Report: Utility leaders concerned about grid reliability, carbon legislation

Utility leaders say they expect state or federal officials to take action on carbon regulations in the next eight years, and that grid reliability is still a major concern, according to Black & Veatch’s seventh annual U.S. electric utility industry report.

The 2013 Strategic Directions in the U.S. Electric Industry Report focuses on issues that impact utility operations, power generation and power delivery, including natural gas prices, renewable energy reliability and environmental concerns.

Low natural gas prices may have jumpstarted new demand, but many utility leaders, especially those in the Northeast, are concerned about price volatility and long-term price certainty, the report said. However, many officials said natural gas and nuclear were the preferred environmentally friendly generating sources.

“The driver for gas generation is not just about improving emissions, but it’s also about expectations of a longer-term low price regime,” said Dean Oskvig, President and CEO of B&V Energy.

Oskvig said the reasons for utilities to turn to natural gas vary widely, but usually boil down to cost and how it compares to ways of cutting emissions, like building a new nuclear plant or retrofitting coal units with emission controls. However, if gas prices increase to a certain amount, some utilities are willing to restart idled coal units to help counter the rise in prices.

“When gas prices go above $3.50, there’s a utility in the Midwest that has a fleet of coal units ready to fire up,” Oskvig said. Another utility said they are waiting for gas prices to reach $4.50.”

Along with gas prices, respondents also said they are concerned about grid reliability and are turning to energy efficiency programs, with more than half saying they are implementing advanced metering and 40 percent planning demand response programs. The technology is available for utilities to help cut electricity usage, but justifying the costs to regulators could make some hesitate.

“There has to be a cost recovery regime to remain profitable and growing,” Oskvig said. “What you are doing is causing people to use less of what it is they make, but you still have fixed costs.”

Adding to reliability issues is the intermittent nature of renewables. In the report, 54 percent of those surveyed said more energy storage is needed to integrate renewables into the grid, while almost 43 percent say improved grid system operations policies are necessary. About 38 percent said conventional generation sources, such as nuclear, natural gas and coal, are needed as backup to help with the intermittency.

Along with reliability issues, utility leaders are also concerned about environmental issues, ranging from carbon legislation and nuclear fuel disposal and storage to concerns over water supply. Many utility leaders said coal combustion residual rules will have an affect on utility operations, and more than half of the respondents in the Midwest and Southeast said CCR rules will have a large or significant impact on their operations.

Almost 44 percent of respondents said they would be making investments this year in generation, transmission and distribution to ensure reliability, compared to 45 percent in 2012.

Another interesting result is that more than half of utility leaders said they did not know what Federal Energy Regulatory Commission (FERC) Order 1000 meant to their business. The order reforms how costs of transmission planning and building are allocated for utility transmission providers.

“Their intentions are good,” Oskvig said. “It’s about transmission planning and building, but our commercial and regulatory system is so complex, it’s hard to know exactly how the rule will affect them.”

To read the full report, click here.