While electric utility regulation may put you to sleep, the impact on your businesses’ future energy costs may end up keeping you up at night. Given its importance, let us explain in layperson terms, why reform is critical for Iowa’s future energy competitiveness.
While complicated, in a nutshell, investor-owned utilities are allowed to make profits based on how much capital they invest, not necessarily on how efficiently the system operates. While this structure was well suited for yesterday’s power grid, it fails to address the needs of the electric grid of the future.
The most efficient future electric grid will leverage third-party generation and storage, the customers’ ability to control time-of-use, and increased energy efficiency. Under the current regulatory approach, leveraging these resources reduces the long-term profit potential of the utilities. This creates a disincentive for a low-cost, clean energy future. The key is to change the utilities’ roles and incentive structure. California and New York are starting this process – and the rest of the country will need to as well.
To give you some perspective on how quickly the electric grid will be changing, by 2025 the combined capacity of customer-sited solar, storage, demand-side management, electric vehicle infrastructure, and other distributed energy resources in the United States will exceed today’s combined capacity of coal and nuclear power! (see Utility Dive) For Iowa’s competitiveness – starting the discussion sooner rather than later is essential.
Modifying our current utility regulatory environment will not be easy. The Iowa Utilities Board just opened a docket to start the discussion on transmission lines. There are no simple solutions. Watching California’s and New York’s efforts will be important. In future newsletters, we will explore the issues in more detail.