The electric utility industry faces a period of transformation as addressing climate change becomes imperative, Edison Electric Institute (EEI) President Tom Kuhn said this week in his annual "state of the industry" speech. Electric utilities are pursuing business innovation and technological advances to effect that transformation, Kuhn said.

"Today, the great challenge before us is the need to supply affordable, reliable electricity to a world that is growing both in population and standard of living, while at the same time moving to a low-carbon future," Kuhn said. "We believe the key to this challenge is technology. And many of the policy decisions we are making today will affect the kinds of technologies that are developed and how they are used."

Addressing the Wall Street financial community, Kuhn provided an overview of the industry as it grapples not only with reducing emissions from electric generation, but also with the need for new infrastructure in the face of increasing electric demand, greater costs for construction materials and labor, and an imperative for industry-led conservation and energy-efficiency programs.

Increased demand has led to strong financial performance on the part of utilities during the past five years, Kuhn said, with the EEI index of companies producing an average 20-percent annual return during that time.

Growth in demand has led to an acute need for more generating capacity and transmission infrastructure, especially in the most economically active regions of the United States where transmission bottlenecks keep costs higher and threaten reliability.

But the backdrop continues to be climate change and the need for reducing emissions, which Kuhn said will demand a careful but decisive approach.

"Realistic carbon reduction targets and harmonizing those targets with the development and commercialization of the needed technologies (nuclear, carbon-capture and storage for coal-based generation, natural gas and renewables) to reach those targets will be essential," he said. "An upper limit on the price of carbon emission allowances, an economy-wide focus, utilization of carbon offsets and meaningful participation by developing nations also will be very important."

Kuhn said the widespread commercialization of plug-in hybrid vehicles stands to play a significant role in reducing the carbon footprint, with electric utilities playing an important role. "A recent comprehensive study by the Electric Power Research Institute (EPRI) and the Natural Resources Defense Council (NRDC) found that the emergence of plug-in hybrids would result in significant reductions in greenhouse gas emissions and improve overall air quality with only a small increase in electricity demand. Plug-in hybrids have the further benefit of adding to our nation's energy security as well," he said.

Adding energy efficiency to utilities' portfolios of resources also will serve to reduce emissions while meeting demand, Kuhn said. "Energy-efficiency must be viewed as the equivalent of generation. In order to do that, we must develop new business models that enable efficiency to become a full-time business for utilities," he said.

Renewable resources have an important place in the mix as well, Kuhn said, and new transmission infrastructure will be needed to accommodate these sources so they can become viable.

Kuhn said traditional generation resources - coal, natural gas and nuclear - will remain important, both in maintaining short-term reliability and affordability as well as meeting future demand.

"I would encourage you to keep an open mind to the variety of solutions and the use of all fuel sources as you make decisions to finance new facilities," he said. "All options must be on the table if we are to make the transition to a low carbon future without major disruptions in the economy and our quality of life."