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Consumers' Demand for Green Energy Has Utilities on the Ropes

Utility companies are finding themselves in a pinch as the growing green energy movement threatens to destabilize their traditional business model.

That could one day be bad news for the investors of Pacific Gas and Electric Co. (PCG) , Consolidated Edison Inc. (ED) and the Arizona Public Service Company, a subsidiary of Pinnacle West Capital Corp. (PNW) , among others. Of course, some utilities, such as NRG Energy Inc. (NRG) , may benefit from their extensive investments in renewables and distributed generation optimization.

But across the country, from LED lighting to rooftop solar, consumers are finding ways to use less energy or generate more power themselves - and it's having a material impact on many utilities as well as poorer customers who aren't able to invest in clean energy, analysts and researchers say. The rapidly declining cost of renewables, especially wind and solar, is accelerating the trend, as consumers benefit from low prices often unavailable to utilities, which purchase their energy in long-term contracts.

"I think there's a material impact on utilities everywhere," Morningstar utilities analyst Travis Miller said. While Miller thinks that utilities will be able to adjust in the long-term, he noted that it will require a concerted effort from consumers, shareholders and regulators, groups that often find themselves at cross-purposes.

The changing dynamics of the market...