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US utilities shift capital spending as distributed generation grows

Las Vegas (Platts)--10 Jun 2014 509 pm EDT/2109 GMT


Utility officials on Tuesday highlighted how low load growth and the emergence of distributed generation resources are leading them to shift capital spending toward bolstering infrastructure and away from generation investments.

"You see a lot of utilities in the country moving this way, and that really defines the utility of the future in many respects," said Nick Akins, president and CEO of American Electric Power.

Speaking on a panel at the Edison Electric Institute's annual convention, Akins said that this period of 1-1.5% load growth provides a "distinct opportunity" for the industry to balance the generation portfolio while also focusing on infrastructure development to allow the connection of DG and other resources.

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While spending on environmental compliance and new generation used to be the major expense for AEP, Akins said the focus has shifted toward roughly $1.8 billion in annual spending on transmission and substantial amounts as well on distribution. And in noting that AEP formerly viewed generation, transmission and distribution as distinct silos, Akins said that this shift "really shows the way things have changed in terms of our thought process when we think about infrastructure development and the customer experience versus the three silos that we used to have."

Edison International President and CEO Ted Craver said on the same panel that his utility has increased spending on infrastructure in light of California's push toward DG, storage technologies, energy efficiency and other emerging resources. Over the last six to seven years, Craver said the utility has been focused on ensuring that the distribution system is capable of absorbing increasing amounts of distributed energy, noting that roughly 95% of their capital budget is focused on transmission and distribution.

Edison International owns Southern California Edison, among various other assets.

"We're heavily skewed toward investing in that distribution system, and what we really want to build is a modern distribution system that's capable of much more flexibility," Craver said, with the intent to create a "plug and play" network to accommodate electric vehicles, DG and other assets.

Akins as well said that the shift provides value to customers in reduced outages and to shareholders given that generation investments are riskier now.

Elsewhere in comments, Craver said that his utility's approach aims to ensure reliability while at the same time helping to execute California's vision of greater levels of renewables and distributed assets, noting that the state policymakers have spoken "repeatedly" that they want these resources. Craver also said that while the utility is not necessarily the best owner for DG assets, it can provide value via the distribution and transmission system.

Looking ahead, Craver said that a key for the utility industry will be to be more adaptive and flexible to oncoming changes, perhaps more so than the industry has been in the past.

"We need to be good adapters," he said.

--Bobby McMahon, bobby.mcmahon@platts.com
--Edited by Katharine Fraser, katharine.fraser@platts.com

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