Last week I reviewed some of the disruptive challenges that the private, investor-owned utility (IOU) sector is facing in the transition to distributed renewable energy production, and they are serious. Last month, NRG Energy’s CEO David Crane called distributed solar “a mortal threat” to the IOU’s business.
The question we all must grapple with is how the utility industry will be transformed by these disruptions, and what the effect will be on consumers.
The first issue is price. The IOUs have warned that more distributed power generation will drive up grid power prices for consumers. That may be true, to a limited extent, but the accounting is complex and the result is anything but straightforward. New coal, nuclear, and gas power plants are expensive too. As I explained last week, within a decade — less than half the expected lifetime of these long-lived capital assets — they are likely to be more expensive than renewables.
In fact, price isn’t much of a leg for the IOUs to stand on. According to EIA data on all 3,186 utilities in the U.S., helpfully compiled by Richard Caperton of the Center for American Progress, IOUs offer the most expensive grid power in the nation, with an average price of $0.1003 per kilowatt-hour. All other types of utilities — electric co-ops, municipal utilities, federal utilities, and power marketers — sell power for less. On average, municipal utilities sell power for roughly half a cent ($0.0046 per kilowatt-hour) less than the IOUs.
It’s not hard to see why. In January, the Houston Chronicle detailed how the average CEO pay at major utilities rose from $2.7 million in 2000, just after Texas approved deregulation, to over $7.5 million a decade later. In addition to paying executives more, IOUs must turn profits for shareholders, pay taxes, sponsor legislators, and occasionally fight with consumers and town governments in courts and on ballots, where their non-IOU competitors do not. All of those costs add up to higher grid power prices.