Disruption in the electric power industry is occurring along five dimensions: demand, technology, products, regulation, and competition. Disruption will happen at different times and ways in different states. The fundamental shifts challenge the existing electricity business model. To address disruption, electric companies will need to examine potential strategies and business models to solve the equation where costs are increasing, consumption is decreasing, and rates must remain low.

1. Solving the equation for disruption
to the U.S. electric power industry
Sources: The Math Does Not Lie (November 2012), Beyond the Math (March 2013),
The New Math (March 2014). Find the complete series at www.deloitte.com/us/thenewmath.
In the simple equation that
determines the cost of electricity…
…a convergence of factors is putting
pressure on the variables…
THE MATH DOES NOT LIE
The fundamental shifts occurring in the industry are more than a numbers game.
Disruption in the existing electricity business model is happening along five
dimensions, with the most disruptive and most likely scenarios matching closely.
BEYOND THE MATH
Disruption will occur at different
times and in different ways across
the U.S. We modeled it state by
state across four dimensions
(demand, technology,
regulation/policy, and product).
MAPPING DISRUPTION
IN THE U.S.
ELECTRIC SECTOR
VT
NH
MA
RI
DE
MD
CTNJ
LA
ID
MI
HI
Potential for disruption
1
Most
5
Least
In the face of dramatic change, electric companies will need to
examine a host of potential strategies and associated business
models to solve the equation for disruption.
ADJUSTING TO
THE NEW MATH
Capital Costs + Operations Costs
kWh Consumed
Cost per kWh
Consumed
=
Generation
•Aging plants
•Early retirements
Transmission
& Distribution
•Reliability
•Smart grid
•Renewable portfolio
standards
Environmental –
Emissions restrictions
•Capital retrofits
•Parasitic load
Interest rates
Capital Costs
Fuel
•Natural gas at
historic lows
Emissions retrofits
Operations Costs
New technologies
New sources of demand
Impact of recession
Kilowatt Hours
Consumed
Efficiency technology advances
Distributed generation
Most Disruptive
Demand (electricity consumption)
Technology change
Products
Regulation
Competition
1
2
3
4
5
Most Likely Least Disruptive
Lower
High
More
New
More
Lower
High
More
New
Same
Higher
Low
Less
Existing
Less
Keep costs low
Redesign customer rates
Increase kWh sales
New frontier of opportunity
and risk, i.e., distributed
generation and energy
management technologies
NUMERATOR
DENOMINATOR
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FIVE DIMENSIONS
OF CHANGE
VARIABLES
…creating a dilemma for
electric companies...
Increased Costs
Decreased kWh Consumed
Higher Cost
per kWh
=
1 2 3
Up to the Meter
SCENARIOS
Generally low risk
Leverage new technologies,
i.e., grid-scale storage and
renewables
Behind the Meter
Deloitte Center
for Energy Solutions
RegulationCulture Expectations
of owners
BARRIERS TO CHANGE
Up to the Meter
OFFENSIVE
“EXPLOIT CHANGE”
DEFENSIVE
“STATUS QUO" OR
OR
ANDAND
THE NEW MATH