EECS4460.20A3.18.21.pptx
Power System Management
EECS 4460/5460-901
Lecture #20A
Utility Business Structures and Economics
Post-Pandemic Update
1
The pandemic impacted the industry, but the long-term fundamentals are likely unchanged
Impact has been significant, but arguably “temporary”
Potential increase in residential and reduction in commercial classes
Biden administration emphasis on net zero carbon will impact some
Companies are re-establishing investment platforms that can be supported by increased rate base
Recall the ratemaking fundamentals
Investors are looking for increased predictability and stability
Generation is viewed as higher risk
Many strategies fit public and political policy
There are still state-by-state variations on the political environment
The current climate for investing includes a stronger emphasis on new technologies
Renewables have strong universal support
Lower costs and improved efficiencies, especially in solar PV
Smart Meters, up to an including the Smart Grid, are benefitting from large sums of R&D money
Improved information, data management and increased control are customer priorities
Innovations in EV’s, self-driving vehicles, and storage are well-supported
Last Lecture Recap: Utility Financial Update
Recap: AEP Presentations – Fall 2019*
*54th EEI Financial Conference, November 10-12, 2019
Including company disclaimers
AEP Presentations – Spring 2021*
*March 2021 Investor Meetings, aep.com,
Including company disclaimers
ESG (Environmental, Social and Governance) Emphasis
*March 2021 Investor Meetings, aep.com,
Including company disclaimers
Regardless of all the changes, utilities are still viewed as a relatively conservative investment
Merchant generation opportunities are very limited
An essential service is provided – basically a “must have” product
Many parts of the physical system are old, needing replaced - often “rate based”
While growth is limited, other new investment opportunities are there
Often considered “recession proof”
While the risk profile of the sector is being reduced by the companies, there are investment risks
Increasing interest rates may stifle capital investment
A major event can impact the company e.g., California fires
A challenging state regulatory environment
Recap: Financially, Utilities are Reasonably Well-Positioned
Recap: The Dow Jones Utility Index is a Good Long-Term Measure (1928-2012)
Dow Jones Utility Index Since 2019
Update: DTE
Update: Duke (DUK)
Update: FirstEnergy (FE)
Update: Dominion Resources (D)
New Technologies and the Future Utility
R&D in the industry
Grid Modernization
The Smart Grid
Energy Storage
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