Elizabeth Weise USA TODAY https://www.usatoday.com/story/news/2019/09/09/climate-change-threatens-
Powerful hurricanes. Record-breaking heatwaves. Droughts that bring ruin to farmers. Raging forest fires. The mass die-off of the world’s coral reefs. Food scarcity.
To avoid a climate change apocalypse, carbon dioxide emissions need to fall by as much as 45% from 2010 levels by 2030, according to the U.N. Intergovernmental Panel on Climate Change.
Instead, utilities and energy companies are continuing to invest heavily in carbon-polluting natural gas. An exclusive analysis by USA TODAY finds that across the United States there are as many as 177 natural gas power plants currently planned, under construction or announced. There are close to 2,000 now in service.
All that natural gas is “a ticking time bomb for our planet,” says Michael Brune, president of the Sierra Club. “If we are to prevent runaway climate change, these new plants can’t be built.”
It also doesn’t make financial sense, according to an analysis by the Rocky Mountain Institute, a Colorado-based think tank that focuses on energy and resource efficiency. By the time most of these power plants are slated to open their doors, the electricity they’ll provide will cost more to produce than clean energy alternatives.
By 2023, the U.S. Energy Information Administration estimates the average cost of producing a megawatt hour of electricity will be $40.20 for a large-scale natural gas plants. Solar installations will be $2.60 cheaper and wind turbines will be $3.60 cheaper.
Catastrophic effects ahead unless we make changes
The world needs to reduce its carbon emissions rapidly – by 50% within the next decade – or face the prospect of a global temperature rise of more than 2.7 degrees within decades, said Michael Mann, a professor of atmospheric sciences at Pennsylvania State University.
That’s enough warming to kill off the coral reefs, melt large parts of the ice sheets, inundate coastal cities and to yield what Mann calls “nearly perpetual extreme weather events.”
“By any definition, that would be catastrophic,” he said.
We’re seeing the start of it now. There’s strong data to suggest that global warming is already causing changes in the jet stream and other weather systems. That can cause hurricanes to slow down and wreak devastation in single areas for longer, said Marshall Shepherd, director of the atmospheric sciences program at the University of Georgia.
“With Dorian, we saw it stall over the Bahamas. We saw that with Harvey in Houston and Florence in the Carolinas,” he said.
More gas = more carbon dioxide
Adding dozens of new natural gas plants in the coming decades is going in the exact opposite direction of what we need, clean energy advocates say.
“If the current pipeline of gas plants were to get built, it would make decarbonizing the power sector by 2050 nearly impossible,” said Joe Daniel, a senior energy analyst with the Union of Concerned Scientists, a nonprofit based in Cambridge, Massachusetts.
An analysis by the Rocky Mountain Institute published Monday looked at 88 gas-fired power plants scheduled to begin operation by 2025. They would emit 100 million tons of carbon dioxide a year – equivalent to 5% of current annual emissions from the U.S. power sector.
The institute calculated the cost of producing a megawatt-hour of electricity of a clean energy portfolio in each state that would provide the same level of power reliability as a gas plant. It determined that building clean energy alternatives would cost less than 90% of the proposed 88 plants.
It would also save customers over $29 billion in their utility bills, said Mark Dyson, an electricity markets analyst who co-authored the Rocky Mountain Institute paper.
“If you look at how things pencil out, we’re at a tipping point,” he said. “Here’s evidence that the switch from gas to clean energy makes economic sense and is compatible with utility companies’ need for reliability.”
More power plants coming to a state near you
USA TODAY compiled its own list of 177 planned and proposed natural gas plants through August, using data from S&P Global Market Intelligence, which tracks power plants that have been officially announced, and the Sierra Club, which tracks proposed plants.
Of those, 152 have a scheduled opening date of between 2019 and 2033, though only 130 have specific locations chosen. An additional 25 are part of companies’ long-term planning processes and don’t have estimated opening dates yet.
The plants are a mix of large-scale installations meant to provide lots of electricity much of the day and smaller plants used for short periods when demand for energy is particularly high.
Texas has the most proposed plants, with 26. Next is Pennsylvania with 24, North Carolina with 12, Florida with 10, California with nine and Montana with eight.
Not all will be built. Power companies are required to estimate future needs and plan as much as 15 years out, and this list includes plants which the companies may eventually decide they don’t need.
But the numbers show that greenhouse gas-producing natural gas is still on the table for many power producers, despite warnings that the energy sector needs to be quickly moving away from carbon-producing power sources.
Another concern raised by clean energy advocates is that once built, natural gas plants typically have a 30-year lifespan. Many of these plants will end up as “stranded assets,” unused because they’re too expensive to run, while consumers will still be on the hook for the cost of the construction, said Daniel.
It’s also true that power companies are building out solar and wind generation. Over the next two years, clean energy is expected to be the fastest-growing source of U.S. electricity generation, according to the U.S. Energy Information Administration.
Even so, that will only bring the share of wind and solar in the United States electricity market to slightly under 11%.
By 2020, EIA expects natural gas will make up about 36% of U.S. electricity generation. In comparison, coal is at 23%, nuclear at 20% and hydroelectric at 7%.
Why are we still building natural gas plants?
If natural gas plants contribute to global warming and most of them are going to be more expensive, why are so many still on the drawing board? The reasons are varied.
Energy companies say gas is more reliable than renewables and cheaper and less carbon polluting than the coal it often replaces.
But renewable energy advocates say the incentives for utilities and energy producers aren’t always in line with those of consumers.
For regulated utilities, one of the easiest ways to make money is to invest capital in large building projects, such as natural gas plants. Regulators allow utilities to set rates so that they get a return on invested capital of about 10%, Dyson said. That gives energy companies an incentive to build as much as possible.
In contrast, utilities that procure wind and solar power via commonly available purchase contracts earn no returns for these projects.
“There’s a perverse incentive for some utilities to build as big as they can, rather than to build as smart as they can,” said Ben Inskeep, an analyst with EQ Research, a clean energy policy consulting firm in Cary, North Carolina.
Companies also focus on reliability. Duke Energy, a power company based in Charlotte, North Carolina, has more than 7 million customers. As it transitions away from coal, it has embraced natural gas, announcing last week that it was considering as many as five new gas plants.
Today 5% of Duke Energy Carolinas’ electricity comes from solar, a percentage it plans to increase to between 8% and 13% by 2034, according to its most recent filing with state regulators. The state has almost no wind energy because of laws restricting the placement of wind turbines.
“We know our customers and communities want cleaner energy, and we’re doing our part to deliver that,” said spokeswoman Erin Culbert.
But she emphasized that Duke doesn’t believe solar and wind can be cost-effective and reliable enough to meet all its customers’ energy needs.
“Continued use of natural gas is key to our ability to speed up coal retirements, and its flexibility helps complement and balance the growing renewables on our system,” she said.
Government regulators favor gas
Another hurdle for renewable energy, some supporters say, is a combination of state-level rate-setting requirements and regional market rules that have led to a compensation structure for companies that favors coal and natural gas.
Who sets those rules depends on where the plant is.
In states where retail utilities own their own power generation facilities, the rates are approved by public utility commissions. Commissioners are typically appointed by state governors.
The process is less clear in the Midwest, Northeast, Mid-Atlantic, California, and Texas, where utilities buy and sell their power through organized markets run by regional transmission organizations.
These are run by boards that by law must be independent. They are typically composed of people from the business and energy world and are chosen by complex systems. In some cases they are voted on by existing board members.
The boards set the rules, which are then approved by the Federal Energy Regulatory Commission.
Ultimately these commissions and boards are supposed to decide what’s cost-effective for both the companies and ratepayers, said Scott Hempling, an adviser to regulators, law professor at Georgetown University in Washington, D.C., and author of two books on public utility law and regulation.
“A utility’s preference for profit is neither surprising nor wrong. But it’s not the utility’s job to balance its self-interest against the customers’ interest. It’s the job of regulators to constrain the private profit impulse with public interest principles,” he said.
It’s not news that there is bias towards profit, which can disadvantage customers. “The question is why it’s allowed to persist,” he said.
There are signs that what clean energy advocates have called an automatic rubber stamp for natural gas is beginning to change.
In April, the Indiana Utility Regulatory Commission denied a permit for a southern Indiana utility named Vectren South to build a $780 million natural gas plant. The regulators weren’t convinced the utility had chosen the best option to ensure its customers weren’t in danger of being “saddled with an uneconomic investment” in the future, it said.
In Michigan last year, local utility DTE won a bruising battle to build a 1,100 megawatt natural gas plant that will open in 2022 and cost nearly $1 billion. Critics complained the projections DTE used to make its case to regulators made wind and solar look less attractive.
The three members of the Michigan Public Service Commission, who are appointed by the governor, ended up approving the project. But the board’s 136-page opinion was not complimentary toward the utility, noting it was “concerned” about the constraints DTE built into the models it used to estimate whether renewable energy would be a viable alternative.
Some utilities choose clean energy
Not every utility company is ignoring warnings about the planet’s health, or customers’ pocketbooks.
Michigan utility Consumers Energy decided last year not to build new natural gas plants and instead focus on a combination of energy efficiency, renewable energy and batteries, which it says will be cheaper for customers.
The company, which has more than 4 million customers, plans to use 90% clean energy by 2040, said Brandon Hofmeister, senior vice president for governmental, regulatory and public affairs.
When the utility was putting together its existing energy plan, it took a new approach, balancing the cost to consumers and to the Earth.
“Honestly, there was some pushback. There were several pretty tense meetings,” Hofmeister said. “You’d hear someone ask in a meeting, ‘Is that really the right thing to do for Michigan and the planet?’”
A similar story played out in Indiana, one of the nation’s top 10 coal-producing states. A few years ago, Northern Indiana Public Service Company, based in Merrillville, Indiana, was getting ready to retire its old, expensive coal-fired power plants. An analysis in 2016 said they should be replaced with natural gas plants.
To be on the safe side, Joe Hamrock, president and CEO, checked again last year.
“We knew this is moving pretty fast and we needed to take a new look. A 30-year bet on a gas plant is a long time,” he said.
When his team sat down to look at the 90 project proposals that had come in, the answer came as a shock – natural gas wasn’t even in the picture anymore.
“The surprise was how dramatically the renewables and storage proposals beat natural gas,” Hamrock said. “I couldn’t have predicted this five years ago.”
The company is now set to retire all its coal-fired power plants, which produce 65% of its electricity today, and replace them all with renewables. In nine years, it expects to get 65% of its electricity from renewables and 25% from natural gas.
What will U.S. energy look like in the future?
Electricity generators counter that it’s impossible to get entirely away from natural gas because solar and wind are intermittent. When it comes time to turn on the lights, consumers can’t wait for the sun to come up or the wind to blow.
“We believe that natural gas has a role in a clean future because we believe it will be needed to balance out renewables,” said Emily Fisher, general counsel for the Edison Electric Institute in Washington, D.C. EEI is the trade association that represents investor-owned electric utilities in the United States.
“But we’ve also got to make sure the power supply stays affordable and reliable,” she said.
Electricity generators have a point, say energy analysts who aren’t necessarily in the pro-renewable camp. But those same analysts suggest a lot less natural gas is needed than we’re using today.
“The cheapest way to reduce carbon is to replace coal with a combination of renewables and as little natural gas as you can get by with to keep the lights on,” said Arne Olson, a senior partner with Energy and Environmental Economics, a San Francisco-based energy consulting firm that works with multiple states to craft energy plans.
That makes getting to the goals of the Paris Agreement on climate change – cutting greenhouse gas emissions at least 26% below 2005 levels by 2025 – not quite so daunting. The United States initially pledged to join the agreement but President Donald Trumpsaid in 2017 that the nation would not uphold the deal.
In fact, the electric industry is already undergoing a major restructuring. Largely because of the rapid rise of cheap natural gas, coal went from producing almost 45% of U.S. electricity in 2010 to a predicted 23% next year, according to EIA data.
The energy sector has shown it can move quickly when the prices are right, said Dyson of the Rocky Mountain Institute. And, he said, it’s imperative that a similar shift happen now with natural gas – and fast.
“Constructing these gas plants is incompatible with a low carbon future,” he said.
What are Public Utility Commissions doing?
Our public utilities build and operate the infrastructure that supports modern economies. Lives depend on their performance. Defining and demanding that performance is the job of regulators. By setting standards, compensating the efficient and penalizing the inefficient, regulation aligns private behavior with the public interest.
Regulators are real people. Case outcomes are determined not only by facts, law and policy, but also by commissioners’ personal attributes—their purposefulness, decisiveness, independence, creativity, ethics and courage. These attributes, or their absence, influence regulators’ actions. Some regulators merely “balance” and “preside”; others create vision, inspire performance and lead. Even the most purposeful, educated, decisive, and independent regulators—those who make the tough calls and take the right actions—face obstacles: the forces of self-interest, short-term thinking and political inertia that can undermine regulation’s purpose.
By exploring the connections among regulators’ attributes, actions, and obstacles, these 60 essays reveal the ingredients for effectiveness.
TABLE OF CONTENTS
Click on blue links for excerpts.
Part One—Attributes of Effective Regulators
10. A Letter to Governors and Legislators: On Appointing Excellent Regulators
Part Two—Actions of Effective Regulators
11. Commissions Are Not Courts; Regulators Are Not Judges
12. The Regulatory Mission: Do We “Balance” Private Interests, or Do We Align Them
with the Public Interest?
13. Regulatory Brainstorming: When and Where?
14. Regulatory Multitasking: Does It Do Long-Term Damage?
15. Regulatory Literacy: A Self-Assessment
16. “Smart Grid” Spending: A Commission’s Pitch-Perfect Response to a Utility’s Seven
17. Alfred Kahn, “Prophet of Regulation”
Part Three—Political Pressures
18. “Politics” I: The Public and Private Versions
19. “Politics” II: How Can Regulators Respond?
20. “Regulatory Capture” I: Is It Real?
21. “Regulatory Capture” II: What Are the Warning Signs?
22. “Regulatory Capture” III: How Can Commissioners Avoid and Escape It?
23. The War of Words: Competition vs. Regulation I
24. The War of Words: Competition vs. Regulation II
25. Is Learning to Regulate Like Learning to Cook?
Part Four—Regulatory Courage
26. “Affordable” Utility Service: What Is Regulation’s Role?
27. Low Rates, High Rates, Wrong Rates, Right Rates
28. “Protect the Consumer”—From What?
29. Separating Policy Mandates From Cost Consequences: Will the Public Lose Trust?
30. Prohibiting Discrimination and Promoting Diversity: Is There a Regulatory Obligation
31. “All of the Above” Is Not a National Energy Policy
32. Supporter-as-Critic: An Expanded Role for Regulatory Professionals
Part Five—Jurisdiction: Power Is a Means, Not an End
33. Legislatures and Commissions: How Well Do They Work Together?
34. It’s April—Do You Know Where Your Legislatures Are?
35. More on Legislative–Regulatory Relations: Layers, Protections, and Cost-Effectiveness
36. Federal–State Jurisdiction I: Pick Your Metaphor
37. Federal–State Jurisdiction II: Jurisdictional Wrestling vs. Coordinated Regulation
38. Federal–State Jurisdiction III: Jurisdictional Peace Requires Joint Purpose
39. Federal–State Jurisdiction IV: A Plea for Constitutional Literacy
40. Intra-Regional Relations: Can States’ Commonalities Outweigh Their Differences?
Part Six—Practice and Procedure
41. “Framing”: Does It Divert Regulatory Attention?
42. Decisional Defaults: Does Regulation Have Them Backwards?
43. Utility Performance: Will We Know It When We See It?
44. “Prudence”: Who’s Minding the Store?
45. Rate Case Timing: Alertness or Auto-Pilot?
46. Interconnection Animus: Do Regulatory Procedures Create a “Tragedy of the Commons”?
47. Interconnection Animus: The Readers React
48. Regulatory “Settlements”: When Do Private Agreements Serve the Public Interest?
49. Competition for the Monopoly: Why So Rare?
Part Seven—Regulatory Organizations
50. Regulatory Resources I: Why Do Differentials Exist?
51. Regulatory Resources II: Do the Differentials Make a Difference?
52. The Resource Gap Grows: What Are a Commission’s Duties?
53. Commission Effectiveness: How Can We Measure It?
54. Commission Budgets: How Do We Know When We’re “Worth It”?
55. Commission Positioning I: Five Actions for Influence
56. Commission Positioning II: Can “Vision” Avoid “Too Big To Fail”?
57. Commission “Branding”: Can It Improve Utility Performance?
58. Pharmacies and Regulatory Conferences: Do They Have Anything in Common?
59. Essential to Effectiveness: Community Acceptance of Regulation’s Mission
60. A Regulatory Thanksgiving
Fighting Monopoly PowerHow States and Cities Can Beat Back Corporate Control and Build Thriving Communities
Editors: Stacy Mitchell and Susan R. Holmberg
Lead Researcher: Zach Freed
Across the country, local and state officials and citizens are struggling to overcome a set of deep and challenging problems, which have been further revealed, and exacerbated, by Covid. These include stark inequality, persistent poverty, disappearing small businesses, racial oppression, failing family farms, fraying community institutions, and entire cities and towns that have been marginalized and left behind.
There are many drivers of these trends. But there is one phenomenon in particular that has profoundly shaped all of these dynamics, and every single sector of our economy — the consolidation of corporate power.
Table of Contents
- Food and Farming
- Small Business
- State Attorneys General
Concentration has reached extreme levels. Most industries are dominated by a handful of corporations. As we detail in this report, concentrated economic power has reconfigured multiple sectors in ways that have both weakened the broader U.S. economy, by stifling investment and innovation, and harmed working people and communities. This centralization of power in private hands is threatening Americans’ fundamental right to liberty and equality.
Too often policymakers try to alleviate symptoms. This guide calls for dealing with the root problem. Concentration didn’t happen by accident; it’s not the result of inevitable forces. As each section of this guide details, it’s a product of deliberate policy choices. While some of the changes needed are federal, especially antitrust and financial reform, states and cities have potent tools and, as we show, some are using them. During the last Gilded Age, local leaders were the first to take action against monopoly power. This is a guide to the policies that state and local policymakers should enact to rekindle that fight against corporate concentration.
Each chapter offers an in-depth look at a crucial sector, describing exactly how corporate control has risen and manifested in the sector and its consequences, and enumerating the specific actions and policies states and cities can take.
Throughout this guide, we show how some places have sidestepped the tide of consolidation in one area or another, how they’re better off as a result, and how other cities and states can adopt their approach. For example, North Dakota’s public bank, which cities like Oakland and Philadelphia are looking to emulate, has enabled local banks to thrive, vastly expanding the capital available to local businesses and families. Cleveland has used a number of purchasing policies to shift 39 percent of its procurement budget to local and small, or local and minority- or female-owned businesses. Wilson, North Carolina, freed its residents from the monopoly grip of Charter Spectrum by building a city-owned broadband network that has supercharged economic development, while connecting low-income families to fast, affordable Internet. Ohio and Kentucky are regulating pharmacy benefit managers, such as CVS Health, to ensure that these powerful middlemen can’t use predatory tactics to run locally owned pharmacies out of business and overcharge Medicaid. San Jose, Calif., broke a landfill monopoly and used the dramatic savings generated by increased competition to radically restructure its solid waste system to emphasize recycling.
Over time, we’ll be adding to and updating this guide. We’d love to hear your suggestions and learn from successes (and failures) in your communities. Please write to us at email@example.com
Finally, a note before you jump in: There’s no need to read this guide in order. Each chapter stands alone, so feel free to move around. If you’re looking for broader background on America’s monopoly problem, start with the Introduction.
Concentrated power in the electricity sector obstructs progress in providing Americans with clean, safe, and cost-effective electricity. The solution to concentration lies in embracing decentralized ownership and generation. Acting individually or collectively, we have a new opportunity to bypass concentrated power and build wealth by using local solar energy to power our lives.
by John Farrell*
*JOHN FARRELL is a Co-Director of ILSR and directs the Energy Democracy Initiative.
As the U.S. faces intersecting crises — particularly climate change and racial and economic inequality — concentrated power in the electricity sector obstructs progress in providing Americans with clean, safe, and cost-effective electricity. While this can be true of any type of electric utility, including public and cooperatives, corporate utilities provide a particular brand of problems. For two decades, mergers in the corporate electricity sector have concentrated economic and political power in the hands of fewer companies that favor bloated returns for their shareholders over delivering for their customers and communities. Corporate utilities increasingly control how electricity is generated, transmitted, and distributed or sold to the customer — resulting in both a lack of safety measures as well as costly, short-sided, and dirty energy investments. This affects all of us as we confront our climate crisis and disproportionately harms the communities of color and low-income households that live near dirty power plants and within warmer inner cities.Learn more about our Energy Initiative
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The solution to concentration lies in embracing the decentralized ownership and generation of electricity. Even as utilities have concentrated their power, the means to generate electric power has dispersed. Acting individually or collectively, Americans have a new opportunity to bypass concentrated power and build wealth by using local solar energy to power our lives.
The Economic Power of Electric Power
Understanding how economic and political power functions in the electricity sector first requires understanding the market’s basic makeup. Three types of utilities serve U.S. electricity customers: investor-owned utilities, public power, and cooperatives. About one in seven Americans get power from a government-owned utility, like a municipal department. One in eight receive power from a rural electric cooperative, serving primarily rural areas, as the name suggests. Approximately two-thirds receive service from an investor-owned utility in an urban or suburban setting.
Despite different ownership structures, customers of public and cooperative utilities often suffer from similar profit-incentive and concentrated power issues that structure corporate utilities and raise electricity prices. Over the last several decades, few utilities of any form developed cost-saving efficiency programs until compelled to by state government. Investor-owned utilities see reducing energy sales as a conflict for shareholders, but cooperative and publicly owned utilities aren’t immune to these types of incentive issues. Cooperatives are often reluctant to deliver energy efficiency because it reduces revenue. Municipally owned utilities provide revenue to their city’s general fund, so energy efficiency can threaten their support for city budgets.
The financial incentives of cooperatives and municipal utilities also distort clean energy markets. In the mid-1900s, many local utilities banded together to form giant power agencies to build and operate big power plants or even coal mines. To finance these investments, the new conglomerated power agencies locked their smaller member utilities into long-term contracts — some as long as 70 years — limiting local flexibility in accessing clean energy market. In Western states, the big electricity generation and transmission cooperative, Tri State, has limited the ability of smaller co-ops to procure cheap, clean energy as an alternative to Tri State’s increasingly expensive coal-fired energy. In the Southeast, the Tennessee Valley Authority has pushed new 20-year contracts on its members after it privately studied the market and found its own power was no longer competitive. In Minnesota, rural electric cooperatives used their local political connections to prevent state clean energy laws from applying to cooperatives.
While the movement toward concentrated power and ownership in the electricity sector has affected all three types of utilities, the effect on consumer costs and innovation is most dramatic in the investor-owned utility business. In the past twenty years, several large utilities have become giants by acquiring captive utility customers from other regulated utilities as well as skirting energy regulations. The customer base and revenue of American Electric Power, Duke Energy, and Exelon have grown by 50 percent or more since 2002. This market growth drives up prices for customers and makes utilities less flexible in developing clean energy innovation.
For example, one of the country’s largest investor-owned utilities, Exelon, has nearly doubled in size in the past two decades, and now serves almost 9 million customers across five states. Using its market power, Exelon withheld power plants from a power auction in order to inflate prices consumers would pay for electricity from its nuclear power plants. On the East Coast, the company gobbled up the electric utility serving customers in Washington, D.C., earning a $1.1 billion payday for shareholders while promising just $100 million in customer benefits. The utility cleared its last barrier to this merger in front of the D.C. Public Service Commission shortly after making a $25 million contribution to a local soccer stadium, a pet project of the D.C. mayor.
Exelon is not alone in stiffing customers to reward shareholders — or leveraging its political might. Monopoly utilities across the country, but particularly in the Midwest, have used their captive customers (and often captive regulators) to manipulate wholesale energy markets. The Union of Concerned Scientists reports that utility customers pay as much as $1 billion per year more for electricity because monopoly utilities are allowed to “self schedule” their power plants, essentially cutting in line in front of competitors. They lose money in this move in the competitive market, but they recover the difference (and a profit) from their captive customers.
In Kansas, Westar customers have had to absorb rising electricity prices even as the utility builds low-cost wind turbines that lift shareholder profits. In Minnesota, Xcel Energy used its lobbying muscle to win legislation approving an expensive gas plant, evading oversight from public regulators. In Virginia, the lobbying might of Dominion Energy won legislation that allowed its shareholders to double-dip, collecting profits twice on the same dollar spent on the grid and making it harder for regulators to require the monopoly utility to return excess profits to customers.
Corporate monopoly power also diminishes public safety. The concentrated power of all forms of utilities — investor-owned, public, and cooperative — gives them enormous political influence that can undermine measures put in place to protect the public interest. However, publicly owned and cooperative utilities have built-in safeguards, such as elected government or boards allowing customers to change the utility’s direction. Customers are particularly at risk from investor-owned utilities that can use their captive market and growing size to fend off oversight and to increase shareholder profits at the public’s expense. The most notorious example is PG&E’s culpability in some of California’s recent wildfires. After raising customer rates, PG&E failed to improve powerline safety, instead opting to pay off shareholders.
If regulators were to effectively curtail excessive corporate power in the electricity business, we could democratize the electricity system, and structure it to prioritize local, clean energy sources owned and operated by communities.
Investor-owned utilities also lack incentives to invest in wind and solar energy. Since the first power plants came online, utilities had been given free rein to dump the pollution from power generation into the air and water. Utilities that weren’t compelled by law to adopt clean energy did not, because the health costs of pollution didn’t show up on the utility balance sheet. When utilities were compelled to buy clean energy resources, they signed agreements to buy power from third parties to avoid the risk of the newer technologies. In recent years, however, investor-owned utilities have changed their attitude toward clean energy — though they haven’t changed their minds about using their market power to unfairly garner profits. MidAmerican Energy, in the Midwest, succeeded in getting its state regulators to okay building wind energy projects that would produce more energy than its own customers needed. Independent power producers sued, claiming that MidAmerican used its captive customers to finance power generation that would be sold into competitive markets. They were right, but the Iowa Supreme Court failed to stop the project and MidAmerican would earn a nearly 12 percent return on its investment.
The power of electric utility companies is even more transparent in a market where small-scale options to generate power — also known as “distributed energy” — have fundamentally upended the relationship between utilities and customers. Rooftop solar, batteries, electric vehicles, and many other technologies have miniaturized the functions of the grid system, allowing customers to produce their own power or to buy directly from third parties. But the wires that could allow customers to transact with each other for power remain in monopoly hands. In California alone, over 700,000 customers produce solar electricity from their rooftops, enough to meet nearly 15 percent of the grid’s peak energy needs. But the only way they can bring this power to market is to sell back the power to the monopoly utility, typically an investor-owned company whose financial interest is in opposition to customer-owned power generation.
If regulators were to effectively curtail excessive corporate power in the electricity business, we could democratize the electricity system, and structure it to prioritize local, clean energy sources owned and operated by communities. The community solar array on the Monadnock Food Co-op is a perfect example. State laws allow the solar project (on the co-op’s roof) to sell power directly to this local, cooperative institution while generating revenue for local investors. It could also include solar on individual home rooftops, on schools and community centers, on hardware stores and libraries, perhaps combined with energy storage to operate when the grid goes down.
How Grid Policy Created and Protects Electricity Monopolies
The problems of today’s electricity market power structure have their roots in the electricity grid’s development. In the early twentieth century, electricity production and distribution was a Wild West. Cities might be served by multiple competing electric light companies, stringing multiple sets of wires to the same building. The leading companies sensed an opportunity to sell elected officials on a more orderly process for electrifying America. In exchange for monopolies with public oversight, these utilities promised to deliver affordable electricity.
This is the key issue: states granted utilities an exemption from competition on the assumption that electricity was delivered most efficiently by a single entity, a “natural monopoly.” Thus, states expressly gave up an interest in maintaining competitive markets. As a result, monopoly electric utilities have been protected from antitrust scrutiny under the “State Action Doctrine.” As long as states have taken express action to allow markets without competition, federal antitrust authorities cannot intervene.
Until the 1960s, the policies worked as designed. While pollution remained unaccounted for, and communities of color often felt the worst impacts of extracting and combusting coal, uranium, or other power plant fuel, utilities were profitable and electricity costs fell.
The cozy monopoly system, however, blew up in the face of two major changes. First, technical and engineering limits meant utilities were no longer able to extract cheaper electricity from ever-larger power plants. At the same time, the energy crisis of the 1970s ushered in high inflation, exploding utility balance sheets during a period of massive capital investment in coal and nuclear power plants.
Utilities have also lobbied for laws to undercut competition from their own customers.
The government’s response to these changes was a missed opportunity to fundamentally reevaluate monopoly market structure in the electricity industry. While the federal government passed the first electricity market competition legislation, the Public Utilities Regulatory Policy Act of 1978, state legislatures failed to fully implement the law even as they strengthened public oversight over power plant construction. These limited changes bought another two decades of relative stability in electricity markets but they failed to address the underlying tension: that the financial interests of monopoly utilities had diverged from the public interest.
In recent years, states have withdrawn many monopoly protections in the electricity sector, yet the patchwork approach has often exacerbated monopoly power. Policy changes in the 1990s opened wholesale electricity markets to competition, requiring utilities to open their transmission infrastructure to competitive access at fair prices. Retail markets were also opened in some states. But this has allowed conglomerates to operate power plants in competitive markets and enjoy monopoly protections in others, with problematic results. In Ohio, for example, the financial strength of subsidiaries with captive customers helped investor-owned utilities underwrite a political campaign to bail out unprofitable power plants in supposedly competitive markets.
Utilities have also lobbied for laws to undercut competition from their own customers. A number of utilities have shifted how they bill for electricity, increasing unavoidable fixed charges, and, by doing so, lessening the incentive for customers to install solar or energy efficiency improvements. In Kentucky and Louisiana, utilities recently succeeded in ending net metering, the most widespread and effective policy to encourage rooftop solar. Utility lobbying in Nevada and Maine also succeeded in undoing net metering and sharply curtailing the rooftop solar market, but in both states public outcry led to at least partial reinstatement. In Minnesota, cooperative and municipal utilities succeeded in passing a law to add fees to the bills of customers with solar energy, severely limiting the financial benefits for customers installing solar.
The Broader Impacts
Americans collectively spend $360 billion per year on electricity. For a century, this money has flowed out of our communities to support fossil fuel extraction and utility shareholders while the pollution impacts have been unequally distributed onto communities of color and low-income people. This money has also supported a system that underinvests in energy efficiency, renewable energy, and resilient energy systems. Meanwhile, deconcentrating economic and political power in the electricity sector could address economic, resilience, environmental, and equity needs long overlooked.
First, democratized, community-based electricity systems can build local wealth by transferring money currently spent paying electricity companies into local pockets. For example, every megawatt of solar owned locally generates $3 million in electricity savings for the owner or participant. These projects also generate economic activity, supporting electricians and installers. Local solar companies, in turn, support other local businesses, keeping dollars circulating in the local economy.
Community-based electricity systems also reduce grid electricity costs by offsetting demand otherwise fulfilled by large, centralized (and often polluting power plants). In Minnesota, for example, state policy officially recognizes eight types of cost savings provided by distributed solar projects. At least two of these categories stem from community-based projects.
Community-based electricity systems provide an opportunity to address historical inequality in electricity markets. People of color disproportionately live near coal plants and other polluting grid infrastructure.
In addition, these decentralized systems make the electricity system more resilient to natural and human disasters. In Puerto Rico, for example, the aftermath of Hurricane Maria has led to thousands of community-based solar energy projects with battery storage, allowing networks of homes and community centers to remain online should the island suffer another of its frequent blackouts.
Decentralized systems also reduce pollution because communities tend to favor power production that doesn’t subject them to health and environmental harm. When the cooperative utility serving the small community of Kodiak, Alaska needed to expand power generation, it switched from diesel generators to wind and solar, backed up with hydro power and batteries. This new system has lowered their pollution and electricity costs.
Finally, community-based electricity systems provide an opportunity to address historical inequality in electricity markets. People of color disproportionately live near coal plants and other polluting grid infrastructure. Due to historical and explicit discrimination, they also have less wealth and income than other communities. Community-based electricity systems, like the Shiloh Temple community solar project in Minnesota, can provide clean power in communities of color, provide electricity bill savings to participants, and can provide a pathway into the clean energy workforce for members of the community.
Building Local Power
Stopping the power grab of electric utilities to build a cleaner, more efficient, and affordable system should rely on three key principles:
- Democratize control of the electricity system by giving individuals and communities more power to produce their own energy.
- Free the grid from the grip of monopoly utilities so the wires can act as a common market for entrepreneurs to provide services to meet the grid’s needs more efficiently.
- Shrink the economic and political power of investor-owned utility companies, so that people and planet come before shareholder returns.
Stronger state policy and increased oversight by state regulators and enforcement officers, including public utility commissioners and state attorneys general, are needed to check the political power of these companies. Breaking up and reining in the influence of massive, monopoly electric utilities — and returning decision-making power back to the local level — would level the playing field for decentralized energy systems that produce myriad economic, social, and environmental benefits.
Collect Data and Define Marginalized Communities
State legislatures can more effectively address the economic and environmental impact of concentration and monopoly if the state has an official measure, such as CalEnviroScreen in California, to define marginalized communities. These databases (and maps) examine racial, economic, and financial data in combination with environmental impacts to identify communities most harmed by fossil fuel companies and markets. They also provide states a method for addressing these harms by defining the most burdened communities, to be targets of state programs to alleviate these burdens.
Publicly Oppose Mergers or Lobbying Efforts
States can play a significant role in reducing the market power of utility companies by opposing utility mergers. Governors, state attorneys general, and state regulators can all use their platform to oppose mergers that don’t match customer benefits with shareholder benefits. In addition, all public officials can and should call out utility lobbying efforts that circumvent established regulatory compacts, such as when Xcel Energy lobbied for a law circumventing Public Utilities Commission oversight of their proposed gas plant in 2017.
The Federal Energy Regulatory Commission should adopt a stance of opposing utility mergers by default, unless:
- The merger provides greater benefits for customers than for utility shareholders.
- It sets conditions to mitigate the increased ability of the merged utility to legislatively secure favorable treatment for its shareholders at the expense of its captive customers.
- It draws bright lines between affiliates and subsidiaries of merging utilities to avoid favorable treatment at the expense of captive customers, including purchasing power from affiliate-owned power plants, using hedges or other financial instruments offered by affiliates, or any other financial relationship that could disproportionately benefit the merging companies compared to customers.
Prevent Conflicts of Interest
State legislators and city officials can prevent conflicts of interest by refusing campaign contributions from utility executives or political action committees. For example, in Virginia, numerous legislative candidates won state house races on a pledge to refuse money from monopoly regulated utility Dominion Energy. In 2019, the Democratic Party of Virginia also took the pledge. Additionally, to prevent a cozy relationship, states should adopt policies to prohibit the “revolving door” by prohibiting utility employees to serve on regulatory commissions that oversee their former employer.
Elect or Appoint Public Champions to Utility Commissions
Utility commissioners play a fundamental role in monitoring competition in electricity markets. Governors and voters should ensure that utility commission candidates both understand their role protecting the public interest and will address issues related to the concentrated power of investor-owned utilities in the energy sector.
Enable Fair Access to Renewable Energy Financing
State regulators or legislators should require utilities to offer inclusive energy financing using the Pay As You Save model. These policies allow utilities or banks to issue upfront payments for on-site energy efficiency and renewable energy improvements (everything from insulation to rooftop solar), as done by the Ouachita Electric in Arkansas, that customers can repay over time through the utility bill using the money saved from lower energy bills. Because repayment is collected via the utility bill and, therefore, tied to a meter rather than an individual customer, it allows those with poor credit or minimal savings to reduce their energy costs and reduce demand on the electric and gas systems.
Ensure and Enforce Fair Compensation and Rate-Making Standards
Utilities typically want to minimize competition to their market share by providing the lowest possible compensation for customer-sited or -owned energy generation. Often, they suggest paying wholesale energy price, even for energy delivered to retail customers. With numerous transformative technologies giving customers more choice in how they use or generate electricity, state regulatory commissioners should ensure that the prices and pricing schedules for community solar, electric vehicles, and other distributed energy resources are fair for customers. Good examples include Minnesota’s “value of solar” and community solar programs.
Further, state legislatures and state regulatory commissions must ensure fair compensation and interconnection rules for distributed energy. For example, states should use net metering or a fair value of solar payment for on-site renewable energy generation, or allow customers to transact with one another. Minnesota’s value of solar, for example, includes calculations of how distributed energy avoids fuel costs, operations and maintenance, offsets other power capacity, and pollutes less.
Broaden Data Access and Ensure and Enforce Transparency
Customer usage data are an important tool for fostering transparency of utilities and encouraging more entrepreneurial solutions to grid needs. However, there are currently several loopholes that allow publicly regulated monopoly utilities to keep data used in energy decision-making from customers and the public. States can eliminate these loopholes by requiring utilities to comply with the Green Button Standard, a federally approved standardized energy use format that provides simple access to customers and third parties they choose to work with. Lawmakers can also require utilities to publicly disclose anonymized, distribution-level energy use data to encourage more innovative solutions to grid needs, as community-choice entities have provided in California.
Increase Scrutiny of High-Voltage Transmission Line Development and Require “Non-Wires” Alternatives Analysis
Congress or the Federal Energy Regulatory Commission (FERC) should amend FERC Order 1000 to require an independent analysis of all feasible non-transmission alternatives to proposed regional transmission lines, prohibit cost recovery for transmission projects where no reasonable investigation of alternatives took place, and develop a regional cost-sharing approach for non-transmission solutions that aligns with cost-sharing allocations for transmission projects.
High-voltage transmission lines cost millions per mile of line, involve the taking of private property, and can cost far more than alternatives to deliver similar capacity and energy. As a prerequisite to approving any segment of a multi-state electric transmission project, state laws should require an independent analysis of non-wires alternatives — including conservation, energy efficiency, distributed energy, energy storage, etc. — to deliver the same energy, capacity, and reliability benefits.
One approach for states would be to create an independent agency to review infrastructure projects costlier than $2 million, including transmission, power plants, substation upgrades, etc. The proposed Distributed Energy Resources Authority in Washington, D.C., would prevent conflicts of interest in grid infrastructure decisions (where utilities that decide also profit by favoring capital expenditures) by creating an independent authority to review them. When used to evaluate transmission projects, the same geographic bounds should be used for “non-wires” projects.
Give Customers, Individually and Collectively, More Choices
Consolidation in the electricity sector has left consumers with limited options for choosing cost-effective and clean electricity sources. State legislatures can provide more choices in a few ways.
They can create community renewable energy programs by enacting laws that allow customers to buy into wind and solar projects that are not on their property and can be owned by non-utility entities. In Minnesota, community solar projects produce electricity enough to power over 100,000 homes each year, provide $1.2 billion in financial benefits to subscribers over 20 years, and save all customers money.
States can also enact a community-choice aggregation policy. Adopted in nine states, this law allows communities to take over electricity purchase decision making and adopt cost-effective renewable energy, advance energy efficiency, and encourage local energy generation and economic development. The East Bay Community Energy program has set aside over $5 million in its first year for a Local Development Business Plan to target clean energy resources and jobs to communities of color and low-income residents.
Directly Support Distributed Renewable Energy
Without policy intervention, utilities will default to building large-scale wind and solar projects that primarily benefit shareholders rather than constructing community-based renewable energy projects that broaden economic and financial benefits to all. States can and have adopted renewable energy laws that require specific investments in distributed energy. In Maryland, the state requirement for 50 percent renewable energy standard also requires about one-third of the energy procured (14.5 percent) to come from solar. In a useful twist, compliance payments for utilities missing the targets will specifically support solar projects that directly benefit or are owned by low-income residents.
Further, state legislatures and state regulatory commissions must ensure fair compensation and interconnection rules for distributed energy. For example, states should use net metering or a fair value of solar payment for on-site renewable energy generation, or allow customers to transact with one another. Minnesota’s value of solar, for example, includes calculations of how distributed energy avoids fuel costs, operations and maintenance, offsets other power capacity, and pollutes less.
Direct Energy-Related Public Resources Toward Distributed Energy
When states spend public money to encourage clean energy, they should focus on public goods underserved by existing markets, such as customer and community ownership, power generation located close to demand and with storage to provide disaster resiliency and prioritize investments in communities of color and low-income communities.
 “When Utility Gas Affiliates Play by Monopoly Rules, Consumers Are Likely to Lose,” David Littell, Regulatory Assistance Project, April 2018.
 “Electricity explained,” Energy Information Administration, January 2020.
 “TVA Attempts to Chain Local Power Companies to Longer Contracts in Effort to Prevent Defection Risk,” Joe Smyth, Energy and Policy Institute, September 2019; “Electric Co-ops in Colorado push for change at Tri-State G&T,” Joe Smyth, Clean Cooperative, March 2019; “Local Utilities Have Lost Local Control,” John Farrell, Institute for Local Self-Reliance, June 2016; “Minnesota solar energy mandate closer to becoming law,” Pioneer Press, May 2013.
 When some state electricity markets were deregulated in the early 2000s, many electric utilities created subsidiaries to participate in new, competitive power generation markets. For example, Florida Power & Light (FPL), a state-regulated company in Florida, created FPL Energy to invest in developing wind power projects in the Midwest. Exelon, discussed later, is a holding company consisting of several state-regulated monopolies as well as multiple unregulated power generation subsidiaries that sell electricity from nuclear and other power plants in competitive markets.
 “Mergers and Monopoly: How Concentration Changes the Electricity Business,” John Farrell, Institute for Local Self-Reliance, October 2017.
 “Windfall for Exelon plants weakens case for Illinois ‘bailout.’,” Energy News Network, September 2015; “Mergers and Monopoly: How Concentration Changes the Electricity Business,” John Farrell, Institute for Local Self-Reliance, October 2017.
 “Used, But How Useful? How Electric Utilities Exploit Loopholes, Forcing Customers to Bail Out Uneconomic Coal-Fired Power Plants,” Union of Concerned Scientists, May 2020.
 “Westar and KCP&L Say Coal Pushed Up Kansas Electric Rates, But Investments Will Pay Off Soon,” Brian Grimmett, KCUR, April 2019; “Monopoly Un-Managed? Utility Tries to Dodge Oversight of Spendy Proposed Gas Plant,” Karlee Weinmann, Institute for Local Self-Reliance, January 2017; “Commentary: Trying To Curtail ‘Double-Dipping’ at Dominion Energy,” Adam P. Ebbin, Connection Newspapers, February 2018.
 “MidAmerican Energy and NextEra Square Off Over Wind,” David Wegman, Renewable Energy World, September 2009.
 “NextEra’s legal challenge to big MidAmerican wind project rejected,” David DeWitte, The Gazette, June 2012.
 “Reverse Power Flow: How Solar+ Batteries Shift Electric Grid Decision Making from Utilities to Consumers,” John Farrell, Institute for Local Self-Reliance, July 2018.
 “Pioneering community solar in the granite state -Episode 44 of Local Energy Rules Podcast,” Karlee Weinman, Institute for Local Self-Reliance, May 2017.
 Schwarz, Jeffery D. “The Use of the Antitrust State Action Doctrine in the Deregulated Electric Utility Industry.” American University Law Review 48, no.6 (August, 1999): 1449-1490.
 “Ohio’s @firstenergycorp will reap a $150 million per year bailout from #HB6,” John Farrell, Twitter, July 2019.
 “As Conservation Cuts Electricity Use, Utilities Turn to Fees,” Rebecca Smith, Wall Street Journal, October 2015; “Kentucky rolls back net metering, bucking recent pro-solar trend elsewhere,” Catherine Morehouse, Utility Dive, March 2019; “La. Kills net metering. Will other states roll back solar?,” Edward Klump, E&E News, October 2019; “As Rooftop Solar Grows, What Should the Future of Net Metering Look Like?,” Dean Gearino, Inside Climate News, June 2019; “Nevada PUC Approves Net Metering Rules Expected to Reboot the State’s Rooftop Solar Industry,” Julia Pyper, Green Technology Media, September 2017.
 “Report: Minnesota’s Value of Solar,” John Farrell, Institute for Local Self-Reliance, April 2014.
 “Puerto Rico: The Forgotten Island,” Tim Johnson, Miami Herald, September 2018.
 “Kodiak has almost 100 percent renewable power. It took some sci-fi tech to get there,” Rachel Waldholz, KTOO, September 2017.
 “Community Solar With an Equity Lens: Generating Electricity and Jobs in North Minneapolis,” Maria McCoy, Institute for Local Self-Reliance, July 2018.
 “Sherco power plant: The wrong project, for the wrong reason, at a big cost,” John Farrell and Karlee Weinmann, Star Tribune, February 2017.
 “Thirteen candidates who refused Dominion money win seats in General Assembly,” Robert Zullo, Richmond Times-Dispatch, November 2017; “Democratic Party of Virginia rejects political dollars from Dominion,” Mel Leonore, Richmond Times-Dispatch, September 2019; “PUC critics cite concerns over ‘revolving door’,” George Avalos, The Mercury News, March 2015.
 “Energy Research Hot Spot: Inclusive Financing,” Institute for Local Self-Reliance; “Performance of Inclusive Financing for Energy Efficiency: Preliminary Results of the Ouachita Electric HELP PAYS Program,” Ouachita Electric Cooperative, September 2016.
 John Farrell, April 2014; “Why Minnesota’s Community Solar Program is the Best,” John Farrell, Institute for Local Self-Reliance, May 2020.
 Op. cit. John Farrell, April 2014.
 “Distributed Resource Adequacy Capacity Request for Proposal (RFP),” East Bay Community Energy, Peninsula Clean Energy,Silicon Valley Clean Energy & Silicon Valley Power, November 2019.
 “Solar Co-ops Support Clean Energy Advances in D.C. — Episode 64 of Local Energy Rules Podcast,” John Farrell, Institute for Local Self-Reliance, November 2018.
 “Minnesota Community Solar Saves All Utility Customers Money,” John Farrell, Institute for Local Self-Reliance, May 2019; “Why Does One Minnesota Utility Have a Love / Hate Relationship with Community Solar?,” John Farrell, Institute for Local Self-Reliance, April 2019.
 Community Choice Energy: An Alternative to Electricity Monopolies Enables Communities to Center People and Planet,” Institute for Local Self-Reliance, February 2020.
 “How Can Your State Get an “A” Community Power Score?,” Institute for Local Self-Reliance, February 2020.
 Op. cit. John Farrell, April 2014.
Authors and Acknowledgements
This report includes contributions by John Farrell, Zach Freed, Susan R. Holmberg, Ron Knox, Christopher Mitchell, Stacy Mitchell, David Morris, and Neil Seldman. It was edited by Stacy Mitchell and Susan Holmberg, with research support from Zach Freed.
The editors and authors want to thank reviewers for their insightful comments and suggestions: Claire Kelloway, Ben Lilliston, Patty Lovera, Brenda Platt, Mike Townsley, and Arthur Wilmarth. Special thanks also go to ILSR staff for contributing to the research, production, and outreach of this report: Michelle Andrews, Jessica Del Fiacco, Marie Donahue, Zach Freed, Katie Kienbaum, Virgil McDill, Kennedy Smith, Virginia Streeter, and Charlie Thaxton.
The Institute for Local Self-Reliance builds local power to fight corporate control. We are a national research and advocacy organization that partners with allies across the country to build an American economy driven by local priorities and accountable to people and the planet. Whether it’s fighting back against the outsize power of monopolies like Amazon, ensuring high-quality locally-driven broadband service for all, or advocating to keep local renewable energy in the community that produced it, ILSR advocates for solutions that harness the power of citizens and communities. Read more about us here.