We have seen the pictures before. A man and his dog, both wet and disheveled, gliding down the middle of a residential street in a rowboat past downed power lines. As they drift, they pass the tops of cars parked at the curb, immobile. As they drift further, they see a woman and child standing on the roof of a darkened house, dazed. Is the child missing a toy or maybe a pet? Is the woman missing a spouse or maybe a child?
Now consider sitting at home watching the game or a movie or the news when the TV flickers and then goes out, along with all the other lights and electrical appliances in your home. After a minute or two your concern rises as you reach for your cell phone and call the power company. Your local utility responds that they are aware of the problem and that repairs will be made within the hour.
Now consider the fate of the island of Puerto Rico after Hurricane Maria. Six months after the hurricane, people are still without power. Maria initially left 3.4 million U.S. citizens without electricity, and it became known as the apagón, or super blackout. As a result of the apagón, schools, homes, and businesses were damaged or destroyed; safe water was hard to come by; unreliable and dangerous diesel fuel generators were called into use; food and money were in short supply; and a risky, and sometimes fatal, strain was placed on the health care system. The death toll for the disaster has been estimated at over 4,600 fatalities, even though the official government death toll still stood at just 64 nearly a year later.
There is something additionally disturbing about these pictures. Not only do they cover a range of risks to health and life, not to mention ordinary creature comforts, they are occurring faster and with more devastating consequences than we have experienced in the past. Consider some recent facts:
- In August 2003, tree branches caused the largest power blackout in North America, affecting 50 million people at a cost estimated upwards of $10 billion.[1]
- In August 2005, Hurricane Katrina hit the Gulf of Mexico and devastated 400 miles of coastline, destroyed the electric grid, and caused more than 1,500 fatalities and more than $40 billion of insured losses.
- In August 2011, Hurricane Irene left 9 million customers on the East Coast without power and caused approximately 48 deaths and more than $15 billion in losses.
- In June 2012, a powerful windstorm in the Midwest and mid-Atlantic left 4 million people without electricity. Some were without power for several days, others for several weeks.
- In October 2012, Superstorm Sandy left more than 10 million customers in 24 East Coast states without power, causing losses of more than $50 billion.
- In August 2017, Hurricane Harvey struck the Gulf Coast, causing $125 billion in damages, impacting 13 million people, and causing at least 88 deaths.
These varied stories and statistics share one commonality: The electric grid failed. The consequences — ranging from inconvenience to the loss of life — underscore the importance of this product. Electricity is not a convenience; it is a necessity. Electricity is not simply an input to economic growth; it is essential to daily life.
In the face of power outages, what do we do and what should we do?
What We Do
In the face of a power outage, consumers all do as noted above: We call the power company and hope for a quick fix. The power company, in turn and in fact, prepares for that call. Utilities regularly plan for such emergencies and conduct exercises and drills in anticipation of such outages. Indeed, utility websites assure customers that they continually plan and are prepared for such events. Of course, power outages, particularly those due to extreme weather events, do not fall exclusively within any single utility’s territory. Consequently, regional responses are necessary to address grid failures.
Prior to Superstorm Sandy, and recognizing the need for regional cooperation, the Edison Electric Institute (EEI), a trade association representing investor-owned utilities, helped facilitate Regional Mutual Assistance Groups (RMAGs), a voluntary program among electric companies in a region to coordinate emergency responses. The RMAGs were organized expressly for the purpose of responding to outages by coordinating logistics and personnel in order to restore the grid. RMAGs were tasked with identifying the necessary skills, equipment, and materials needed to rebuild powerlines, replace damaged poles, and restore power to customers.
Sandy was a catalyzing disaster. Its geographic scope, its magnitude, the millions of customers affected, and its multibillion-dollar costs alerted utilities and their trade associations that existing regional responses were insufficient to address a national response event (NRE). Thus, after the storm, EEI reorganized the RMAG program by (1) consolidating some of the smaller programs; (2) enhancing and formalizing commitments in anticipation of national outages; (3) and developing guidelines for responding to NREs.
Recently, another study regarding responses to national-level events that produce outages made additional recommendations including the following: (1) Utilities should have contracts or memoranda of understanding in place with manufacturers for essential personnel and materials; (2) Memoranda of understanding should be in place among federal, state, and local governments as well as law enforcement agents, outlining responsibilities prior to, during, and after such events; (3) Utilities and government response coordinators should share their response plans; and (4) The public and private sectors should work to develop better forecasting tools and more accurate data.
Assuming, for the moment, that each of these responses, including those of the federal government, are successful, notice that all respond to one challenge — repair the grid. This fix addresses the immediate problem. However, the better question for us to address is whether grid repair is enough, or must we go beyond it?
The Grid
The electric grid, sometimes referred to as the most complicated machine ever invented or one of the greatest engineering achievements of the 20th century, is essential for the delivery of electricity. Nevertheless, the grid has aged, and there is a strong consensus that it is in need of a multi-trillion dollar investment. The question, however, is: Will upgrades and improvements be enough?
Grid modernization is insufficient to protect all consumers, and particularly low-income consumers who suffer from energy poverty. Energy poverty is defined as “the inability of households to afford energy services for adequate heating and cooling resulting in uncomfortable indoor temperatures, material deprivation, and accumulated utility debt.” If catastrophic losses are occasioned by catastrophic events and by the fact that millions of Americans are connected to the grid, then another response that goes beyond grid repair is needed. In part, that broader response is to transform the grid by making it “smarter” and by requiring it to deliver different energy products and services. And, moving beyond the smart grid, the entire electric system — from production through delivery and consumption — must be reimagined and designed for an ongoing transition to a clean energy future.
The grid can be made “smarter” through technological improvements that provide two-way communications among various producers and customers; that make greater use of information and communication technologies to send more accurate price signals and set more accurate rates; that can balance inputs from variable energy sources such as solar and wind; and, perhaps most importantly, can manage an array of distributed energy resources (DER) such as rooftop solar power, wind power, and microgrids.
More notably, as the electricity landscape changes and as new technologies come onto the market, customers can generate all or some of their own power; they can then disconnect from the grid in whole or in part; and energy markets can be decentralized. The smart grid, then, becomes not only emblematic of a changing electricity industry, it is emblematic of a major transformation of our energy economy from a centralized, traditional, fossil-fuel reliant economy to a decentralized clean energy economy.
During the Obama administration, federal efforts to modernize the energy sector included planning for a clean energy transition. The government acknowledged the direct connection between energy production, distribution, consumption, and disposal, and the environmental consequences at each of those stages of the fuel cycle. Additionally, growing awareness of the dangers and risks of climate change became part of federal energy planning through such initiatives as signing the Paris Climate Agreement; enacting the Clean Power Plan; developing a Climate Action Plan; and funding clean energy research and development through the American Recovery and Reinvestment Act (the 2009 stimulus bill), among other activities. The Trump administration has reversed each of these initiatives.
Despite President Trump’s animus toward clean energy in favor of traditional fossil fuels, there are positive signs. When enacting the 2018 omnibus budget bill, Congress rejected many of the administration’s most drastic proposed cuts to environmental and clean energy programming and, in several instances, added money to those programs. Additionally, over the last four decades, a strong policy consensus has formed in favor of a clean energy transition and, although federal leadership would be welcomed, the transition proceeds apace as state, regional, and local levels of government pick up the slack.[2]
Traditionally, U.S. energy policy has been large-scale, capital-intensive, and highly centralized. The current electric grid fits neatly into that model. Further, the traditional model has heavily relied on fossil fuels and nuclear power. Until a decade ago, those resources constituted over 95 percent of our energy production, with renewable resources accounting for the rest. Within the last decade, renewable resources and energy efficiency account for approximately 10 percent of our energy profile, as the cost of generating electricity from wind and solar decline and approach grid parity.
A clean energy economy is structured differently from the traditional model. A clean energy economy reduces the scale of energy production and distribution and brings energy services and products closer to the consumer. In short, the energy economy becomes more decentralized, more labor-intensive, and relies increasingly on a more aggressive use of clean renewable energy resources and, perhaps more importantly, an increased use of energy efficiencies. Significantly, this new decentralized energy paradigm should reduce the damages and injuries caused by major power outages by restricting the scope of harm.
As the country moves to a clean energy future, there are three essential components for a successful transition: Technological innovation, aligned business practices, and supportive government regulations must be coordinated for the transition to succeed. Sound clean energy policy reveals a coordination among these elements, thus promising a dramatic change in the fundamental model of U.S. energy policy.
What Should Be Done?
Technological innovation
Currently, the generation and distribution of electricity is a one-way system and depends on an interstate infrastructure, as well as complicated regional energy markets. Large central power stations generate electricity and sell that electricity to markets for delivery to consumers who then pay their electricity bills. Because electricity cannot be stored in large amounts, supply and demand must be balanced; otherwise, the grid risks collapse. The balancing is done through complex computer programming on regional and statewide bases.
Today, however, new technologies such as rooftop solar, microgrids, smart meters, advanced metering infrastructure, electric vehicles, and improved electric storage are dramatic alternatives to the model of large-scale power plants. These technologies enable consumers to exercise greater control over their energy use and, simultaneously, alert power producers to the need for them to pay more attention to consumer demand.
As a result of innovative communications and information technologies, the electricity system of the future will be a two-way system in which improved information about energy prices and energy services flows between producers and consumers. As consumers have the increasing ability to generate their own electricity, to the extent that they generate more electricity than they use, they then become electricity producers themselves. Furthermore, to the extent that customers are able to store electricity, such as through electric vehicle batteries, they also provide storage and balancing services to the utility. In short, utility customers now become “prosumers”; not only do they buy electricity from the utility, they can also sell their own electricity to that utility as well as provide the utility with other valuable services, including increased reliability and improved cybersecurity.
The utility of the future
In addition to technological innovation, privately owned utilities are facing significant challenges. Not only are consumers exercising more control over their energy choices, demand for electricity has flattened notably. Consequently, the traditional “grand bargain” between utilities and their regulators must be, and is being, re-examined. Traditionally, utilities were encouraged to invest as much capital as possible in generation and equipment because they were rewarded based upon the amount of electricity they sold. The problem with such a model is that once demand has been satisfied, then additional capital investment necessarily raises the price of electricity. High electricity prices, in fact, resulted when the electric industry reached a technological plateau over 40 years ago.
The market was not unaware of increasing electric prices, and it responded by revealing the fact that cheaper, non-utility electricity was available. Aided by the federal Public Utility Regulatory Policies Act, small power producers were able to generate electricity cheaper than that produced by large central power stations and they needed that power to get to market. Additionally, consumers became self-generators. Consequently, as the demand for large central power plant electricity flattened, traditional utilities’ revenue was at risk unless they developed new business models.
The utility of the future will no longer exist only to sell as much electricity as possible. Nor will such a utility depend on volumetric rates as their only source of revenue. Instead, the traditional electric utility will become an energy provider that, in addition to selling electricity, will sell other energy services, including demand-reducing efficiency measures. The utility of the future, for example, will set prices according to time of use, provide energy audits to encourage energy efficiency, develop new business lines with innovative energy technologies, and play more of a coordinating role between traditional utilities and an array of non-utility energy providers, ranging from individual rooftop solar owners to large-scale non-utility wind farms.
Regulatory innovation
The electricity industry was regulated for most of the 20th century based on the idea that electricity was a product in the public interest and that it should be universally available at reasonable prices. For the first two-thirds of the century, utilities were able to realize economies of scale, which meant that they could produce larger amounts of electricity at either flat or declining prices. Consequently, producers were happy because profits were reliable; consumers were happy because their energy bills were stable and often falling; and regulators were happy because there were few conflicts between consumers and producers.
In the mid-1960s, however, the utility industry had to respond to increasing electricity costs caused by economic factors such as rising energy prices and the costly, mistaken investment in nuclear power. Since that time, federal and state regulators have undertaken a number of experiments under various headings such as deregulation, restructuring, and, in some instances, reregulation. All of these experiments were driven by changes in the electric industry and the reality that traditionally structured utilities are no longer the only game in town. Instead, the electric industry is becoming more competitive as new actors, new technologies, and new industry arrangements challenge the old model. The old electric industry is becoming cleaner and more environmentally sensitive. The industry is also becoming more decentralized and more competitive.
Consequently, regulators must design a regulatory environment that can accommodate changes in the industry as it undergoes a clean energy transition. In short, regulators must:
- Rethink the regulatory compact that rewarded traditional utilities for building more plants and selling more electricity;
- Accommodate new sources of electricity from solar and wind providers as they become more cost-competitive;
- Encourage and support technological innovations;
- Promote and support energy efficiency; and
- Provide a platform for decentralized and distributed energy providers.
Currently, several states throughout the country, including California, Vermont, Hawaii, Minnesota, Maryland, and New York, are engaged in reconfiguring their electric systems. In 2015, New York launched a program known as Reforming the Energy Vision (REV), which is the most wide-ranging system reform in the country. REV was not primarily driven by environmental concerns. Instead, the New York Public Service Commission was greatly concerned about the “tidal wave of costs that will arise in the not too distant future, as aging infrastructure reaches obsolescence and will simply need replacing (at great cost and with no noticeable new value to customers).” Superstorm Sandy only highlighted those vulnerabilities.
The program is based on three basic principles: First, building a smart energy distribution platform; second, aligning utility earnings with environmental outcomes; and third, engaging consumers so that they become not only buyers but market participants, as well. The primary goal of the REV is to incorporate innovative technologies that can be used to support greater grid flexibility, paying particular attention to adopting expanded use of intermittent technologies such as wind power, solar power, and other DERs.
REV, then, is a multi-year process with several moving parts, including redesigning the regulatory scheme for electricity regulation, encouraging the development of new business models; performing requisite cost-benefit analyses, and reconfiguring how electric utility revenue is generated. The hope is that a redesigned electricity system will deliver new business opportunities for producers and consumers, as well as create a low-carbon economy that can reliably deliver electricity to disadvantaged populations
Realigned energy distribution
The current paradigm of electricity distribution reliant on a centralized grid means that severe weather that damages the grid will have wide ranging consequences. Thus, to the extent that customers can reconfigure local electricity markets, they can reduce the scope of harm caused by such an event. Ideally, an individual building or home might rely on its own backup generation in the event of a power outage. Such a fix, however, can be prohibitively expensive for most families. Another response, then, is for a consumer to become part of a smaller energy system, such as a microgrid or a community choice aggregation program.
A microgrid has been defined as “an integrated energy system consisting of distributed energy generating resources, both conventional . . . and renewable generation such as solar roof panels . . . and energy storage, operating as a single, autonomous grid either in parallel to or islanded from the existing power grid.” The definition is noteworthy for two reasons. First, a microgrid is a small-scale system of electricity distribution and storage. Second, microgrids are a form of distributed generation (DG) or DER. The small-scale nature of such resources can be used to generate electricity at a local level rather than depend upon large-scale interstate generation and distribution. Microgrids can be used by neighborhoods, universities, shopping centers, military installations, and any other array of consumers.[3] Thus, in the event of a natural disaster, harm can be localized and reduced.
Another form of decentralization is known as community choice aggregation. Through such a program, cities, counties, and other government entities can aggregate individual electricity consumers within a defined area for the purpose of providing electricity and other related services. Several states, including California, Illinois, Ohio, Massachusetts, and New York, allow local governments to procure their own electricity supplies through this device. In most instances, incumbent electric utilities continue to operate in those areas, at least for backup purposes.
Advocates for community choice argue that it is more democratic because it provides more local control. They also argue that community aggregation increases consumer choice and also provides local economic development benefits. To the extent that such aggregation relies on renewable resources and energy efficiency, aggregation is also more environmentally friendly. Further, to the extent that reduced energy consumption is a goal of such aggregation, consumers should enjoy greater rate stability and lower prices. Additionally, local control might also be more sensitive to low-income users.
The municipal electric utility
As a final example, many cities in the United States are considering the municipalization of their electric utilities. Today, privately owned utilities account for approximately 70 percent of the electricity that is produced and delivered in the United States. The remainder is produced and delivered by utilities owned by the federal government such as the TVA, by rural electric cooperatives, or by municipalities. In an era of decentralization, some cities, most notably Boulder, Colorado, are reconsidering municipal ownership.
The advantages perceived for municipally owned electric utilities are: local control over prices and resources, potentially reduced prices resulting from the nonprofit status of the ownership, more responsive management services, and keeping jobs within the community. Municipally owned power can differ from community aggregation by being completely disconnected from the grid.
Since 2011, Boulder has been exploring the idea of becoming a municipal electric utility completely disconnected form the local utility, Xcel Energy. The main impetus for municipalization is to achieve a goal of 100 percent clean energy and an 80 percent reduction in carbon emissions by 2050. In other words, municipalization empowers the community to set goals, such as environmental protection and energy independence, other than the traditional utility goal of maximizing electricity sales
Before a successful transition to municipal electricity can occur, numerous steps must be taken, including the creation of a business plan, modeling and forecasting for future energy demand and reliability, and analyses of environmental and climate effects, as well as municipal financing. Approval for the separation was granted to Boulder by the Colorado Public Utility Commission in September 2017 with multiple conditions. The city estimates that it will cost approximately $110 million to separate from the grid and acquire the necessary materials. As of this writing, there is no specific date for the separation, and final voter approval is required before it goes into effect. The decision timeline is based upon the above-referenced reports, including the monetary commitment of a minimum of $16.5 million to begin to acquire and build essential assets.
Moves in this direction are important because centralization of the electricity system has resulted in higher-cost electricity, an aging infrastructure, catastrophic losses in the event of damage, and an outdated business model designed to promote consumption rather than efficiency or environmental protection. As a result, the demand for centralized electricity has decreased substantially while many non-utility providers seek to enter the market. Climate change and environmental harms add other complexities to the energy sector. Fortunately, technological, business, and regulatory trends support the transition and promise a better, cleaner energy future as the country moves beyond repairing the grid to constructing a safer and more resilient electricity sector.
To facilitate this transition to a clean economy, regulators can take three steps. First, subsidization of large central power stations must come to an end. Second, utilities, with the support of appropriate regulations, must invest in a smart grid that is capable of managing clean and variable energy resources such as solar and wind. Third, and perhaps most importantly, utilities and other entrepreneurs, as well as federal and state regulators, must continue to invest in and explore options for power storage. Together, these efforts will further a much-needed energy transition.
