Why Utility Infrastructure Legislation Matters
In 2021, the White House unveiled its objective to reduce greenhouse gas pollution by 50 to 52% of 2005 levels by 2030. The plan calls for zero emissions by 2050, a goal the International Energy Agency says is essential to keep temperature rises at about 1.5° C. Legislation will play a critical role in efforts to decrease greenhouse gas emissions. While market forces can help energy companies lower emissions, government agencies have the power to set and enforce the utility infrastructure requirements needed to come close to these goals.
Failure to meet those and other legislative and regulatory requirements can prove costly, cutting into already tight margins. Still, the existing utility infrastructure is challenged by the tech disruption of the booming electric vehicle (EV) market and the requisite EV charging needs that promises to challenge the existing load shape paradigm by shifting peak demand times. Through the push for global electrification and decarbonization, savvy energy providers are already preparing for their utility infrastructure needs now through demand flexibility and distributed energy resource (DER) programs, while advocating and lobbying for the sensible legislation they need to boost an aging utility infrastructure.
The History of Utility Legislation
Utility companies play interesting, unique roles in the economy. Called “natural monopolies” by John Stewart Mill, utility companies are allowed to conduct business without direct competitors because it would require more resources and money for different companies to serve the same population.
When Thomas Edison, George Westinghouse, Nikola Tesla, and other inventors were building early energy technologies, their companies competed in a free market. They could charge any price they wanted to attract customers and fund their research.
That started to change in the early 1900s, about 20 years after Edison built the first centralized electric utility in New York. Still, regulations remained minimal. Pollution wasn’t seen as a problem and electricity hadn’t yet evolved to become a necessity.
Energy prices spiked in the 1980s, which prompted major electricity consumers to demand wholesale prices. Governments responded in various ways. For the most part, though, utility companies continued to operate as natural monopolies involved in power distribution. Energy generation, however, didn’t always fall into that category. In some states, decoupling meant that utility companies no longer owned their power plants, allowing energy producers to compete with each other. Other states let utility companies retain ownership of power plants but imposed price regulations. If utility companies could act as monopolies, they could only do so under some level of government oversight.
Today, governments play several regulatory roles. They help set price ranges for electricity. They can also establish acceptable ranges for greenhouse gas emissions and other types of pollution. Even when they don’t directly legislate activities, regulatory bodies often establish indirect legislation that influences how infrastructure evolves.
The Two Types of Utility Legislation: Direct and Indirect
Direct legislation can have a near-immediate impact on how utility companies operate. For example, in the U.S. the Energy Policy Act gives the Secretary of Energy authority to set milestones per changing standards. Energy producers would need to align with those milestones to avoid fines and potential lawsuits.
More often than not, direct legislation has loose goals that nudge utility companies toward renewable energy sources and increased energy efficiency. Lawmakers could use their power much more aggressively to reach specific goals. So far, Congress has not embraced that approach. Few national, state, or territory governments have established laws that specify precisely what utilities must do to reduce environmental harm.
Indirect legislation includes any action by the government that will have an indirect impact on utilities. For example, President Joe Biden announced in March 2022 that the White House would invoke the Defense Production Act to encourage American companies to harvest more minerals needed to build electric vehicles and batteries. The plan would distribute public funds to companies researching ways to collect minerals like lithium, manganese, nickel, cobalt, and graphite from within the U.S. instead of relying on sources in China and other countries.
Although President Biden’s act doesn’t focus on utility infrastructure, it will have long-term effects on the decisions utility companies make. An increased number of electric vehicles on the road puts a greater strain on the grid. Additionally, high-capacity batteries should encourage utility companies to incorporate more DERs into their infrastructures and explore ways they can gain strategic value from EV charging programs.
Indirect legislation often takes years before it affects utility infrastructures. Encouraging research that will lead to more electric vehicles on the street in the U.S. doesn’t have an immediate effect. It could take a decade or more before utility companies must adapt to the change, which is why the time to prepare for this imminent shift is now.
Some companies will react to indirect legislation by waiting as long as possible to update their infrastructures. Others will see inevitable changes as reasons to plan carefully, finding ways to improve existing assets while adding new technologies to their grids while continuing to use tested programs like demand response to improve customer services and maintain continuous service.
Are Governments Doing All They Can Assist Infrastructure Development?
The most prominent approaches to lowering emissions and slowing climate change rely on legislation and market forces. Market-based solutions often include components of utility infrastructure legislation. For example, a government might use legislation to limit the amount of carbon added to the atmosphere. The market might attempt to reach this goal through a cap-and-trade scheme that puts a price on the value of carbon emissions.
Market-Based Solutions Have Limited Effects
Unfortunately, market-based solutions haven’t worked as well as hoped. While cap-and-trade schemes assume that carbon emissions have a monetary value, very few carbon emitters pay for offsets. One review shows that 87.4% of greenhouse gas emissions are priced at $0 per metric ton. In nearly all situations, markets have determined that emissions have no monetary value. At best, 0.56% of greenhouse emissions have prices that would slow climate change. In 2017, the World Bank’s High-Level Commission on Carbon Prices estimated that carbon prices would need to fall within the $40 to $80 per metric ton range by 2020 to achieve the temperature goals established by the Paris Climate Agreement. By 2030, the range needs to shift from $50 to $100 per metric ton.
Political Pressure to Legislate
In the U.S. partisan politics makes it incredibly difficult for legislators to act, although attitudes toward climate change legislation are changing. Climate legislation that forces utility companies to change their behaviors will increase the perceived cost of energy. When utility companies need to spend money to change their infrastructures and pivot to renewable resources, customers end up paying for those expenses.
To be certain, there are unseen costs of “cheap” energy. Rising temperatures could cut $23 trillion from the world’s economy by 2050. Everything from flooding to crop destruction affects how much wealth countries and individuals have. One way or the other, there is a steep price for greenhouse gas emissions.
The public does not seem to understand the severity of climate change, though. The Yale Program on Climate Change Communication notes that 72% of U.S. adults “think global warming is happening,” while 57% “think global warming is mostly caused by human activities.” Perhaps most shockingly, only 57% of U.S. adults “believe most scientists think global warming is happening.” When NASA reviewed publications from climate scientists, it determined that about 97% “agree that humans are causing global warming and climate change.”
When more than 40% of your constituents have such an inaccurate perspective, it’s difficult to imagine pushing for legislation that will increase their utility bills. Unless the government funds the required changes, many voters will perceive the higher bills as unnecessary expenses. It’s not so much that they don’t care about the global ramifications. They don’t believe that they’re paying for something that will save them, their communities, and the world massive amounts of money over time.
Knowing this, it isn’t surprising that utility commissions often reject clean energy rules and state legislative bodies undermine bills that would encourage rooftop solar. Public understanding is critical in shaping future policy, and while there are still plenty who are unwilling to tackle such a challenging subject, younger generations are decidedly more concerned. With Gen-Z and younger focused on and sensitive to climate change initiatives, it’s just a matter of time before their voting power further shifts regulatory utility infrastructure legislation to more strident efforts.
Utility Infrastructure Legislation & Education
Gaps between the beliefs and facts regarding climate change show that the public lacks the proper education to make informed decisions about energy production and distribution. As we mentioned above, while there are some ideological differences in the U.S. political arena, those attitudes are shifting. For example, the Conservative Climate Caucus encourages colleagues to embrace climate change policy as a fiscally responsible way to protect national security. The recent ban on gas, oil, and coal from Russia further emphasizes why the U.S. and other countries need energy independence based on renewable sources.
As the effects of climate change become more obvious, legislators need to promote education as a way to convince their voters that the costs to enhance utility infrastructure matter. Without improvements, communities will suffer greater expenses and losses of life. Regardless of whether voters make the connection between climate change and environmental disasters, politicians will need to take courageous stands to protect their states and districts. The alternative is to ignore one of history’s biggest crises.
Furthermore, educating and engaging with customers has proven valuable in increasing revenue for utility providers. As utility infrastructure laws and regulations shift, teaching customers and members what has changed and why it has changed is crucial in securing the invaluable enrollment and participation support for the demand response and DER programmatic needs required to realize global decarbonization goals and their commensurate regulatory clauses.
Utility Infrastructure Legislation Conclusion
Proactively addressing utility infrastructure problems now might also prevent governments from regulating utility companies too harshly. It has recently become clear that some federal lawmakers take these issues very seriously. Currently, House Democrats are asking Puerto Rico’s electric utility, LUMA Energy, probing questions into its operations, expenditures, and executive compensations.
Utility companies may appease future regulatory requirements by taking steps toward distributed energy resources, conservation, clean energy sources, and data-driven responses to peak demand needs. Eventually, change will happen. Electric utilities that start adapting early will likely improve customer satisfaction, qualify for clean energy tax credits that lower their expenses, and continue to operate with as little government intrusion as possible.
Want to learn more? Let’s talk about our affordable, scalable SaaS-based solutions for how your operation can prepare yourself for the climate change regulations and tech disruption challenging the industry like never before. You can join us at our table at GridForward 2022, and while you’re there, consider stopping by on April 20, at 11:30 am, for our chat with Portland General Electric entitled “Connecting Rate Design and DERs.”