More On the Regulation of Electrical Power Utilities

In my first conversation with Bridge Energy Group’s Director of Regulatory Strategy and Compliance David O’Brien, which took place by phone a few weeks ago, I became instantly aware that I was speaking with a true energy pragmatist.  I could tell that, while he might wish as ardently as I do that the world of “big energy” had a fundamentally different relationship with its customers, he’s realistic in observing the facts as they actually are, and not too interested in discussing some sort of fantasy.

That’s absolutely fine with me.  I want to make a difference in the world, and it’s clear that a necessary condition to accomplishing that is an honest appraisal of the true lay of the land.  In fact, as the title suggests, the main concept behind my current book project, “Renewable Energy – Following the Money,” is that if we wish to wrap our wits around the behavior of business interests vis-à-vis energy, we need only understand the enormous sums of money that create extremely powerful motivating forces to maintain the status quo, i.e., to ensure that the same people who became rich in the 20th Century fossil fuels bonanza experience a repeat performance here in the 21st.

But “the natives are getting restless,” by which I mean that the world’s people aren’t going to sit still for much longer and watch the planet fall apart, merely so the energy barons can grow even wealthier, albeit at the health and safety of every living creature on Earth.  In particular, it is becoming increasingly difficult to ignore the ecological impact that our 20th Century energy policy is having on our physical environment.  We already have cities in Asia with tens of millions of residents who can barely see across the street because of the pollution from their local coal-fired power plants, whose rates of lung disease are going through the roof.  Over the coming few years, it will become impossible for the world to ignore this and continue with business as usual.

Even in the United States, we’re very close to a dramatic shift of viewpoint.  The dominant American mindset, i.e., “I want it cheap and convenient – and outside of that, I don’t really care” will eventually give way to a recognition of exactly how childish and insensitive that viewpoint is.

In any case, I’m looking forward to speaking with David on his area of expertise, i.e., the regulation of power utilities and the effects these have on innovation, especially, the implementation of efficiency, conservation, smart-grid, and renewables.  I want to expand my understanding of how the power utilities are regulated, with an eye towards suggesting a way in which that could be improved.  In fact, I’d like to try to squeeze this into this book project, as I realized the other day that the book is a bit light in the subject arena.

My belief going to this discussion is simple:

Our current system of utility regulation is a hodge-podge of arcane rules that sprang up on a regional, ad-hoc basis over the last 125 years.  These rules were designed to minimize the cost of electricity, especially to large, industrial customers, while guaranteeing the power companies extremely attractive and perfectly predictably streams of profit.  These regulations need to be ripped out by the roots and replaced with something that’s simple, fair, and understandable, while encouraging all stake holders (generation, transmission, distribution, and load) to do the right thing, i.e.,

• Invest in smart-grid as the enabler of a modern and efficient energy network
• Offer incentives that minimize consumption, especially on-peak
• Retire coal plants as quickly as practically possible
• Replace them with a combination of renewable energy and storage.

From my initial conversations with Mr. O’Brien, I can see that we agree on a lot of that, but I fully expect to learn exactly why my assessment here is an oversimplification, or lacks other features that would make it pragmatically implementable.  That’s fine; I’m here to learn.