Transmission Transition

Ohio-based American Electric Power (AEP) is pushing ahead with a range of generation and efficiency options as well, but the company also wants to change the way we think about the nation's electric transmission system. Today, the transmission system requires upgrading. At the same time, it is a regionalized system, with bottlenecks between renewable or lessexpensive generation and the areas that need it.

An interstate transmission system would revolutionize the utility industry, much as the nation's interstate highways did for the transportation sector, says Michael Morris, AEP's chairman, president and CEO. Only with such a transmission system can the nation truly tap into the promise of wind and solar power. Both resources offer vast potential, but generally are located far from load centers. In other words, without transmission to move the electricity from where it is generated to where it is needed, the resources are essentially unavailable.

Beyond renewables, an enhanced grid would significantly reduce transmission congestion, which has become an increasingly serious issue in California and the eastern U.S. When transmission systems are congested, planners cannot take advantage of nearby excess resources and must plan as if their system were an island. As Morris explains it, if one region believes it needs three new power plants to maintain a safe reserve margin (the amount by which a utility's total capacity exceeds maximum electricity demand), and a neighboring region believes it needs two plants, together they may need to build only four of those plants, perhaps even three — if they are connected to a robust transmission system.

"How Congress addresses climate change is the overriding issue for the utility industry. The technology will be there to cut carbon emissions, and the technology will work; but we need to be realistic about the potential costs. It is not going to be free."

Michael Morris, Chairman, President and CE O of American Electric Power

These are exactly the problems AEP hopes to solve with its interstate transmission plans, which Morris says have started to "gain a lot of traction" across the industry among people who understand the importance of a robust grid for meeting both U.S. energy and environmental needs.

Much remains to be done, however, particularly as transmission lines that cross state boundaries and benefit consumers outside the area where the lines are located tend to be controversial and difficult to site. Here, Morris says, industry, regulators and policy makers need to work together to ensure that local opponents aren't able to derail proposals that make sound economic, energy and environmental sense on a regional or national level.

"We need to get serious about our needs," he adds. "It is not going to be easy, but working together, we can get it done."

Considering Carbon Constraints

Controlling carbon effectively is high on the list of priorities for utilities. While it's also high on the list for the next U.S. President, he will have to focus first on the economy, says Morris.

The industry understands that the nation must ramp up its actions to reduce CO2 and that it needs the right solutions and approaches to do so. Utility companies want to address carbon without causing harm to consumers, damaging an already weakened economy, or jeopardizing the supply of affordable, reliable electricity.

The industry also desires the certainty that comes with legislation, and Morris wants to see policy makers and the industry continue their discussions and draft policies that achieve the nation's environmental goals while ensuring that the lights stay on at a reasonable price.

"How Congress addresses climate change is the overriding issue for the utility industry," says Morris. To date, he adds, policy makers have often been unrealistic about the costs.

"The technology will be there to cut carbon emissions, and the technology will work," he continues. "But we need to be realistic about the potential costs. It is not going to be free."

Southern's Ratcliffe is equally optimistic about the promise of technology, again advocating a full portfolio of options — efficiency, renewables, nuclear, gas and clean coal technology with CCS. The latter can be ready for commercial use in the 2020 to 2025 time frame, he says.

While optimistic, both Morris and Ratcliffe caution that the industry must make it a priority to educate policy makers, regulators and consumers alike — particularly as climate change legislation is being drafted.

The industry, Ratcliffe argues, must make sure regulators and policy makers "understand what we can do, when we can do it, and what the cost is.

"This is a long-term business," he says. "We desperately need a long-term energy policy."

What's Next?

In every industry sector, the current financial turmoil and credit crunch are reasons for concern. Electric utilities may have an edge, in that theirs is currently a well-capitalized industry with lots of "iron in the ground." Electric companies have generally high, steady credit ratings. Their borrowing has a much higher equity portion, lessening the leverage exposure. When investors make the flight to quality, one of their traditional destinations has been the electric utility sector.

The current credit crisis is not likely to end soon, and utility executives need to add capital availability, the increasing cost of capital and economic uncertainty to their list of concerns when making future investment decisions. At the same time, while Congress and the new presidential administration will undoubtedly be preoccupied with economic concerns early in the new year, the debate over climate change legislation is likely to continue, meaning utility executives must factor greenhouse-gas emissions issues into their investment decisions.

But long-term electricity demand — the current slowing economy notwithstanding — is almost certain to continue its steady upward climb. Increasingly electricity-intensive households and a growing population will see to that.

Accompanying that climb will be new technologies, new and less carbonintensive ways to provide electricity and new ways for customers to use it. The investment may be high, but the future is bright. And electric companies have begun the transformation.

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