Reforming the electric grid to benefit homeowners

By John David Baldwin on May 18, 2018

Across the country, we are seeing proposals from individuals, public service commissions, and utilities to undertake Grid Modernization or to re-evaluate the Grid of the Future. Often, similar-sounding terms describe very different processes. Some say the monolith that was the traditional utility of decades past is dying. Given changes to the energy market, it should. A centralized generation and distribution model no longer maximizes benefit to consumers. The model that takes its place has important consequences for our ability to take control of where our electricity comes from, particularly with rooftop solar. For solar owners, true reform of the electric grid would mean changing our relationship with the utility, not just replacing one form of technology with another that remains under utility control. Three different organizations, the Rocky Mountain Institute, Vote Solar, and the Smart Electric Power Association, have recently released papers on how the future electric grid might work.

The centralized utility business model dominated the industry from its inception until at least the 1970s. Energy research organization Rocky Mountain Institute (RMI) describes this model as “the natural monopoly” in a recently released research paper. This term developed because the cost of producing and distributing electricity on a mass scale could not be borne by multiple smaller actors competing in an open market.

Today the “natural monopoly” feels to many stakeholders like an unnatural one, RMI argues. The document provides a portrait of the modern utility divided between past, present and future. The past is the “natural monopoly” era previously mentioned. The present is the current transitional era, characterized by greater competition in energy production, more outsourcing of utility functions and technological advances (e.g., “smart” meters) that can manage customers’ energy in novel ways. The future is seen as a world where the “traditional one-direction power flow” of decades past is completely overthrown. In this market design, the utility maintains responsibility for distribution and market hosting. It may adopt new responsibilities, such as microgrid management, as well. Fundamentally, though, the old model of vertical integration will no longer exist.

The RMI document is blunt in its assessment of the industry: “Experience shows that the utility business cannot be remade overnight. But this is no excuse to not get started. Delaying action is to accept path dependency on the legacy business and regulatory model, which was built for different infrastructure investments and operating structures than where the grid needs to go today.”

RMI’s document identifies a full spectrum of possibilities. On one end of the spectrum, it sees a future where utilities offer expanded monopoly services. This is essentially the “natural monopoly” concept broadened into new forms of energy distribution. At the other end, RMI sees utilities adopting the role of transformed platform operator. In this scenario, the utility functions entirely as a neutral platform to integrate and coordinate energy services, without generating its own energy.

Advocacy organization Vote Solar has released its own white paper on grid modernization. It focuses heavily on the importance of stakeholder engagement. The ideal, according to Vote Solar, is to bring together utility and non-utility experts in the field to “create an open, transparent dialog on key grid modernization topics, and attempt to reach consensus on opportunities for meeting the agreed upon goals of grid modernization.” The Vote Solar paper maintains that other policy process components can’t work without stakeholder engagement. Such an ideal is far from traditional utility behavior. Utilities have been content to submit their proposals to regulatory commissions without consulting anyone outside their organizations.

Utilities themselves, perhaps seeing the writing on the wall, have also developed proposals for reforming the rules around how electricity is produced and distributed. The Smart Electric Power Alliance (SEPA), a utility backed trade organization, published a different vision of the future of utilities. The document proposes what it calls four “doctrines” of electricity markets going forward: a) a primary goal of the market should be to promote efficiencies; b) the role of the utility, as a public service entity, should be clearly defined; c) rate structures should provide transparent cost allocation; and d) customers should be presented with a variety of rate and program options.

The report compares American utilities’ use of cost of service studies (COSS), which allocate their costs and justify their rate design, to an alternative, performance-based model used in the United Kingdom called RIIO (Revenues = Incentives + Innovation + Outputs). RIIO holds energy entities accountable for meeting performance targets. This is based on the theory that they have a “contract” with their customers that they have an obligation to fulfill. With this model, a utility wouldn’t recover its costs if it failed to meet certain targets for consumer services, say interconnection rates, in an efficient and cost-effective manner. This puts the pressure on the utility to earn its profit, rather than on the customer to provide it.

In the authors’ view, the utility should be held accountable for delivering full value to the customer and stakeholders must have a voice in the utility’s decisions. While this discussion by utilities of the importance of stakeholders is welcome, reading the SEPA piece more deeply it is clear, if not surprising, that the organization still sees utilities as the dominant actor in electricity generation. For example, the paper prioritizes “utility representatives” and “major industry groups” well ahead of community groups. Solar homeowners are not identified.

While all three of these documents affirm that the old utility business model needs to evolve, many utilities over the past several years have been determined to maintain it by trying to eliminate or eviscerate net metering in many states. A possible turning point, however, may have occurred with the attempted abolition of net metering in Nevada in late 2015. Only when that effort ultimately failed and net metering was restored in the state (in June 2017) did some utilities seem to understand that they must dialogue with solar customers and advocates and try to seek common ground with them, as we have written.

The future of the electric grid won’t be decided by white papers. It will be decided at the ballot box and in public service commission hearing rooms. The ideas presented in these documents are only as strong as the advocacy behind them. Learn how you can stand up for your solar rights by joining Solar United Neighbors.