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How to cut carbon: Change the way utilities make money

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Judith Lewis Mernit | Jun 03, 2014 08:15 AM

State renewable energy standards, imposed on “investor-owned” utilities that supply 75 percent of the power in the United States, have long stood stalwart in the space left empty by the absence of a federal energy or climate policy. They have devalued climate-changing coal and encouraged wind and solar, particularly in the West, where the kind of wind and sun useful to the grid – relentless through the seasons, predictable through the hours – is abundant. They have complemented state policies requiring utilities to buy the solar power their customers generate, a scheme called “net metering” that prompts many a homeowner to max out their rooftops with photovoltaic arrays that turn sunlight to electricity.

Crossing the energy rubicon in Hawai'i
This is what crossing the energy rubicon looks like — in Hawai'i. Photo courtesy Flickr user ShellVacationsHospitality

And for years the for-profit, investor-owned utilities, along with front groups for the fossil-fuel industries – the Koch Brothers, Americans for Prosperity, the American Legislative Exchange Council – have fought to undo it all. A roundup of their efforts has just been published by the D.C. nonprofit Energy and Policy Institute, documenting attacks on net metering or renewable standards in 17 states. The report doesn't just lay out the facts. Instead, in tone and spirit, it gives the impression of a pitched battle, between conspiratorial suits in smoke-filled boardrooms who plot to make the U.S. burn more fossil fuels while beleaguered legislators struggle to preserve their hard-won clean energy laws. If only the right-wingers would cease their attacks, we could move forward into a glittering clean, fossil-fuel-free future.

But I can’t help thinking the whole argument is a distraction. Just as net metering and other solar subsidies are only temporary fixes to a much larger problem, it’s not the Kochs and the ALECs who hold the blame for how our electricity providers produce and procure our electricity. Instead, it's the way utilities make money — a business model that's been in place for much of the century, designed and enforced by the state public utility commissions who regulate utilities in exchange for guaranteeing their monopoly markets. Regulators decide how much revenue utilities need, and then tell them how they can get it. And in almost every state, the for-profit utilities earn money for their shareholders by leveraging large capital projects – transmission lines, power plants, distribution networks: all the trappings of fossil-fuel generation, which demands the construction of large, polluting plants far from where people use the power they generate.

In other words, to paraphrase Jessica Rabbit, the seductress of the 1988 flick Who Framed Roger Rabbit?, the investor-owned utilities aren’t evil. They’re just drawn that way.


Can they be redrawn in a way that rewards clean energy? Transformative regulatory overhauls have succeeded in the past in the service of related goals: In the late 1970s and early 1980s, for instance, when California regulators wanted to encourage conservation, they “decoupled” utility profits from energy sales so utilities would no longer profit from the volume of kilowatt hours they sold. They also designed incentive programs to encourage efficiency. The plan has saved California consumers $55 billion over four decades, and more than 20 states have since followed California’s lead.

Many analysts believe that even more sweeping restructuring could do for rooftop solar and other forms of “distributed” energy what decoupling did for efficiency. The Electric Power Research Institute, a utility-funded think tank, this year published its own report on “The Integrated Grid,” making the case for revising market rules and rate structures to reward distributed energy resources that lend resiliency to the grid but don't serve the utility’s bottom line.

And in Hawai’i, the conversation has already begun. "The energy Rubicon has been crossed!" Governor Neil Abercrombie said in a speech on April 29, after the state’s public utilities commission issued a report scolding the Hawai’ian Electric Company (HECO) for its lack of a “sustainable business model.” The report also acknowledged that the utility’s resistance to change is not merely a backroom conspiracy, as the Energy and Policy Institute’s report seems to imply: “The regulatory model under which (HECO is) compensated . . . needs to be redefined,” the authors wrote. “Capital investment as the sole driver of utility profits would need to be replaced with a regulatory model that incentivizes and rewards (HECO)” for serving the “prosumer” – a customer who both consumes electricity and produces it for the grid.

Remaking an intransigent, century-old industry will take a profound act of political will, it's true. But the muscle for it seems already to be developing. It’s interesting to note that only a few of the attacks on clean-energy incentives have gained anything; in the West, most have failed. In Utah and Arizona, conservatives themselves fought off assaults on solar incentives; even the Kansas legislature has rejected efforts to repeal the state's 20 percent by 2020 renewable energy goals. In May, California regulators ordered utilities to stop charging high fees to customers who want to connect battery-backed solar arrays to the grid – a technology crucial to the 21st-century grid. While the U.S. Environmental Protection Agency's new carbon limits loom in the near future, states tasked with reducing their emissions might not want to spend a lot of time negotiating with an industry locked into a moribund business model. They might prefer to get busy designing a new one.

Judith Lewis Mernit is a contributing editor to High Country News. She tweets @judlew.

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