So much of the debate between renewable energy and coal has evolved around the subsidies that wind, solar, geothermal and other new technologies get.
That has made groups like the Idaho Freedom Foundation, which oppose subsidies, come down on the side of the existing technologies, which already have the front-end capital costs invested. There is both economic and political tension between existing power generation facilities and new ones.
Any new energy generation facility costs more money. The century-old regulatory system we have in place allows investor-owned utilities to pass those costs through to customers if the state public utility commission considers the spending “prudent.”
The three-member commission also decides if the utilities’ upgrades to existing plants and the surrounding costs are prudent. These regulatory decisions are based on the traditional view that electric power generation and delivery is a monopoly.
Not every state treats power generation as a monopoly. California and Montana are two that have opened their electric markets, which a decade ago allowed rampant manipulation and slowed electric deregulation.
That has eased but deregulation over generation remains there. In those states, utilities still have a monopoly over the construction of distribution wires across public rights of way.
In regulated electric markets, where the utilities’ profits are decided by the regulators’ decisions, not price, the powers of the market to help bring about technological transformation, are reduced, wrote Lynne Kiesling, a senior lecturer at Northwestern University in Reason Magazine.
The regulatory decisions of the public utilities commission replaces the price signals that would otherwise dictate the utilities’ decisions. Deregulated utilities in Montana, which don’t own generation plants, have no incentive to upgrade antiquated coal plants that needs hundreds of millions of dollars in investments to meet environmental costs.
But since Wyoming, Utah and Idaho utilities have costs sunken into the coal plants they have, costs they would have to eat, the reinvestment in them makes sense -- if the public utility commissions deem them prudent. The same is true of decisions to use wind and solar, natural gas and even energy efficiency.
Electric power’s past and current technologies’ reliability depend on baseload plants that can be turned on and off dependably when demand rises and falls. Keeping these baseload plants, now coal, hydroelectric, natural gas and nuclear is critical.
Two-way digital communications, called “smart grid,” is expected to change that over the over the course of the next 20 years. But how quickly that happen depends on how fast new technologies replace the old ones.
Since Kiesling wrote her article in 2009, the Obama administration’s stimulus package helped install “smart meters” a key technology in the transformation and itself a subsidy. But the way this new technology will flourish is when customers can us it to personally make the choices they want in a free market, Keisling wrote.
“The most crucial regulatory reform would be eliminating the single, fixed retail rate for most consumer electricity consumption,” she wrote.
So those people who want the free market to work in energy have a case against the many subsidies federal and state governments pay. But Kiesling argues that bigger freedom issue is who makes the choices, the consumer or the utility.
So the subsidy of the smart meters will be wasted, the technology unable to transform, unless the regulatory system is transformed as well, she wrote.