Power struggle for the grid
Regulators weigh arguments as tech companies, utilities clash
IF all goes according to plan, construction will begin next year on one of the longest power transmission projects in the nation’s history, a 700-mile line connecting wind farms around the Oklahoma panhandle with Atlanta and other cities in the Southeast.
But getting to this point has taken the Houston developer Clean Line Energy Partners more than seven years. The $2.5 billion project has been blocked by public utility commissioners in Arkansas and attacked by Senate Republicans, who tried, unsuccessfully, to delay the project. Ultimately, it required Energy Secretary Ernest Moniz to invoke a decadeold law giving the federal government final authority over interstate transmission to push the project ahead.
For years, government officials and power executives have talked up the need to update the country’s century-old power grid by creating a “smart grid” that would move carbon-free electricity from remote wind farms, integrate rooftop solar into the network of power plants, and respond quickly to changing demand to improve energy efficiency. But as Clean Line Power shows, overhauling such a large and complex system is easier said than done, requiring regulators and policymakers to contend with a variety of competing interests, particularly monopoly utilities that own the transmission system and a growing field of companies eager to incorporate new technologies.
“The grid used to be the domain of the utilities exclusively,” said Walter Rojowsky, an energy adviser at PA Consulting Group outside Washington. “But now you have customers generating solar energy on their roofs and third parties and aggregators, who have 20,000 solar panels and 30,000 smart thermostats under their control.”
Utilities and the new generation of power companies are engaged in a battle for control of the grid, the outcome of which will determine how customers get their electricity and how much they pay for it. Perhaps nowhere is that struggle more evident than California, where the utility Southern California
Edison is seeking approval of a $2.3 billion upgrade to distribution systems.
What seems like a boon to small distributed power sources, however, is prompting a backlash from the companies that sell them. Edison executives argue that transmission upgrades are essential to avoid blackouts on a grid built for delivering electricity from power plant to building, not from building to building.
But companies such as SolarCity, the rooftop solar company owned by the billionaire entrepreneur Elon Musk, say such a large project is unnecessary and would raise transmission rates that solar panel owners pay to the point their systems are no longer economical.
The main goal of the utility, these competitors say, is to earn a profit under outdated regulations that guarantee healthy rates of return — ultimately borne by customers — on investments utilities make into power lines. That system, critics say, encourages utilities to build more projects while providing little incentive to do so efficiently or seek less costly options.
“Lots of different utilities are talking about upgrading their distribution systems,” said Jon Wellinghoff, SolarCity’s chief policy officer and a former chairman of the Federal Energy Regulatory Commission. “I can’t fault them. The way the system is set up, the more they invest, the more money they make. And that system has to change.”
The U.S. power industry is a colossus. Just publicly traded utilities — representing about 70 percent of the industry — employ 1 million people and generate $990 billion a year in revenue. That’s equivalent to about 2 percent of the nation’s total economic output.
But between stagnating power demand brought on by more efficient houses and buildings, and low wholesale power prices, resulting from cheap natural gas and wind energy, the power business is struggling. On average, utility shareholders saw the value of their stock fall 3.9 percent last year, even as the broader market rose slightly, according to the utility trade group Edison Electric Institute.
That has led utility executives away from the power plants that were traditionally profit centers to power lines and infrastructure, for which earnings are guaranteed by regulators charged with maintaining the reliability of the grid. In states that deregulated electricity, such as Texas, power line companies like CenterPoint and Oncor have enjoyed steady profits, avoiding the difficulties sustained by power generation companies like NRG and Luminant as wholesale power prices fell over the past decade.
Investor-owned utilities are projected to spend $52.8 billion on upgrading the grid this year, more than double the spending a decade ago. Rather than exclusively connecting distant power plants, these projects must allow for the weaving together of energy sources in people’s homes and managing consumption through connected technologies that let appliances be turned off en masse during times of high demand, said Lisa Wood, executive director of the Institute for Electric Innovation, a subsidiary of the Edison Electric Institute.
“The struggle for any regulated industry is when you’re in a time of change,” she said.
Utilities are competing against a flood of tech companies eager to get onto the grid and make it more efficient. New York regula- tors last year ordered utilities to begin working with outside firms to better manage the flow of power, taking steps like signing up large blocks of customers to cut their power use when electricity demand and prices are highest.
These companies might soon gain access to what utilities have long protected as proprietary data — how customers use power. Utilities would effectively hand over the keys to reducing demand for the very electricity they sell.
Transmission lines have long been the almost exclusive domain of utilities, which use them to carry electricity from power plants to their distribution systems. But now a handful of companies outside those monopolies are developing much longer transmission projects paid for not by the people using the electricity, but the companies generating it — largely wind and solar farms.
Clean Line Power has four such projects under development. Founder and CEO Michael Skelly says most utilities have worked with his company, eager to get their hands on affordable and emissions-free power. But others have not.
In August, an Illinois appellate court overturned approval of a Clean Line project connecting Iowa wind farms with Chicago and its surrounding suburbs after the utility Commonwealth Edison and landowners sued the state power commission there. Their argument: Clean Line is not a utility and thus does not have the right to build onto the grid.
The project now awaits a decision by the Illinois Supreme Court.
Transmission “is the domain of utilities, but utilities typically focus on one state or a piece of one state,” Skelly said. “If you look at Oklahoma, you have a fragmented set of players. Even though they sit on this fantastic wind resource, they’re not chartered to move electricity to Atlanta.”
In Texas, which generates more wind power than any other state, the Legislature more than a decade ago approved what would turn into a $7 billion transmission project to bring renewable power from windswept West Texas to population centers around Houston, Dallas and San Antonio.
At the same time, retail electric providers are partnering with solar companies like SolarCity to expand the state’s nascent rooftop solar market, paying customers in Houston and Dallas for the excess electricity they generate. That measure, called “net metering,” has proved controversial in many markets where utilities say solar customers use the grid without paying their fair share for its upkeep.
What impact the election of Donald Trump to the White House will have on these issues is unclear. But figuring out how to modernize the grid to accommodate the growth in renewable power will largely be left to states.
So far, there are no obvious answers, said Brad Ramsay, general counsel of the National Association of Regulatory Utility Commissioners.
He pointed to Germany, where electricity rates are rising sharply as utilities upgrade their distribution systems after a huge influx of rooftop solar systems. Or in Hawaii, where a solar boom threatens to undermine the grid operator’s ability to balance the electrical voltage coming in and out of grid to avoid blackouts.
“The solar industry will provide all the benefit and not talk about the negative, and then the other side will say (rooftop solar) doesn’t provide that much benefit,” Ramsay said. “The answer is somewhere in the middle. The trick is finding the right balance.” james.osborne@chron.com twitter.com/osborneja