The following is a contributed article by Todd Glass, partner at Wilson Sonsini Goodrich & Rosati.
On Election Day 2020, I would like to offer a non-partisan, revolutionary idea to frame energy policy in the United States: prioritize the interests of the retail customer.
For too long the myth of the unengaged and unsophisticated retail consumer has prevailed. Utilities have deigned to speak for the interests of electricity customers in a paternalistic manner biased in favor of the past and their economic position. As witnessed in Ohio, Illinois, Florida and Nevada in the past few years, utilities have taken advantage of their power and influence to preserve their vertically integrated monopoly positions rather than to prioritize the services delivered to the customers.
This is not surprising; monopolies are going to monopolize. While we have begun to see some state utility commissioners and staffs being released from long-term capture to reevaluate how the electricity system can evolve, others remain complicit or just too comfortable with the status quo.
Along the way, the interests of customers have been lost. A utility thinking its customers just want to buy cheap kilowatthours is about the same as a restaurant thinking its customers just want to buy cheap calories. Like food, information, and communications, the electric power commodity can have more value as a service tailored to the needs and desires of the retail customer whether residential, commercial, and industrial.
Politics need not divide us on the central question of how to maximize the value we can bring to retail customers across the nation. Republicans like competition, cheaper energy, and less regulation and top-down control in the energy industry. Democrats want a rapid shift toward a clean energy infrastructure, customer empowerment, and greater transparency about carbon footprint and costs in the energy industry. Both sides stand to gain in coming together to unleash innovation in electric power supply and services.
As we wrote in Utility Dive last year, we are facing a once in a life time opportunity to decarbonize the grid, innovate new, competitive business models, and give customers what they want: choice.
In 36 states, retail customers have little or no choice in electric supplier or product offerings. In many states, customers are locked into the legacy carbon-heavy generation mix provided by their vertically-integrated utility. When offered, utility green power tariffs are priced at a premium above both the regular legacy generation mix and the real cost of renewable energy today because, quite simply, that is how utilities do it.
Incredibly, despite the decreasing costs of wholesale electric power across the United States (due to renewables, cheap natural gas, and coal retirements), retail rates in vertically-integrated states continuing to rise.
Many utilities are simply unwilling to evolve towards the "Utility of the Future" (and take on new economic, technological, and operational risks) until they are forced to give up their integrated retail monopoly and wholesale monopsony positions. While resistance to change is economically rational for utilities, it is not economically beneficial for retail customers.
While exclusive service territories may have made sense in the past in order to pay for last mile electrification, they make no sense now as the interconnected grid and independent power producers in most parts of the Continental U.S. (excluding Alaska and Hawaii) are sufficiently well-developed to create robust competition for generation service at the wholesale and retail level. By increasing the ability of private capital to invest in the infrastructure needed to power the grid of the future, ensuring that regulations permit customer choice while ensuring strong consumer protection, and encouraging innovation, we can achieve our collective goals.
Regardless of who wins in the election today, elected officials can lead by empowering electricity consumers to drive decarbonization, innovation and change through voluntary retail choice. Let the people choose their source and type of power. Let them buy more modern, greener electric services and help transform the grid. Let them choose among vibrant, competitive service offerings just as consumers enjoy in telecommunication, broadband, cable, transportation, and virtually every other formerly exclusive public utility service.
Allow electric power suppliers to compete, innovate, and develop services more responsive to the desires of consumers. Wires services may remain a nature monopoly regulated by the state commissions and the Federal Energy Regulatory Commission, but where utilities fail to provide reliable service, alternative service providers (such as microgrids) should be allowed to compete.
If competitive energy suppliers cannot offer a better option, customers may remain with their incumbent local utilities. Utilities should be adequately compensated for any reasonable stranded costs created by this transition. Yet, customers should not remain "owned" and taken for granted with single-source, vertically-integrated monopoly service for another 100 years.
Unleashing retail competition can benefit all customers. Competition will drive down cost of electric generation for all customers as it has in restructured retail access states. Competition will accelerate the retirement and clean-up of inefficient legacy fossil-fuel generation plants, many of which have had disparately negative impacts on minority and less affluent communities. Competition will encourage investment in new greener infrastructure, create long-term, good-paying jobs, and stimulate an economy languishing due to COVID-19. Competition can accelerate compliance with clean energy standards in the most efficient economic manner.
The starting place for ensuring a responsible and effective deployment of innovation and rapid decarbonization in the electric system is allow for competition and ensure retail customers are adequately protected from potential abuses that could otherwise emerge. This frontier should be governed by a common Bill of Rights that will guide the conduct of innovators, utilities, and regulators:
Electricity Customer Bill of Rights
- All customers shall have the right to affordable, reliable and safe electric power, free from extended outages.
- All customers shall have the right to know the types of generation used to provide electric power service as well as the true and accurate cost of the service.
- All customers shall have the right to choose 100% clean energy and the source of such energy from a provider of its choice.
- All customers shall have the right to self-generate electric power or otherwise buy power, store power or engage other energy management services behind the meter, subject to reliability requirements.
- All customers shall have the right to receive and choose electric service related offers tendered to them from a robust, free market comprised of private, public, cooperative, or collective service providers in which fair and open competition exists with respect to each competitive service offered to customers; customers with multiple loads may choose to combine load requirements and purchasing preferences with affiliates or others in buying their electric power needs.
- Customers, either directly or through providers of aggregated energy services, have the right participate in wholesale markets through open and transparent signals that foster informed customer choices and require fair competition between providers and aggregators.
- All customers own their specific electric power usage data; while they may authorize the use of such information by third parties, the privacy of such information shall be protected.
- All providers of competitive electricity services shall be subject to robust consumer protection laws to ensure fair and transparent competition while protecting retail customers from potential abuses.
- While distribution and transmission companies providing open access wires services may be maintained if reliable and adequately regulated; neither Congress nor the states shall establish or permit vertically-integrated monopolies, monopsonies, or the exercise of market power in wholesale or retail generation electric markets; FERC and the states shall require the breakup of any monopoly or monopsony exercising market power in wholesale or retail electric markets.
- Congress shall establish strict rules establishing real functional unbundling in generation, distribution and transmission companies such that those companies participating in electric power markets and wires companies shall have no cross-company influence, common management, common lawyers, or flow of information.