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The statute of the watchman always reminded me of risk and the assessment, warnings and solutions to what may be ahead. The watchman while surveying also was readied to take action to implement a plan.
How far from the stable outlook for the electric industry have we come. Extreme weather remains. Questions remain about will new technology evolve enough to resolve the choice of which fuel for generation to pick for lower emissions, affordability and reliability of service. Will tariffs on transmission and generation equipment exacerbate delays in the supply chain even more? Setting politics aside what federal policies will remain and what gets tossed. As an addendum to the industry outlook AGVP Advisory wrote only a few months ago here are a few additional trends which require watching and plans.
Risk 1- How much of the federal conservative agenda gets adopted. A watchman or watchwoman for the most part is indifferent to why but is responsible for planning how to manage the risks of whatever policy is adopted. The reason why the potential major shift in federal policy is a major risk is the implementation risks and impact on costs and reliability to customers.
In the Project 2025 Presidential Transition Plan, there are 100 recommendations regarding the electric industry including reforming Regional Transmission Organizations (RTO); eliminating numerous regulations relating to reducing carbon emissions and curtailing and ending clean energy projects funded under the Inflation Reduction Act (IRA). How this affects a utility's capital and operating plans differs by the circumstances and requires risk assessment. What long-term decisions are made have become more challenging and require more due diligence.
Risk 2-Extreme weather remains a risk that continues to strengthen. What makes for stability is plans for the unexpected and the will to carry out responses that protect. Despite the devastation in Los Angeles, the loss of life was contained and the community effort persevered. Still new lessons learned, and changes so impact of next weather event can be reduced are evident. Both federal and state involvement in recovery remains critical. Recent comments by the cabinet secretary to shift costs and responsibilities back to the states and eliminate the Federal Emergency Management Agency (FEMA) is a risk that needs focus.
Risk 3-Can electrification of economy take place without power diversity. Lack of investment in nuclear generation facilities; shutting down coal-fired units; questions about long-term adequacy of natural gas supplies; supply chain issues with key equipment components and rare earth minerals, point to disruption in the delivery of electricity, particularly at a higher demand level resulting from electrification of transportation and building sectors of the economy. Without the continuous flow of energy, the intermittent renewable energy plan cannot work. Capital planning now without technology certainty and without regulations that indicates cost recovery, it is only a matter of time this risk will be front and center. Individual utilities require planning to ensure the lowest cost and affordable plan is in place (easier said than done amidst the industry uncertainties).
Risk 4-Will data center expansion exhaust local control over costs and reliability. While there remains much to be uncovered about the benefits and costs of AI to average citizens, the development of data centers is a fact in most regions and have become a decision issue for many utilities. How to contain the risk to other customers from the large customer is a concern. Will the power-hungry data warehouse retard the progress of carbon emissions reduction.
These are a few risks amongst others that have now moved up the risk agenda. Missing the path of the developing pressures is like sleeping as a monster storm approaches. Like the watchman, assessment, then be ready with a plan.
Dan Aschenbach AGVP Advisory Agvpadvisory.com AGVP Advisory provides consulting services on assessment of strategic financial risks and credit impacts. AGVP Advisory, and its years of financial and credit risk assessment experience, can provide you with an external view of the risks facing your organization at [email protected].
This statute is on the inlet across from the Shrimp Box restaurant in Point Pleasant, New Jersey
