Why change the way we regulate utility companies?

By Jacob Barrons

Thinking about the utility companies that bring electricity and gas to your house may be among the least interesting ways to spend your time, but increasingly, people around the country are more focused on who their utility provider is. Utility companies have been in the news recently for all the wrong reasons, like causing forest fires, price manipulation litigation, and grave warnings about steep price increases. With all this bad press, the question arises, what is going on with these companies?

Utilities in the United States are divided in a few ways. On the largest scale, the electrical grid, which connects power producers to local substations to individual houses, is divided into Eastern, Western, and Texas grids.  Within each of these grids, states have individual energy markets which are either regulated or deregulated.

Deregulation began in the 1990s and was based on the assumption that it would foster competition and decrease costs. The last thirty years have produced considerable evidence to question that assumption. The average price of electricity in a deregulated state is forty dollars more per month than that in a regulated state. There are numerous reasons for this disparity. There is a lack of oversight for how deregulated utility companies build and maintain transmission lines, leading to a 411% increase in the portion of a customer's bill that goes towards transmission lines for Pacific Gas & Electric in California. Deregulated utility companies are not incentivized to build new power plants and do not generally earn profits on the sale of electricity. Instead, they build longer transmission lines because they can generate a profit from transmission line construction. This increases the risk of possible forest fires caused by equipment malfunction and entrenches fossil fuels into supply chains because that is what the infrastructure supports. These decisions on how deregulated utilities are run and incentivized have created companies that are slow to adapt to a quickly changing climate.

Regulated utility companies are granted control of the production, transmission, and distribution of power. They are granted virtual monopolies by the Government, which then regulates them. Colorado is served by two investor-owned utility companies,  twenty-nine municipal utilities, and twenty-two rural electric cooperatives. Those two investor-owned utilities, Xcel Energy and Black Hills Energy, produce and distribute gas and electricity to the fifty-one co-op and municipal power companies that then distribute it to customers. While regulated utility companies have been shown to keep prices lower for consumers, they too have been slow to adapt to climate change. Xcel Energy was recently sued for not using prudent business practices in order to minimize price increases for their customers, co-ops, and municipal energy companies.  The complaint paints a picture of a company failing to adequately prepare for volatile weather and remaining beholden to fossil fuels as opposed to looking for new renewable energies to create more resiliency in their supply chain.

The way we regulate utility companies is partly to blame for their lack of creativity. Regulation relies primarily on incentives, by dictating what these companies can earn a profit on and agreeing to price increases, there is minimal pressure for regulated utility companies to change. While complete deregulation has been shown to be inefficient, a middle ground that includes some deregulation must be found that allows for greater competition in regulated government energy monopolies. Large utilities like Xcel Energy need to be forced to adapt by creating a greater ability for smaller energy companies to generate their own power and compete with these larger companies

Holy Cross Energy is a co-op energy company located in Glenwood Springs that services 44,500 customers in western Colorado. Colorado’s Public Utility Commission (PUC) needs to empower small energy companies, like Holy Cross, to produce their own power, using renewable technologies and micro-grids, within their area of operations. Regulation must focus on supporting these smaller cooperatives to build their own power production through renewable technologies to create a more resilient and competitive power market.