Thursday, December 17, 2015

A Call For Energy Policy Reform in Washington

(Image: Arctic Sun LLC)

Guest blog by Russ Borgmann

The industrialized world is experiencing an energy renaissance.  And the U.S. is at the nexus of that regeneration. There are several beacons signaling this new energy landscape:

  • The costs to maintain the centralized electric grid are increasing, and poses increasing security risks
  • Distributed energy costs are decreasing
  • The growing patchwork of clean energy alternatives requires cohesive integration with the grid
  • Customers, regulators, and politicians are increasingly dissatisfied with the status quo
  • Consumer preferences are changing, no longer content for utilities to merely provide electricity to end users.  Now consumers are a central point (node) in the grid
  • There is a degradation (real and perceived) in the quality of electric utility service
These factors constitute a paradigm shift, not merely incremental change.  Customers, the private sector, the public sector, regulatory agencies, Public Utility Districts (PUDs), and Investor Owned Utilities (IOUs) are all experiencing a fundamental shift to electricity that is clean, efficient, diverse, and secure. The Paris Climate Conference (COP 21) highlights the need to reduce our region’s reliance on coal-fired electricity from places like Colstrip.  G20 nations spend $452 billion per year subsidizing fossil fuel production.  That’s nearly four times the global spending on renewable energy subsidies.  It is no longer true that clean energy is more expensive, especially when accounting for the true costs associated with fossil fuels – GHG emissions, carbon taxes, healthcare costs, and environmental costs, to name a few.  The equation is simple.  Now clean energy equals sustainable economic development.

Traditionally, utilities were often rewarded for under-utilized, expensive assets. Regulation, under the guise of reliability and resilience, often rewarded building a capital-inefficient system.  In WA, regulators only review electric infrastructure projects AFTER being built, not before.  As such, reimbursement is rarely denied, and customers pay the project costs plus an authorized rate of return on the “investment” via higher electricity rates, typically spread over forty years.  WA regulation is not sufficient to limit profits to IOUs as a result of buying and building excessive, under-utilized assets which quickly become obsolete.  Centralized electrical systems also pose greater physical and cyber-security terrorism risks as well as greater vulnerability to natural disasters, like earthquakes, and extreme weather.  Now, with the cost of renewable energy sources declining, more choices are available for customers.  Certain areas of the country are seeing free market forces compete for a customer’s business.  In Texas, for example, TXU is offering free power after 9pm.  Coupled with energy storage, like Tesla’s PowerWall, small businesses and residential customers are now afforded a greater degree of energy interdependence. Many Texas customers can choose from a variety of electricity source/pricing options, from multiple, competitive electricity suppliers.  The day is dawning when we will unlock the potential to make electrons more freely available to all.

Does this spell doom for electric utility companies?  Not for those utilities that are reading the handwriting on the wall.  Decoupling is an important first step, making utilities agnostic.  In some states, regulators have disassociated (decoupled) a utility’s profits from its sales of electricity.  But the next step is crucial:  How do we properly incentivize utilities to embrace clean energy rather than push it away, relegated to the edges of their energy portfolio offering? Utilities must consider becoming a platform – a platform offering a menu of choices.  Forward-thinking utilities are becoming more nimble and innovative, ultimately playing a part in integration supervision and optimization of the grid in the next generation “Internet of Electricity”.  Technology is available today to connect all types of grid assets with one another, much like today’s internet servers and cloud-based services. Technical challenges are solvable. Utility business models, especially for IOUs, are slower to adapt to offering new services with competitive pricing. Yet if utilities don’t adapt, they will be consigned to becoming commodity providers, stuck maintaining their aging and obsolete assets, akin to the telecommunications industry with landline assets in the digital mobile age.

How do utilities get paid in this model?  New York’s “REV” program offers some examples of what’s possible when regulators, utilities, and cities work together to serve the best interests of all stakeholders and customers to modernize the grid:
  • Utilities can share in the cost savings when they promote clean energy alternatives
  • Utilities and cities, with state-level mandates and incentives, can issue RFPs for the best alternatives. Crowd competitive alternatives IN, not out.  Let the market respond to the problem, rather than rely on a utility to dictate a solution.
  • Utilities and cities, with state-level incentives, can promote micro-grid competitions that provide cash awards for efficient, cost-savings solutions.  Cash awards are paid from the cost savings of the best alternatives.
Ideas like these generate diverse, distributed, and more secure energy sources. The old rate-based compensation model is replaced by an outcome-based compensation model.  Free market economics allow for the best solutions to rise to the surface.  Clean energy that is efficient and saves money are better alternatives for all participants as well as the environment.  And the cost savings can be mutually shared across all invested stakeholders and customers.  In some states, the old compensation model that subsidizes expensive, centralized infrastructure (hard costs), is already giving way to a new model of sharing in the savings and reducing soft costs.

How do we usher in this sweeping energy renaissance in Washington State? Washington is long overdue for regulatory reform.  State agencies must lead by example with a combination of mandates and incentives.  Governor Inslee is one of the country’s leaders supporting clean energy reform.  It is time to lend more bi-partisan support to legislation and regulatory reform to make this energy renaissance a reality in Washington.  Electricity regulatory reform is a non-partisan issue that can promote free market competition and in-state renewable energy job creation.

Before us lies an opportunity to be a centerpiece of clean energy policy and implementation.  Washington has abundant renewable energy resources that can be better utilized, especially when combined with energy storage technologies now available.  And Washington possesses a high-tech workforce already working on the “Internet of Electricity”.  Washington can become a Clean Energy Innovation Center that can serve as a role model for the rest of the U.S.  Please don’t leave Washington in the dark – stumbling along with outdated regulations that reward expensive, centralized, obsolete, electricity infrastructure that poses greater security risks.  We can cling to old monopolistic business practices, or we can embrace free market forces to power innovation.  Now is the time to light the way of transparent regulatory reform to ensure a bright future for Washington – a future that rewards affordable, distributed, reliable, resilient, and renewable power as part of a modernized grid.

Russell Borgmann of Bellevue, Washington is a technology management consultant and an advocate for sensible energy alternatives and efficient grid optimization in the Pacific Northwest. Russ advocates Washington regulatory reform to promote rapid absorption of new technologies, innovation, and entrepreneurship to integrate distributed energy resources as part of a modernized grid.

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