Investor-Owned Utilities Strategic Investments to Preempt Grid Defection and the “Utility Death Spiral”

Investor-Owned Utilities Strategic Investments to Preempt Grid Defection and the “Utility Death Spiral”

By Micaela Harms       

“Utility companies and policy makers must take the potential for grid defection seriously when evaluating energy supply strategies.”[1] Utility companies will face increased competition from off-the-grid systems as technological advancements and cost reductions make these systems ever more viable for households.[2]

In California, Southern California Edison (SCE) is trying to get ahead of the competition. The investor-owned utility recently pitched a roadmap for reducing greenhouse gas (GHG) emissions to California’s policymakers in an effort to align the state’s GHG emission reduction goals with a prosperous future for investor-owned utilities (IOU).[3] As the bulk of IOUs’ profits comes from investments in infrastructure, SCE’s suggestion to “electrify everything” could result in a windfall for IOUs that build out the power lines and other infrastructure required to support increased electricity demand from electrified cars and heating systems.[4] “The plan would be good for Edison’s bottom line, but it would also benefit California as a whole” as it would support the state’s mandate to reduce GHG emissions to 40% below 1990 levels by 2030.[5]

SCE’s proposal is not the utility’s first strategic action, as it is already investing millions ($22 million to be exact) building out electric vehicle charging infrastructure.[6] San Diego Gas and Electric (SDGE) and Pacific Gas and Electric (PGE)—California’s two other largest IOUs—are respectively investing $45 million and $130 million in electric vehicle charging infrastructure.[7] The chargers that SCE are building are host-owned, while SDGE chargers are utility-owned and PGE’s chargers are owned by a utility-private investor partnership.[8]

Yet, should utilities be able to build out the infrastructure required to support California’s GHG emissions reduction goals under their monopoly power?[9] How much of the requisite infrastructure should be privately owned versus publicly owned? And how much infrastructure is really necessary when grid defection via small-scale distributed energy resources (think solar panels and batteries) could potentially provide customers with lower cost and more reliable energy solutions?[10] Could the IOUs investment backfire, as they shift costs to consumers and inspire additional grid defection?

On the one hand, IOU infrastructure investments may hasten the decarbonization of the electricity and transportation sectors and help California meet its GHG reduction goals on time. On the other hand, these investments could reduce the incentive for others to innovate and they may spread costs of infrastructure among those who directly benefit and those who do not (i.e. someone who cannot afford an electric vehicle may pay to build the charging infrastructure). Further, because IOUs make money for their shareholders through infrastructure investments, they may bake additional and unnecessary infrastructure expenditures into their proposals to policymakers and avoid mention of potentially more cost effective solutions.[11]

 

 

[1] Abhilash Kantamneni, et al., Emerging Economic Viability of Grid Defection in a Northern Climate Using Solar Hybrid Systems, 2016.

[2] Id.

[3] Southern California Edison, The Clean Power and Electrification Pathway, Nov. 2017.

[4] Id.; Sammy Roth, SoCal Edison’s plan to ‘electrify everything’ could help the climate – and SCE’s profits, Nov. 16, 2017.

[5] Id.

[6] California Energy Commission, Zero-Emission Vehicles and Infrastructure, July 5, 2017.

[7] Id.

[8] Travis Hoium, Investing in EV Infrastructure: Where the Money is Going, Mar. 15, 2017.

[9] Id.

[10] Sam Mintz, Could Rick Perry’s grid plan spur ‘utility death spiral’?, Nov. 17, 2017.

[11] Sammy Roth, SoCal Edison’s plan to ‘electrify everything’ could help the climate – and SCE’s profits, Nov. 16, 2017.

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