As the grid becomes increasingly unstable due to age and extreme weather, utilities are ramping up spending on long-overdue maintenance and capital improvements
By Katherine BluntFollow | Photographs by Emily Elconin for WSJ
July 18, 2024 9:23 pm ETSAVESHARETEXT
Americans used to spend little energy worrying about whether the lights would come on at the flick of a switch, or how much that electricity cost.
For a growing number of people, those days are over.
Larry Hilkene, who moved from Indiana to a quiet Detroit suburb just over a year ago, has since had nine power outages, the longest one lasting 16 hours. In the same period, his utility company, DTE Energy DTE -0.51%decrease; red down pointing triangle, raised electricity rates and sought regulatory approval for another increase as it works to improve the reliability of its system.
Until recently, DTE used an antiquated tile map board to monitor its decades-old grid. When changes occurred on the system, an employee would use a 20-foot pole to place magnetic markers showing open and closed circuits. In 2022, DTE unveiled a massive digital display board to replace it, part of a major spending push to modernize the grid that will be shouldered, in large part, by customers.
Hilkene, who works in cybersecurity, wrote to regulators to express his opposition to paying more for what he considers subpar service. “I call it DT(non)E because they do not appear to be about energy,” he wrote, adding that he “cannot believe the abysmal state of power infrastructure here.”
Utility customers across the country are increasingly paying more for less-reliable service—a trend driven home by a massive heat wave that has triggered outages around the country in recent weeks.
Larry Hilkene has suffered through nine power outages since moving to a Detroit suburb just over a year ago.
Workers prepare to install a generator at Hilkene’s home.
Utilities from Michigan to New York and beyond are planning their largest capital investments since World War II as the grid becomes more unstable as a result of age and extreme weather.
After Hurricane Beryl made landfall last week outside of Houston and pummeled the city as a tropical storm, more than 2.2 million of CenterPoint Energy’s 2.8 million Houston-area customers were without power, marking the company’s largest-ever outage. CenterPoint took days to assess the damage and estimated it would take 12 days to fully restore power. The company this year sought regulatory approval to raise rates, which have remained relatively flat for the past 10 years.
Meanwhile, demand is poised to soar, with millions of electric vehicles and massive data centers powering artificial intelligence needing to draw power.
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Customers of roughly 17 large utility companies may see rate hikes above the rate of inflation between 2022 and 2027, according to Sector & Sovereign Research. Utilities have generally kept rate increases at or below the rate of inflation to reduce the risk of pushback from regulators and customers.
Note: Measures exclude outages lasting 5 minutes or less
Source: U.S. Energy Information Administration
Utilities say significant spending is needed in part to address serious reliability issues. Between 2013 and 2022, the nation’s utility companies recorded a roughly 20% increase in outage frequency, according to the most recent federal data. Outage duration increased by more than 46% over the same period, largely as a result of weather-related disasters.
During his first few power outages, Hilkene noticed something he hadn’t heard before in Indiana: the sound of his neighbors’ backup generators firing up. He surveyed the neighborhood, a community of three- and four- bedroom homes near a small lake and an equestrian center, to find that more than a quarter of them had installed natural gas-powered generators.
On a recent spring day, a team of five men arrived with a trailer and unloaded a Kohler backup power unit to install on the lush lawn beside Hilkene’s house. The generator cost him about $12,000, a sum he considers substantial but worth it to avoid future outages.
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When a mid-June thunderstorm briefly knocked out the power, Hilkene said he sighed with relief as he heard the generator start up.
Days later, more than 25,000 people were without power in his county as more storms battered the Detroit area.
Sharper rise
After years of relatively modest increases, U.S. electricity prices are on a sharper rise. Russia’s invasion of Ukraine in 2022 drove up the price of natural gas needed to fuel power plants. Gas prices have since receded, but rate increases are still accelerating as utilities invest tens of billions of dollars to stabilize the grid itself, and pass those costs onto customers.
Pedro Azagra, CEO of Avangrid, which operates utilities in New England and New York, said the company has substantially ramped up spending in recent years to address a range of reliability challenges.
“The problem that we have right now comes from decades of lack of investment,” he said. “You cannot catch up in one minute.”
U.S. electricity prices increased 4.4% over the past year, according to data from the Bureau of Labor Statistics, faster than the broader inflation rate of 3%.
Hugh Wynne, Sector & Sovereign’s co-head of utilities research, said gas price volatility, combined with higher interest rates and higher costs associated with replacing old equipment, is beginning to put pressure on rates for utility customers in regions where a substantial amount of work has been proposed. Some utilities aren’t expected to seek major rate hikes in the coming years, but he said the firm is tracking an unusually high number that are.
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Detroit’s power company is doing underground work to upgrade the outdated system of power lines and substations serving much of the downtown area.
“There were a lot of trends that were moving in a positive direction for the industry that are now going in the opposite direction,” he said.
Utilities are expected to invest more than $165 billion a year in 2024 and 2025 to make significant upgrades and replacements, according to trade group Edison Electric Institute, more than any year since the group began collecting data. Many utilities are also ramping up spending on routine activities such as maintenance and tree-trimming to reduce outages, and, throughout the West, wildfires caused by fallen power lines.
The need for work is spread throughout the country, with parts of the mid-Atlantic, the Midwest and California expected to see some of the steepest rate increases in coming years. Nationwide, large sections of the grid are decades old and need replacing, and labor and equipment have each become more expensive as a result of inflation and supply-chain snarls.
“Rates are going to go higher, and there’s not much you can do about it,” said Guggenheim analyst Shahriar Pourreza. “It’s kind of the new normal.”
Tree problems
Avangrid subsidiary New York State Electric & Gas, which serves much of the rural upstate region, has for years delivered some of the state’s least-reliable power. NYSEG failed a state target for outage frequency for the fifth consecutive year in 2023, regulatory filings show, though the company improved that metric last year.
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Trees were the primary reason. Some grow more than a foot each year, increasing the likelihood of contact with power lines.
NYSEG told regulators that it has struggled to trim trees frequently enough to maintain safe distances between lines and branches. A 2022 regulatory filing showed that in large parts of the system, vegetation hadn’t been cut in at least six years, if ever.
NYSEG is now spending tens of millions of dollars to improve its tree work. That spending, combined with investments to upgrade outdated substations, circuit breakers and other equipment, is projected to drive power bills up by about 22% between 2023 and 2025.
Avangrid’s Azagra said system reliability is faltering largely because of age, as well as more frequent storms and changing weather patterns that are stressing the trees and creating other hazards such as flooding.
National Grid linemen fix a power line during a snowstorm last year in Ballston Lake, N.Y. PHOTO: HANS PENNINK/ASSOCIATED PRESS
“If anyone says they don’t see that, come to me,” he said. “Come to upstate New York.”
In Oregon, Portland General Electric is investing heavily to upgrade the grid to withstand more extreme weather. The company has in recent years been working to reduce the risk of its power lines starting wildfires by burying certain circuits, trimming more trees and expanding its network of weather stations to monitor for risky conditions.
PGE is also preparing for an anticipated surge in demand to power new data centers and semiconductor manufacturing. The company last year significantly revised its expectations for industrial energy usage, telling regulators that come 2030, the need for additional power supplies could be more than 40% higher than earlier forecasts.
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CEO Maria Pope said many of the upgrades involve expanding system capacity to better distribute electricity supplies during periods of extreme demand, when power prices spike. The utility saw record summer power demand during a multiday heat wave last August. Eight months earlier, it saw all-time high winter power demand during an intense cold spell, breaking a record set about 25 years earlier.
PGE this year raised residential rates by about 17%. The company is seeking regulatory approval for another 7.2% increase next year.
Pope said the company needs to work with state and federal regulators to determine how to better manage costs and reduce the burden on customers as the utility completes the most substantial system overhaul in decades. She likened the spending need to the initial build-out of the electric system in the Pacific Northwest more than a century ago, a massive undertaking that involved the region’s utilities as well as the federal government and other investors.
“There’s no question that we need to accelerate the work that we’re doing,” she said. “We’re going to need to come up with creative solutions from a regulatory and probably also a legislative standpoint.”
Climate change
DTE, which serves Larry Hilkene and 2.3 million electric customers in southeastern Michigan, has one of the least reliable systems in the country, with customers experiencing some of the longest outages each year. Outages are substantially more frequent as well for many customers, though not throughout the entire system.
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Employees monitor information inside the DTE Energy Control Room in Detroit.
The company is planning to invest $9 billion over the next five years to reduce outage duration and frequency by 50% and 30%, respectively. By comparison, the company spent $5 billion over the past five years.
CEO Jerry Norcia said the breakdown in reliability—and the need to spend heavily to address it—is the result of more frequent and intense storms exacerbated by climate change, as well as historical inadequacies in some of the utility’s work programs. DTE for years failed to trim trees growing alongside its power lines at a frequency needed to avert major outage problems, particularly during severe wind and ice storms.
Until about 2019, the company patrolled its lines for vegetation on a nine-year cycle, nearly twice the industry average of roughly five years, regulatory filings show. To achieve a five-year cycle, DTE is now spending hundreds of millions of dollars on what it calls a “tree-trimming surge” expected to last through 2025. The company has sought to reduce the burden on customers by issuing low-interest bonds to recover the costs over time.
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Norcia said the company’s previous tree-trimming standard was untenable, especially as storm patterns intensify. The company has in recent years seen an uptick in summer and winter storms, some of which have occurred back to back and left hundreds of thousands of people in the dark for days.
Until 2022, DTE used a magnetic tile map board to monitor the status of the power grid.
“I’m in a much different situation than my predecessors were,” Norcia said. “We have to accept this new reality that what used to happen every 50 years is now happening every three to five years.”
On top of that, Norcia said, the system serving much of downtown Detroit, designed nearly a century ago, needs near-complete replacement to support population growth, the adoption of electric vehicles and other power-demand drivers. The governor of Michigan has set a goal to have two million electric vehicles registered in the state by 2030, a milestone that would substantially increase electricity usage.
DTE has been working to automate and digitize parts of its system with technologies that many utilities have been using for years, including the digital display board installed in 2022. The company has been installing devices on power lines that detect disruptions and allow for remote operation.
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As part of a rate increase approved late last year, DTE’s average residential customers will pay nearly $100 more a year for electricity. The company this year sought permission for another increase that would add $135 to that total.
A row of homes in the New Center neighborhood of Downtown Detroit.
The company’s proposed spending could drive residential rates up roughly 12% above the rate of inflation between 2022 and 2027, according to Sector & Sovereign. Norcia said the company is working to keep rate increases below inflation, but he stressed that a massive amount of work is critical.
Detroit’s downtown network of poles and wires “will not be able to handle the weather we expect because it has weaker poles and older wires, and it can’t take the demand because the voltage isn’t high enough,” Norcia said. “It fundamentally has to be replaced.”
Write to Katherine Blunt at katherine.blunt@wsj.com
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Appeared in the July 19, 2024, print edition as ‘Get Ready to Pay More for Electricity’.