Monday, July 22, 2013


The sordid history of utility regulation

By Henry Curtis

For years the utility gave lip service towards increasing the amount of renewable energy. The 100,000 or so residents became increasingly frustrated with the unwillingness of the utility to engage in meaningful community dialogue. So the government suggested municipalization of the utility. 

The response of the utility was two-fold. We will interact with the community and we will install a Smart Grid. But the utility did not understand the cost issues with the Smart Grid, which in reality raises rates. So the voices favoring municipalization grew louder.

This story is not about Maui, but about Boulder, Colorado! In 2011 the voters voted to support studying the issue. This month the City Council will consider first reading of a condemnation ordinance.

Boulder Deputy Mayor Lisa Morzel asserts that the goal of municipalization is to "decentralize, decarbonize and democratize energy." 

The electric utility (Xcel) wants to work with the city to find ways to support clean energy goals, rather than be booted out, in part due to the fact that additional grumblings against XCEL have emerge in Minneapolis, which is four times larger than Boulder.

There are some 2,000 municipal utilities in the United States, but only half a dozen were formed in recent times. 

Few people remember the history of Municipally Owned Utilities (MOUs). Electric utilities sprang up in the 1880s and 1890s. MOUs competed head-to-head against Independently Owned Utilities (IOUs). They offered the same service at far lower rates. 

So the IOUs got state legislatures across the country to establish Public Utilities Commissions (PUCs) and Public Service Commissions (PSCs). In exchange for monopoly status and guaranteed profits, the IOUs agreed to regulation. The immediate result or regulation was higher rates.

During the Great Depression, President Roosevelt wanted to electrify rural America. Rural distribution co-ops were established and some of these co-ops banded together to form rural generation co-ops. But just before this all took place, the IOUs raced in and cherry-picked population centers, thus driving up the costs for the rest of rural America.

Starting in 1978 the federal government began eroding the monopoly status of utilities. Independent Power Producers and homeowners can produce their own power and sell it to the utility. Private companies can offer energy efficiency devices which cut the demand for electricity. Competing utilities can vie for customers.

Rising rates and the lack of meaningful customer interactions are causing many to question the traditional model whereby utilities are owned by shareholders but claim they exist to serve customers.

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Henry, I don't understand your point. If you are saying that a non-profit (municipality-owned utility, cooperative) will lower electricity rates, then why does non-profit Kauai Island Utility Cooperative have higher rates than for-profit HECO, HELCO and MECO? At best there is no correlation between ownership structure and electricity rates.

Different utilities have different cost structures. You must compare the old Kaui Electric (shareholder owned) with the new KIUC (co-op) using dollars that are time-adjusted. In addition, if you alter your fuel mix by adding more expensive renewables to cheaper oil, and if you add more expensive Smart Grid to traditional systems, then prices have to rise, although you may get other benefits.

Is there a end date when the "contract" between HECO and the PUC expires? Seems only fair to have other entities bid on providing electricity to O'ahu.

Gary Andersen, Manoa

Anybody can supply electricity to Oahu. If you want the existing HECO generation system and transmission grid you have to buy it from HECO

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