U.S. electric utilities to spend fair amount on demand response and energy efficiency


Overland Park, KS, U.S.A. — (METERING.COM) — February 22, 2010 – Over half of U.S. electric utilities are expecting to spend more than 2 percent of their annual operating revenue on demand side management and energy efficiency programs over the next five years, with more than 10 percent of them expecting to spend more than 5 percent.

This is one of the findings of Black & Veatch’s latest annual survey of U.S. power industry leaders, which polled 329 industry participants, including professionals from both public sector and investor-owned utilities.

This equates to IOU expenditures of between $5 billion to $6 billion annually, or roughly 15 percent to 20 percent of before-tax-earnings, while spending by public power entities is up as well. New expenditures for smart grid applications by both IOUs and public power systems would be in addition to this.

The survey also found that most of the respondents considered that a dollar-for-dollar recovery in rates for demand side management and energy efficiency costs is – or will be – the most common practice. Other funding options will be return on DSM and energy efficiency related capital items and incentive returns for program costs through utility rates.

According to the survey the top industry concerns remain reliability of the electric grid, regulatory issues and long term investment.

“The times are tough, so the industry is returning to its job one: maintaining reliable service and preserving financial health,” said William Kemp, who leads Black & Veatch’s management consulting services around strategy and sustainability.

Other findings of the survey are that many utilities’ industrial and commercial sales have been severely or seriously eroded by the recession, and less than one quarter of respondents think electricity usage in their area will grow by more than 1.5 percent annually in the next ten years.

Further, capital spending on new electric infrastructure has declined for two years in a row, for the first time since the 1930s. Generating plants are the asset group in biggest need of replacement. Information technology systems followed close behind, reflecting the priorities placed on the smart grid and the need for improved security against cyber attacks.

Carbon emissions maintained its place as the dominant environmental concern for electricity industry leaders, and a majority of respondents expect some form of carbon legislation to be in place by 2012. However, 52 percent believed that the United States cannot afford carbon legislation.

“Utilities are facing increasing demands to spend more money on basic infrastructure, energy efficiency, the smart grid, and cyber security,” continued Kemp. “Their expected leading role in curbing carbon emissions would hit utility costs very hard. Yet their sales are declining or relatively flat, and regulatory commissions are reluctant to approve rate increases when the economy is down. Electric utilities will be hard pressed to satisfy both customers and investors over the next few years.”