The following is a contributed article by Dan Gabaldon, Kyle Datta and Bob Zabors from Roland Berger.
The COVID-19 crisis has shown how electricity and connectivity are critical to the fabric of our economy and our social interactions. By focusing on four initiatives, we believe that utilities, in partnership with regulators, can do more to support our communities, and be stronger for it.
Acting now, utilities, supported by regulators, can take a more targeted and impactful approach to supporting affected business and disadvantaged communities: restructuring cash payments; leveraging the economic slowdown to perform value enhancing maintenance and infrastructure enhancements (especially energy efficiency and EVs); and supporting the re-localization of critical manufacturing supply chains through economic development incentives.
1. Expand and accelerate investment in energy efficiency and electric vehicle infrastructure
The electric utility sector is committed to increasingly bold measures to decarbonize the U.S. economy. We now see a unique opportunity to create jobs, secure long-term reduction in energy bills, and have a positive environmental effect by taking advantage of the current conditions to accelerate this transition through expedited energy efficiency and EV infrastructure efforts.
With many businesses closed, energy efficiency retrofits that would otherwise not be possible due to interruption of customer business operations can be executed now, providing near term employment, and longer-term financial savings and greenhouse gas emissions reductions once the economy restarts. Depending on their jurisdiction, regulators should explore enabling a temporary increase in the public benefits fund charge for energy efficiency, or allow utilities to propose new or accelerated programs.
In the case of the transportation sector, adequate charging infrastructure is critical in urban and low-income areas where potential EV adopters are discouraged by the lack of practical charging options. Regulators have already recognized the role utilities can play in addressing this “chicken-and-egg” market failure.
Why not support local contractors and their employees in accelerating the construction of EV infrastructure so that as the economy recovers and automakers unveil their new EV offerings, prospective customers will be able to count on infrastructure being in place to serve them?
2. Help our businesses and disadvantaged communities through restructured payments
Regulators and consumer advocates should allow utilities to proactively provide forbearance on 90% of their utility bill payments during the COVID crisis to all commercial and industrial customers whose power demand is less than 80% of the prior year (e.g., they are shut down) and to all residential customers whose household incomes are 200% of the Federal Poverty Level or below. The total amount of the customer bills not paid can be recovered from the customer over a five-year period.
Traditional regulatory approaches will inadequately reflect the cash lag for unpaid bills. Regulators should work with utilities to place the full amount of these accounts into their cash working capital requirement, in rate-base, and treated as a regulatory asset with a special tracker over five years. This will help the utility industry by eliminating debt liability and directly support customers and businesses.
The equitable treatment of our disadvantaged communities will be remembered long after the crisis has abated. This approach proves superior to blanket rate reductions, which have already been enacted in some jurisdictions, since it importantly targets the critical customer segments without damaging the long-term financial health of our nation’s electric utility industry
3. Accelerate planned maintenance
We may never again experience such a sudden and sustained reduction in power demand. Electrical system assets are underutilized, which allows vertically integrated utilities to take power plants offline, and distribution utilities to do urban substation and line maintenance in ways that would be unthinkable with an economy at traditional levels.
Utilities should propose acceleration of planned maintenance programs to increase employment during the COVID-19 period and recovery, while following the appropriate worker safety protocols. And regulators should expedite evaluation, especially if part of already approved programs or capital plans.
4. Provide targeted incentives for relocation of strategic manufacturing
Our nation’s vulnerability to global supply chains has been exposed by the crisis.
Combined with recent trade tension and the erosion of labor cost differentials due to rising foreign wages and increased automation, multiple industry sectors are actively exploring repatriating their supply chains. Electric utilities’ historical and future investments in renewables and efficiency can help attract new manufacturing to their service territories.
Increasingly, renewable power supply, resilience through grid investment, storage and software, and incentives to secure low cost electricity to lower companies’ energy bills and greenhouse gas footprint compare favorably to manufacturing in countries like China that rely on coal-fired generation.
Industrials can also take advantage of the United States’ abundant renewable energy resources to economically convert green electricity into hydrogen and methanol. These can serve as high energy intensity fuel for heavy and medium duty vehicles and trains, energy storage, and as a carbon-neutral input for plastics and chemicals production.
As in the case of EVs, utilities are ideally placed to solve the coordination issues required to catalyze green-energy manufacturing hubs, creating local jobs and revitalizing communities.
How the electric utility industry and its regulators perform during this crisis is essential to preserving and enhancing our nation’s economic development. If we engage in proactive partnerships now to provide much needed support to our businesses and communities, we will emerge stronger.