Friday, September 21, 2007

Regulation and New Technology

Over and over, people ask me questions like:
If the technology's there, why don't we have more wind (or solar)power?
Why do we have to use so much coal when we could use renewable energy?
Why aren't there smart meters installed everywhere?
Why don't we have a smart grid?
Why are my rates going up so suddenly?
Why? Why? Why?


Well, one of the most important things to remember is that, for the most part, our utilities live/work/play in a regulated environment -- particularly at the transmission and distribution level. Even in deregulated states, the movement is reversing towards re-regulation of electricity. The business model of a regulated utility is to invest in something and be allowed a reasonable rate of return on that investment by the regulator, the public utility commission (PUC). For the most part, utilities don't much care what they invest in, as long as they can be assured of a predictable rate of return.

So, if you don't like coal, believe strongly in renewable energy, and want smart grids communicating with a smart meter in every home, start lobbying regulators to compel utilities to invest in these things. The utility has to have a regulated rate of return for its shareholders (just about everyone who owns a basic mutual fund or has a pension) and as long as the PUC allows the utilities a regulated rate of return on the investment in renewable energy, smart grids/meters, it will happen.

The problem with the utility industry today is that it is facing increasingly difficult problems from all sides--demand for CO2 controls, deteriorating infrastructure, rising costs due to increased international demand for raw materials, competition for skilled workers, shareholders demanding their dividend checks, PUC's regulating every breath they take, and consumers who want cheap, reliable, electricity that's always available at the flip of a switch. It's a viscious circle of competing interests including the state PUC, the utility, and a generally disengaged consumer base...consumers who rarely pay attention to their electricity unless, of course, they've just experienced a loss of service or their rates are escalating abnormally.

But, it is precisely at this time of increasing challenges that consumers need to wake up and pay attention to that magical thing called electricity that lights their world at the flip of a switch. it is up to all of us to think about what we want, what we need, and what we are willing to pay for in terms of electricity. This is no time to point fingers and ask why not??? It is a time to come together, become informed and engaged in the debate about the direction of our energy future.

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