Why the rise of green energy makes utility companies nervous.
Mark and Sara Borkowski live with their two young daughters in a century-old, fifteen-hundred-square-foot house in Rutland, Vermont. Mark drives a school bus, and Sara works as a special-ed teacher; the cost of heating and cooling their house through the year consumes a large fraction of their combined income. Last summer, however, persuaded by Green Mountain Power, the main electric utility in Vermont, the Borkowskis decided to give their home an energy makeover. In the course of several days, cordinated teams of contractors stuffed the house with new insulation, put in a heat pump for the hot water, and installed two air-source heat pumps to warm the home. They also switched all the light bulbs to L.E.D.s and put a small solar array on the slate roof of the garage.
The Borkowskis paid for the improvements, but the utility financed the charges through their electric bill, which fell the very first month. Before the makeover, from October of 2013 to January of 2014, the Borkowskis used thirty-four hundred and eleven kilowatt-hours of electricity and three hundred and twenty-five gallons of fuel oil. From October of 2014 to January of 2015, they used twenty-eight hundred and fifty-six kilowatt-hours of electricity and no oil at all. President Obama has announced that by 2025 he wants the United States to reduce its total carbon footprint by up to twenty-eight per cent of 2005 levels. The Borkowskis reduced the footprint of their house by eighty-eight per cent in a matter of days, and at no net cost.
I’ve travelled the world writing about and organizing against climate change, but, standing in the Borkowskis’ kitchen and looking at their electric bill, I felt a fairly rare emotion: hope. The numbers reveal a sudden new truththat innovative, energy-saving and energy-producing technology is now cheap enough for everyday use. The Borkowskis’ house is not an Aspen earth shelter made of adobe and old tires, built by a former software executive who converted to planetary consciousness at Burning Man. It’s an utterly plain house, with Frozen bedspreads and One Direction posters, inhabited by a working-class family of four, two rabbits, and a parakeet named Oliver. It sits in a less than picturesque neighborhood, in a town made famous in recent years for its heroin problem. Its significance lies in its ordinariness. The federal Energy Secretary, Ernest Moniz, has visited, along with the entire Vermont congressional delegation. If you can make a house like this affordably green, you should be able to do it anywhere.
Most of the technology isn’t particularly exoticthese days, you can buy a solar panel or an air-source heat pump at Lowe’s. But few people do, because the up-front costs are high and the options can be intimidating. If the makeover was cordinated by someone you trust, however, and financed through your electric bill, the change would be much more palatable. The energy revolution, instead of happening piecemeal, over decades, could take place fast enough to actually help an overheating planet. But all of this would require the utilitiesthe interface between people and powerto play a crucial role, or, at least, to get out of the way.
An electric utility is an odd beast, neither public nor exactly private. Utilities are often owned by investors, but they’re almost always government-regulated, and they are charged with delivering power reliably and at an affordable price. Utilities are monopolies: since it would make no sense to have six sets of power poles and lines, utilities are granted exclusive rights to a territory. When you buy or rent a house, you automatically become the customer of the local utility, assuming that you want electricity and you don’t plan to generate all of it yourself. To keep the nation’s utilities honest, they are typically regulated at the state level by a public-service commission that sets rates, evaluates performance, and enforces mandates, such as a requirement that a certain amount of power come from renewable sources.
Whereas most enterprises are about risk, utilities are about safety: safe power supply, safe dividends. No surprises. As a result, the industry has not attracted the single greatest minds,” David Roberts, who has covered energy for various outlets for a decade and is now a reporter for Vox, told me. If you’re in a business where the customer is the public-utility commission, and after that your profits are locked in by law, it’s the sleepiest business sector there is, if you could even call it a business sector. They build power plants, sit back, and the money comes in.” The entire realm is protected, he added, by a huge force field of boringness.”
But what has been a virtue, by and large, is now almost certainly a vice. Scientists insist that in order to forestall global warming we need to quickly change the way we power our lives. That’s perhaps most easily done by giant companies with big budgets for new technology; Google, Apple, and Ikea have all announced major plans to switch to renewable energy. For average Americans, however, the biggest source of carbon emissions is their home, so the utilities’ help is crucial in making the transition. And, even without climate change, utilities face a combination of threat and opportunity from disruptive new technologies.
Consider the Borkowskis’ new air-source heat pumps, which use the latent heat in the air (down to about zero degrees) to heat their home and provide hot water. These devices have made it practical for electricity to be used for tasks traditionally performed by oil and gas. Smart thermostats, such as the Nest, allow you to make your home far more energy-efficientand can even, when connected to the smart meters” that are now appearing on many houses, permit the utility to turn your demand down for a few seconds in response to fluctuations in the supply of sun and wind. Electric vehicles provide a major new use for electricity and, perhaps soon, the opportunity for huge numbers of idle car batteries to serve as a storage system for reserve power. (Solar and wind power can be a challenge to incorporate into the grid, because they’re intermittentcloudy days happen, the wind fails. Affordable batteries are essential to making renewable energy widely available.)
Americans spend eight per cent of their disposable income on all forms of energy,” David Crane told me. Crane is the C.E.O. of NRG, the country’s biggest independent power provider; the company operates more than a hundred energy-generation facilities, selling electricity to utilities that, in turn, sell it to customers. Nobody wants that eight-per-cent figure to rise, Crane said, because when energy prices go up the country tends to trip into recession. But plenty of companies, including Crane’s, would like to see a larger slice of that eight per cent. I’m interested in electric cars, for instance, not just because of the effect on air quality but because I want to take market share away from oil,” Crane said. It’s a brutal fight for market share.”
Power utilities now face uncertainty of a kind that traditional phone companies faced when cellular technology emerged. A few utilities welcome the challenge; others are resisting it; and the rest are waiting for someone to tell them what to do.
The headquarters of Green Mountain Power are situated in a converted service garage on the outskirts of Burlington. On most days, Mary Powell, the company’s C.E.O., can be found at one of the standing desks on the floor next to the customer-service reps. Powell, who is fifty-four, is one of the rare utility executives with an entrepreneurial background. Fresh out of college, she fell into a job at the Reserve Fund, the world’s first money-market fund, and became the associate director of operations. Eventually, she quit and moved with her fianc to Vermont, where she worked in state government, then in banking, and then quit again, to have a daughter and work on growing the canine-apparel business that she had launched a few years earlier. I was always terrified about my dogs during hunting season,” she told me. There was nothing to protect them. So I started making reflective protective outerwear.” (You can buy it stillblaze-orange bandanna, vest, and collar for $66.85.) In 1998, Powell joined Green Mountain Power as the vice-president of human resources. The company was fighting off bankruptcy, after state regulators turned down its request for a large rate increase. Soon, as chief operating officer, Powell helped restructure Green Mountain Power, and, in 2008, she became its C.E.O.
Utilities, unlike, say, canine-apparel companies, gain their customers automatically, based on where a resident lives, and typically take little interest in them. (You know what a customer is to a utility?” Crane asked me. A meter.”) Powell, by contrast, describes herself as customer-obsessed.” Green Mountain Power regularly surveys its customers, and the main thing Powell has learned, she said, is that Vermonters wanted us to be as environmentally strong as possible, but they wanted us to do it without us telling them it was going to cost more money. So that became our vision: low carbon, low cost.” Powell became fixated on new technologies, everything from electric-vehicle charging stations to utility-scale storage batteries. If we move in this direction very rapidly, we can, hopefully, keep rates flat forever,” she said, and, in fact, G.M.P. cut its electric rates by two per cent last year. She started searching for partners; at least three contractors worked on the Borkowskis’ house, and that collaboration was one of the real innovations. Not approaching customers in a siloed way, with a dozen companies each pitching a piece. It’s ‘How can we come to you with a package?’ ”
How all this will translate into revenue isn’t entirely clear, not to Green Mountain or to anyone else in the business. But the cash flow available to the utilities gives them plenty of low-cost capital to work with. They can make money by leasing heat pumps and solar panels to customers. The insulators and other contractors will contribute something, because working with Green Mountain reduces the cost of acquiring new customers. And there’s money to be saved. Currently, utilities plan their operations around the busiest day of the year, making sure they have the capacity to meet peak demand on the hottest August afternoon. But as Green Mountain Power modernizes one home after anotherso far it’s enabled a few dozen fully remodelled E-homes” and more than a hundred partial makeoversthe utility gains the potential ability to briefly turn down water heaters and air-conditioners during high-usage periods. This demand management” allows the utility to avoid peak charges from the regional power grid and can save it hundreds of dollars per customer each year.
You wouldn’t notice, because we’re turning down the water heater for just a few seconds,” Powell said. But getting permission to do that, or even getting customers to believe that you can save them money with a makeover, requires a different kind of relationship. Can we really build a deep emotional and intellectual relationship with our customers?”
There are no guarantees, Powell said. But so far she has met every revenue goal set by Green Mountain Power’s corporate parent, the Canadian company Gaz Mtro. A challenge in the utility culture is precisely that it’s built on guarantees. Innovation happens when there are no guarantees.”
Arguably, the era’s most disruptive technology is the solar panel. Its price has dropped ninety-nine per cent in the past four decades, and roughly seventy-five per cent in the past six years; it now produces power nearly as cheaply as coal or gas, a condition that energy experts refer to as grid parity.” And because it’s a technology, rather than a fuel, the price should continue to fall, as it has for cell phones. Solar power is being adopted most rapidly in places where there is no gridit’s cheaper and quicker to stick panels on the roofs of huts in villages than to build a centralized power station and run poles and wires. In Bangladesh, crews install sixty thousand solar arrays a month. Even in the U.S., where almost everyone has been connected to the grid for decades, solar prices have fallen to the point where, with the help of a federal tax credit, an enterprising company can make money installing solar panels.
One morning in March, I stood on the roof of a suburban ranch in Surprise, a suburb of Phoenix, with Lyndon Rive, the co-founder and C.E.O. of Solar City, the biggest and the fastest-growing installer of rooftop solar in the country. Around us, a five-man crew was laying out a grid of solar panels, following a plan designed by an employee in California who had looked up the roof on Google Earth and measured it. The crew had assembled at the house at seven that morning, and by 5 P.M. the new solar array would be ready to be turned on. The homeowner, like the Borkowskis, was paying nothing up front, and within the first month would see her total electric bill decline. Glancing around the neighborhood, I counted fourteen solar arrays on a hundred or so houses. It’s like e-mail in 1991,” Rive said. When I look out at this street, there’s no reason every one of these houses can’t have solar in ten years.”
Rive is the cousin of the Tesla pioneer Elon Musk, who is the chairman of Solar City’s board of directors. Currently, Rive said, the company finishes a solar array somewhere in its eighteen-state service area every three minutes. That sounds impressive, but it’s only two hundred thousand homes so far, out of forty million. My goal is to get it to one home every three seconds. Or maybe we could go faster than thatone every second,” he said, snapping his fingers. He pulled an iPhone out of his pocket, called up the calculator app, and punched in some numbers. At that rate, we could do every house in . . . seventy-six years. No, that’s too longI forgot a division. In a year and a half.”
That pace would change the projections for climate change, but it would also require a major government initiative, akin to the one that revitalized industry at the start of the Second World War. Even without it, Solar City has grown by a hundred per cent each year for the past seven years, in part by lowering the soft costs of installation. A job that once took three days can now be done in one, and Rive showed me a training video of a California crew that could do two houses in a day and still have time to surf. By next year, solar will be the fastest-growing new source of energy in the country, approaching half of new capacity. That’s still only a fraction of the total capacity, Rive said, but if you just maintain that, just plot out the line with the retirement of old plants, it’s inevitable that it will be over fifty per cent of the total generating capacity eventually. And that’s assuming nothing changes.” In fact, he noted, each month brings some new improvement in panels or batteries.
But many utilities see residential solar power as an existential threat. In 2013, an industry trade group called the Edison Electric Institute warned that utilities face what company executives were quick to call a death spiral.” As customers began to generate more of their own electricity from the solar panels on their roofs, utility revenues would begin to decline, and the remaining customers would have to pay more for the poles and wires that keep the grid alive. That would increase the incentive for the remaining customers to leave.
Since the death-spiral session, utilities around the country have sought to slow the growth of solar: by supporting laws and regulations that would reduce targets for renewable energy; by ending net metering” laws that force utilities to pay solar customers retail prices for the surplus energy they put back on the grid; by imposing connection fees” to make up for lost revenues. Much of the campaigning has been spurred by the right-wing American Legislative Exchange Council and funded by various groups linked to the Koch brothers and their fossil-fuel fortune. In 2008, when Solar City first expanded into Arizona, the state had just announced a target for renewable energy, and the utilities were offering generous rebates to customers who installed solar panels. At first, few homeowners took advantage of the offerthe up-front cost, which ran to twenty thousand dollars or more, was too high. It took the efforts of Solar City, and other competitors using the same no-cost leasing plan, to ignite the market.
The utilities were always convinced that they could throttle down solar just by tuning down the rebate they were offering,” Rive said. What caught them off guard was when costs came down to the point where we didn’t need their rebate for solar to make sense. Suddenly, they couldn’t control the outcome anymore. And suddenly you didn’t see any more solar billboards, and suddenly they started taking a hostile approach.”
Arizona’s biggest utility, Arizona Public Service, insists that it is pro-solar” and notes that it has built its own utility-owned solar arrays in the desert. But it views customers who install rooftop panels as, in essence, cheaters: they get the benefits of the griduninterrupted power, even on cloudy daysbut, because they provide so much of their own electricity, they aren’t paying their fair share of the total price. In 2013, A.P.S. asked state regulators for permission to charge anyone who wanted to put up a solar panel a fee. Whether or not you’re producing enough electricity to power your house, you’re still connected to the grid,” Jeff Guldner, the company’s senior vice-president for public policy, said. These costs get recovered from somebody, and that somebody is customers who don’t have solar.”
The argument makes a certain intuitive sense, even if utilities like Green Mountain Power, and a fair amount of academic research, suggest that solar customers save utilities as much money as they cost them, by shaving peak demand and by moving power generation closer to clients, which reduces the electricity lost on power lines. The Arizona Corporation Commission agreed with A.P.S. and allowed the utility to charge an average of about five dollars a month, a tenth of the fifty-dollar fee it had requested. Solar City decided not to appeal the ruling. The savings the company was offering many customers still exceeded the new charge, and business continued to grow.
But A.P.S. went on the offensive. In the fall of 2014, as members of the Arizona Corporation Commission, which regulates many of the state’s utilities, began running for election, the company contributed to the campaigns of sympathetic candidates, although it declined to say whom it has supported. (The utility has said only that it periodically contributes to candidates, causes and organizations that support economic growth, sound energy policy, and other issues important to our company and our customers.”) A.P.S. is even widely suspected of helping to fund the campaign of a candidate for Arizona Secretary of State, because his father was a key vote on the Corporation Commission.
I listened to stories like this for the better part of an afternoon, sitting in a Scottsdale law office with Court Rich and Jason Rose, two self-described strongly conservative” political operatives who had gone to work for a coalition of companies, including Solar City, to help elect solar advocates to the Corporation Commission’s board of directors. They were mercenary, but they also seemed genuinely outraged. A.P.S. is a quasi-governmental agency, and they’re using ratepayer money to influence elections?” Rich said. All of a sudden, we started seeing anti-solar commercials all over the TV. I mean, the ads were comparing solar customers to people stealing from children.” (A.P.S. says that its political contributions were paid for by employee contributions, not by ratepayer revenue.)
The solar advocates didn’t prevail in the election. In politics, there’s a direct correlation between spend and win,” Rose said. And our side was outspent considerably.” But the utilities’ argument for self-preservation may have reached its limit. Rich and Rose ran a campaign that leaned heavily on standard conservative tropes of self-reliance and freedom.
Solar should be our issue,” Rose said. Obamacare is bad because it diminishes health-care choice. Public education is bad because it diminishes school choice. You’d think it would apply as well to energy.” They helped form a group called Tell Utilities Solar Won’t Be Killed, or TUSKfrom the Republican-elephant thing,” Rose said. We have a lot of Tusk and Trunk dinners in the G.O.P.” For its chair, they recruited Barry Goldwater, Jr., the son of the original Arizona Republican idol.
Indeed, an odd coalition of environmentalists and conservatives has sprung up around the country to defend solar power. In Georgia, a Tea Party activist named Debbie Dooley and the Sierra Club fought successfully to allow the leasing of rooftop solar panels in the state. Their joint project, the Green Tea Coalition, has spread to Florida, which has some of the nation’s most restrictive solar laws. They are working to collect seven hundred thousand signatures by next February, enough to put a measure on the ballot that would amend the state’s constitution to allow residents with solar panels to sell electricity back to the grid, as is done in many other states.
But in December Arizona’s second-largest utility, the Salt River Project, imposed charges of some fifty dollars a month on the average new solar installation. S.R.P. also insists that it is pro-solar,” but the new charges effectively make it economically difficult for homeowners in the company’s service districtin the sunniest state in the country, and in a city that roots for the Phoenix Sunsto install solar panels. Rooftop installations, booming six months ago, have all but halted, and Solar City is transferring large numbers of workers to other districts, as well as suing the utility to have the new charges overturned. Citing the lawsuit, S.R.P. refused requests for an interview, issuing a statement that says, in part, S.R.P. is confident that its new price plan will be determined to be appropriate and is confident that it will prevail in all such challenges to it.”
Most utilities are neither as innovative as Vermont’s nor as scared as Arizona’s; most are simply waiting for guidance.
There are no thirty-year-old C.E.O.s of electric utilities, no Zuckerbergs,” David Crane, the NRG chief, told me. You have to pay your dues, come up through the ranks. You become C.E.O. when you have five years, max, left. Some of them are just not worrying about ten, fifteen years in the future.” A member of the executive committee at a major mid-Atlantic utility said, We don’t want to be Kodak, because we can see digital imaging on the horizon. But the regulators are damned slow in figuring out which way we should move. There are eleven hundred utilities in this country, and they’re regulated at the state level, so change is going to be very dispersed.”
On one of the first hot days of May, I joined Richard Kauffman, the chairman of energy and finance for New York State, and the state’s energy czar,” as he and several aides piled into a stuffy L train at Fourteenth Street. In 2013, a few months after Hurricane Sandy left many New Yorkers powerless for days, Governor Andrew Cuomo accused utilities of being the equivalent of vinyl records in the age of the iPod” and appointed Kauffman to prod them into action. Kauffman soon announced a program of incentives that would eventually be called REVReforming the Energy Vision. Around the country, other regulators are watching to see how the initiative fares.
Forty-five minutes after boarding the subway, we got off at East 105th Street, in the heart of warehouse Brooklyn, on the edge of Canarsie. We walked half a mile to look at a particular warehouse belonging to a fish wholesaler. Con Ed, faced with growing electrical demand in the borough, had planned to build a billion-dollar substation on the site. But, in the first real test of the REV plan, the utility will instead supply some of the additional power by encouraging customers to install solar panels and cutting-edge storage batteries. It will also pay customers to limit their usage during peak hours, thereby reducing over-all demand. The effort will cost Con Ed many millions of dollars less than building a new substation, which would seem to make the decision an obvious one.
But, in the odd world of regulated utilities, a company like Con Ed traditionally makes money by building more stuff: put in a billion-dollar substation and you can rate base” it, making customers pay the cost, plus a ten-per-cent markup, for decades. That arrangement worked well when society needed utilities to build the electrical system, to serve everyone, and when the cheapest technical solution involved big plants pushing electrons in one direction,” Kauffman said. But today the system is not just energy-inefficient; it’s capital-inefficient.” At any given moment, New York’s utilities are using only about fifty-five per cent of their system capacity. No other industry uses capital like that anymore,” Kauffman said. The regulations are perverse: new software that can reduce electrical demand must be expensed in the current year, while a new wooden pole can generate that ten-per-cent markup for the utility in the course of its fifty-year life span. A pole makes moneyhence, poles.
In the next decade, if New York’s power industry stumbles along on its current course it will spend about thirty billion dollars on more substations, and on other similarly outdated technology. Electricity costs will continue to rise, and New York’s are already among the highest in the country. That would lead more people to defect from the grid,” Kauffman said. Maybe it’s not the death spiral, but it becomes a zombie industry. And, as rates go up, employers would say it’s too costly to do business in New York and they’d leave.”
Through REV, Kauffman is trying to change the rules so that the utilities can both shift direction and make money. Persuading Con Ed to forgo the substation meant figuring out how to pay them performance incentives” to instead install the cheaper solar power and storage batteries. In the months to come, New Yorkers should begin to see other examples. Maybe some appliance company will say to a consumer, ‘We’ll give you all new appliances for free, and you’ll have the same electric bill less five per cent,’ ” Kauffman said. Your fridge would come with a chip that allowed it to be cycled off for a moment when demand was peaking, and, as the middleman in the transaction, the utility could take a cut. The same thing with home entertainmenteach new generation of flat-screen TVs uses a lot less power.”
Kauffman has all sorts of plans, from a green bank”to attract private-sector capital to finance extensive energy-saving retrofitsto new rules that would pressure utilities to play nicely with outside partners like Solar City. It’s kind of a Hannah Arendt thing,” he said. There’s not a lot of intentional evil in utilities. But we’ve created a golden cage for them, protected them from enormous trends.” We were on the subway again, and as it clattered back toward Manhattan Kauffman had to shout to be heard: Our aim is to create a policy environment that is not standing against the forces of history but is in line with them.”
Technological change will fundamentally transform the power industry. The question is whether that transformation can happen fast enough to matter, either for the survival of the utilities or, more important, for the preservation of the climate. In the past, energy transformationswood to coal, coal to oilhave taken fifty years or more to unfold as infrastructure was slowly replaced. New York has a home-energy-audit program, whereby a team will come to your home, determine how much insulation it needs, and identify other ways of boosting your energy efficiency, much the way that Green Mountain Power assessed the Borkowskis’ house. But at current rates of penetration it will take us centuries to do the whole state,” Kauffman said.
This time, though, technological change may be coming so rapidly that a quick adaptation is possible. The week that I was in Canarsie with Kauffman, Mary Powell flew to California to attend Elon Musk’s announcement of his new home battery, the Powerwall. Green Mountain Power was the only utility in the country that was ready to sell the new battery on the first day that it became available. And Powell was excited by its low price: three thousand dollars, far below what analysts had predicted, and low enough that her company could immediately begin installing it for customers, especially those who wanted backup electricity in case a snowstorm disabled the grid.
A week after the battery launch, Musk described demand for the batteries as just nutty” and off the hook.” His company had already sold all the batteries it could make through the middle of next year and was discussing expanding its giant new factory, in Nevada, even before construction was completed. The day after Tesla’s launch, Solar City announced that, beginning in 2016, it will routinely package Musk’s new batteries with its panels in some markets. If utilities won’t relent and embrace innovation, homes and businesses will soon be able to circumvent them altogether. The threat is real enough that it might actually soften the attitude of even recalcitrant utility executives.
Meanwhile, Green Mountain Power is almost ready to flip the switch at its biggest solar farm, built on top of Rutland’s old dump. In July, when the site flickers on, the city will be the most solarized in northern New England. But the less obvious changes count even more. Dave and Karen Correll live across town from the Borkowskis, in a well-kept Colonial Cape that was another of the original batch of E-home” renovations. First, contractors re-insulated the basement and the attic. Then came the air-source heat pump, which the Corrells lease from Green Mountain Power for forty-seven dollars a month. Their oil bill fell sixty-seven per cent during the course of Vermont’s long, cold winter of 2015. I can’t wait to see what comes out next,” Karen told me. Our furnace is about at the end of its life, and I can’t wait to replace it.”
Neither the Corrells nor the Borkowskis changed their homes out of concern for global warming. (If it’s not on the Disney Channel, I don’t hear about it,” Sara Borkowski said.) But that’s the point: a bold reworking of energy systems, long necessary and expensive, is now necessary and much more affordable. That could make for a very different world.