Utility titan plays harder as industry evolves

Will U.S. electric utilities become obsolete some day?

The idea may seem far-fetched given our reliance on massive systems of transmission lines and central power plants that deliver electricity to our homes and businesses.

But with the rapid spread of solar panels on residential and business roofs across the country, and the potential for breakthroughs in microgrids, storage systems and other technologies, the business model for electric utilities is coming under scrutiny like never before.

Among those dealing with the change is Tom Fanning, the CEO of Southern Company, the giant holding company for utilities in the Southeast.

"The answer's no, at least not in the near term," Fanning told me, following a talk to the Atlantic Council in Washington, where the question of utilities' potential obsolescence came up. "There will always be a need for infrastructure in our business."

But while big coal, nuclear and natural gas power plants, and the grid that ties them to markets, may still be essential, the industry is facing its biggest disruptions since Thomas Edison installed the world's first central power plant in New York in 1882.

Some of the most significant changes are occurring in electricity generation, where solar and wind energy are increasingly competing with fossil-fuel generation. As concerns over climate change grow and environmental regulations respond in kind, those alternatives are likely to play an even greater role.

That said, Fanning shares a widely held view that the biggest potential game changer for electric power is storage. Advances in batteries will make it increasingly feasible for utilities and consumers to stockpile electricity and reduce even more their reliance on traditional power plants.

Another important consideration for Southern Company and other utilities is infrastructure and, in Fanning's view, not simply the grid that connects his company to customers.

"We need to think differently about products and services, and think about the infrastructure inside a house, a business, a factory," he said. "That will allow us to think about (options for) distributed generation, storage, combined heat and power, heating and air conditioning systems, and the energy efficiency innovations that may come from creating servers for the home that will connect and manage Internet effects."

Among those Internet effects that Fanning says could have a big impact on home electricity consumption are "smart" technologies like the Nest Thermostat, the Google-owned device that adapts to the temperature preferences of home occupants, and adjusts heating and cooling accordingly.

Now, what sets Southern Company apart from utilities in much of the U.S. is its location in the South, where energy markets are still regulated and utilities are still integrated, providing generation, transmission and distribution. That situation makes it easier for Southern to spend billions of dollars on all forms of generation, including nuclear, coal and solar, than utilities in deregulated markets, and to do so with little or no competition.

And Fanning makes it clear he intends to participate strongly on all fronts, including in rooftop solar, though his company as yet does not install panels on buildings nor offer to lease them. Elsewhere in the U.S., solar capacity is growing at a record pace.

"We've got to have elements of offense and defense in everything we do," Fanning said. "I view distributed generation in the form of rooftop solar as an offensive strategy. If you want it, I want to sell it to you."

Asked if he would welcome competition from solar vendors like SolarCity, which leases systems to homeowners, Fanning replied, "I don't think I'd invite SolarCity in. I'd rather do it myself."

His remark just further aggravates proponents of competition in rooftop solar, who see Southern Company and other utilities as trying to keep that market to themselves, and their customers suffering for lack of choices.

"Utilities like solar they can own and control, and get guaranteed profits from. That's the main issue," Bryan Miller, the co-chairman of the Alliance for Solar Choice, a trade association for rooftop solar companies, told me.

Not surprisingly, Fanning doesn't see it that way.

"I think I can serve my customers better than anyone else," he said.

Bill Loveless — @bill_loveless on Twitter — is a veteran energy journalist and television commentator in Washington. He is a former host of the TV program Platts Energy Week.