Not-So-Strange Bedfellows: Big Tech And Electric Utilities
The most useful takeaways from industry and investment conferences are rarely listed in the program or highlighted in presentation slides. They’re the nuances you can only pick up by attending, keeping your eyes and ears open while you’re there, and then taking the time to reflect critically on what you’ve seen and heard.
My eureka moment from last year’s edition of the Edison Electric Institute’s financial conference occurred during a panel discussion on technology.
At the time, a growing consensus suggested that electric utilities faced fierce competition from distributed solar power. But reviewing quarterly results for the more than 200 companies covered in my Utility Report Card made me confident that utilities were winning the war–a defensive struggle with limited upside.
However, comments from SunPower Corp’s (NSDQ: SPWR) CEO playing up the construction of large-scale solar-power installations, primarily in partnership with electric utilities, piqued my interest immediately. The executive barely discussed rooftop solar power and dismissed charges that the utility sector lacked technological savvy as “a myth.”
At that moment, SunPower’s sponsorship of one of the electric-power industry’s biggest events made sense. The war was over. Utilities had won, and the only salvation for SunPower and other component manufacturers was to butter up the victors.
In contrast, some of our favorite electric utilities have turned solar energy into a profit driver, investing in regulated and contracted generating capacity as well as the grid enhancements needed to accommodate variable power sources.
One of my takeaways from this year’s edition of the Edison Electric Institute’s financial conference also took me somewhat by surprise: Utilities have been talking to major tech companies about how they can better serve this important customer base. In contrast, SunPower’s only presence at the conference was as a logo on the swag bag issued to attendees.
In a panel entitled “Breaking Bad: The Customer’s Recipe for Utility Service,” the participants weren’t executives from the industrial giants like Caterpillar (NYSE: CAT) or Nucor Corp (NYSE: NU), but rather representatives from Facebook (NSDQ: FB) and Microsoft Corp (NSDQ: MSFT).
For most of the utility sector’s history, giant manufacturing concerns have been electricity generators’ most important customers-not only in terms of direct sales, but also the economic health of their service territories and for maintaining good relations with state regulators.
When major manufacturers expand their facilities and hire more workers, the local economy prospers, driving industrial and residential power sales. In contrast, when a major industrial customer shutters production capacity, sales take a hit across the board. To worsen matters, regulators may even retaliate against utilities.
Historically, industrial companies have focused on the cost of electricity. When utilities sought to recover the cost of capacity additions during the 1970s and ’80s construction boom, industrial ratepayers revolted in the 1990s and push to deregulate electricity markets and open them up to competition.