ACEEE: No Utility Death Spiral, But…

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spiralThe much-hyped utility death spiral may be just that – much hyped. Still, the patient better make some changes to keep up good health.

That’s the message in “The Future of the Utility Industry and the Role of Energy Efficiency,” a new report by the American Council for an Energy-Efficient Economy.

The death spiral refers to a phenomenon that occurs when utilities lose sales because of declining demand. This is now occurring as energy efficiency and distributed generation gain traction on the grid.  As the theory goes, utilities will need to raise rates to make up for lost revenue and cover the cost of new infrastructure. This will cause more customers to buy less energy, eventually sending the utility into an economic tailspin.

But the numbers don’t support this dire forecast, says the report by Steven Nadel and Garrett Herndon. Even in a worst-case scenario calculated by ACEEE – a 10 percent drop in energy use from 2013-2040 – the industry would not experience a death spiral.

Still, this would represent a “very significant” decline for an industry that has historically relied on load growth to fuel profits, the report said.

“Our key finding is that a utility industry with substantially increasing sales is unlikely, but a death spiral is also unlikely,” said the report.

To keep utilities healthy and service strong,  the industry and regulators need to rethink the best ways to earn a return on investments. What might these be?

After examining more than 60 reports and interviewing about a dozen industry experts, ACEEE offers as vision of how to prepare utilities for what is likely to be a bumpy transition to a new mode of operation.

“Our report recommends that utilities offer optional energy-related services to their customers, including energy efficiency and technical help and financing for larger customers installing and operating high-efficiency combined heat and power systems,” Nadel said in a recent blog about the report. “Such efforts can contribute to utility profits, reduce customer bills (since consumption is lower) and also provide services that customers value, positioning the utilities to offer additional services.”

The report also identifies what not to do. If you’re in a hole, don’t dig deeper, Nadel said.

“If sales are level or declining, then utilities and regulators need to be careful of investing too much in new generation, transmission and distribution,” he wrote.

The report offers some optimism for an industry that has been mired in worry about the future. Even as demand for their product falls, utilities can still earn a profit, customers can still enjoy reliable service at reasonable cost, and the environment can benefit – if utilities and regulators get the rules right now, says the ACEEE report.

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Elisa Wood About Elisa Wood

Elisa Wood is the chief editor of She has been writing about energy for more than two decades for top industry publications. Her work also has been picked up by CNN, the New York Times, Reuters, the Wall Street Journal Online and the Washington Post.


  1. An issue on the specific here is that if Utilities invest in Co-generation (an industry which in the Europe has an appalling track record on delivery as specified) they will be lead to install plant where heat load is greatest. Consider two prospect sites – A , B identical in purpose and plant but B has far poorer boiler controls and so exhibits greater fossil fuel heat load.

    Our well meaning utility should size and install at A where the heat load cannot be otherwise mitigated, They will be drawn to install at B where they install bigger plant (for the same mitigation gain) but thereby eliminate any benefits in reducing the heat load at B (ie operating more efficiently).

    Until the CHP/Cogen industry shows effective sizing and self-regulation so that installation is based on sustituting otherwise efficient heat sources (which by its nature must extend the life cycle) it will under-perform and often be detrimental. In a retro-fit environment I have yet to see a well considered project.

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