Quick Take: CNBC is out with a loooooonnnnnngggg article about the “dirty clean energy battle.” In it, NRG Energy CEO David Crane calls utilities “shockingly stupid.”
Now you could certainly call utility CEOs (as a group) conservative or slow-to-react or even timid. But they’re not stupid. Crane and others like him often complain bitterly about utility behavior. But they forget that this behavior is a result of regulation. For instance, many observers believe utilities should get in the business of rooftop solar (me included). Yet many utilities are forbidden to do that. Other utilities are allowed to do so, but only through a non-regulated subsidiary, which also requires permission.
In other words, Crane and his ilk complain that utilities are stupid because they follow the rules. Really? Obeying the law is stupid? Now who’s the fool? If we want to change utility behavior, we should simply change the rules they play by. Hello.
The CNBC article does a good job of summarizing the rules that result in the behavior Crane detests. Brief summary below, but click the link above for the full article. – Jesse Berst
Industry consultant Karl Rabago believes there is “something in the utility person that makes him want to own machinery. It’s in their bones.” (No. No. No. It’s in their regulations. – Jesse)
There’s a business reason for the reluctance of utilities to embrace renewable energy. The business model of the regulated utility bases earnings on the level of capital invested in infrastructure. The more the utility builds, the bigger its rate base.
This “own and control” mentality is being threatened. And it’s not just about solar. As other distributed generation technologies become popular, utilities will need to adapt to customers being owners, lest they fall into a “death spiral.” Costs will continue to go up, yet sales will go down as more and more customers produce more and more of their own power.
Many consumers want to see a transition to renewable energy. But, “utilities are not delivering,” said Adam Browning, Executive Director of solar advocacy nonprofit Vote Solar. “They have fought every step of the way. It’s a problem of their own making, so they either figure out how to transition or get out of the way.” (No. No. No. They did not make the regulations, many of which are 100 years old. You can argue that utilities should work harder to get those regulations changed, but to say that they created this problem is, to borrow a phrase, “shockingly stupid.” – Jesse)
Lauren “Bubba” McDonald is a commissioner of the Georgia Public Service Commission and a self-described “very conservative regulator.” Yet he is in favor of distributed solar, with some utility involvement. “Bubba McDonald may be the best friend the utility industry has ever seen because he is proposing a path forward using a utility model,” Rabago said.
“Utility regulation is filled with sticks and not many carrots,” says the article’s author Eric Rosenbaum.”And no model has been proposed by companies or regulators that would financially reward a regulated utility for considering distributed generation as an opportunity—though there is no reason one could not be proposed along these lines.” (Now we’re talking! Utility CEOs… are you listening? – Jesse)
Jigar Shah, founder of solar company SunEdison, has a dimmer view of utility survivability. “There are 300 public utilities in this country and six might be successful on the other side. By 2020, this whole market will be firmly disrupted.”
Shah said pension funds have started divesting shares of utilities because they are losing growth. With distributed generation and energy efficiency, the only way to prosper is by investing in those opportunities. But the utility mindset and business model was not designed to accommodate innovation.
“Hedge funds managers are calling me on whether they should be shorting utilities,” Shah said. “When we are having that conversation that means the end is near.”
Jesse Berst is the founder and Chief Analyst of SGN and Chairman of the Smart Cities Council, an industry coalition.
