Already grappling with fierce headwinds that include upgrading and hardening their chronically aging grids in the pressing interest of resilience, U.S. electric utilities have grown to know one of the few certainties is the uncertainty of regulation. The sector got another jolt of that in April, when the U.S. Environmental Protection Agency unveiled four new major regulations targeting coal and natural gas plants that the EPA insisted would give “regulatory certainty” to the industry and nudge them to invest in transitioning “to a clean energy economy.”
One of the measures requires that existing coal and new natural gas power plants deploy carbon capture and sequestration. The move was quickly questioned by industry groups such as the National Rural Electric Cooperative Association, whose CEO, Jim Matheson, warned that the power plant pronouncement would “limit construction of new natural gas plants just as the power sector is facing a surge in demand from factors like transportation electrification and the rapid expansion of data centers to support artificial intelligence, e-commerce and cryptocurrency.”
“This barrage of new EPA rules ignores our nation’s ongoing electric reliability challenges and is the wrong approach at a critical time for our nation’s energy future,” Matheson added.
In a heavily regulated industry with so much on its plate, this development punctuates how business-altering regulations can arise and alter market dynamics, underscoring the uncertainty reflected in Black & Veatch’s 2024 Electric Report — expert analysis of survey responses from roughly 700 U.S. electric sector stakeholders.
The challenging regulatory landscape continues to stoke angst, compounded by the uncertainties that come with November’s presidential election and the transformational changes reshaping the market.
The proof: More than half of respondents — 54 percent — see regulation as challenging now, with an additional 26 percent defining it as “somewhat challenging.” While devoid of a crystal ball, a little more than one-third expect regulations to be challenging in three years and 36 percent anticipate it to continue to be a challenge in the next half decade.
In an industry where federal and state regulators hold so many cards, respondents asked to rank their challenges cited environmental regulations second only to access to capital
investment, with economic regulation — rates — placing sixth, behind grid stability, reliability and the nagging challenge of dealing with an aging infrastructure.
With an evolving regulatory landscape across the United States, planning by utilities exploring needed upgrades to make grids more accommodating of surging renewable energy sources and more resilient to extreme weather events fueled by climate change has never been more challenging.
Without question, utilities appear to understand who holds the hammer, with respondents putting regulators at the top of the list of stakeholders who provide their enterprises with the most motivation to make climate change-related investments, edging out end users.
While many electric utilities see merit in bolstering their infrastructures’ climate resilience, the difficulty in recovering that cost from ratepayers likely to object to the prospect of paying more for their electrons keeps such projects from being viable, no matter the utility’s commitment to it.
On that front, respondents asked to identify their biggest hurdles to obtaining investment to harden their systems against climate change events put affordability (55 percent) atop the list, followed by — you guessed it — regulatory scrutiny (38 percent) and difficulty in modeling future weather events and their impact on assets (33 percent).
Looking ahead over the next three to five years, the top concern among survey respondents about grid development included 32 percent pointing to the lag in getting regulatory approvals for system changes, matching the results from last year. That only was trumped by the generation mix with fewer traditional baseload units and more utility-scale renewable sources (46 percent) and lingering post-COVID supply chain issues for equipment (36 percent).
As Black & Veatch has noted in the past, it’s hard to predict the future. As the proliferation of such energy-intensive data centers accelerates, load forecasters have a burdensome job, and their predictions can drive billions of dollars in investments, resulting in changes to the electric rates paid by residential and commercial customers. Estimate too high, and a utility has stranded assets and unnecessarily high rates. Estimate too low, and the utility risks not having enough power to serve its diverse customer profiles.
Add regulatory uncertainty to the mix, and the path forward becomes numbing in an environment in which nothing is clear or guaranteed. That might help explain why many U.S. electric utilities remain passive about investing in grid upgrades — especially those related to climate action — without clarity on how they can recover those costs.
