Advanced Energy Perspectives

Toward a New Power Platform: Making Consumers King

Posted by Reed Hundt

Dec 3, 2013 9:03:59 AM

    

Zero_Hour_Reed_HundtThis is the third of five blog posts adapted from the new book “Zero Hour: Time to Build the Clean Power Platform,” by Reed E. Hundt, former chairman of the Federal Communications Commission and Board Member of the Advanced Energy Economy Institute. Read all the posts here.

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The shift to the new power platform will become unstoppable when consumers can buy cleaner energy solutions – including both electricity and efficient ways to consume it – for less money than they would otherwise pay for emission-intense energy. As long as those who want to abate climate change insist that consumers must pay more for clean energy, the success of the movement away from coal-fired generation and gas-driven cars will be in doubt.

 

Margaret Thatcher famously said, “There is no such thing as society.” But even the Iron Lady would have conceded that there is such a thing as mass purchasing power. The mass purchasing power of consumers will cast the deciding vote for the new power platform, when consumers can buy energy solutions that are both cleaner and cheaper than what is otherwise available.

 

Let’s imagine the passage in every state and at the federal level of a consumer bill of rights. Each American should be able to order and get (1) a cheaper and cleaner bill for household or business consumption, (2) no up-front payments for any of the steps necessary to get cheaper, cleaner energy solutions, and (3) convenient access to charging stations for electric cars.

 

As a consumer, I want to order cheaper, cleaner energy. I am willing to be put on a waiting list, recognizing the utility might not be able to provide my individualized energy solution for six months or even more. I understand that the utility has to study my pattern of electricity usage, figure out how much space is on my roof, and maybe ask me some questions about whether I need to keep all the computers on all the time and so forth. Perhaps the utility will give me a package that includes installing solar panels on the roof, switching out the old windows in the living room, and doing the laundry in off-peak hours. I want to pay less for my total energy solution (compensating me for the trouble of allowing people to install solar on the roof or moving my laundering routine to the evening). And I want a promise that my electricity is generated with less greenhouse gas emissions.

 

In addition, I want someone else to pay the upfront cost of the steps I had to take to lower my energy bill. I will pay that cost on my energy bill, or as part of my mortgage. I do not mind paying over time, as long as the total of the energy bill and the payments makes me better off than I was without taking these steps. State green banks could provide capital to financing companies in return for a promise on their part to enter this financing business. After all, consumers can finance car and furniture purchases. Just as easily, financing should be available for the new power platform. Consumers should not have to pay any up-front cost of distributed power or efficiency.

 

I would like to buy an electric car, but I do not want to worry about finding charging stations on the way to work. Automobiles would not have made America a car country so quickly and thoroughly if governments had not taken on the responsibility for building roads and establishing zoning regulations that brought gas stations into multiple intersections. Now governments should assume the job of creating in every urban area a network of charging stations and battery repair and maintenance facilities. Eminent domain and licensing power can accomplish wonders in network building. Uncoordinated, individual action cannot efficiently produce a charging network soon enough for me, or the rest of the car buyers who are eager to go without gasoline.

 

To launch mobile communications, the government needed to make sure someone built cellular or cable networks. In those cases, the government awarded exclusive or limited licenses, required interoperability, granted spectrum, and took many other actions to attract the private capital to build those networks. These same actions can be replicated for charging networks – knowing that if the networks are built, the electric cars will come. Utilities, for instance, might well seize the opportunity to build charging networks, just as the old Bell telephone companies now own vast networks of cellular base stations.

 

These three rights – buy cheaper and cleaner energy solutions, finance up-front costs, and rely on others to provide charging station networks – will make consumers leaders of the move to the new power platform. Candidates for public office should want to advocate this bill of rights. It will gain many more votes than telling people they ought to pay more per kilowatt-hour because the utilities need the money due to regulatory requirements.

 

More than a dozen states already require their utilities to offer what is usually called “green power.” But in almost all cases, the regulators allow the utility to charge more for the electrons that are said to come from clean fuel generation. The premium prices are 10 percent or more above the prevailing price. The marketing could be more persuasive; the billing is not a model of clarity. But the major problem is that “green power” is more expensive than normal power. Meanwhile, RPS and possibly the EPA will make the utility move to the new power platform anyway. So, consumers do not see much reason to buy “green power” as it is now offered. After more than a decade of experiments in retailing green power, its market penetration is trivial.

 

Regulators need to change their approach to green power. Utilities should be given many ways to offer cheaper, cleaner energy solutions. They ought to be able to borrow from state green banks to finance the up-front cost of their consumers’ energy efficiency measures, or solar panel installation. They should be able to use green bank money to fund clean energy generation so as to give themselves greater access to clean electricity supply. If the utility can lower its costs because electricity demand is falling, the utility should be allowed to garner extra profits from expanding its margin.

 

At present, state regulators ask utilities to comply with RPS obligations to purchase clean energy, instead of doing much to encourage consumer demand for clean energy. The utilities, typically, buy clean energy at a higher price than other generation sources, and then they pass the extra cost on to all consumers. Without consumer demand for clean energy, utilities will only purchase renewable power until they satisfy their regulatory obligation. Growth in renewable generation will flatten as RPS’s are met, unless RPS targets are increased or consumers demand more clean energy. No one does much to explain to consumers what is going on. The utilities, their regulators, and politicians worry about consumer backlash. So most states impose fairly light RPS requirements and enforce them gingerly.

 

The principle behind RPS is that all consumers should bear the cost of moving to the new power platform. In some states, the utility recovers the RPS cost as a surcharge on its bill. This collection mechanism resembles a sales tax. It is regressive; that is, the charge mulcts lower income earners more as a percentage than it takes from higher income earners. Its design minimizes potential consumer support, because no one is given a chance to select clean energy or to decide to buy an RPS credit by installing rooftop solar or spending on energy efficiency. Agency lies with the regulator and the utility, not with the consumer.

 

Suppose half the consumers order cleaner, cheaper energy solutions. In this way, consumers would participate in a purchase-driven plebiscite that in effect resets the RPS at the level that popular support permitted. The utility then would focus on giving consumers what they want, instead of dedicating its efforts principally to negotiating with regulators.

 

Regulators, for their part, will find their jobs much easier if people are choosing to move to the new power platform. To govern and direct, a regulator must be an advocate for the people. The regulator has to make people better off, as opposed to imposing on them a view about a better way society or the economy should be organized. In the energy sector, the people want and deserve cheap electricity solutions, affordable not only by some but by absolutely everyone. Making that electricity clean is the problem to be solved. Raising the price to consumers is the solution that must be ruled out.

 

Putting consumers on the side of change should not be seen as a radical idea. Creating greater consumer demand for clean energy resembles normal marketing ideas in other sectors. Many businesses introduce new products by offering discounts, rebates, and credits. Government itself has sometimes ordered firms to offer new choices to consumers. Back in the day when long distance service was monopolized by AT&T, government ordered AT&T to offer its customers a choice of moving to MCI or some other carrier, in order to restructure the market in a more competitive fashion. In the 1996 Telecommunications Act, Congress told the FCC to require dominant telephone service companies to share portions of their network with rivals in order to shift market share toward a more competitive structure – a far more radical move than any necessary in the energy sector.

 

By assuming the customer is always right, regulators, elected officials and energy business leaders will find that human behavior is not an obstacle to change. A good deal is a good reason for supporting a new power platform.

 

Previously: Why We Can Move Quickly

Coming next: No Doom and Gloom in Selling the New Power Platform

 

Over the course of 2013, AEE has held several CEO forums, co-sponsored by AEE and MIT’s Industrial Performance Center, to discuss building the 21st Century Electricity System. Click below to learn more.

 

Download Summaries of the  21st Century Electricity  System CEO Forums

 

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