"Historically, the industry looks back. It was easier to repair, rebuild and replace than it was to take a chance on new technology because of the way utilities are compensated," said Mark Gabriel, senior vice president and principal for RW Beck, a technically based business consultant. "We are ... encumbered by an industry model that has not yet recognized the pace of change."
But that era is about to end.
"Everything will be changed by, driven by climate change," Owens said.
Electric utilities account for 40 percent of the nation's emissions of carbon dioxide, the principal greenhouse gas. To reduce CO2, Democratic climate change bills would cap utility emissions, forcing companies to produce less electricity and change to cleaner fuels.
Lawmakers, utility CEOs and many experts agree that ramping up the nation's energy efficiency is the fastest and cheapest way to cut emissions.
Congress is weighing proposals to toughen energy codes for building and appliance efficiency. And the Energy Department has already provided loans and grants to improve the efficiency of the grid itself through digital technology, known as the "smart grid."
Climate change, technology and the new push for efficiency are transforming utilities' strategy from the "generation end" to the "customer end," the Rocky Mountain Institute's Lovins explained.
"That is a wrenching cultural change," he said.
To some extent, reducing electricity demand can save utilities money, as they are spared the expense of building new power plants. But that incentive can only go so far.
"It's clear that they ought to be able to choose between supply-and-demand side investments at least neutrally," Lovins said. "They shouldn't be biased toward supply-side investment."
The new utility business model, he said, should follow this rule: "Whatever is least cost to the customer should be most profitable for the utility, so the utility's choices emulate the proper outcome."
Fourteen states are experimenting with rate structures to encourage efficiency.
California, for one, has "decoupled" utilities' revenues from the amount of electricity they sell -- meeting revenue requirements based on customer growth, productivity, weather and inflation and providing additional incentives or penalties to meet efficiency targets.
Meanwhile, Kentucky, Ohio and other states provide "lost revenue" mechanisms for utilities using a formula based on marginal rates, variable costs and estimated kilowatt savings. There are also several pilot programs that allow utilities to "true up" revenue depending on whether original cost estimates were accurate.
But mechanisms that forecast efficiency targets and then penalize or reward a utility based on them are poor models, as efficiency is difficult to validate and measure, CERA's Makovich said.
"In order to compensate people whether they have achieved the goal or not, everyone has to agree what power use would have been but for these actions," Makovich said. "What if a recession happens and demand is down -- under these programs, are you going to reward a company because demand is lower because you haven't anticipated the depth and length of recession? Or technology, for instance, something like the plug-in electric vehicle creates more demand; will they be penalized for it?"
He added, "The key going forward is to give power companies the incentive to do the efficiency investments that people didn't do because they didn't get the right price signal."
Makovich points to Duke Energy Corp.'s "Save-A-Watt" effort in Ohio as an effective program that could be copied in regulated markets. Duke is able to build into its rates a part of what it would have invested if it had built additional supply instead of investing in efficiency. Regulators in North Carolina and South Carolina are reviewing the program, as well.