It’s an old challenge that won’t quit. Should utility monopolies own the future of electricity? Or would we all be better off if they faced serious competition?
The debate took hold in the 1980s and 1990s as the independent power industry grew. Last week, advocacy groups Common Charge and the Solar Energy Industries Association (SEIA) each offered a new twist.
They’re not pushing big power plants, but rooftop solar, batteries, virtual power plants, microgrids, and other local energy options that let homes and communities produce their own electricity and sell capacity to the grid.
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“America’s homes are an enormous, untapped energy resource,” said Kristin Eberhard, vice president of policy at Rewiring America, a Common Charge member. “But unlocking that potential requires changing the rules so households are recognized and rewarded as energy infrastructure.”
In separate reports, the two organizations offer their own prescriptions. SEIA describes a distributed capacity procurement (DCP) framework, while Common Charge lays out a series of policy reforms to advance local energy.
The Common Charge report, The Local Power Blueprint, recommends a broad menu of state policies to expand rooftop solar, batteries, virtual power plants, microgrids and other distributed resources. These resources would compete to address grid strain; capital-intensive power plants and infrastructure would not be the automatic default.
The SEIA report, Distributed Capacity Procurement Framework, prepared by Current Energy Group, takes a more specific approach, laying out three procurement methods intended to give independent distributed energy providers a better opportunity to compete with conventional utility investments.
SEIA: Give distributed energy a fair shot
SEIA, which represents solar and storage companies, says that capturing DER potential depends on three conditions
- Customers and third-party owners need enough revenue certainty to invest
- DERs need a defined route to provide grid services rather than an ad hoc one
- Planning must inform where and when DERs are deployed.
The organization favors a distributed capacity procurement (DCP) framework — a structured alternative to capital-intensive utility construction projects.
Utilities would be permitted to own distributed resources only under defined circumstances. This might be when competitive markets cannot supply a necessary service or when it’s hard to disentangle the service from utility infrastructure. And even then, utilities would have to prove the exception is necessary.
SEIA proposes three ways the framework could work, depending on what the grid needs in a given time and place.
- Programmatic tariff-based procurement. This is the default option. Customers and developers could enroll resources at any time in a standing tariff, without waiting for a utility solicitation. The tariff would pay for each grid service a resource delivers. Resources on either side of the meter would qualify, including those aggregated into virtual power plants. Utility ownership is not contemplated.
- Pathway 2: RFP-informed programmatic tariffs. Regulators would create tariffs to meet recurring local needs, such as feeder or substation upgrades. Competitive solicitations would set and update the rates, and developers would enroll through the tariff rather than negotiating individual contracts. Again, this pathway does not contemplate utility ownership.
- Pathway 3: Competitive solicitations. This is the last resort. It covers specific grid problems that standardized tariffs can’t address, or cases where a Pathway 2 tariff has failed to attract enough resources. Utilities would first have to show that the earlier pathways won’t work. Third-party ownership would remain the preferred approach, although utilities could own projects in narrow circumstances.
The goal is to overcome a major obstacle facing distributed energy developers: They need predictable revenue to finance projects.
The framework would apply to a range of DERs, including rooftop solar, community solar, batteries, demand response and virtual power plants. They could operate on the customer or utility side of the meter.
All utility ratepayers could benefit, not just those offering DERs, the report says, because independent developers would take the investment risk, not utility customers.
Common Charge challenges utility ownership of data center-funded energy
Common Charge, a pro-local power group, makes an especially pointed ownership argument in its recommendations for data centers and other large electricity users.
The coalition proposes that states require these large loads to fund local power, directly or indirectly, as a condition of grid access, with the obligation sized to its impact. It also wants large loads to participate in demand response and efficiency themselves.
One option is for data centers to fund distributed energy programs administered through utilities, which could contract with independent aggregators to enroll customers and dispatch resources.
But Common Charge draws the line at letting utilities use those funds to own the assets themselves.
“We do not recommend that utilities be allowed to use such funding to own assets directly,” the report says, arguing that utility ownership would stifle competition and that utilities lack a built-in incentive to maximize resources.
Other options include letting large electricity users contract directly with distributed energy providers or contributing to dedicated funds for local power development.
Distributed energy is less risky in uncertain times
The report also argues that quick-to-install distributed energy is less risky when future demand is uncertain. A growing concern is that the US will build billions of dollars of power plants and transmission lines for data center demand that may not fully materialize.
Common Charge wants regulators to change how utilities are paid — rewarding utilities for cutting costs, improving reliability and making better use of local resources rather than primarily for capital investment.
The organization also proposes that states consider an independent distribution system operator model. The idea is to separate the entity that plans and operates the distribution grid from companies competing to own resources connected to it.
Give local energy a shot before utilities build
Beyond data centers, Common Charge wants independent providers to compete whenever utilities propose major infrastructure investments.
The report calls for all-source procurement, allowing portfolios of local energy resources to compete with conventional generation, transmission, and storage projects.
“Utilities should have to look, show their work, and let third parties bid before families are asked to pay for expensive infrastructure,” the report says.
Before taking on major capital projects, utilities would have to consider alternatives and solicit proposals from independent developers and aggregators. They’d also have to explain why they accepted or rejected them.
Where it’s already happening
Common Charge points to several examples of states already moving in this direction.
In Maine, an independent nonwires alternative coordinator considers DERs to reduce the need for significant transmission and distribution projects.
In Michigan, Consumers Energy must model aggregated distributed generation and virtual power plants in its planning. State regulators warned that future capital investments that fail to account for virtual power plants may be disallowed as unreasonable or imprudent.
In New York, Con Edison’s Brooklyn-Queens Demand Management program is often cited for its success in showing how DERs can replace conventional infrastructure. The state authorized the utility to spend up to about $200 million on alternatives to a $1.2 billion substation project. The program came in under budget.
Utilities don’t go away
Neither report envisions a future with no utilities.
SEIA preserves utilities for planning, interconnection and dispatch coordination. They would identify grid needs, oversee system reliability, and coordinate distributed-resource operations.
Common Charge envisions utilities providing transparent planning, information about distribution constraints and coordination with independent providers. It also wants states to establish utility performance targets with monetary rewards and penalties.
State regulators will decide
The two reports differ in scope. Common Charge offers a broad state policy agenda covering financing, permitting, interconnection, consumer access and utility regulation. SEIA focuses on the mechanics of procuring distributed capacity.
But both challenge the idea that utilities should be the first choice to build and own the resources needed to meet growing electricity demand.
Whether that happens will depend heavily on state regulators, who decide what utilities can build, how much they can recover from customers and whether competitive alternatives receive serious consideration.
“We need more electricity on the grid added fast, and traditional approaches that rely on utilities alone to meet that demand are no longer going to cut it,” said Samantha Weaver, SEIA’s senior director of state regulatory affairs. “Distributed energy resources can provide much-needed capacity at the speed and scale required to meet the moment.”
