Tax reform caps a year of investment, evolution and emergencies for electric industry
Recently enacted federal tax reforms will benefit electricity customers and set the stage for continued growth and transformation of the electric utility industry, a key industry group told Wall Street this week.
Executives from the Edison Electric Institute, which represents investor-owned utilities in the United States, offered their annual assessment of the industry to more than 100 Wall Street analysts, bankers and investors in New York on Wednesday.
“Final passage of the Tax Cuts and Jobs Act in December was a win for electricity customers and enables our industry to make needed investments in our nation’s energy infrastructure,” said Tom Kuhn, president of the Edison Electric Institute.
The tax law, which went into effect Jan. 1, cuts the federal corporate tax rate from 35 percent to 21 percent, and state regulators across the nation have directed many utilities to pass those savings onto customers by reducing rates.
The law maintains the federal income tax deduction for interest expense for regulated electric companies and the federal income tax deduction for state and local taxes. It also keeps dividend tax rates low and “on par” with capital gains.
Kuhn said EEI’s members invest more than $100 billion each year in smarter energy systems and to transition to cleaner power plants. “So, maintaining ready access to capital markets and keeping the cost of capital low are important to meeting our investment needs.”
Demand for electricity continued to grow at a slow pace last year, slipping to its lowest point since 2009. At the same time, investment in plants, poles and wires is surging.
“For the sixth consecutive year, we expect another industry record, with total capital expenditures projected at $122.8 billion in 2017,” said Richard McMahon, vice president of Energy Supply and Finance at EEI. “Industry capital expenditures, which have nearly tripled since the cyclical low in 2004, continue to be an important growth engine for our industry. Our investments create jobs and make the energy grid more robust, more dynamic and more secure for all customers.”
Kuhn said the electric industry supports 7 million jobs, 5 percent of all jobs across the United States and the sector contributes about 5 percent to gross domestic product.
Electric vehicles represent one of the industry’s hopes for future growth. More than 750,000 electric vehicles travel the nation’s roads today, a number expected to grow to 7 million by 2025. The infrastructure needed to support this will include nearly 5 million charging ports, which utilities can install. More than a dozen EEI member companies combined are investing more than $350 million in initiatives to deploy charging infrastructure.
Infrastructure investment represents one of the top policy initiatives for the Trump ad-ministration in 2018 and EEI expects a plan will emerge from the White House soon focusing on permitting and siting reform, federal seed money to spur investment and assistance for transformational infrastructure projects.
“From a policy standpoint, we fully support streamlining and expediting the process for permitting and siting energy infrastructure — including transmission, natural gas facilities and pipelines and hydroelectric and other renewable energy facilities — to ensure that energy can get where it is needed, when it is needed,” Kuhn said.
Developing cleaner and more-diverse sources of energy will continue to represent a priority for the electric utility industry, Kuhn said.
Today a third of the nation’s electricity comes from zero-emissions sources, including nuclear, hydro and renewable power. And in 2017, for the second year in a row, natural gas surpassed coal as the nation’s main source of electricity. Kuhn said electric companies own the majority of solar generation across the nation and virtually all of the wind, geothermal and hydropower.
The industry continues to reduce emissions. At the end of 2016, the electric industry’s carbon emissions were 25 percent below 2005 levels. From 1990 and 2016 nitrogen oxide emissions were reduced by 82 percent and sulfur dioxide was slashed by 91 percent — all while electricity use rose 36 percent.
Trump has proposed repealing the Obama Administration’s Clean Power Plan, which was intended to reduce carbon emissions from coal plants and address climate change. Kuhn said EEI will submit comments to the Environmental Protection Agency regarding the repeal, urging the agency to develop a replacement rule.
“Regardless of the rule’s ultimate fate, it is important to remember that companies and states are transitioning their generation assets due to market and economic reasons, as well as customer and shareholder demands,” he said.
Electric grid security, reliability and resilience have become top priorities for the industry, Kuhn said.
The industry has established a “cyber mutual assistance program” modeled on the arrangements utilities use when they share linemen to restore service to storm-ravaged communities.
Through the cyber program, companies will help others restore critical computer systems after significant cyber incidents. “To date, nearly 140 electric and natural gas companies from all segments of the industry have joined the program, and we will con-tinue to expand and exercise it,” Kuhn said.
Mutual assistance factored heavily in 2017. More than 10,000 workers from 21 states responded to the destruction caused by Hurricane Harvey in late August in Texas and Louisiana. Weeks later, Hurricane Irma hit, prompting a response by more than 60,000 utility workers.
These and other disasters also tested the value of recent reliability investments in electric system technology.
“As millions across the country experienced the fury of Mother Nature — from hurricanes to wildfires — electric companies’ investments in grid-hardening efforts helped minimize power outages,” Kuhn said. “In addition, investment in and installation of smart sensors helped identify the source of outages when they did occur, enabling crews to restore power more quickly.”
More recently, an estimated 5,500 mutual assistance workers have been involved in rebuilding the Puerto Rico Electric Power Authority’s system following the destruction of Hurricane Maria.
“The efforts underway and EEI and among our member companies represent our industry at its best, pulling together with one goal in mind: to restore power to the people of Puerto Rico.” Kuhn said. “This is truly one team, one mission.”
On the regulatory front, EEI executives believe that current members of the Federal Energy Regulatory Commission are experienced and up to the task.
“The chairman sets the tone at FERC and Kevin McIntyre has the right mix of experience, intelligence and temperament to be a great leader of this important agency,” said Phil Moeller, vice president of the Business Operations Group and Regulatory Affairs at EEI. “This FERC, as constituted, has made it clear that it will take a pro-infrastructure approach to regulation.”
The agency will examine issues such as return on equity policy, transmission rates in New England and the Midwest and transmission incentives.
“By using natural gas to generate electricity, the electric industry is the largest customer of natural gas in our country,” Moeller added. “As such, we need additional pipelines to move gas where it is needed.”
In this context, McIntyre has ordered a review of its 1999 policy statement. “We see this as a positive step to ensure that the process of proposing and siting pipelines is done as efficiently and effectively as possible while respecting the rights of landowners and states.”
The Public Utility Regulatory Policies Act of 1978 (PURPA) turns 40 this year and Moeller said EEI is working with Congress, FERC and in the states to affect changes that recognize four decades of the industry’s evolution.
“It makes no sense to continue policies promoted through PURPA that require electric companies to buy power they do not need at prices far above market rates,” Moeller said.
