Since the electric utility industry’s inception over a century ago, utilities have acted in -- or meddled with, depending upon your point of view -- markets adjacent to the traditional power business. APS, in Arizona, sold energy-hogging washing machines and dryers in retail locations as late as the 1970s in order to increase demand for power. The founder of Commonwealth Edison, Samuel Insull, who was once Thomas Edison’s personal secretary, realized that peak demand occurred in the evening due to “illumination,” and so he built and purchased streetcar lines, sold electric irons and stimulated demand from various appliances usable during the daytime in order to improve power plant utilization around the clock. Even the Tennessee Valley Authority, a federal agency, offered substantial rebates for appliances in order to induce demand for electrons.
Despite all the talk of “natural monopoly,” electric utilities have played well outside the poles-and-wires sandbox for decades. Even today, utilities are in the news for building their own electric vehicle charging infrastructure. Some would say these actions, which are outside of the state statutory mandate to provide “safe and reliable” electric service, are sometimes thought to be sensible, or even desirable, evolutions of a maturing industry. But anti-trust enforcement is an often-ignored tool in the toolbox that deserves reexamination for at least three reasons.
Commonwealth Edison owned and operated streetcar lines in Chicago — not merely power lines. Photo credit | CC BY-NC-ND 2.0
First, the pace of climate change is frightening enough that scientists and world leaders are calling for unprecedented, dramatic shifts in American energy systems in the next twelve years. There is a significant possibility that electric utilities aren’t up to the task -- at least on the timescale needed. Looking at the railroads or telecommunication industries throughout history, regulated monopolies have rarely, if ever, adapted to new conditions in any timeframe that scientists now consider reasonable. (We could refer to electric utilities’ pace of change as “glacial,” but the irony is that the world’s glaciers are melting much faster than anticipated.) Can large, bureaucratic utilities compress their clockspeeds in order to rapidly decarbonize? It seems much more likely that the marketplace of distributed energy resources (DERs) could provide precisely the velocity that utilities lack. Connecting DERs to the grid as quickly as possible can likely only be accomplished by harnessing market forces.
Second, electric utilities have long used token gestures toward clean energy or “consumer empowerment” to neutralize opponents in ways that are anti-competitive. For example, one utility argued to us that third party data access was unnecessary because the utility offered its own website and mobile app. The utility has a state-granted monopoly over power distribution, yet where in statute did the state grant the utility a monopoly on websites and smartphone apps that use customer energy data? Similarly, utilities with energy efficiency (EE) programs have long argued that the existence of such programs make wholesale business model changes unnecessary. Gradualism, it is argued, is sufficient, and saving 0.5% to 1.0% of energy demand per year with EE programs is good enough. Unfortunately, however, utilities can stifle competition in the process. Why enable a truly competitive market for EE when you can control it entirely? In the wake of Cambridge Analytica, many see Facebook’s actions to increase user privacy as merely a ploy to delay sweeping new legislation from Congress. DER proponents should similarly view utilities’ token gestures for what they are -- small concessions that prolong the utilities’ dominance at the expense of cheaper, cleaner and more reliable distributed resources from a competitive market.
Third, new energy around anti-trust enforcement has recently entered the national political scene. America’s 40-year low in company formation coupled with the reaction to Facebook’s Cambridge Analytica scandal (which we wrote about before) have caused members of Congress to ask not only whether individuals’ data are adequately protected, but whether market concentration in the hands of a few players is in part responsible for the vulnerability in the first place. As recently as this week, twelve state Attorneys General wrote to the Federal Trade Commission expressing concern over data monopolies’ effects on competition:
“[T]here is concern that the immense advantages certain firms have in consumers’ data...may effectively block new entry or expansion, thereby limiting choice and, in some cases, harming competition.
“Firms that have obtained a disproportionate advantage in one line of business may find it easy to abuse that advantage by applying it to other lines of business in order to keep out competitors – who may be equally or more efficient but for the data advantage carried over from the first market. This could be of concern with new lines of business, and perhaps particularly in the context of new services. For example, firms with an asymmetric advantage in data might be able to identify competitive rivals at a very early stage, and perhaps eliminate competition…”
As data monopolies such as Facebook come under increasing scrutiny by politicians, we can harness the national attention on this topic to ask: Are electric and gas utilities data monopolies, too?
The “demarcation point” serves as a reminder of a monopoly’s boundary conditions.
In our recent report, we highlighted the “demarcation point” in telecommunications. This is the point where the public telephone system ends and the customer’s in-home wiring begins. The FCC’s 1968 Carterfone decision defined this electrical interface and limited the telco’s role and responsibility to their side of the fence, thereby allowing market innovations on the customer’s side of the system such as wireless telephony, voice mail and modems. Without the Carterfone decision, we might still be using landline telephones manufactured by AT&T. Ma Bell would sue you for connecting another manufacturer’s telephone to their network.
Similarly, electric utilities will tend to exert their power over anything that touches the electricity system, whether that serves the public interest or not. Anti-trust enforcement by the Federal Trade Commission, Department of Justice and state Attorneys General is worthy of consideration to meet our pro-competition, pro-consumer and pro-environment goals. The DER community could use a fascinating 1976 Supreme Court Case, Cantor v. Detroit Edison Co., as a model: A retailer of lightbulbs sued the utility, Detroit Edison, for using its monopoly power to unfairly restrain the sale of lightbulbs in violation of the Sherman Anti-Trust Act. The Supreme Court agreed that state regulation does not exempt the utility from certain anti-trust laws.
There are limits to the utility’s monopoly. As a strategy for the DER community, settling with utilities for another decade of uninventive EE programs in which utilities pick winners and control the market is not going to meet our objectives. It’s time to look at anti-trust law to enforce limitations on utilities and mandate utility-to-DER interoperability standards. After all, restrictions on “behind-the-meter” activities of utilities are not only necessary to protect competition, but they may be necessary to save the planet.