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ACEEE: Reports of Utility Death Spiral Greatly Exaggerated

Leon Walker

ACEEEMuch trumpeted fears of a “utility death spiral” are unfounded, according to the American Council for an Energy Efficient Economy.

The combination of improved energy efficiency with the growing use of solar electric systems and other forms of “distributed energy” has reduced utility growth rates. According to what the ACEEE terms industry “alarmists,” this scenario means that utility sales could plummet, requiring utilities to raise rates so they can recoup their fixed costs (such as the cost of the current distribution system), and these rising rates would drive additional customers to leave the system, a phenomenon they call a death spiral. This is gross exaggeration of the problem, according to ACEEE’s report The Utility of the Future and the Role of Energy Efficiency.

However, the industry and their regulators will need to make substantial changes in the next few years in order to continue providing quality service at a reasonable price, while providing utilities reasonable returns on their investments, the ACEEE says.

The study examines three potential sales scenarios, employing increasing levels of energy efficiency, solar electric power and electric vehicles. The most extreme scenario includes levels of energy efficiency now being achieved in only a few states plus the use of solar electric power that eventually uses nearly all available roof space. Under this extreme scenario, national electricity sales decline about 10 percent by 2040, an average reduction of 0.39 percent per year. Under a more likely mid-range case, sales grow 0.04 percent per year, while under the reference scenario, developed by the Energy Information Administration, sales grow 0.7 percent per year, the report says.

In April, New York Gov. Andrew Cuomo unveiled plans for an energy modernization initiative that he said will fundamentally transform the way electricity is distributed and used in New York State, hopefully avoiding the death spiral.

Under the Reforming Energy Vision initiative, utilities will actively manage and coordinate a wide range of distributed resources or generate electricity from many small energy sources and link them together. The initiative will also improve the retail and wholesale markets and assure the success of energy efficiency and clean energy programs, according to the Governor.



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