Energy-Pinching Americans Pose Threat to Power Grid

Energy-Pinching Americans Pose Threat to Power Grid

Sluggish Sales Could Deprive Utilities of Revenues to Maintain Vast Network of Generating Plants and High-Voltage Lines

By Rebecca Smith in the Wall Street Journal

The long-term future of the nation’s electric grid is under threat from an unlikely source—energy-conserving Americans.

That is the fear of some utility experts who say that as Americans use less power, electric companies won’t have the revenue needed to maintain sprawling networks of high-voltage lines and generating plants.

And if the companies raise rates too high to make up for declining sales volumes, customers will embrace even more energy-saving gizmos and solar panels, pushing down demand for grid power. The Edison Electric Institute, the trade group for investor-owned utilities, has warned that they could face a “death spiral.”

“Utilities seem to have concrete shoes on,” says Elisabeth Graffy, co-director of Arizona State University’s Energy Policy, Law and Governance Center.

Since 2004, average residential electricity prices have jumped 39%, to 12.5 cents a kilowatt-hour and prices for all users have jumped 36% to 10.42 cents, according to the U.S. Energy Information Administration. Retail sales to homes and businesses still are less than they were in 2007, before the recession.

Even in parts of the country where the population has been growing, electricity sales have been anemic. Southern Co. , for example, said that in the third quarter of 2014, residential accounts grew 0.7% in its four-state region—but total home electricity sales contracted 0.6%.

Some people think talk of a death spiral is exaggerated. “It’s indisputable that a lot is happening,” says Ralph Izzo, chief executive of Public Service Enterprise Group, a big utility in Newark, N.J. But he doesn't believe, he says, “the industry will be turned upside down.”

Moody’s Investors Service agrees, contending that regulators will work to keep utilities solvent because the grid is critical to the nation’s standard of living. But some utilities are taking measures to counter the trend. Power companies in 20 states are trying to overhaul their rates so that they are less dependent on kilowatt-hour sales.

One of the most radical proposals surfaced recently in Wisconsin. Last May, Madison Gas & Electric Co. , a unit of MGE Energy Inc., asked state utility regulators to let it charge residential customers $68 a month by 2017 as a fixed monthly fee for electricity service, covering 77% of the utility’s fixed costs, versus the existing $10.50 fee, which covered 12%. In return, the utility agreed to cut the price of electricity in half, to 7 cents a kilowatt-hour. The proposal created such uproar that the utility withdrew the request. Instead, it got approval to begin charging about $20 a month, enough to cover 23% of its fixed costs, and to slightly reduce its electricity price.

Utilities like fixed fees but “they’ve not met with much success because customers dislike them,” says Steve Kihm, chief economist for the Energy Center of Wisconsin, a nonprofit research institute. He says customers think these fees punish energy-conservers and lengthen pay-back periods for solar power and energy-efficiency upgrades.

David Owens, executive vice president at the Edison Electric Institute, says it costs most utilities $40 to $60 a month to serve a home. So customers who use little power shift costs to others.

Some utilities are embracing the possibility that customers could leave the grid. Elizabeth Killinger, president of NRG Retail, a unit of NRG Energy Inc., says the nation is entering the “era of personal power.”

NRG is a big owner of conventional power plants that sell electricity to utilities. But Ms. Killinger is helping build a side business that sells energy products directly to consumers, including rooftop solar systems and portable devices that make or store electricity.

In August, the company bought Goal Zero, a Utah energy-products company founded five years ago to take solar power to the world’s poor. It sells small solar units that charge battery-powered devices and power small appliances. Small solar-powered battery chargers sell for as little as $40 but solar generators cost up to $1,800.

NRG also is tinkering with prototypes of stove-sized machines that make electricity from natural gas—something the company says is likely to appeal to the roughly 50% of U.S. homes served by gas. The company’s goal is help customers unplug from the grid and become largely self-sufficient in a way not seen since the days of wood heat and candles.

“Our vision is puzzle pieces that fit together,” Ms. Killinger says. “And even though it doesn’t all exist today, we think it’s years, not decades, away.”

In Phoenix, Arizona Public Service Co. got the green light in December to compete directly with solar-power providers by offering rooftop solar systems to about 1,500 homes in a pilot project. Homeowners would rent their rooftops to the utility in exchange for $30-a-month off their electric bills for 20 years. APS told regulators it would seek out customers with poor credit scores who otherwise might find it hard to buy solar panels.

Donald Brandt, CEO of APS parent Pinnacle West Capital Corp. , says all he needs is “a structurally sound roof and a customer is good to go.”

Uncertainty about the future role of utilities is stimulating soul-searching among utility executives.

Bill Johnson, chief executive of the government-owned Tennessee Valley Authority, provider of electricity to seven million people, says he’s trying to help TVA remember its original purpose—not to sell more electricity but to “make the quality of life better.”

But even as power production becomes more decentralized, there is value in the centralized electric system, says Tom Farrell, chief executive of Dominion Resources Inc. in Richmond, Va. To allow a $1 trillion system to decay would be unconscionable, he says. “You can’t run a country on solar panels.”