A Rosy Outlook for 2011?

Teresa Hansen, editor in chief

Much economic and policy uncertainty the electric utility industry experienced in 2010 remains in 2011. The U.S. economy is improving slowly, and many experts and economists expect the trend will continue in 2011.

Recently I spoke with Stuart Varney, business and financial journalist for FOX News and a keynote speaker at the Electric Light & Power Executive Conference. As I write this commentary the week before the conference, I’ve not seen him speak in person yet, but when I spoke to him on the phone he said he has a “rosy outlook for the state of the economy going forward.” Varney said 2011 will be a good year for business and investors.

Tom Flaherty, a senior partner with Booz & Co. and my main source for the capital spending industry report that begins on Page 18, also said the economy will be stronger in 2011 after having turned the corner in third quarter 2010.

Unlikely to change in 2011 is our lacking an energy policy that addresses climate change and provides clarity for utility executives tasked with planning electricity generation capacity additions. Electric utilities still are waiting for lawmakers’ much-needed guidance. The new Congress is focused on deficit reduction and spending cuts, as well as making sure the economy continues to improve. Most lawmakers consider a policy that includes measures to reduce greenhouse gas emissions a sure way to increase electricity rates, burden consumers and slow economic recovery.

Flaherty said most utility executives have accepted this. They don’t expect an energy policy that addresses greenhouse gases, and they plan to move forward with capital spending decisions anyway. They have little choice.

As you’ll read in the capital spending report, Flaherty thinks this will be the year many utilities make long-term capacity decisions and commitments. Flaherty also thinks utilities will direct more of their future capital expenditures to consumer-focused technologies and services: smart grid technologies that touch customers and move inside their homes. He said utilities should move more quickly when it comes to technology decisions. Technology and customer expectations are changing rapidly, and utilities must plan for these changes.

The federal government agrees that money should be invested in smart grid technologies and services. The administration and Energy Secretary Steven Chu voiced their commitment to developing efficient, sustainable technologies that will make the nation more energy independent. The Department of Energy (DOE), through the American Recovery and Reinvestment Act (ARRA) funding, spurred a lot of smart grid development in 2010. Even with all the planned spending cuts, the DOE is investing more money in smart grid in 2011.

A recent report by market research firm SBI Energy said the U.S. is pacing global investment in smart grid applications and capabilities. According to the report, “The Smart Grid Utility Data Market,” for fiscal year 2010, the DOE’s Office of Electricity Delivery and Energy Reliability (OE) smart grid research and development budget was $125 million, up from $83 million in fiscal year 2009. The funding request for fiscal year 2011 is up nearly 16 percent to $144 million. In addition, the report says $30 million in funding in fiscal year 2011 is set aside for energy delivery system cybersecurity.

Utilities probably will continue to have a difficult time determining how they should move forward with long-term generation investment, but their spending decisions related to customer-focused technologies and smart grid likely will be easier.

The capital spending report covers this and much more. I hope you enjoy reading it as much as I enjoyed writing it.

 

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