With Divergence Abound, How Should We Navigate U.S. Energy Policy?

In the 1980s, our national energy policy was fairly straightforward. Utilities owned transmission and distribution assets, creating a natural monopoly. In the 1990s, some states changed that, creating a competitive landscape for energy generation and giving consumers a choice of where to buy their energy. This utility restructuring (or deregulation as it is sometimes called) meant that electricity markets operated differently in different states. It was the beginning of a divergence in state energy policy that has been accelerating since.

Policies like renewable portfolio standards, interconnection and net metering for renewables, and paying for ancillary services like demand response have all been attempted by different states in different ways. Now, some U.S. states are looking at performance-based regulation as an option. Divergence abounds.

Think about the concept of divergence of energy policy as a highway. We used to all drive 1960s-era Cadillacs down six- to eight-lane highways, and traffic was moving pretty well, but only in one direction. Today, these same lanes split off into on and exit ramps; we’re looking north, south, east, and west, exploring in all different directions. Sometimes, these new options make it harder to navigate how to get to one place or another, and not everyone is going to take the same approach.

So, we are no longer all headed in the same direction in the same way. This, in many ways, is a good thing. This approach is creating opportunities for states to be leaders and incubators for different approaches to be tried so we can see what works.

However, it also means any given product or solution will work better in some places than others. It is making it more complex for large utility companies, developers, and investors to understand which approaches will work in a given area. Progress is more diverse, but it also can’t move forward as quickly because each state now requires a custom approach.

We are seeing certain states taking the lead in finding better ways to best integrate new energy solutions:

• California is trying to create market mechanisms and consumer incentives to not only drive the outcomes the state wants, but to enable consumers to drive change for a better energy portfolio.
  
  
• Illinois is taking a very tech-forward approach, pushing AMI meters, utility-scale microgrids, and other new technology out in the field to advance and strengthen the electrical grid, leading to greater reliability and resilience.
  
  
• New York is taking a top-down approach, working to completely change the regulatory environment to mirror that of the UK and Europe, looking to performance-based regulation, something we will see greater adoption of over the next five to 10 years.
  
  
• States like Hawaii, Puerto Rico, and Maryland are using their own unique approaches to build the grid of the future.

States will continue to evolve and adopt on their own measures; they will continue to diverge. While there is an opportunity for sweeping federal legislation on greenhouse gas issues, the existing administration will not take this action, and future administrations will have major challenges to apply any such effort. States are ready, willing, and able to support a more aggressive approach to clean energy policy—changing market signals, fostering pilot programs for new ideas, and generally shifting the U.S. to a smarter, cleaner, more resilient energy system.

The state-by-state approach will mean that progress is slow, but it will be inexorable and will not ignore good ideas in favor or easy ones.

S&C has had the opportunity to advise some of our utility partners in developing rate cases, showing how to best incorporate advanced energy solutions into different regulatory environments. Our goal is to help our partners identify the right solutions for a clean, resilient grid, no matter the regulatory environment.

I’d be interested in learning your thoughts on the concept of divergence and how you see energy policy evolving over time.