After 130 years, New York rethinks its electric utility model

John Finnigan

America’s electric grid has not been updated since World War II when telephones, dishwashers and air conditioning were the cutting-edge technology innovations of the century.

Today, this same grid is struggling to cope with the technological advances of the last decade, a reality that hit home for New Yorkers in the wake of Superstorm Sandy when millions of people lost power for days and even weeks.

But New York is taking steps to change this. A proposal to overhaul the state’s utility business model could dramatically change how people interact with their power company.

It could bring in innovative technology to help homes and businesses better manage their own energy needs, while at the same time reduce carbon emissions – changes that would have national implications.

Humble beginnings

New York played a leading role in establishing today’s utility business model. Thomas Edison developed the first power plant on Pearl Street in Manhattan in 1882, serving 85 lighting customers.

The business model of Edison and his protégé, Samuel Insull, was simple:  Just keep adding more customers and building larger power plants – and the rest will come.

It was a win-win for Edison’s customers and for his utility companies. Customers won because the ever-larger power plants were more efficient, bringing the cost of electricity down each time he built a new plant.

Monopolies are born

As the price per kilowatt of electricity kept declining, customers used more power. To encourage growth in this new electricity infrastructure, New York, like all of the other states, protected the utilities’ investment by granting them an exclusive right to serve customers.

In exchange for being permitted to operate as a monopoly, New York set the price the utility could charge for electricity. The prices were structured to reward the utility for successfully building a bigger and more robust system.

Needless to say, Edison’s business model proved wildly successful.

We now have access to electricity 24/7, at the flip of a switch. The U.S. electric power industry fuels the world’s largest economy. We rely on our heating and air conditioning, appliances, televisions, computers, phones – all powered by electricity – to meet our daily needs.

The electrification of America was the greatest engineering feat of the 20th century, surpassing even the invention of the Internet and sending a man to the moon.

Consumers today want independence

This business model has worked well for the past 130 years because it used the right incentives for what society needed. But it is out of sync with our needs today.

We now know that when people are armed with the knowledge that the cost to produce electricity varies by time of day and year, they are willing to change well-worn patterns to bring down their electricity bill.

Price-conscious customers might run their dishwashers at night instead of during the day, yielding not just lower prices for themselves, but for the entire system.

Indeed, many people want to take advantage of new technologies and falling prices to enjoy on-site electricity options like rooftop solar panels and electric vehicles.

More efficient industries, buildings, homes, and appliances now allow customers to accomplish much more with far less energy. Advances in telecommunications and information systems create new opportunities for energy services we could not have imagined just a few years ago.

A smarter grid will cut carbon emissions

It has also become increasingly evident that our reliance on fossil fuels burned in large centralized power plants has created an environmental burden for our children. We need a system that is less polluting.

Upgrading to a smarter grid will allow us to fully integrate distributed generation, such as rooftop solar and combined heat and power that can operate independent of the central grid and help move us toward a clean energy economy.

New York gave birth to the electric power industry 130 years ago, making it the perfect place to reinvent the utility business model for the 21st century.

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