Do we have the right system for the times?

In prior posts, we have shared research indicating the increasing demands on the electric grid led by the ongoing buildout of AI and other electrification projects. While we believe the electric industry can meet this challenge, we are also aware of the dynamics that make delivering more reliable and affordable energy are complex.

The governmental regulation of natural monopoly utilities has undergone many changes from the early commissions established to regulate the buildout of the U.S. rail system in the latter half of the 19^th century to the “deregulation” of the electric industry in the late 20^th century. This regulation of natural monopolies persists today as the best management mechanism for critical services like electricity.

A key question is whether this paradigm is well-suited for what could be a level of change and demand that the regulatory framework may not be designed to handle. Demand growth has been around 0.3% for the last several decades (we use EIA’s total electricity generation). Trends and forecasts indicate the future annual growth will land somewhere between 2-4% per year. This is a 6-12x increase over the 20-year average.

The regulatory framework of the utility and its regulator lands between, depending on the state, regulatory capture and an adversarial system. Neither of these paradigms are particularly useful for responsive, efficient, and streamlined processes. In the regulatory capture framework, the utility, as the expert, manages the policy, projects, and operations. While the regulatory commission may have oversight, they do not have the expertise to provide meaningful oversight. In the adversarial system, there is a good deal of command and control on both sides and long drawn out, litigated proceedings are the norm. Both utilities and regulators are aligned in wanting low cost capital to provide the necessary energy infrastructure.

What is required is real collaboration and transparency. This requires real trust with stakeholders – not just the utilities and regulators, but also politicians, intervenors, the public, and the developers.

The companies bringing the load growth need to: 1) figure out the different rules within each state; and 2) understand how to work with this complex regulatory framework that fundamentally may need to change to accomplish what they are trying to get done.

Companies like Google are taking matters into their own hands with the acquisition of Intersect. This brings the PPA process for Google in-house, reduces the generation capacity that would otherwise be available in the market, and to some extent disintermediates the utility.

As energy professionals, RFPpower knows change is difficult in the power industry. We are certain that improved technology platforms that inform stakeholders of status and progress will be key to success. Getting the right information at the right time to the right people is still a work in progress for the industry. RFPpower believes the technology platforms exist to make these improvements and the opportunities to embed the AI technology that is driving much of this growth is also very capable of assisting throughout the critical power procurement process that utilities undertake. We expect a bumpy road, but RFPpower sees great opportunities in transforming how the power procurement business is done in the industry.