The Future Electric Utility
May 21, 2015
I am speaking at a conference in June – The LDC of the Future – hosted by the Centre for Urban Energy at Ryerson College. The target audience is municipal elected officials.
It is a timely conference. The backdrop is that several converging trends are reshaping the energy sector in Canada. As part of Ontario’s electricity system, this transformation will impact municipally-owned local distribution electricity utilities (LDCs). As equity holders, municipal governments, especially their elected officials, should understand the risks and opportunities these changes present and the options available to them to protect their community’s investment.
A perfect storm of new technology, aging infrastructure, a centralized yet fragmented energy system, and climate change is changing the business environment for electric utilities.
Technologies that promote conservation and efficiency are providing consumers with more control over how much electricity they use while government policy requires all LDCs to achieve annual conservation and demand management targets to respond to climate change.
Distributed energy – local power and thermal sources – is providing consumers with more choice over their source of energy. As an example, Guelph’s LDC will lose one of its largest industrial customers when the company completes the construction of a combined heat and power facility and goes “off grid”.
A reduction in demand along with the loss of customers means less revenue for LDCs to invest in needed infrastructure.
At the same time, there is a substantial need for capital to fix an aging system; this is driving up costs and resulting in pressure from consumers, regulators and elected officials for electric utilities to find efficiencies. The electricity sector is also expected to improve the resilience of the grid to withstand more frequent and severe extreme weather events.
The nature of the new technologies are not just disturbing the historical stability of LDC operating statements, they are causing a reshaping of energy markets. Consumers are being empowered to play a more central role in shaping the electricity system. Electric utilities are being challenged to deliver a variety of customized energy services to their customers. Innovation is driving greater integration in the energy system and more local control over energy decision making; this is a real test of a system that has evolved over decades to be fragmented and centralized.
Taken together, these trends and conditions – and likely others – represent an extraordinary strategic risk for LDCs and their municipal owners. Will LDCs be able to adapt to the new business environment, implement relevant business plans and strategies and effectively allocate resources? What are the risks to municipal owners? What are their options? This will be the focus of the conference.