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The following commentary was written by John Farrell, director of the Energy Democracy Initiative at the Institute for Local Self-Reliance. See our commentary guidelines for more information.
John Oliver’s expose on electric utilities was marvelous, explaining the high cost of abusive utility behavior. The segment was full of rich storytelling that made clear the dangers of allowing these utility companies to continue operating in their current fashion. Here are four things we could do in response, to hold utilities accountable and to dampen the impact of their market power on our democracy.
1. Sticks: Punish utility behavior by revoking franchises
The Last Week Tonight team does a masterful job of explaining the perverse rules of the electricity business, but it leaves out a key element — the monopoly itself. Utilities have a monopoly because they have a public grant, called a franchise. That public grant need not be perpetual. States can revoke or transfer this franchise of monopoly service.
In numerous cases, like Winter Park, Fla., cities have revoked a utility franchise at the local level through a public takeover. But states could also discipline bad utility behavior with the threat of losing the franchise. When Pacific Gas & Electric was found guilty of mismanagement of wildfire risk, California could have given its franchise to Southern California Edison, for example, rather than bailing out the guilty utility. Franchise accountability could even be built into the electric business model by rewriting state laws to make monopoly franchises time-limited, with an open bidding process for renewal.
Right now, utilities operate with impunity because their punishments often involve no more than fines. Last Week Tonight captured that perfectly in the closing scene with Reddy Kilowatt where, after “murdering” John Oliver, he exclaims (sarcastically), “I am gonna get such a fine for that.” States can use the threat of losing the franchise to hold utilities accountable.
2. Carrots: Rewire how utilities get paid to focus on performance instead of spending money
Oliver and his team also do a great job explaining that utilities behave poorly because their incentives don’t align with the public interest. In 49 states, utilities make money by spending money (with minor adjustments). Only Hawaii has passed laws and set regulations to pay the utility based on its performance instead of its spending. Its policy caps the utilities revenues, removing the incentive to simply spend money, and instead focuses on outcomes of values to the public.
Rewiring incentives could mean paying utilities for accelerating deployment of cost-effective clean energy, for providing customers with more opportunities to lower their bills through efficiency, for streamlining interconnection of more distributed solar, and for prioritizing benefits for customers that suffer high energy burdens or live in communities subject to the pollution from utility infrastructure. States should learn from Hawaii and rewrite the rules to pay utilities for what customers want.
3. Restructure: Remove non-monopoly functions from utility purview
Last Week Tonight explained that there was logic in having utility monopolies in the early 20th century in order to build out the electric grid. That work is done. It’s time to re-evaluate the proper extent of a utility monopoly.
Grid operation likely requires a monopoly, but all of the actual services supplied to the power grid could be competitive. Power generation can and does come from independent wind power farms or community solar arrays. Energy storage could be a public asset at each substation or a network of backup systems at local hospitals and community facilities. Energy efficiency can and is funded from customer bills and provided by one or many non-profit associations (see: Vermont or Massachusetts). Networks of homes and businesses could be coordinated by a variety of cooperatives and businesses to shift energy use to reduce strain on the grid.
There’s already robust competition in generating electricity. One-third of states have formally removed that monopoly by banning utilities from owning power plants. In every state, customers can generate their own electricity with solar panels on their rooftops. States should be establishing fair, consistent rules for power generation at every scale, from giant wind and solar farms to rooftop solar and battery systems.
4. Make public: Give monopoly functions to an unbiased non-profit or public entity to support choice and competition
Last Week Tonight gave a nod to one solution that addresses many of the problems of utility misbehavior: public ownership. There’s no question that an essential service should be governed by robust public and democratic oversight. However, simply making a private utility monopoly into a public utility monopoly misses a big opportunity.
The core problem of monopoly utilities is the conflict of interest between operating a platform (the electric grid) and being a player on the platform (by owning power plants, power lines, etc). Even public utilities have proven recalcitrant about shifting to renewable energy if it threatens existing power purchase contracts, and public utilities are often as skeptical of customer-owned solar panels as private utilities.
The power grid needs operating principles more like the road network: a public asset that’s available for a wide variety of people and businesses to use and offer services. State governments should make the power grid a public asset, but focused on the rules of operation and decision making, not centralized ownership of every asset. The governance of the commons by a public utility should include services like matching supply and demand, connecting wind farms and rooftop solar arrays, doing system planning to meet future needs, and acting as a clearinghouse for electricity system data.
Unlike today, these four strategies would hold utilities accountable based on their unique role as monopoly companies. It would mean paying utilities only for the services we want. It would right-size utility power relative to competitors and give customers more choice. It would restore the role of the public in delivering an essential service. Done right, holding utilities accountable would put democracy ahead of monopoly.