Balancing essential utility infrastructure investment with customer affordability

Electric utilities are entering an era of growing investment opportunities following a decade of low load growth. However, there is increasing evidence that regulators are growing more concerned about the impact on customer rates and looking for opportunities to moderate the growth in utility investment and associated rate increases. As a result, it is increasingly critical for utilities to demonstrate both the necessity for near-term investment needed to meet anticipated load growth and clean energy requirements, and voluntary targets. It is equally critical to clearly demonstrate the benefits of utility ownership of generation versus third-party ownership.

Outages associated with severe weather patterns are also creating pressure to prioritize grid resiliency relative to enhancements to support the clean energy transition. Resiliency has a direct, positive impact on grid performance and customer satisfaction but typically requires a large capital expenditure (CapEx) investment to provide an immediate benefit. Utilities need to be more detailed in quantifying the benefits of the proposed CapEx and justifying both the necessity and that the utility is putting forth the least-costly solution. Given capital constraints it is also critical to have a clearly articulated approach and transparent process to prioritizing needs and identifying which investments have critical timing drivers. Finally, an additional element of addressing customer affordability is ensuring that the utility is maximizing the benefits available from federal programs.

Recent industry increases in CapEx spending have significantly exceeded load growth creating upward rate pressure, which is anticipated to continue, creating record rate increase requests. PA Consulting’s forecasts indicate that on average across the U.S. there will be 11.5% load growth over the next decade, with some utilities experiencing much more load growth than the average. However, investor-owned utility CapEx increased on the order of 19% between 2023 and 2022, and CapEx is expected to keep increasing with CapEx exceeding depreciation by more than 160% based upon a recent analysis by Regulatory Research Associates.

Read the full article in POWER Magazine