Power Industry Policy Flip-Flops

When I started working in the energy industry in 1999, I had a conversation one day with Adam, a researcher who was writing a report for utilities that were marketing “green energy” programs. At the time, customers’ ability to purchase solar- or wind-generated electrons was limited to fewer utilities, and those companies were looking for ways to persuade customers to pay more for that “good,” clean electricity.

Green Is Good / Green Is Bad

Utilities wanted to look good by offering green energy, but they didn’t want to construct or contract for it unless they were guaranteed a profit, so they only acquired as much as they could sell to ratepayers, as customers were called in the last century. I remember having a friendly argument with Adam about the underlying strategy. Customers are going to continue calling for more renewables, I said, and it’s smart long-term planning to have that “free fuel” generation as a price hedge. I’ll never voluntarily pay extra for green power, I told him, because utilities should be investing in it on their own, and the cost should be a basic cost of doing business and future portfolio development.

That was not how most utilities handled renewables then. These days, though utilities like to promote whatever renewable power they have in their portfolios, they are just as likely to argue that renewables are bad—for the grid and for non-self-generating customers (though distributed renewables are the worst for a utility’s business growth). That message is also sent in the form of various fees and charges levied on customers who install onsite solar panels.

There’s no question that distributed solar generation, once it hits a (debatable) threshold, creates grid and business challenges. However, some of the outlandishly high actual or proposed fees for distributed generation (DG) are clearly sending the message that “green is bad”—at least when the utility doesn’t control it.

This is an issue affecting utilities of all types and sizes. In late August, Iowa’s roughly 3,000-member Pella Cooperative Electric (which does not offer net metering) withdrew a proposal to charge customers with DG facilities up to 25 kW $85 per month per qualifying facility. That move (had the proposal not been withdrawn) might have worked for a short time, but with the speed of technology change, those customers would have been primed to not just get mad but also to get even—by adopting the next generation of solar plus storage. Time and again, too many power providers have assumed that they would always be able to set the terms of service. That dynamic is changing.

Free Market / Regulated Market

The green energy policy flip-flop is just one example. Another concerns the interplay of markets, regulations, and subsidies. It used to be that fossil- and nuclear-heavy generators (not coincidentally, the traditionally low-cost providers) said they were for free markets, little or no government and regulatory intervention, and no subsidies. Recently, their tune has changed.

Some in the nuclear industry, notably Exelon, have been saying for a couple of years now that certain nuclear plants will have to close unless they get a bailout, because current market conditions don’t value the benefit of nuclear generation—baseload power with clean emissions.

Then there are those calling for special treatment of certain coal-fired units. Most recently, FirstEnergy has stolen the spotlight on this issue. At the beginning of September, the heavily coal-reliant company, which previously supported deregulation, went before the Public Utilities Commission of Ohio to argue for a customer bailout of old power plants that the utility acknowledges “aren’t making money in the open market.” FirstEnergy is seeking a 15-year power purchase agreement that would guarantee a price, regardless of market conditions.

Cheap natural gas has changed the market for both nuclear and coal competitors. Apparently, free markets are only good when they smile on one’s favored generating technology.

Flexibility, Not Flip-Flops, Needed

If generators like FirstEnergy are committed to running the same fleet they did decades ago, yet deathly afraid of losing load and needing to shut down baseload plants, maybe they should support measures that increase load. They might learn from Colorado, where the legalization of marijuana has resulted in a jump in demand from all those grow lights. The latest data from Xcel Energy show that, just in the city of Denver, 45% of increased demand stems from pot-growing operations and accounted for 121 GWh in 2013.

Sarcasm aside, the reality is that reality is changing, the playing field has never been level, and now it’s fluid rather than just tilting. Companies that dig in their heels to keep outdated plants operating on life support—as in the case of FirstEnergy, whose last Lake Shore unit, built in 1962, just shut down in April—are digging their own graves. FirstEnergy said it was shuttering that plant—which has long been the target of neighborhood and environmental groups, according to the Cleveland Plain Dealer —rather than modernizing it to meet new clean air standards. Well, it’s one or the other. Two U.S. coal-fired Top Plant Award winners profiled in this issue chose modernization. Kudos to them.

So-called flex plants and flexible operation have become essential to economic plant operation. But flexibility in power policy and utility-customer relationships is also necessary for future success. Instead of policy and policy positions that flip-flop from selective subsidies and regulation to none, what’s needed to ensure reliable, affordable, cleaner electricity now and into the future is flexible power policy coupled with more-responsive business models. Devising such a system would require well-informed legislators, regulators, and business executives who understand that compromise is often required if the goal truly is public service. That may sound like a fantasy, but you don’t get what you don’t ask for. That’s one reality that hasn’t changed, and one utilities know well. ■

Gail Reitenbach, PhD is POWER’s editor.

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