GRID WARS: The Battle to Control Your Electricity

Rarely has a major U.S. industry reached a crossroads as stark as that facing today’s electric utilities. EPA’s recent proposal for regulating carbon emissions from power plants is just one part of a broader trend, as the century-old model of centralized fossil fuel burning electricity generation moves towards obsolescence.

While policy and regulation are accelerating this transition, the fundamental drivers are a changing marketplace and evolving technology.  Rates are increasing for electricity delivered from large, centralized utility power plants.  Meanwhile, advancements in “distributed” on-site energy resources — solar energy, combined heat and power, biomass, advanced engines, fuel cells, energy storage, efficiency, demand management, microgrids and advanced information technologies — are driving down costs, fundamentally shifting the economics.  Beyond direct cost savings, distributed energy resources create other major benefits:  reduced vulnerability to power interruptions caused by extreme weather events; improved physical security and cybersecurity; deferred utility capital investment requirements; grid optimization; reduction of climate threats and harmful air pollution; and economic growth and job creation.

According to the U.S. Energy Information Administration, more than $2 trillion will be invested in new power generation over the next 20 years.  Add to this at least another $1 to $2 trillion in necessary transmission and distribution upgrades. The question should be:  How do we as a nation want to invest this capital?  On patching an old central power plant model (think mainframe computers) or on a modern distributed electricity system supporting entire new industries (the energy equivalent of smart phones and the cloud)?

Enabling distributed energy will require more than new business models. The U.S. electricity regulatory framework developed over the last 70 years is focused primarily on centralized power. It is insufficient to support a modern distributed grid.  Serious reforms are needed to achieve the promise of 21st century energy technologies. 

EPA’s power plant rules and a series of orders issued by the Federal Energy Regulatory Commission (FERC) offer important progress towards energy modernization.  A handful of states, including California, New York, and Hawaii, are actively developing the “utility of the future,” and many other states are considering policies that will support deployment of more distributed energy resources.   

But these efforts are caught in the middle of a broader battle being waged by coal interests and other well-funded political groups. One such organization is the American Legislative Exchange Council (ALEC), which launched a multi-million dollar strategy to repeal existing policy frameworks and oppose new proposals supporting distributed energy in state legislatures across the country.  Incumbent interests have filed lawsuits against grid modernization policies. Earlier this year, in a case brought by industry trade associations, a federal court in Washington, D.C. struck down a key FERC directive that spurred innovation by opening new markets for advanced energy management providers. 

Anthony Alexander, CEO of FirstEnergy, a major electric utility headquartered in Ohio, gave voice to this strategy in a recent speech at the U.S. Chamber of Commerce. He positioned distributed energy as a “war on coal,” saying on-site resources such as solar, wind and energy storage “sound good” but “don’t do anything to maintain electric service.”  Ohio’s state government has bowed to these arguments.   In June, Governor John Kasich signed SB 310, a bill freezing for two years and then rolling back Ohio’s renewable energy standards.  The rollback was opposed by major Ohio business interests, including Honda, one of the largest employers in the state, and the Ohio Manufacturers’ Association. 

The opposition efforts to date will pale in comparison to the massive campaign that is coming to derail EPA’s proposal to allow “outside the fence” projects, such as distributed energy resources, to reduce power plant emissions.  Even if the opponents are unable to derail EPA’s rule, the battle will then move to the states, where incumbent interests have long-standing relationships.  As a spokesman for the National Mining Association put it:  “We’re confident that at the state level, when this next level of rules are implemented, we’re going to have the broad-based support we need to make our voice heard and our concerns understood.”

Given this powerful opposition, the drive for policies supporting the major economic and security benefits of distributed energy resources will require strong, clear, organized, and united support. A broad variety of business interests have a direct financial stake in distributed energy, including industrial energy consumers (technology companies, manufacturers, and retailers); grid system integrators; renewable energy developers, manufacturers, and financing companies; commercial property developers and operators; smart grid and IT providers; energy storage companies; and their related trade associations.  The outcome of this debate will have huge impacts on U.S. economic opportunities and international competitiveness in coming decades. 

It is urgent that American businesses stand together in support of distributed energy.  The business community should bring a unified voice to the state and federal policymakers setting the terms of this pending battle for the future of the American electric system today — from state legislatures and regulatory commissions, to Congress, the FERC, and the EPA, and other key federal policymakers.  Business interests also should urge broader federal leadership on distributed energy, potentially including issuance of an Executive Order by President Obama.  In making the case that distributed energy resources will save money, improve reliability, make us safer, and create new jobs and wealth in our economy, businesses will provide vital support for a 21st century electric system.  

Lead image: Pixelated War via Shutterstock

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Jim Wrathall is a member of the Energy Finance Group in Sullivan & Worcester’s Washington, D.C. office. Mr. Wrathall represents clients in energy project development and project finance transactions; energy and climate policy matters; corporate and licensing transactions; and litigation and arbitration matters. His current clients include a major hedge fund financing numerous solar energy projects in the U.S. and the Caribbean; a project acquisition and development company building out a portfolio of wind projects; the developer of an innovative distributed solar financing platform; and an international organization in connection with project finance for developing countries’ climate mitigation and clean energy projects. Mr. Wrathall previously served as Majority Senior Counsel with the U.S. Senate Environment and Public Works (EPW) Committee from 2007 through 2011.

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