By Barry Cinnamon, CEO, Cinnamon Energy Systems
Energy is increasingly unaffordable – and this situation will get worse as we rely exclusively on utilities to electrify our homes, energize our transportation and build AI data centers. Home electric rates will continue to go up as long as utilities continue to build more poles and wires to meet future power needs.
It’s a little-known fact that utilities get a guaranteed 10% profit on all the power plants, poles and wires they build – and are then allowed to raise electric rates to meet that 10% profit threshold. The archaic 19th century Utility Business Model (UBM) is the fundamental cause of high electricity rates in most of the U.S. It is expensive to run power lines, gas lines, water and sewer pipes, and telephone wires to each individual building. The UBM allows one company in each category to have a monopoly over this infrastructure. That way construction and maintenance costs can be managed efficiently by one company.
But standard monopolies are illegal in the U.S. To prevent electric utilities from reaping ridiculously high profits, their profits are capped based on the costs of their “production,” typically defined by the assets they build to generate and distribute power.
For example, California electric utilities get a guaranteed profit of 10% per year based on their net assets. Utilities are allowed to raise electric rates so that they can achieve this guaranteed profit threshold. Essentially, utilities have a profit incentive to build as many gold-plated assets as they can to maximize their assets.
In exchange for this monopoly, utilities are subject to regulations that ensure that costs for their assets do not grow in an out of control fashion. Regulators (such as the California Public Utilities Commission or CPUC) and elected representatives (from the governor on down to local legislators) are responsible for maintaining regulations and pass laws to meet safety, cost and reliability goals.
Thomas Edison, George Westinghouse and Alexander Graham Bell established utility businesses in the late 1800s, and they had a nice run for over a century. But two things have changed that make the UBM obsolete. First, “regulatory capture” has made it possible for utilities to effectively control the decisions made by the regulators. Second, new technologies mean that we no longer need to allow one company to dominate a utility category.
California is a perfect example of utility regulation gone wrong. Electric utility contributions to politicians -- from the governor on down to local town council members – have overwhelmed contributions from competing businesses. As a result, both elected officials and governor-appointed “independent” state regulators such as the CPUC make decisions that prioritize utility profits instead of ensuring safe, reliable and cost-effective electricity.
In California, competitive sources of home energy such as rooftop solar and energy storage were decimated by the termination of Net Metering -- regulatory capture in action, led by the state’s utilities. Armies of utility attorneys and lobbyists overwhelmed the normal regulatory and legislative process, advocating for policies that maximize utility infrastructure. Tens of millions of dollars in advertising was spent to tout utility benefits and demonize less expensive sources of power. The effect of regulatory capture has granted utilities carte blanche to build their own generation, transmission and energy storage, thereby increasing their asset base to achieve record profits.
New home energy technologies have literally reversed the fundamentals of traditional utility power generation. Since Edison and Westinghouse established the first electric utilities, power was generated at a central source, transmitted over power lines, and then distributed locally to buildings. Now, inexpensive rooftop solar and home batteries on the buildings themselves are a much cheaper energy source for homeowners compared to distant power plants and long-distance transmission lines. Moreover, these home energy systems can send excess power to the local electric grid – eliminating the need for expensive utility power investments.
Rooftop solar systems combined with batteries generate and store power right where that power is consumed. Costs for these home power systems are paid for the homeowners themselves, not all ratepayers. Moreover, on a per kwh basis the amortized costs for these home power systems are much less than the average costs that utilities charge. It is true that mega-scale utility solar farms generate power for less than the average retail rate, but by the time that power is transmitted and distributed to homes – with all the related utility overhead and profits -- consumers typically pay 10 or 20 times more than the costs of the utility solar power plant itself.
In fact, for the same amount of money that PG&E has requested to bury 10,000 miles of transmission lines, every single-family home in northern California could be equipped with a microgrid system consisting of a rooftop solar array and home battery.
Utilities that ignored new technologies and suppressed competition have been broken up in the past. When alternative telecommunications technologies became popular in the late 20th century, AT&T’s monopoly was broken up. Yes, we still have communications wires, but they must be competitive to fiber, cable and wireless technologies. We still need electric utilities, but regulators must allow homeowners to install new energy technologies without utility restrictions and windfall profits.
With these new energy technologies in mind, here are four things that we can do to reduce home electric bills:
1. First, install a home solar and storage system on your home. Seek out a local installer with a good reputation.
2. Second, if you are an apartment dweller or renter, consider buying a few “Plug-in Solar” panels, AKA Balcony Solar.
3. Third, reach out to your local politicians and let them know that they need to do a better job regulating utilities.
4. Fourth, to help magnify your efforts to reduce electricity costs, join the Solar Rights Alliance. They work to make sure your voice is heard.
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