Electric Utilities Release Secret Manifesto

The fight to stop distributed solar energy from disrupting the electric utility business model, commonly called a monopoly.

The one constant in life is change. And in today’s world – change and innovation move at the speed of light. A market change that once took 20 years now occurs in little more than a year.  My mother started out as a telephone operator plugging in lines to connect the calls. Computers automated that job and she had to change.  My father worked for AT&T when they were the only phone company nationwide handling local and long distance. But high rates and great profits for AT&T meant having to stifle new technologies in order to maintain their monopoly business model. Fast forward 100 years and new technologies have replaced land lines with cell service, unlimited calling and more computing power in your smart phone than NASA had back in the 60s.

Creative Destruction

The time for lifetime union jobs and the investor monopoly guaranteed return is gone. The economic term for such change is Creative Destruction;  as one industry model dies, new jobs and investment opportunities rise to replace it. This change impacts the lives of all stakeholders (all parties affected by the change:  employees, investors, manufacturers, consumers, government and the environment), and develops new industries that didn’t even exist.

Disruptive technologies are capable of changing the world, but incumbent monopolies will not change easily. In fact, the Edison Electric Institute (electric utilities association) has quietly published a plan for utilities to fight these disruptive challenges from distributed clean energy, or to use their term – distributed energy resources or DER.  But to understand why change is so hard for utilities, one must take a look at their beginnings.

The Original Role of Electric Utilities

Sam Insull (great autobiography) was the creator of the modern utility, allowing for scalable development of the electric infrastructure through a regulated monopoly. Commonwealth Edison in Chicago became the template to expand bringing electricity to America via regulated monopolies. In the beginning, a monopoly provided the foundation to electrify the country and change the lives of every person in the United States. Every monopoly was guaranteed their customer base, built power plants and ran wires to every home. It was an all you could eat buffet and Americans had a growing appetite for electricity.

How it all Works

The utility company has traditionally made money by generating electricity and delivering it to your home and business. They go to the Public Utility Commission, tell them their costs and what they need to serve the public, and if the PUC agrees, the rates for generation and delivery are approved. So the more electricity you consume, the more money they make, and the more power plants they have to build. Which brings us to the point of why electric utilities don’t want you to consume less energy. Anything that reduces the metered consumption threatens their very existence and business model.

Dear Electric Utility…

Let me introduce you to one current disruptive technology – the roof top solar panel. The future will add more disruptive technologies to the equation with battery storage, and fuels cells that, when combined with solar, could change the need to be grid connected.

The next growth vehicle for solar, available right now, is the democratization of ownership through Community Virtual Solar Gardens;  making solar an option for the 75% who can’t do solar because they rent, have a shady yard, face the wrong direction, etc. The solar market has already had unprecedented growth despite being limited to only 25% of the population. Just imagine the growth potential with Community Virtual Solar Gardens taking the market from 25% to 100% of the population.

Great for Community Green Energy and the communities involved, but not so for the utilities who are in active survival mode against distributed behind-the-meter solar. Yet, despite the aggressive stance the utilities continue to take, they are still an important stakeholder and partner in our economy and future. Unfortunately, they are a little like your grandfather that does not want to learn new things or experience new technologies.

The Road to Sustainability

A sustainable world and future is heading towards Net Zero Energy homes and buildings. Europe of course has set faster goals to get there, but even the U.S. is planning on Net Zero being the final part of our nation’s energy plan. Although the US Net Zero goals are focused on new Federal Builds and major renovations by 2030, the long term plan is for all buildings to be net zero by 2050.

This fast moving path to net zero is forcing the utilities toward change. So the question is no longer will the regulated monopoly model that we have grown up with change, but when and how will it change. Forward thinking electric utilities could be drivers of change and actually forge their future business model, instead of battling every step of the way. The opportunities are there, but will the electric utilities take the leap? Will they be a contributor to future innovation, or will they focus on maintaining a century old model that does not support scalable growth of distributed solar and clean energy?

The Future Role for Utilities

What will the role of the electric utility be in a Net Zero Energy World? First of all, every utility should be required to split their distribution and their power generation divisions into separate operations, to remove the ability of cross subsidizing and hiding costs. Next, a competitive energy market needs to replace the non-competitive utility model. Competition provides a more efficient way to manage future costs, offer effective use of capital and promote the development of new energy technologies, including distributed generation and energy storage.

No competition means no innovation. While the electric utility should maintain the monopoly of electric distribution, monopolizing power generation is holding back development of new industries and a cleaner, sustainable future. In fact, if they continue to control the power generation, there is every disincentive to block onsite clean energy generation and even energy efficiency, since it reduces how much power they can generate to earn profits.

Given the opportunity, competitive power generators will take the risk and build the power plants. If more generation is needed, the incumbent utility can risk their own capital in building a power plant, but with no guarantees that they will be able to sell the power in a competitive market. That puts the risk on the company building the power plant, forcing them to compete to sell their power, instead of having cost overruns and mistakes automatically assumed by ratepayers like you and me. In fact, if an investor builds a power plant in an area that looks promising and the market changes, they will have to make the investment to move that power, instead of it having the cost, once again, thrown back on the ratepayer.  

Future Utility Business Model 

I think the electric distribution utility of the future will be more like a data network system administrator, managing the traffic flow and resources of the network. There will be a monthly fee for services, which may include payment for network access and the delivery of power to your building, or payment for having energy generated and sent back to the grid, with credits and debits depending on who supplied the power. Other resources may be monetized, like battery storage, demand response, community owned solar co-ops, and distributed generation to reduce congestion problems – all managed by the electric grid network administrator. And all of this will serve to further encourage the development of a smart grid; critical for the development of a sustainable energy future.

Just think of how ISPs have gone from dial up to fiber optics. High speed data has changed the world in this information age and created new industries that were not even dreamed of except on the Jetsons cartoon. An investment in a smart grid distribution network has that same ability; to create new industries not yet even imagined and make them a reality.

Encourage Change

We can’t let our future visions and potential be held in the stone age by a monopoly utility model. The century old electric utility model served us well in electrifying the U.S. and giving birth to the industrial revolution. But the current utility monopoly model is now keeping us from creating a sustainable energy future.  

Yes, Creative Destruction means the demise of certain practices that are no longer viable for the future. But with the end of something old  and unsustainable, comes the start of something new with opportunities for growth and development for a sustainable future.

Become an advocate for change! Join Community Green Energy in supporting EcoVision Sustainable Learning Center’s fight to change the Utility Model, state by state.  Sign their petition to bring change starting in Wisconsin. 

Fritz Kreiss, CEO and president of Community Green Energy, LLC (CGE), has been involved in energy for over twenty years. CGE has developed a turnkey Community Virtual Solar Gardens program, including a platform for on-bill credits, even in states without Solar Garden laws. communitygreenenergy.com