The Democratization of Power and the Electric Utility of the Future
Our one-way, hub-and-spoke model for delivering electricity dates back to the days of Thomas Edison. But disruptive technologies are enabling a new model that will transform utilities as we know them.
Monopolies, like monarchies, have inherent flaws, not the least of which is that the vast majority of people prefer to have a say about how they run their lives. Simply put, we prefer choices.
The idea that it was natural for utilities to be monopolies was first described by John Stewart Mill for delivery of gas and water in London circa 1848. His thesis was that for the public good the quality of the product and the continuity of delivery trumped a more competitive model.
In the United States today, investor- or consumer-owned utilities have exclusive control of electricity service to their customers. About 75 percent of the U.S. population is served by investor-owned utilities and the remaining 25 percent by consumer-owned utilities, most of which are either municipal utilities or nonprofit cooperatives.
Whether by a private or a public entity, most electricity service is delivered from a central source out to individual homes and business, a hub-and-spoke model with power flowing only in one direction. This is a model virtually unchanged since the nation's first central power plant, Thomas Edison's Pearl Street Station, started generating electricity on Sept. 4, 1882, to power 400 lamps for 85 customers in New York City.
But now this model is changing in a very big way under the disruptive influence of emerging technologies that allow home and business owners to be operators of their own power plants, generating electricity from the sun or wind. This capability, coupled with computer technology to facilitate the localized transmission and use of power -- collectively known as microgrids -- will change the nature of monopoly utilities as we know them. Power will be flowing in many directions simultaneously, enabled by modernization of the nation's electricity grid.
Not surprisingly, the electric utilities are viewing this transformation with no small measure of alarm. Their trade organization, the Edison Electric Institute, has warned members that they are being put "in the same position as airlines and the telecommunications industry in the late 1970s."
How will this transformation take place? To be sure, there are huge administrative and technical issues to be dealt with. Beyond those issues, however, forward-looking leaders in both the private and the public sectors are imagining and developing new energy models where communities are more in control of their energy futures, gaining new capabilities for eliminating waste and improving system resiliency, supplies and price transparency.
One organization taking on this challenge is the Perfect Power Institute (PPI). Its objective, as its name suggests, is a "perfect" electric-power system -- one that never fails the consumer. A recent PPI white paper, "Investing in Grid Modernization: the Business Case for Empowering Consumers, Communities and Utilities," lays out a framework and process for improving the system that engages all stakeholders.
What will the utility of the future look like? PPI Director John Kelly's vision is tied to two fundamentals. "We won't lose the monopoly on the transmission and distribution side," he says, but "the real innovation will be in allowing the customer full access to a competitive generation market while transforming the distribution system to be capable of handling local generation."
Case studies from communities such as Chattanooga, Tenn., Leesburg, Fla., and Naperville, Ill., detail new approaches that are yielding dramatic improvements in reliability and reduced costs. These provide hard evidence that the technology has evolved to the point where this new model is economical.
How do we expand these projects to communities across the country? Government leaders, working with utilities, will need to devise new policies, new guidelines and new business models for the utilities, aiming to help them navigate this transition.
These models should encourage customers to generate their own power and allow them to pay only for grid services they need. Pricing that supports the technology-enabled ability to "bring your own power" and "control your own demand" is likely to receive broad acceptance from customers. Choice will be king.
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