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Zombie Utilities

New York’s energy czar told the nation’s utility regulators this week that electric utilities will become zombie businesses if they do not get out of their “rate-base” mindset.

New York’s energy czar told the nation’s utility regulators this week that electric utilities will become zombie businesses if they do not get out of their “rate-base” mindset.

Richard L. Kauffman, chairman of energy & finance for New York, told the summer meeting of the National Association of Regulatory Utility Commissioners, “We need utilities to think about new revenues and profits – not just rate base.”

Kauffman’s remarks created great buzz early this week at NARUC’s summer meeting in New York, which attracted a record of more than 1,300 attendees, many of them state utility regulators who govern the finances of scores of electric and gas utilities and the monthly utility bills paid by American consumers and businesses.

For a century, utilities were monopolies that thrived financially by building centralized, massive generation facilities and transmission and distribution networks to carry power to distant consumers.

Kauffman is widely considered New York state’s energy czar, tapped by Gov. Andrew Cuomo to orchestrate what is perhaps the most sweeping change in utility governance in the nation. The process, called REV or “Reforming Energy Vision” encourages increased energy efficiency, renewables and distributed generation in the state.

Kauffman said that utilities do not – as some fear – face a “death spiral” since their enterprises will continue to generate revenues.

Rather, he said, they will “turn into zombie businesses.” He continued, “Marginal degradation of service will make it hard to get the resources needed to invest in the future.”

Utilities should look to Apple, which is great at creating platforms that third party developers use to create new apps. Those developers provide Apple with a slice of their revenues, Kauffman said, and Apple is incented to keep improving the netowork. “Apple sees where to invest in the platform,” Kauffman said.


Richard L. Kauffman addresses a massive gathering of state regulators in New York City this week/ // Photo by Martin Rosenberg

 

Utilities need new business models and culture to do the same, he said. “Third parties need to view utilities as partners, not just competitors,” Kauffman said. “This is going to be an ever-evolving frontier.”

Lisa Edgar, a state utility commissioner from Florida and the president of NARUC, said that she hoped that Kauffman’s presentation will cause regulators to reflect on the profound changes coming to the industry and the new policies needed to shape the future of energy use in America.

Philip Jones, past NARUC president and a commissioner from Florida, however, said that regulators by nature “are cautious – we wait for the governor and legislature” to lead on transformative policies.”

But Edgar remarked on two signs at the NARUC meeting that underscore that the power industry and the men and women charged with regulating it are at a major crossroads. One is the record attendance at the gathering in New York this week.

The other, she quipped, is “there are more people from SolarCity here than Southern Company.”

Southern Company, based in Atlanta, is one of the nation’s largest utilities with 4.4 million customers, with its fortunes directly tied to state regulation in its Southeast territory.

SolarCity, based in San Mateo, California, describes itself as the nation’s largest solar provider that has “revolutionized the way energy is delivered by giving customers a cleaner, more affordable alternative to their monthly utility bill.”

Please listen in to the one-hour webcast discussion, Driving the New York Energy Revolution.

 

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