Private wires and the electric power industry you want

Michael Giberson

The New Republic has an excellent article by Bradford Plumer about the current state of the electric power industry and the prospects of the industry achieving what diverse interests expect of it. (Yes, in TNR, who’d a thunk it?) The article highlights the political economy of regulated electric utilities and their immense lobbying savvy and political sway, and how the existing regulatory framework acts to perpetuate the status quo.

The article leads off with an anecdote about Tom Casten wishing to develop a combined heat and power (CHP) plant for a chemical plant in Louisiana in the early 2000s – you know, one of those win-win-win projects that recycle waste heat to make electric power, reduce air emissions, reduce costs to the industrial company host, and still makes a profit for the CHP company. The proposed project never got off the ground due to the lack of support from the local utility, and that lack of support was attributed to a regulatory structure which rewards utilities for owning power plants rather than minimizing the cost of power to consumers.

The article goes on to tell more stories, and delves into issues like renewable portfolio standards, distributed power, smart grid visions, and how a mostly-regulated industry is going to do tackle all of these changes while not upsetting existing political deals and getting paid a fair rate of return. Overall, the inherent conservatism of the regulatory approach suggests that change is going to come slowly to the industry. It is kind of depressing.

[In] Louisiana, as in most of the United States, state law forbids anyone from stringing up private wires across a public street. Casten couldn’t market his power directly–he could only sell it to the local electric utility. And, because the utility, due to state rules, chiefly earned a profit from the power plants it built and ran itself, it refused to offer anything more than rock-bottom prices for Casten’s recycled power–prices too stingy for the project to work. After many months of bitter wrangling, Cabot gave up entirely. As a final insult, the utility later won approval from regulators to build a brand new fossil-fuel plant, a pricier way to generate electricity that would also add more carbon to the air.

I’ve long been a fan of the idea of allowing “private wires,” that is to say, allowing a non-utility power plant to string a wire in order to reach a customer. So long as utilities can rely on the coercive power of the state to maintain monopoly service territories, electric power entrepreneurs will have to innovate mostly on terms and conditions acceptable to the utilities and their regulators. That is why, as Kurt Yeager of the Galvin Electric Initiative put it, “When it comes to electricity, we’re still living in the era of black rotary phones.”

Allowing private wires will undo the utility industry’s veto on innovation and help foster the kind of creative destruction that consumers need if consumers are going to get what they want.