How to change the electricity market in 8 words or less

How to change the electricity market in 8 words or less

The centerpiece of the VERGE concept -- the one thing, if you can call it that, that will bring together the already-happening convergence of energy, buildings, IT and vehicles -- is the smart grid.

Rather than our long-established, one-way, utility-to-customer model, VERGE relies on the creation and widespread adoption of a two-way grid, and one that connects not just businesses and homes to their energy providers, but connects utilities, businesses and individuals to the energy-using devices within their four walls.

So it's fitting that the kickoff to the final day of our VERGE DC event centered around utilities. Jon Wellinghoff, the chairman of the Federal Energy Regulatory Commission, began the morning in conversation with Joel Makower, and the two were then joined by three other experts, from utilities and green power purchasing companies:

  • Chris Gould, the Senior Vice President of Corporate Strategy and Chief Sustainability Officer at Exelon;
  • Steve Kline, the VP & Chief Sustainability Officer of Pacific Gas & Electric; and
  • Kathy Loftus, the Global Leader of Sustainable Engineering & Energy Management at Whole Foods Market

Uptake on smart grid technologies is still slow in the coming, so Makower asked Wellinghoff what opportunities there are in smart grid -- what would sell them on smart grid, and what would make it easier to build new business opportunities around smart grid?

"I tell them two things: One, to the extent that their business enterprises are in regional transmission organization areas where they can participate in demand response, they should investigate and see how they can take advantage of that," Wellinghoff said. "Two, to the extent that they're not in an area they can do that now, they need to go to their state regulators and legislatures and make sure that changes. They should have the choice to participate in those wholesale grid activities that [other regional utilities can]."

And those utilities' customers can also help spur progress, asking their state commissioners and legislators for, Wellinghoff said, the ability to get retail access to the grid, to choose their own energy providers, and the right to sell negawatts and negawatt-hours back to the grid when they're generating their own energy.

If it's not abundantly clear already, making those changes on a nation-wide scale is a tall order. But PG&E's Steve Kline shared his company's experience with trying to envision and implement some of those changes on stage at this morning's event.

(PG&E, by the way, has had more incentive to deal with these issues than many utilities because of the huge number of individuals generating their own energy: Kline said that 30 percent of the nation's solar installations are located within PG&E's service area.)

Kline said that PG&E has created a tiered rate structure that strongly incentivizes conservation, but that California's impressive history of keeping total demand flat hints at what will happen when net-zero energy buildings and widespread, small-scale renewable generation causes that demand starts to actually decline.

Whole Foods' Kathy Lofthus, center, with Exelon's Chris Gould (left) and PG&E's Steve Kline (right)"If you think about a world in which load is actually declining, even in a decoupled environment like ours, where we don't make money when we sell more, suddenly the rate-making model breaks, because you're loading more and more charges into a declining amount," Kline said. "Over time, you're going to need to obviously give a strong price signal, but also create something like a systems operations charge or 'integration charge' that allows to providers to get a fixed-costs recovery for the grid, and provide a price signal."

Kathy Loftus at Whole Foods spoke a bit about the challenges that company has faced in incorporating green power into its stores nationwide. Depending on how long a utility has been deregulated, how long they've focused on energy efficiency, and other factors all impact stores in that utility's coverage area ability to buy green power from the grid.

Given a recurring theme of frustration from everyone on stage -- regulators, utilities and customers -- Makower challenged the panelists to say, in four words or less, what it will take to make green power and smart grids possible?

Jon Wellinghoff: An act of Congress.
Chris Gould: Two words: Demand competition.
Steve Kline: One word: standards.
Kathy Loftus: One word: Co-opetition.

Wellinghoff would like to see Congress pass a law to provide all utility customers to have retail access to the grid, and to give customers choices about where they get their energy.

Gould stressed the fact that the real power lies with the consumer. Utilities in different areas have different interests, so without offloading the responsibility of the utility onto their customers, the end users have the biggest voice and the biggest capability to demand change.

Kline's belief is that uniformity across the nation -- which would almost certainly require an act of Congress -- is the linchpin of smarter grids. The grid can't function well if systems don't talk to each other, and having a single standard that everyone can build toward would make adoption a relatively simple task.

Loftus said that you can't put the genie back in the bottle in terms of how the grid is structured, but until we get to full competition in the utility marketplace, whether in the form of an act of Congress or otherwise, then utilities and their customers need to come to the table to figure out how to work together to look at success stories in smarter, cleaner grids and determine best practices.

Talk about deregulation of energy markets, especially where I sit in California, brings to mind the dark days of the late-1990s and early-2000s, and the specter of Enron.

Wellinghoff talked about Enron's role in pushing for deregulated energy markets across the country, and it had great success in California. Unfortunately, from there it led to massive market manipulation and fraud.

"[But] just because we had the Hindenberg, we don't stop commercial air travel," Wellinghoff said. "Ultimately, we have to look again at how we can put that back together, this time in a way that ensures that [massive fraud] doesn't happen again."

He added: "[Enron] wanted to unbundle everything, make everything competitive. I do think that concept is still sound. What wasn't sound is that there wasn't a regulatory infrastructure in place to ensure there was no fraud."

Photos from VERGE DC taken by Goodwin Ogbuehi for GreenBiz Group.