Editor's note: Transforming the electricity grid will be a theme woven throughout VERGE SF, including eLab Ignite, a half-day workshop on October 27, presented in association with Rocky Mountain Institute.
Forget Peabody Coal, the Koch Brothers and all the rest. Never mind the frackers and miners. And don’t pin your hopes on Solar City, Tesla and their ilk.
For all the power and influence of the major gas, coal, nuclear and renewable energy companies and their lobbyists, changing how electricity is generated, bought and sold in the United States begins with a small handful of individuals in each state who set the rules. All told, there are 198 members of America’s state public utility commissions, or PUCs, according to Advanced Energy Economy. These members influence the roughly $100 billion in annual utility infrastructure investments needed in the coming years as well as the greenhouse gas emissions of the U.S. energy sector for the foreseeable future.
And therein lie the keys to the electricity kingdom — and the ability of a company, city or campus to meet or exceed its energy-efficiency and carbon-reduction goals.
The world of these 198 PUC members quickly gets geeky and opaque, a tangle of impenetrable rules and regulations covering concepts not commonly understood even by corporate energy buyers and their finance colleagues who pay utility bills. But within this complex landscape is a significant opportunity to influence how, and how quickly, we can transform electricity markets.
PUCs aren’t the only entity that affect electricity markets. Jon Wellinghoff, the former chair of the Federal Energy Regulatory Commission, now a partner at the law firm Stoel Rives, points out that state legislatures play a critical role in many states. “We have to get not only to state PUCs, but also state legislatures with a comprehensive proposal that can ensure that the state authorizing statutes are sufficient to give the authority to the commissions to move forward.”
Out of the public’s eye
Electricity markets have long been changing in the U.S., albeit slowly and not in all states. Today, for example, 30 states have renewable portfolio standards mandating that a percentage of electricity come from renewable sources by a specific date. A smaller number of states have policies that remove incentives for utilities to sell ever more power in order to increase profits for shareholders, for example, or laws that allow utilities to charge higher rates during times of day when electricity demand is highest.
Such rules are at the heart of what's needed to accelerate demand for renewable energy, or to better manage electricity demand overall while improving grid efficiency and reducing energy’s environmental toll. And the list of such regulatory changes continues to grow, as electric vehicles, rooftop solar, smart appliances, battery storage, microgrids and a myriad of other technologies become increasingly commonplace.
“Most PUCs operate out of the general public's eye, with the exception of when interesting consumer-focused issues come up, like when utilities are going in for a rate increase,” says Steve Chadima, Senior Vice President of Communications and Director of California Initiatives at Advanced Energy Economy. “By and large, they're out of the limelight.”
And yet PUCs individually and collectively wield enormous clout. AEE's mission includes transforming public policy to ensure the rapid growth of renewables, smart grids and other “advanced energy” technologies. Says Chadima: “When you start to look around and you say, ‘How much do companies invest in generating facilities? How much do they put into deploying large-scale solar or distributed solar, wind farms, geothermal plants and so on?’ You start to realize that these are very large economic decisions that once you combine them across the 50 states are a huge thing.”
A hundred billion dollars huge, according to Booz & Co. — and that's annually through at least 2020. Which is to say, PUCs influence, if not control, some very large purse strings.
From telecom to taxicabs
PUC members get their jobs through a variety of means, and arrive with a range of experience. Most are appointed by governors or legislatures. Voters in 11 states elect PUC members. Often, PUC membership is part of a revolving door between utilities and regulators. At some level, that can make sense: Former utility execs understand the complexities of the industry, so can ramp up quickly on the issues. But appointing industry insiders also tends to perpetuate the status quo. (You can learn more about and access each state’s PUC and meet its members on this AEE site.)
Moreover, energy isn’t the only thing PUCs regulate. Depending on the state, a PUC member may also oversee everything from telecommunications to taxicabs, waterways to railways. That increases the complexities of the job, and can require PUC members to rely on unelected and unappointed staffers to help them understand the issues.
At its worst, says Chadima, you end up like the Arizona Corporation Commission, the name of the PUC in that state, which oversees Arizona Public Service, or APS, the state’s major utility. Arizona PUC members are elected by the voters via “PAC-type, secret-money campaigns to promote candidates for that are friendly to utility positions on issues,” as Chadima explained to me. The result: “They've got a five-member team of climate deniers that very happily play right into APS's desire to build coal plants.”
That’s not the case everywhere. When he was California’s governor, Arnold Schwarzenegger “repeatedly looked to people that are strong consumer advocates as well as people that have been deeply involved in renewable energy,” says Chadima. It’s probably not coincidental that California leads the nation in energy efficiency and renewable energy deployment.
In reality, today’s energy regulatory environment in the U.S. is an improvement over years past. Until the 1980s, “It was very much a closed society,” says Karl Rábago, Executive Director of the Pace Energy and Climate Center at Pace Law School in New York. “You had your utilities, their lawyers, the regulators. Often, they were the same people with very closed, obtuse issues to discuss, a complicated language all its own, and special accounting.”
Rábago previously served as a commissioner on the Public Utility Commission of Texas, so he’s seen it firsthand. “Really big change can't happen without the regulators either giving the utilities what they want, pushing the utilities in a new direction or nudging the utilities to consider new options. The relationship between regulators and utilities is at times parasitic, symbiotic, contributory and supportive. Oftentimes, when moments of change come, it's all four at once.”
This is one of those pivotal moments of change, says Rábago. “What we're seeing with these technological shifts is new entrants coming in” — such as independent power producers using a wide range of renewable and fossil fuel sources. “And so the thing we're asking today: Is this wave of distributed energy resources, services and technologies going to be the really big one that changes the fundamental dynamic?”
The advanced energy agenda
Changing the fundamental dynamic to create a electricity grid that is efficient, clean and resilient will require a suite of regulatory changes that enable innovative technologies to take hold. Among them:
- Renewable portfolio standard: a mandate that new energy production comes from renewable sources such as solar, wind, geothermal and biomass.
- Energy efficiency portfolio standard: regulations that require specific devices, appliances or buildings to achieve minimum energy-efficiency standards, or that provide incentives for consumers and businesses to purchase high-efficiency products.
- Decoupling: a mechanism that separates revenue from profits, thereby removing incentives for utilities to sell more electricity in order to boost profits, and providing an incentive for utilities to promote efficiency and renewables.
- Demand response: technologies and systems that automatically adjust customers’ energy use during times of high demand — for example, shutting off devices for brief periods in exchange for more favorable electricity rates.
- Time-of-use pricing: the ability of utilities to adjust electricity prices based on demand throughout the day, week and season — for example, dropping rates at night when demand is low and raising them in late summer weekday afternoons when demand usually peaks.
- Smart meters: devices that provide two-way communication between customers and utilities, enabling such services as automated meter reading, time-of-use pricing and demand response.
Each of these has its own proponents and opponents, often making enacting them a contest of progress and innovation versus the status quo. Sorting through the various arguments is a key role for PUCs. For groups like AEE, educating PUC members about these issues is a never-ending task, given the regular turnover of PUC members across the states.
“You've got a wide range of different sentiment on these commissions because they each receive pressure from different constituencies,” says AEE’s Chadima. “If you're the public utilities commission in a coal state, for example, you get an enormous amount of pressure from the coal industry to ensure the continued dominance of coal-based generation. And if anything begins to look like it might feed into that, then the coal industry and the people that burn the coal will attack. They talk about how the world as we know it is going to end and how economies are going to come to a cracking halt.”
In some cases, a single influential electricity user or sector can rule the roost — aluminum smelters in Washington state, for example, or mining operations in Utah. “You can absolutely bet your bottom dollar that those companies are weighing in at the public utilities commission,” says Chadima. In Arizona, for example, AEE uncovered a rate plan that provided volume discounts for large electricity users — exactly the kind of thing AEE wants to discourage. “As we dug into it we realized that this rate plan had one customer. It was designed for a very, very large mining operation that lobbied for a specific rate plan that only they would qualify for.”
The Enron effect
There was a time when comprehensive efforts were being made to open up state energy systems to integrate more renewables into the grid and to encourage competition and innovation. Jon Wellinghoff recalls a period during the late 1990s when “There was a great deal of activity and virtually every state legislature in the country was trying to restructure the utility system into a market-based structure that would allow for the unbundling of these services into competitive services.”
“The company that was doing it was Enron,” he explained. That ill-fated company was in virtually every state with model legislation. “They were very successful and in fact got it passed through a very high number of legislatures. But unfortunately, in the 2000-2001 timeframe, there was the great sucking sound in California that resulted from fraud and manipulation in the wholesale market that shut the whole thing down.”
Today, with no single entity picking up the mantle, it’s up to organizations like AEE to step in. “We hold commissioner forums around the country,” explains Chadima. “We typically do them regionally and we invite all the commissioners and, for the most part, they come. We have them take ownership of the meeting itself. We move into the role of facilitator and have them bring in case studies. In part, they want to brag about what they're doing but they also want to compare notes with their colleagues.”
AEE also produces research, such as a recent report that details 40 different advanced energy technologies and services “that states can consider as they develop compliance plans to reduce emissions under EPA’s Section 111(d) carbon standard” — that’s the Obama administration’s proposed “carbon pollution standard” for power plants. The group is also working with New York’s comprehensive REV program, largely driven by the state’s desire to never have to go through another Hurricane Sandy aftermath. “They may get another hurricane, but they won't have to have a utility just fail,” says Chadima.
In the end, it’s all about making sure that those who set the utility rules that companies and residences follow have the most enlightened world view. “We can't tell PUCs how to act, but we can certainly make sure that they're making decisions based on current facts and not on a lot of the misinformation or disinformation that gets promulgated. ‘Oh, these technologies are too expensive. They're not ready for market. They're a waste of my time. They're going to drive up rates.’ There's a bunch of junk that flows around out there that utilities bond onto out of fear as much as anything, and we just try to set the record straight and make sure the decisions are based on fact.”
The opportunity for companies
So, what’s the role for companies, cities and other large energy users to influence PUCs?
Large data center users are finding a point of leverage with regulators in some states — companies like Google, Microsoft and Apple. “Amazon doesn't worry about the generation source and so they have a tendency to locate in places where there's large coal plants because it's the cheapest electricity they can get,” says Chadima. “Apple, on the other hand, goes in and says, ‘If you don't supply me with wind or solar or some sort of green energy for my facility, then I'm going to locate it elsewhere.’ Sometimes they do have to go to the public utilities commission and say, ‘Your rules do not allow me to buy energy from an independent power producer.’”
Chadima also pointed to leaders in the retail sector. “Wal-Mart, IKEA, Costco — those are the three largest deployers of rooftop solar in the country. And they definitely weigh in at the public utilities commission to make sure that things like net metering are possible.” AEE produces a tool called Power Suite, which helps companies track energy legislation and regulatory proceedings across the United States.
Such progressive companies notwithstanding, most companies haven’t stepped up to press PUCs to adopt more forward-thinking policies. When I asked Jon Wellinghoff how companies could play a role, he responded, “Any company or coalition of companies like that could be potentially a good place to start, but I haven't seen that kind of coalescence yet.”
He continued: “It seems like, unfortunately, corporate entities are fighting battles on an individual basis, and don't seem to have a cohesive strategy and plan to ultimately increase the effectiveness of markets, which seems to me could be a very bipartisan approach. I can't see how anybody could argue against having more effective markets.”
Photocollage at top by GreenBiz Group