Deloitte Survey: Electricity Costs Are Up — But Ability to Pay Is Down

Utility Regulators Concerned About Consumers' Pocketbooks

Nuclear Power Seen as More Effective than Renewable Energy at Combating Climate Change

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Jun 07, 2010, 09:15 ET

WASHINGTON, June 7 /PRNewswire/ -- More than three-quarters (85 percent) of state energy regulators responding to an annual survey expect the cost of residential electricity to increase next year, according to the Deloitte Center for Energy Solutions.

The survey, which Deloitte conducted earlier in the spring, also found a growing number of surveyed regulators fear rate increases will be financially onerous on the public. More than a third (34.3 percent) felt that consumers would not accept any rate increase at all — up from 23.3 percent one year ago. Moreover, while 53.3 percent of surveyed regulators last year said that the public would accept a five percent rate increase, this year that number dropped almost 20 percentage points to 34.3 percent.

"Our survey demonstrates that state utility regulators are increasingly cognizant of electricity costs and the burden they represent on the average consumer," says Branko Terzic, energy and resources regulatory policy leader for Deloitte.

Terzic, previously a state regulator and a former commissioner with the Federal Energy Regulatory Commission (FERC), explains that most surveyed regulators (65.7 percent) expect rate increases because of rising environmental costs, while many (48.6 percent) also believe they will be linked to capital costs.

He goes on to point out that surveyed regulators see the high costs associated with renewable energy sources as a significant impediment to their adoption. "The vast majority of commissioners (68.6 percent) this year listed 'high prices to consumers' as the leading barrier to more renewable energy. This is a 10 point increase over last year's 58.3 percent number."

Exploring another issue that could have a dramatic impact on the consumer's pocketbook, Deloitte's survey looked at the regulatory preferences for 'time-of-day rates,' a concept that would allow utilities to adjust the rates they charge consumers throughout the day depending on demand peaks and dips. Of the regulators responding to the survey, 60 percent reported that they were considering 'time-of-day' rates for their rate payers. And, when asked 'whether they believed that time-of-day should be considered,' 82.9 percent responded by saying 'yes.'

"Clearly," commented Terzic, "regulators are interested in time-of-day rates as way for the public to benefit from cheaper access to energy, especially in light of the current economic downturn."

Nuclear Power Still Popular, Clean Coal Gaining Support

In addition to issues related to energy and the economy, the survey also looked at the future of nuclear power in the United States. It found that surveyed regulators continue to rank nuclear very high as a way to reduce greenhouse emissions, with 45.7 percent ranking new nuclear power as being 'extremely effective' in the reduction of carbon dioxide emission, just behind end-user efficiency (51.4 percent) — and well ahead of renewable power sources (17.1 percent).

The survey also asked regulators about the growing interest in 'small nuclear reactors,' diminutive versions of traditional reactors that are believed to be far less costly and time consuming to build. A significant majority (62.9 percent) of polled regulators indicated that, 'yes,' small reactors would be an 'attractive alternative.'

Terzic says that the enthusiasm for nuclear power is "no surprise" and is also consistent with the survey's findings in previous years. What is surprising, he says, is the strong showing for clean coal, which is viewed with skepticism by vocal opponents.

"This year's survey shows that 61.8 percent of commissioners feel that carbon capture and sequestration is extremely or moderately effective, up from 44 percent last year — and ahead of renewable power sources, which scored 40 percent using the same criteria," says Terzic.

"The bottom line," he says, "seems to be that regulators are open to a number of options to address concerns like greenhouse gas emission, but they want to make sure the public is not asked to take on overly burdensome costs. The real question is how these priorities will change as the economy begins to improve."

About the Survey

The survey was commissioned by Deloitte and conducted by an independent research company between April 14 and May 10, 2010. The survey polled a sampling of 35 state utility commissioners from across the nation.

About the Deloitte Center for Energy Solutions

The Deloitte Center for Energy Solutions (Center) provides a forum for innovation, thought leadership, groundbreaking research and industry collaboration to solve the most complex energy challenges. Through the Center, Deloitte's Energy & Resources group leads the debate on critical topics on the minds of executives — from legislative and regulatory policy to operational efficiency to sustainable and profitable growth. The Center provides complete solutions to Deloitte's clients through a global network of specialists and thought leaders. With locations in Houston and Washington, D.C., the Center offers interaction through seminars, roundtables and other forms of engagement, where established and growing companies can come together to learn, discuss and debate. For more information, see www.deloitte.com/energysolutions.

About Deloitte

As used in this document, "Deloitte" means Deloitte LLP and Deloitte Services LP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

SOURCE Deloitte