Energy Collision Coming: Technology Evolved, Why Haven’t Utilities?

May 28, 2019 | 10:23 am
Photo: Famartin/Wikimedia Commons
Mike Jacobs
Senior Energy Analyst

Our modern economy depends on electricity, the miracle technology of the 19th century.  Many old policies and practices of the electric utility industry have stuck with us into the 21st century.  Electricity has had heroes and villains along the way, as well as enormous accomplishments of engineering, public service and safety.  While economics and public attitudes have changed about many things since the first electric bill was sent in January 1883, there are tools and techniques, as well as attitudes in the utility industry that do not change as much.  To serve society and maintain a healthy environment, we need a utility industry open to modern ideas and new approaches.

Maybe because the industry was based on a monopoly business model for 100 years, or because the invisible product requires engineering, or because there is a tension between the public interest and companies shrouding themselves in the name “public service company”… but whatever the reason there is a utility company culture that often appears paternalistic or patronizing.  New technologies owned by consumers could make our energy supply safer and less expensive if customer and public interests and investments were better recognized by the old utilities.

Today in the U.S., many changes are bearing down on electric utilities that demand a modern grid approach, such as state and city clean energy goals, and customers adding rooftop solar and electric vehicles.  But the old utility company tendency remains, with assurances to one and all that the large, sophisticated corporation has society’s best interests in mind, and there’s no need to pay too close attention. Sometimes that doesn’t quite work out.

Exhibit A: PJM

By some measures, the largest and most sophisticated U.S. utility is PJM, the grid operator for the region from New Jersey west to Chicago and south to Virginia, Kentucky and North Carolina. PJM provides the command and control, the market rules, and the financial clearing for wholesale electricity and high voltage transmission used by 65 million people in 13 states plus D.C. PJM is regulated by the Federal Energy Regulatory Commission (FERC).

But when we look at recent developments making headlines for PJM, it seems clear that the public is still getting an arrogant utility that is treading on state policies, with too little care for consumers wallets.

Witness the case of Green Hat, a financial trading firm with a questionable history (and a headquarters addressed to a UPS store). In response to Green Hat’s unusual and ultimately failed financial activity, PJM made a series of mistakes, from misunderstanding collateral and risk management, and then incorrectly believed a Green Hat pledge would suffice, or that the situation could get worse. Green Hat’s unchecked speculation in PJM markets ended in default, which led to the departure of the PJM CFO and some $400 million in financial obligations for consumers. An independent report cited “an unwarranted air of confidence” as a contributing factor to this fiasco.

Witness a level of arrogance when PJM fails to report its political contributions.  This is required by law to allow proper public oversight.

Witness the fight PJM has entered by taking to FERC a request to exclude zero carbon and renewable energy plants from its capacity market. The capacity market creates the inventory of plants that count for reliability and transmission infrastructure.  PJM holds that state clean energy policies that support clean air and climate by helping these plants is an unacceptable interference with the market. (This is the “MOPR” rule, for folks following closely.)

The PJM proposal for changes in rules (known as MOPR”) will move state-supported resources out of the capacity market, resulting in higher costs for consumers.

A particularly old-style approach from PJM is seeking additional revenues for coal plants with a vague argument that “fuel security” is a thing we need. (It isn’t.) PJM continues to push this debate, despite PJM meeting all reliability standards and recently boosting power plant payments already used for reliability. In addition, PJM has rejected ideas that would look at winter needs separate from summer needs, saying over and over that there is ample supply in winter. See graph below.

PJM pays for year-round supplies, even though winter needs are lower.

Change is here, what’s the right thing to do?

Meanwhile, changes abound in the energy landscape. Public opinion favoring clean energy is higher than ever, and states as well as local governments and corporations are adopting policies for higher levels, even 100% clean energy. Homeowners (2 million the US) have taken up solar as a DIY energy policy.  In fact, even PJM anticipates current mandatory Renewable Portfolio Standards will lead the PJM region to add 25,000 MW of wind and 12,000 MW of solar resources, with ~8,000 MW of that total behind the meter, by 2034. Thanks to state policy leadership! The economics and investment in renewable energy, demand response tech, and storage are all on the upswing across the U.S.  But PJM has taken steps to hold each of these down.  As PJM stays with old approaches to issues of fuel supply, a year-round capacity approach that over-supplies in winter, and an embrace of old state-sponsored resources while rejecting new state-sponsored resources, a collision is coming.

Elected officials and public interest advocates are championing lower costs and clean energy with a variety of state policies. These policies often address market failures and unpriced environmental externalities. Energy policy is relevant to local economic development, job creation and pollution-reduction. PJM objects to the states making policies that set priorities in energy production.

The way forward

There will be a public interest, and involvement, in the utility industry. PJM will need the participation of assertive state agencies and public interest groups that can look beyond the screen that PJM offers to through its external affairs efforts. PJM could change, and decide to facilitate the existing state RPS laws and demand-side policies. Change could also be driven in a constructive way by Congress and FERC, it could be a gradual erosion of engagement as local jurisdictions go a different way than the PJM vision.  Policymakers and industry have got to keep up with the times.  Changing public needs, technology and economics cannot be ignored forever.  The record shows that PJM has more to do for consumer protection, transparency, and the enabling of a clean energy transition.  In reference to the words of Martin Luther King, Jr., these are times of challenge and controversy for the utility industry.

About the author

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Mike Jacobs is leading the Union of Concerned Scientists’s work on electricity markets and regulatory reform. He develops proposals in an effort to shape federal, regional and state electricity markets, regulation and policies to encourage the expansion of renewable energy resources and the reduction of coal-fired generation.