Thursday, March 19, 2015

Utilities Experience Competition, Don’t Like It, Run Crying to Regulators - by David Roberts

Power lines and man (Credit: Shutterstock) Click to Enlarge.
Power utilities are fleeing open competition and seeking security in the sweet, protective bosom of Big Government.  You can see this in two concurrent trends.

The first I wrote about recently in the context of the proposed Exelon-Pepco merger (which, by the way, Maryland’s attorney general recently came out against). Exelon is a “utility holding company,” which means it owns a bunch of utilities, some of which generate and sell power on wholesale markets and some of which distribute power to retail consumers over local grids.  The former are “deregulated,” in that their profits are determined by competitive markets, while the latter are “regulated,” in that their profits are determined by state public utility commissions.  (There are also regulated utilities that do both — generate and distribute power.  These “vertically integrated” utilities exist in markets that never underwent restructuring.)

A while back, holding companies were rushing to buy more generation utilities, since there were big profits to be made from big power plants on wholesale power markets.  But a funny thing happened in those markets:  they got competitive.  In fact, natural gas and wind (the mammals) started out-competing big old baseload plants (the dinosaurs).  Now, the profits of those coal- and nuke-heavy generators are in serious doubt; those big old power plants are looking more and more like potentially stranded assets.

So what are holding companies doing?  They’re rushing back in the other direction, attempting to buy up more regulated distribution utilities, where profits are guaranteed by regulators and therefore much more stable and predictable.  If holding companies encounter sympathetic regulators — and money has a way of generating sympathy — they can even raise rates on those retail customers in order to pay for the crappy old baseload plants their generation utilities own. Not great for customers, but good for the bottom line.

In short, utilities are seeking regulatory shelter from competitive wholesale markets.
The second trend has them seeking regulatory shelter from increasingly competitive retail markets — freaking out about, and fighting back against, the rise of rooftop solar.  This was the subject of an excellent recent Washington Post piece from reporter Joby Warrick.
It turns out grassroots conservatives and Tea Party groups — those far enough from Washington — don’t like the idea of a state-run monopoly telling them they can’t generate and sell their own power.  ... Turns out solar is popular and solar customers are a pretty active and organized constituency.

You might call democracy the “market of ideas,” and as we’re seeing, utilities aren’t doing so great competing in markets.

So what are utilities doing?  If you guessed “running to regulators,” you’re starting to get the hang of this.
Turns out that public utility commissioners, less in the public spotlight and less accountable to voters, are a lot more amenable to corporate lobbying and Koch money. So Arizona’s (horribly corrupt) utility commission has slapped new fees on solar homeowners.  So has Wisconsin’s. New Mexico’s may follow suit soon.  Similar efforts are underway across the country.
By all rights, utility reform ought to be a ripe area for bipartisan cooperation.  We need rapid advances in clean energy and energy management and the best way to foster that is to structure competitive markets with low barriers to entry.  It’s time for utilities to stop hiding behind regulators.

Read more at Utilities Experience Competition, Don’t Like It, Run Crying to Regulators - by David Roberts

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