utilities conspire with their state regulators to overcharge consumers. Yada, yada. Same song-sung-blue I’ve heard for years. This time it ticked me off more than usual.
 
I’ve been in this business for a long time, working within a utility at various levels: engineer, assistant to the president, research director. I’ve worked as a consultant to a number of utilities and energy technology providers. And now I get the opportunity to work with the industry as a whole.
 
Yes, utilities are generally stodgy and risk averse in the extreme. And, with some notable exceptions, they’re glacially slow in adopting new technologies. Utilities have deep pockets and are quick to settle out of court, even in frivolous lawsuits. The industry is pretty much politically neutral, to the point of seeming politically naïve. Although power companies usually have strong opinions on energy policy, their trade organizations are pretty much unknown to the general public and they apparently don’t have much pull with legislators.
 
In short, utilities aren’t set up to defend themselves and usually they don’t even try. They’re easy targets, convenient scapegoats, ideal Big Brothers in energy conspiracy theories.
 
But the typical utility executive is a far cry from a malevolent Goldfinger stuffing profits into an offshore account. Utility execs are usually paid considerably less than equivalent positions in other industries. That’s truly amazing when you consider the awesome responsibility of providing high quality power to millions of consumers 99.9+ percent of the time. Their salaries are in public records – check ‘em out.
 
In addition, utility management has traditionally risen from the ranks of engineers - not exactly a breeding ground for a want-a-be Machiavelli. Most utility engineers I’ve worked with are highly skilled, hard working and conscientious. They could have gone into more lucrative positions in other industries, such as IT or aerospace, but for various reasons they chose a career in an industry that offered few perks outside of steady employment, sometimes decent benefits, and the sense that they could be of tangible service to the community.
 
So who’s getting rich? Not investors. Utility stock has traditionally been valued for dividends, not growth. High rolling investors go elsewhere. Peripheral industries, such as solar and wind technology manufacturers, and more recently, smart grid technology suppliers, have seen revenue growth. But the profit-regulated utilities didn’t benefit much.
 
But don’t utilities suppress efficiency and conservation programs in order to sell more electricity? No – because utilities make a regulated return on capital investments such as power plants, power lines etc. That’s how the cost per kilowatt-hour is determined, along with fuel cost adjustments which are passed through to the consumer. There may be some attempts to overbuild, but all construction requires commission approval and the major public hearings have plenty of activists protecting ratepayer interests.
 
Still, don’t we have to admit that utilities have dragged their feet in adopting cheaper renewable energy resources in order to keep their rates/profits from dropping?
 
Maybe, but I don’t think so. For sure, utilities are slow in adopting anything new. That’s how they avoid risk and keep the lights on 99.9+ percent of the time. One can argue that maybe they have been too risk averse and overly delayed implementing new resources. Time will tell. In any case, the whole rate/cost recovery issue is up in the air as more customer-owned generation is installed (see Utility Bills and Social Engineering).
 
As far as rates go, consider that the average U.S. rate is around 10 cents per kilowatt-hour. That’s about a third of the cost of electricity in Germany, considered the world leader in renewable resources, and about a quarter the cost of Danish or Italian service. I think we get snookered by our innate European envy and overlook the electricity bargain we have in the U.S.
 
While I’m on the soapbox, I’ve got to mention the real unsung utility heroes - the power line workers, those folks we used to call linemen.
 
A few years ago I was involved in investigating the death of a young lineman who was burned to death in the hi-rise bucket of his truck while restoring power to a rural home at 2 A.M. during a heavy rainstorm. He left behind a widow and two youngsters.
 
That shook me up, but line workers’ injuries and deaths are not unusual. Power line work is rated in the top ten most dangerous occupations, with a fatality rate considerably greater than that of police or firefighters. But there’s little fanfare when it happens – no bagpipes, just third page news.
 
And that sort of fits in with the 100 year-old utility industry as a whole – unassuming, reliable, mostly taken for granted by the public it serves.
 
But…an evil empire? Gimme a break!

Comments

Re: Evil Empire

Paul:

Excellent column! I would add that there seems to be a new dimension to the anti-utility attitude these days, coming from folks who wish the realities of the utility business would stop getting in the way of their specific interests. They forget (if they ever knew) that the industry was built to be conservative for the public good: reliability and low rates were paramount. Lots of things need to change before we can turn that battleship around.
Utilities are honestly trying to change with the times, but with limited funds for new technologies and the requirements of keeping the lights on, there are abundant constraints to that effort. It doesn't help that utility R&D funding is very low, well below what is needed to innovate the grid to the degree required to meet the new demands being put on it.

Lloyd Cibulka
Pleasanton, CA

[P.S. Glad to see you in print; best regards from your alma mater, where I now work.]