Dive Brief:

• The top issue in Utility Dive's 2020 State of the Electric Utility (SEU) Survey — listed by 46% as one of their organization's most pressing issues — was renewables, sustainability and the environment — a broad category covering fossil fuel plant retirements, reducing emissions, accommodating more rooftop solar and electric vehicles, adapting to a changing climate and more. 
• The report cites a changing fuel mix as critical to two top utility priorities — reducing emissions and operating more efficiently. The top challenge associated with such a change, and cited by nearly 60% of respondents, is rate impacts to customers, followed by political/regulatory uncertainty (45%) and reliability of new resources (39%).
• The report delves more deeply than previous years into three critical areas for the power sector — cybersecurity, transportation electrification and resilience to the effects of climate change — finding some notable discrepancies in respondent views on the first of those as well as stranded assets.

Dive Insight:

The power sector is subject to a host of interconnecting forces creating broad changes to how utilities operate. 

"In previous years, our survey asked about these issues separately, which did not fully clarify how much utility decisions were affected by consideration of environmental impacts. This year, it’s clear that the future of energy is inextricably tied to environmental awareness," the SEU report notes.

At the same time, the report shows, opposition to environment-related changes is low, with only 4% of respondents saying utilities shouldn't pursue electrification of transportation and fewer than 9% saying that decarbonization is "not an appropriate power system or energy policy goal."​

In reviewing responses to the 29 questions and multiple topics covered in the survey, a number of items stood out.

Cybersecurity, stranded asset discrepancies

One of the most surprising ambiguities, the report notes, is the discrepancy between respondent views about their organization's overall level of cybersecurity preparedness and the percentages taking specific cybersecurity steps.

Some 84% of respondents believe their organizations are fully or mostly prepared to deal with cyber threats. But only 52% said their organizations are promptly upgrading and patching systems and almost one third said they may not be in compliance with core requirements, such as the North American Electric Reliability Corporation’s Critical Infrastructure Protection standard. In addition, "less than half said their organizations are currently establishing procedures to ensure or test the security of integrated third-party systems," the report says.

When it comes to cybersecurity, utilities may feel good about what they've done to date, but when they get to the details, they realize there's more to do, Marlene Motyka, US and global renewable energy leader at Deloitte, told Utility Dive.

Another topic that stood out for the discrepancy in responses was stranded assets.

While only 18% of utility respondents said stranded assets and generation retirements were a top concern for their organization and 14% cited them as a major challenge for changing their fuel mix, the "cost of transition to ratepayers, including stranded assets, remains the number one challenge to evolving the utility business model, cited by 45% of utility participants," the report says.

While some regulators remain concerned about the financial risks of stranded assets, "utilities in some states may feel more confident managing these risks because of new financing strategies posed for coal plants, as well as continued low natural gas prices nationwide," the report adds.

In addition, as Edison Electric Institute General Counsel Emily Fisher recently told Utility Dive regarding the potential for new gas plants to become stranded assets, utilities have "probably made some sort of commitment on their own about emissions reductions and so they don't do that without having crunched all the numbers."

Solar at the top; PBR preferred, but not alone

The report covers a wide array of topics impacting the sector, from load growth to regulatory models, distributed energy resources (DERs) to electric vehicles. Here are some highlights:

• Some 50% of utility respondents expect their organization to significantly increase the amount of grid-scale solar over the next decade, a stronger forecast than for any other resource, including wind (nearly one third) and DERs (28%).
• As DERs grow and utilities have more difficulty recovering fixed costs, the top solutions, both cited by 43% of utility respondents, are to move all consumers to time-of-use rates, and to increase fixed charges and fees. In terms of how utilities can build a business model around DERs, the top strategy, cited by nearly half of utility participants, is to own and operate DERs as a regulated utility via rate-based investments followed in second place by partnering with third-party providers to deploy DERs on the grid (46%).
• In terms of broader regulatory models, as in prior years, utility respondents had a strong preference for more performance-based regulation (PBR), with 32% favoring a hybrid model that combines cost-of-service and PBR. But only 12% of utility respondents favored a predominantly PBR model, a sharp drop from the 31% who supported that in last year's survey.
• Some 51% of survey respondents expect overall load on their system to increase while 39% expect it to remain steady and 10% see it declining. The Southwest & Texas is tops with 67% of respondents expecting load growth, followed closely by the Great Plains & Rockies at 66%, and the Mid-Atlantic last at 28%. Growth is expected to be strongest in the residential sector and slowest in the industrial.
• Some of that load growth is expected to come from electric vehicles. More than half of utility respondents said utilities should provide special rates for EV charging while almost half said regulated utilities should own and operate charging stations. Only 19% of respondents said their organizations haven't taken significant action yet on EVs and only 3% said utilities should not be involved with EVs.

Climate impacts and resilience

Climate considerations increasingly inform and impact utility activities, from changes in resource mix to grid hardening.

A January 2020 Moody’s report found Ameren, Xcel Energy, Dominion Energy and Duke Energy among those U.S. utilities facing the largest climate change-related risks.

Yet, despite the growing prominence of climate issues in the policy and business worlds, high-level utility attention to preparing for the potential impacts of climate change appears low, according to the survey. 

Only four in 10 respondents said "their top leadership fully supports climate resilience as a high organizational priority," according to the report, with that support highest in the Mid-Atlantic (57%) and the Northeast (50%).

Given the different severe weather events that various parts of the U.S. have experienced, Motyka said she'd expect that overall number to be higher. Part of the struggle might be understanding potential impacts to utilities from climate and what that means for resilience, she noted. Others who haven't been impacted yet possibly haven't thought about what they need to do differently with resilience than what they're already doing, she added. 

But while a minority cited resilience as a top issue, resistance to more action is low, with only 13% of respondents agreeing with the statement, “There is little/no attention or action on climate resilience at our organization” and 5% saying, “Our leadership is opposed to, or apathetic about, climate resilience measures.”

But beyond specific steps power providers are taking, such as hardening grid and substation assets (30%), to prepare for climate risks, the bigger question is whether there are regulatory structures to deal with investment risks like potential stranded assets related to infrastructure damage, Moody's Senior Analyst Jairo Chung recently told Utility Dive.