WE'VE HAD QUITE A RIDE THE PAST FEW DECADES WITH HIGHER HIGHS, LOWER LOWS and plenty of nauseating twists and turns in this roller coaster of an energy industry.
We've seen pure greed make its dastardly way through our industry posing as brilliance and daring — think Enron and its clones with their duplicitous energy-trading strategies.
We've seen plenty of fear, too. Fear too often driven by the inevitable downsizing attendant in mostly ill-fated mergers and acquisitions. Fear of being gobbled up in the next restructuring as utilities hollowed out the core of their companies and took the money to invest in high-risk ventures later spun off for huge losses.
But now, even with a suffering economy, the public and our elected officials are showing a real and sustained interest in our energy future. As a nation, we have come to realize just how critical energy is to our economic well being and our quality of life. Now could be the best time in our lifetimes to re-evaluate our corporate energy strategies and the business models that drive them.
I was talking with Mark Gabriel, senior vice president with R.W. Beck, on the trends driving utilities. Gabriel volunteered to forward me a copy of his book, Visions for a Sustainable Energy Future (available at www.fairmontpress.com). It was one of those books I couldn't put down and found myself reading right through the evening into early hours of the morning.
LET'S ADDRESS MEGATRENDS
In his book, Gabriel suggests we sort out megatrends from fads and bubbles, and focus our efforts to address these major trends that don't go away, rather than chase fads that will fade faster than the processes we set up to deal with them. Gabriel sees several megatrends impacting our industry:
Business model formation
Carbon constraints and capacity challenges.
It would behoove us to prepare to meet the opportunities and challenges these megatrends will spawn.
But we need balance. We've seen more than one utility decide to chase the fabulous returns in the market, free of regulation. Remember the microturbines and fuel cells we were to house in our basements that would make the grid obsolete?
But even sadder are the utilities that decided to bury their heads in the sand and refuse to face the future. Instead, they worked hard to shrink themselves into insignificance. These utilities no longer have the intellectual horsepower to respond to future challenges. Or to quote Gabriel, “The best in class will beat the cheapest in class every day.”
So, how do we move forward to meet the megatrends staring us down? Gabriel suggests we could create a good business balance by holding onto our regulated “vanilla” businesses while adding a dollop of “tech-savvy” and “risky-venture” businesses. He suggests that in the right balance, activity in all three areas will lead to healthy and stable energy companies that can take on the megatrends while riding through the inevitable turbulence. This allows the benefits of balanced business models to accrue to shareholders and customers.
In the tech-savvy area, utilities can leverage their histories and skill sets to see what efforts might make the best business sense. On the energy side, I'd place tech-savvy bets in coal gasification, small-scale nuclear and energy storage. On the delivery side, I'd go for intelligent distribution and load-shifting technologies. But there are plenty more areas to consider, including advanced power flow controllers, visualization tools, advanced switching schemes and cyber-security tools.
In the risky business category, I'd like to find ways to convert off-peak electricity to break down water and liberate hydrogen for use as a non-carbon fuel source. In this category, I'd also like to see products, services and software that could address dynamic energy pricing. Consumer behaviors would change faster under dynamic pricing and time-of-day rates than all the Obama stimulus initiatives and utility demand-side programs combined.
Gabriel is encouraging his clients to revamp their business models to be sufficiently flexible to survive change. We've already lived the outcomes when utility companies attempt to chase excess profits to please Wall Street. Ultimately, Wall Street is a fickle master. Our regulated utility industry will never generate the accelerated returns promised by other industries, but neither should it suffer the collapse of pure high-risk ventures.
Let's work with our regulators for reasonable returns for our shareholders while investing in the infrastructure and technologies that will enable us to continue to meet the growing needs of our customers.