Utility industry transformation
by Mitchell L. Keel
Changes taking place within our industry are transforming your experience as electric cooperative members. For decades we have relied on central generation sources to supply power to homes and businesses, and that generation fleet has grown and become more efficient. We now are encountering two primary forces causing dramatic and costly change to the generation fleet. These forces include increased regulatory pressure, primarily from the Environmental Protection Agency (EPA), and the successful production of shale natural gas.
EPA's regulations may severely restrict the use of fossil fuels at generating plants, and could virtually eliminate construction of new coal-fired plants. As the workhorse for decades, coal-fired plants combined with nuclear energy have allowed us to keep retail rates affordable and stable. But by 2020, approximately 20 percent of existing coal generation capacity will be retired. That is a lot of kilowatt-hours that we're going to have to make up somehow. We have been fortunate to have in the interim a supply of natural gas. In recent years, natural gas pricing has been lower and less volatile than it had been, which is good for rate stability.
The source of natural gas has changed as well. Shale natural gas — trapped in natural rock formation several thousand feet below ground — is being produced in large volumes. The technological breakthrough of directional drilling has allowed companies to cost-effectively extract shale gas. In the 1990s, shale gas was an insignificant part of the total U.S. natural gas production, but today it makes up approximately 34 percent. As the generation fleet transitions to more natural gas, however, retail rates will increase. It is the natural supply-and-demand curve: as we desire more natural gas, the price will go up.
While we have natural gas, however , we don't have sufficient pipelines to get it to us. We may pay a reasonable price for gas, but we're also paying about 15 times that price just to get it to us. That's a bottleneck that needs to be solved.
We are fortunate in North Carolina — because of sizable nuclear energy in our portfolio — that retail costs have been low compared to neighboring states. Besides natural gas, other non-traditional energy sources will round out our portfolio, such as solar and wind resources. The pace of growth will be dictated by legislative policies and incentives. Currently, less than 5 percent of electricity needs in the U.S. are met by solar and wind. We are seeing a dramatic increase in available renewable energy, but we still must meet 95 percent of the needs by other means. We're going to need nuclear, natural gas and coal.
As members, your engagement always has been welcomed, but now there are new ways. You care about how much you pay for energy, how much you consume, how you can become more efficient. Co-ops are showing how energy-efficiency helps you manage your costs. And they are integrating technology that makes your engagement more meaningful, such as real-time outage and restoration information. You can monitor your usage in real-time, too. Flexible payment options, including pre-paying for your power, are other tools that can help members manage their budgets.
You can rely on your cooperative to be a trusted energy provider and to manage its own business efficiently. Today's technology, flexibility and member engagement can help mitigate increases we are seeing in costs.