Research Stories

by Carrie Barnett

Electric utilities are in the business of selling electrons. The more they sell, the more they earn. But today, a whirlwind of forces is sweeping electron sellers into counterintuitive activities. They actually are promoting conservation and offering rate structures designed to cut peak consumption. In other words, utilities are asking customers not to buy quite as much of the product they produce.

This practice appears environmentally altruistic. But utility companies may have more than planetary stewardship in mind. Kerry Smith is professor of economics at ASU's W. P. Carey School of Business. Smith says that smart utilities are getting behind moves to solve the climate issue.

"They'll say they've turned Green," he says, "but it's actually a practical business strategy."

At issue are global warming and the electric-utility industry's hefty impact on that phenomenon.

Carbon dioxide represents almost 84 percent of total greenhouse gas emissions in this country. That number comes from the U.S. Environmental Protection Agency's most recent greenhouse gas inventory. In 2005, electricity generators spewed out 41 percent of the country's CO₂ emissions.

Global warming concerns will likely lead to more regulation of electricity generation. But cutting consumption is easier said than done.

People are using more energy today than ever. They have more household computers, printers, TVs, VCRs, and other machines and gadgets than ever before. Many of these devices operate with a stand-by mode. They never truly quit drawing electricity. The stand-by mode eats between 4 percent and 10 percent of an average home's electric bill.

In response to regulatory uncertainty, utilities are jumping on the Green bandwagon. Conservation programs and technology deployments are just some ways utilities are meeting their uncertain future.

One solution is participation in the Chicago Climate Exchange (CCX). This is the world's first market for trading allowances of greenhouse gas emissions. Another solution is pricing schemes that often involve time-of-use rates that expose end-use customers to the higher peak electricity rates utilities face.

No longer is the utility line: "Buy more electrons." Instead, utilities are urging consumers to buy less, and use power much more prudently.

This story was excerpted from the Knowledge @ W. P. Carey web site. To see the full article or other stories from ASU's W. P. Carey School of Business, go to: http://knowledge.wpcarey.asu.edu