ELECTRICITY

For nearly 20 years, electricity consumption has been flat in the United States, but that era is about to end. Electrification is coming.

Electric vehicles and heat pumps use two to four times less energy to move people or heat homes than their fossil-fueled counterparts, so this trend will reduce the total energy consumed by society. However, it will increase the total demand for electricity, which will create challenges. Choices we make now regarding how electric utilities set goals and manage their operations will determine how expensive this energy transition is.

Meeting this rising demand won’t be easy, but it is doable through comprehensive planning and coordinated investment.

The whole grid is designed to meet the peak moment of demand. On average, we use only about 50% to 60% of the total capacity of our grid, which means that most of the year we have massive investments in our infrastructure that are sitting there waiting for the few hours a year that we use them. That’s an expensive way to run a railroad.

When we start to talk about the millions of miles of distribution lines, or the tens of millions of transformers that constitute our grid, suddenly we’re talking about real money.

So why do we not see more of these innovations being adopted by our electric utilities to make electrification more affordable for all of us?

One word: incentives. Utilities get paid to build and own things

You don’t get to choose the company that delivers your electricity. Electric utilities are “natural monopolies” in that it does not make economic sense for companies to compete to connect wires to homes. However, in exchange for having been granted the right to be a monopoly, the electric sector has agreed to be subject to heavy regulation by the NH Public Utilities Commission (PUC).

Assuming those investments meet the PUC’s criteria, the utility gets paid back, plus a percentage on top of whatever the utilities spent to build their infrastructure.

As long as the utilities think the regulators will say “yes,” the incentives of the system are for them to use the same old solutions as before, no matter the cost.

But utilities only get paid their return on capital investments. When it comes to utility operations, like their billing department, customer service and maintenance expenses, they simply get reimbursed for what they spend.

This creates a powerful bias towards building stuff.

If the same volume of reliable, low-cost electricity could be delivered more cheaply by another solution, the utilities’ investors actually get penalized because of the utilities’ good stewardship of their monopoly service territory.

This means that utility shareholders would rather the company build a new multimillion-dollar substation to handle increased peak demand than invest in targeted demand reduction measures. It also means they’d rather own the battery in your basement, instead of letting you buy one and pay you to use it.

A new business model for our utilities So, how do we effectively and affordably build out the electric grid to handle the impending tidal wave of electrification?

There are many individual strategies and technologies I can point to — energy efficiency, advanced rate structures, energy storage, local generation to defray local consumption, electric vehicles that can discharge back into the grid — but the reality is that, until we change how the utilities make their profit, we will struggle to get their leadership fully bought into these strategies.

That is why this year Clean Energy New Hampshire supports NH Senate Bill 320, which would direct the PUC to open a docket to chart a new course for our utilities. This docket would begin to move our utilities away from our current model and towards one in which the utilities earn their profit by achieving goals that state policymakers set out for them. This new model is called Performance-based Rate-making.

Performance-based rates can look completely different depending on the state in which they are put into place, but offer the tantalizing goal of creating a new business model in which the interest of utility shareholders are aligned with the interest of NH policymakers and ratepayers.

Unfortunately, the NH Senate voted to refer this bill to interim study largely due to the opposition of the state’s Department of Energy, which argued that Performance-based Rate-making is too new, too untested or too risky. While it’s true that this innovative new framework would be a change from the current regulatory compact, this much is clear: Doing nothing has its own risks.

We risk not being able to rise to meet the moment and build the next generational investment that will be needed to meet rising electric demand at an affordable cost. We risk seeing our electric rates rise even further, which will hamper the clean energy transition. We risk being left even further behind.

Sam Evans-Brown is the executive director of Clean Energy NH.