At best, the U.S. electricity industry is operating under an obsolete business model, the CEO of the Electric Power Research Institute (EPRI) told a Houston audience last Wednesday. But instead of the back-to-basics strategy now being advocated, it should transform itself for the future, said Kurt Yeager.

Yeager, keynote speaker on the opening day of the Energy Risk Congress last week, said that the Aug. 14 blackout in the Northeast was a “wake-up call” to the industry that its present course is unsustainable.

Unable to adequately explain its mission or its need to increase spending, a growing tension has been created between the electricity sector and the “national well being,” Yeager said. The public expects switches to turn on when they want them turned on, but Yeager, who runs the non-profit EPRI in Palo Alto, CA, said consumers don’t understand the value of being able to perform that simple task.

“Now there is a total preoccupation with costs,” Yeager said. “but you can’t save your way to prosperity,” he told the delegates. “It’s unsustainable…and subtle outages drive our costs.”

Using figures to illustrate where it stands in comparison to other industrial sectors, Yeager noted that the electricity industry ranks at the very bottom of all U.S. sectors in research and development spending. EPRI estimates that the electric industry only spends about 1% of its overall budget on research, fueling the “credibility gap between the vision and the reality” of electric service.

On a relative basis, consumer prices overall have gone up 20% since 1950 — except for electricity, which is down 20%. “We are sucking the sinew out of the industry,” he said. However, “electricity is not at risk. The issue is, who will provide it [and] at what means?”

In that regard, Yeager noted that the repeal of the Public Utility Holding Company Act (PUHCA) by Congress could be good or bad. If the goal is simply to increase acquisitions and mergers, it was the wrong step, he said. “Are we looking for marginal cost reductions or value transformation? There’s not much there if the goal is more acquisitions. But if it is to look to change industry with new blood, new direction,” that would be worthwhile.

Instead of focusing on a back-to-basics approach, Yeager suggested that power interests use a “forward to fundamentals” approach. “You can’t go back to the good old days. They are gone. We have to realize the opportunities. Electricity is a consumer service-based enterprise. It is no longer a declining-cost commodity.”

Technological innovations already are transforming the industry, and they hold the key for the future, Yeager said. He listed several “transformations” that EPRI considers vital to carry the electric industry into the future, including digitally controlled power systems, which are already on the market. Industry also has to “transform the meter box” into a two-way consumer service portal, where the consumer controls when and how much power is used.

“We have to directly engage consumers and sell the value proposition,” Yeager said. “We have to change the business model if the industry is to survive and base it around service, not costs.” Now, he said, industry players are fighting over a “shrinking pie.” Instead, he suggested growing the pie. “If the future looks like the past, there is no future.”

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