Energy: Big challenge for next governor

So far, it’s been a sleeper issue in campaign

Four of the five candidates for governor are scheduled to take part in a forum on energy and environmental issues Wednesday, Oct. 8, at 12:30 at Suffolk Law School.

Why isn’t our energy future a front-and-center issue in the 2014 gubernatorial campaign? We have recently been alerted to the news that electricity prices will soar this winter, and there remains no clear statewide or regional resolution of the ongoing debate about how to bridge the old days of a coal-fired based system to one driven more by natural gas and renewables. The issues raised by our energy future – its cost, its availability, its environmental impacts, its impacts on land use – are serious ones that will have profound influence on our quality of life and our business climate. The next Massachusetts governor will need to address the state’s unique needs and challenges (our lack of energy diversity being at the top of that list), while also providing strong regional leadership, because in New England it is not tenable for one state to move ahead on its own.

Most people know very little about energy except that it is there when they want it. Energy – that largely invisible force that lights the night, powers your computer, heats and cools your home, and keeps the Sunday gravy simmering before the family sits down for dinner. We cannot imagine a life without the 24/7 availability of generally affordable power to maintain our quality of life. In my experience, only during those times of crisis when energy is not readily available – the gas lines of the 1970s or sustained power outages due to winter storms or hurricanes – does energy become a political issue that has the potential to drive election outcomes. For the most part, we take the reliable supply of affordable energy for granted. And we do so at our peril.

The electric grid that we rely upon today is, for the most part, a generation and delivery system that would be familiar to Thomas Edison and George Westinghouse. It’s a simple system, not changed in any meaningful way from the early 20th Century: beginning at the power plant, moving to a transformer to step up the voltage, then to transmission lines – those behemoths that cut ugly swaths through the countryside – then to a local transformer to step down the voltage, and finally to distribution lines carrying the electricity to our homes. It’s a passive use model: the utility provides, the consumer uses and pays. The system is highly reliable but not very resilient. It doesn’t take much for it to fail, and when it does fail, it takes a while to recover. Any snow storm that isn’t very cold and fluffy is likely to wreak havoc on the distribution lines that remain unburied throughout most of New England. Last September, the failure of a suburban New York feeder cable took down the intercity rail system connecting New York City and Connecticut, as well as the regional Amtrak service, causing massive highway congestion and disrupting daily commuters for several weeks.

This approach to generating and distributing electricity has proven durable, but its days are numbered. A variety of factors have begun to disrupt this system. The national movement toward reducing carbon emissions by transitioning to renewable energy sources, the increasing availability of solar energy systems and electric vehicles to the average household and to businesses (particularly to owners of large developments like shopping malls and businesses with fleet vehicles on a large scale like FedEx), and the national security need for a more resilient system, are contributing to this disruption. More important, there has been a generational shift in how people expect services and products of any kind to be delivered, the internet-era generation that expects a high level of interaction with the point-of-sale, with services and products to come on demand, at low cost, and preferably in a green package. You see this happening in the music industry, in the mobility industry, and in the retail payment industry. It is only a matter of time before it overwhelms the energy industry.

Our energy future will likely be based upon an active management energy system where the consumer adjusts his or her behavior in order to secure the best pricing for energy use, and is able to generate and return and “sell” energy back to the grid via solar and electric vehicle energy generation. This distributed energy system would be tied to micro grids that, in theory at least, would offer consumers an equally reliable but more resilient delivery system. This is exciting stuff, not simply for its empowerment of consumers but because of its ability to decrease our reliance on fossil fuels. The best path to energy independence is through increased reliance on renewable energy sources and the development of a truly smart grid.

A critical question emerges from this vision of our energy future, and that is the role utilities will play. Two things are certain: first, without the full participation of the major utilities, the transition from the 20th Century paradigm to a new smart grid will not take place. And second, utilities have no incentive to push forward with bold innovation and radical change without the active support of the state governments that regulate their industry. We cannot and should not expect utility companies to take bold steps forward if they are compelled to operate under 20th Century regulatory restrictions.

This is, in many ways, a reflection of our times. Just as Uber has disrupted the taxi industry, so too, innovations in energy generation and storage are revolutionizing the energy industry. Just as the taxi industry rightly complains that it is being held back by a regulatory structure that does not reflect today’s marketplace, so, too, utilities have the right to insist upon a regulatory structure that responds more directly to the new era of active energy management. Utility business models are based upon a regulatory scheme that for the most part was structured to respond to the old 20th Century passive model. No business will alter its business model without first knowing that the regulatory structure that governs its profitability will be re-designed to reflect the changing paradigm. The next governor must challenge the Legislature, and direct state regulators, to think outside the box and allow utilities to develop new business models that enable profitability while incentivizing investment and innovation.

The trend lines are unmistakable: utilities will gradually transform from their primary role as rate-charging commodity providers to providers of fee-based services. Consumers will become, in effect, business partners with their utilities, perhaps purchasing solar panels form the utility, selling power back from those solar panels or electric vehicles, becoming more active participants in demand response activities where peak use during particularly hot or cold periods is managed not unilaterally but collectively. These issues are complex, including how to ensure social equity where many people of limited means are not going to have the opportunity to purchase solar panels or electric vehicles. Ensuring that the benefits of a new system are enjoyed by all, and that those who can least afford to participate in the active energy management system are not subsidizing the wealthier who can, is a challenge that government must meet.

New York State is setting a regional example with an aggressive approach to re-thinking the old, passive grid model and embracing both renewable energy and a more interactive distribution system. Under the plan being considered in New York, utilities would coordinate the flow of energy between provider and consumer, encouraging a robust system of distributed energy based largely (but not exclusively) upon solar power. The New York initiative will work well if it proves to be fair and profitable for both the utilities and the consumer, and if it solves the social equity dilemma.

Meet the Author

The next Massachusetts governor will have to face these issues head on. The utilities have questioned the fairness and sustainability of our current approach to net metering – the requirement that utilities compensate consumers for energy they generate through solar or other means at the retail price. Equally important is the way in which our state leads the regional commitment to bringing more natural gas to New England while also addressing impacts on land use and embracing a game-changing shift to renewable energy.

Evan Falchuk and Jeff McCormick have, by my observation, been more forceful than their major party opponents addressing our energy future, with Falchuk talking about generating 25 percent of our energy from renewable sources in six years. Yet energy, absent a crisis situation, is not an issue that gets many voters to the polls. As critical as it is to our future, it remains a sleeper issue for most. Whether the coming hike in electricity prices can generate interest in a more robust debate between now and the November election is doubtful, but perhaps Falchuk or McCormick – or the media – will raise the subject in upcoming debates. The topic really ought to be addressed, as this issue will be one of the critical tests of whether the next governor can effectively marshal statewide and regional support, and build consensus among utilities, environmentalists, and new energy entrepreneurs, for a forward looking approach to our energy future.

James Aloisi is a former state transportation secretary and a principal at the Pemberton Square Group.