In the 20th century, state law protected electric utilities from competition, leaving customers no choice but to buy from vertically integrated monopolies. Regulators based utilities’ profits more on kWh sales and asset growth than on efficiency and innovation. The 21st century offers a chance for change: diversity among services and suppliers, where merits prevail over incumbency; and democratization of demand, where customers, hourly informed of the costs they cause, can custom-design their mix of suppliers and services and even produce their own supply.
Diversity and Democratization
Experiments in this diversity and democratization are taking multiple forms in multiple places. Maine, Hawaii, Oregon and Vermont have relieved their utilities of energy efficiency roles, shifting those roles to independent companies having no internal conflict between producing and conserving. Most importantly, these new "utilities" were selected competitively and enjoy no lifetime lock on their jobs. California has ordered its utilities to procure 1325 MW in storage; all must be selected competitively and no more than 50 percent can be owned by the incumbents. A Maine statute requires its commission to consider appointing a "smart grid coordinator" that would be independent of the incumbent utilities. Through net-metering and microgrid programs, states are encouraging customers and communities to be become self-generators. Connecticut, Maryland, Massachusetts, New Jersey, Ohio and others are directing their utilities to buy instead of build. (While some details of some state programs have drawn preemption challenges, a state’s general decision to displace utility ownership with utility purchases is legally safe.)
FERC, too, is pressing for alternatives to the incumbent utilities: by requiring regional transmission organizations to accommodate and compensate demand-side bids (Orders 719 and 745), by encouraging vertically integrated incumbents to divest their transmission to independent owners (Order 679), by eliminating incumbents' "right of first refusal" to construct regional transmission facilities (Order 1000), and by making ancillary service markets more welcoming to new entrants (Orders 755, 784).