Coalition of Ratepayers

Imagine 1500 feet of (electrical) freedom…

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By Brit Naas and Amy Cooke

What if we could break free from the massive transmission lines and power plants and the utility-scale wind farms that are hundreds of miles away? It’s not impossible. From cryptocurrency to ride and home sharing companies, decentralized and sharing economy platforms are altering sectors in a way that was unfathomable twenty years ago. 

We at the Independence Institute believe the power industry is about to see a similar renaissance, as companies like LO3 Energy work to make residential microgrids a reality – where neighbor-to-neighbor transactions occur with regularity. 

As with any change – whether cultural or economic – movement away from the status quo usually doesn’t happen overnight. This is especially true for the power industry. For nearly a century, private, for-profit regulated monopolies have dominated the electricity sector, reaping in billions of dollars for their shareholders courtesy of captive ratepayers.  

Theoretically, Colorado’s Public Utilities Commission and our state legislature serve as watchdogs over these for-profit monopolies. Publicly traded monopoly corporations are guaranteed a profit for their “just and reasonable” rates to provide service to ratepayers, who have no choice in their electricity providers. Monthly utility bills, sometimes larded up with additional fees for unnecessary corporate expansion, have become more of a wealth transfer system between captive customers and corporations’ shareholders. 

Obviously, monopoly utilities do not yield this privileged position voluntarily. From Tri-State Generation and Transmission to Xcel Energy, they are notorious for their efforts to resist change that could lower or even eliminate their guaranteed profit margins.  

Delta-Montrose, a rural electric cooperative that services Montrose, Delta, and Gunnison counties, is currently trying to withdraw from Tri-State because its members want the freedom to determine the type of sources that generate their electricity. It had hoped the process would have been nonconfrontational and fair for both parties, but Tri-State is resisting and has asserted that the co-op cannot withdraw. Not only is Tri-State’s position most likely illegal, it is also subversive to Delta-Montrose’s members’ autonomy and self-determination. 

Xcel, Colorado’s largest electric utility, is the glaring case study of how our centralized electricity generation and distribution business model is a disservice to customers and a financial windfall to the monopoly. 

It has been wildly successful at lining its shareholder’s pockets by appealing to the renewables-at-any-cost crowd. Self-described environmentalists such as the Sierra Club, Western Resource Advocates, and Conservation Colorado have formed an unholy alliance with Xcel. 

These special interest groups with their own deep pockets and a myopic view of utility-scale wind and solar have aided and abetted Xcel’s unjust enrichment at the expense of innovation, free markets, the environment, and most importantly – those of us paying the bills, otherwise known as ratepayers. 

Protected by an army of lobbyists, government officials, and entrenched interest groups, any hint of reform with the potential to threaten Xcel’s stranglehold on its 1.4 million captive ratepayers is met with open hostility and blatant lies. Despite the plethora of money-saving pledges, have your rates gone down? Furthermore, Xcel has used the “unholy alliance” to strengthen its financial and monopoly position. 

Depending on need and political will, Xcel has used its position either to circumvent the Public Utilities Commission by going directly to the state legislature, or to circumvent the state legislature by going directly to the Public Utilities Commission. 

It’s a clever strategy but not fool-proof for Xcel and its sycophants. Not all legislators are enamored with Xcel’s lying and bullying to protect its financial gravy train. In the 2018 session, a bipartisan group of legislators led by Senator Steve Fenberg (D-Boulder) showed a willingness to chip away at the monopoly’s stranglehold as one of the first states to pass a “right to store” bill (SB18-009). With Governor John Hickenlooper’s signature, Xcel residential customers now have an option to store their own electricity free from the monopoly’s interference.  

This brings us back to the idea of 1500 feet of freedom. We urge those same courageous lawmakers to craft and pass legislation that will allow individuals to buy or sell power produced and/or stored within 1500 feet of them without regulatory and monopoly interference. 

Let’s say a business owns a mini solar garden or a natural gas generator, but it doesn’t need all of the power it can produce. That business could contract with a neighboring business to sell its excess power. Assuming they comply with all local building codes, the contract is between the two businesses free from PUC or Xcel interference. This would also work for neighbors. One neighbor may invest in solar panels while the next-door neighbor invests in battery storage. They decide to share the power and capital costs. All of this happens without regulatory or utility meddling. 

We believe a commercial or residential customer should be able to use the electricity they’re producing and storing as they see fit. This could mean using it themselves or selling it to those within 1500 feet of them.

As evidenced by an experiment conducted by the Brooklyn Microgrid in 2016, we have the technological ability to trade electricity via a peer-to-peer model. Three years ago, two participants in the Brooklyn Microgrid completed the project’s first peer-to-peer, or in this case, neighbor-to-neighbor transaction. One had solar panels that produced excess energy, the other wanted to purchase that excess energy. There was no middleman, just two neighbors who agreed upon a price and completed the deal.  

According to the Brooklyn Microgrid’s website, this first transaction was a “sandbox experiment.” However, this year, the Brooklyn Microgrid is going live, and both the sellers and buyers are going to experience energy choice. 

The technology is there, and 1500 feet of freedom puts innovation over regulation. It could reduce the need for behemoth-sized power plants and the hundreds of miles of transmission lines that go along with them. It could put money in individuals’ pockets rather than just corporate executives and shareholders. And it would put individuals in charge of power production and usage. 

Now is the time to unshackle ratepayers from the confines of a centralized grid and monopoly utility and propel the power industry into the twenty-first century. 

Uber for energy: Is electricity the next sharing economy?

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Second article in our series about microgrids

The United States’ traditional electric grid is an engineering marvel with nearly 160,000 miles of transmission lines, millions of miles of distribution lines, and over 73,000 power plants.

It delivers power throughout all of America, and it allows us to use air conditioners in the summer and heaters in the winter. One hundred years ago, electricity was a luxury, today, it is an affordable staple and absolute necessity to power our 21stcentury economy.

But the traditional, centralized electric grid is ripe for change. Large power plants can cost up to a billion dollars to build and are often located miles from population centers. As a result, transmission lines, which cost a million dollars or more per mile, must be extraneously long in order to connect the plant with the rest of the grid. These current realities should be considered necessary evils to maintain America’s electrification, and they cost ratepayers, who are sometimes captive customers, millions every year.

Moreover, as the previous post explained, both regulation and deregulation has stifled innovation and has failed ratepayers. The status quo is either endure an esoteric, regulated model that allows utilities to manipulate the market and gouge their customers or live with a deregulated market with volatile rates.

All the while, new business platforms like Uber and Airbnb have permanently altered traditional business models that a decade ago seemed unchangeable. Economists are calling the market where these new entities operate the sharing economy, and while it may seem impossible, its next breakout platform could be the energy sector because of microgrid technology.

Microgrids are small electric grids that consist of generation sources, distribution lines, and control mechanisms that switch gears and regulate voltage. According to the Department of Energy, “A microgrid is a group of interconnected loads and distributed energy resources within clearly defined electrical boundaries that acts as a single controllable entity with respect to the grid. A microgrid can connect and disconnect from the grid to enable it to operate in both grid-connected or island-mode.”

Within the service area of a microgrid, electric generation is disseminated and owned by individuals and businesses. One household may install solar panels and batteries while another might utilize a diesel or natural gas generator. Regardless, because individuals own the generating sources, thereby decentralizing generation, massive power plants and long transmission lines are rendered obsolete and no longer needed.

Distribution lines would still be required within the “defined electrical boundary” in order to connect the participants, but without the need for large power plants and long transmission lines, infrastructure costs would drop.

From powering prisons to college campuses to neighborhoods, microgrids enable communities to be independent from central electric utilities. They’re powered by a variety of sources (generators, batteries, solar panels, etc.) and are self-sufficient systems that can act in parallel with the central grid or function autonomously.

It’s Uber for Energy, or the power sectors’ neighbor-to-neighbor economy. If you’re tired of the electricity cartel and its enablers at the Public Utilities Commission who keep customers captive, maybe it’s time to think about how you, your neighbor, and community can gain independence from Colorado’s regulated monopolies by creating your own microgrid.

Article 1, Article 3, Article 4

Don’t be dull, embrace microgrids

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By Casey Freeman

First article in our series about microgrids

Xcel Energy and Black Hills Energy are Colorado’s two regulated electric monopolies. Xcel is the larger of the two and provides retail service to the greater Denver Metro Area, Greeley, and Grand Junction, while Black Hills services Pueblo and the surrounding area. These utilities operate in a regulated market with no competition and provide power to a combined customer base of approximately 1.5 million. Both are Colorado Public Utilities Commission (PUC) regulated, for-profit corporations and award annual dividends to their shareholders.

As Colorado public policy including renewable mandates and fuel switching have driven up electricity rates, there has been substantial concern over how these utilities treat ratepayers, and not without cause. In 2010, Black Hills raised its rates 13 percent, and from 2012 to 2017, increased them an additional three times. Around 7,000 people per year were receiving disconnect notices, and to reconnect, customers must pay the missed bill in full along with a fee and a three-month deposit. The cost can end up being higher than $2,000, which is devastating for the residents of cities like Pueblo where the median household income in 2016 was $35,770 compared to a statewide average of $62,520.

While a reconnecting fee alone is a difficult hurdle to overcome, loss of electricity carries with it much heavier problems like social services breaking apart families, forfeiture of public housing, and the inability to preserve perishable goods. A remedy Black Hills offers is the Black Hills Energy Assistance Program or BHEAP, a program for low-income households in which customers who meet specific income requirements can receive a deduction of $60 from their monthly bill. However, this assistance is at the expense of other customers who are charged a monthly fee to sustain the program.

For ratepayers in Colorado, there is no other option but to endure the service of their electric provider since a regulated market prevents customers from choosing a different company.

Certainly, giving consumers the freedom to choose their own provider is better than being forced into a monopoly utility. But deregulation isn’t without its own problems. For example, the 2002 Texas State Legislature passed a law that deregulated the energy market and allowed competition between electricity providers. It was meant to address the detriments of a regulated energy market. Then Governor George W. Bush summarized his support saying: “Competition in the electric industry will benefit Texans by reducing rates and offering consumers more choices about the power they use.”

Market manipulation in the form of subsidies for preferred energy sources has made the reality of deregulation a bit different than originally hoped. Consumers do enjoy a wider range of choice in energy suppliers, but rates have been more volatile and subject to dramatic increases. Subsidies for renewable energy from both the state and federal government have artificially depressed wholesale intermittent energy prices. As a result, baseload power sources are becoming uneconomical and closing, causing a scarcity in energy supply. This is damaging to ratepayers because in times of scarcity, power providers will raise electric retail rates to prepare for surging wholesale electric rates.

And in the summer of 2018, this was especially problematic. Three coal-fired power plants closed in the spring just ahead of Texas experiencing record-breaking temperatures that caused a dramatic increase in electricity demand during the summer. Wholesale pricing averaged $200/MWh during peak hours, which was a $150 increase from the previous year, and in May, wholesale prices spiked to $1,500/MWh.

Simply put, when power producers chase subsides, baseload power sources close and wholesale electricity prices are more than likely to surge, ultimately increasing retail electric rates and hurting ratepayers.

Does Texas’ failure at deregulation indicate a regulated market structure is the only alternative then? The short answer is no. In addition to the issues that many Colorado ratepayers have to contend with, Dr. Lynne Kiesling, an accomplished author and professor of Economics at Purdue University, believes a regulated energy market “stifles innovation.”

Kiesling makes a compelling argument that America has been using the same business model for over a century, which she believes has resulted in a sector devoid of new ideas on energy generation and usage. Beyond lousy service and rising rates, consumers have little incentive to become personally involved with their energy consumption, and the lack of competition incentivizes utilities to chase bad investments because they’re more profitable than innovation that save ratepayers money.

According to Kiesling, the regulated market has dulled both parties, the customer and the utility, which now seem content with mediocrity.

Currently, there are two options for ratepayers: a regulated or deregulated business model. But as regulated utilities continue to gouge customers and manipulate the market, and wholesale deregulation only seems to offer another bleak outlook, it’s time to look beyond the status quo and embrace innovation.

Could microgrids be the answer? Maybe. Colorado already has experimented with them. Stay tuned for the next article in this series.

Article 2, Article 3, Article 4

Casey Freeman is an intern in the Energy & Environmental Policy Center at the Independence Institute. She is pursuing a bachelor’s degree in political science with a focus on legal studies from the Metropolitan State University of Denver.