Prevent Utilities From Monopolizing the Future

The Problem

To protect and expand their monopolies, utilities sometimes leverage their political power to block disruptive technologies from the market or co-opt them into their business. Both outcomes prevent the technologies from living up to their promise.

For example, microgrids are small independent grids with independent energy sources that can connect or disconnect from the “macro grid.” Beyond providing reliability and resilience, microgrids can facilitate cost efficiency and renewable energy integration. However, exclusive franchises to incumbent electric utilities can prevent microgrids from crossing public rights-of-way or serving multiple customers, limiting their impact. Even single-customer microgrids, like other distributed energy resources (DERs), threaten to cut into utility profits — and utilities have pushed for regulators to disincentivize microgrids through fees.

Similarly, many states do not permit third-party solar financing, where providers install provider-owned solar panels on a customer’s home and then sell them the energy or lease them the system. This model eliminates often-prohibitive upfront costs, turns a daunting home-improvement project into a service, and boosts adoption. Utilities have opposed third-party financing — including by funding ballot initiatives to ban it. Utilities have also pushed regulators to levy exorbitant fees on solar owners; a California IOU-backed proposal would have made solar unaffordable for 95% of customers, according to one survey.

Another example is electric vehicle charging. IOUs are lobbying state policymakers for permission to own and operate charging facilities, despite an absence of strong economies of scale in this space. But given IOUs’ guaranteed rates of return, their entry into the market could chill private sector investment, slowing deployment of this critical technology.

The Solution

Policymakers should ensure disruptive energy technologies reach market and “quarantine” them from IOUs where possible.

One overarching reform to promote DER adoption is banning utilities from levying anti-competitive fees on DER owners. California state senators proposed one such bill in 2020. States can go further and affirmatively incentivize DER adoption, joining states such as Hawaii.

State and local officials interested in promoting microgrids should first clarify how microgrids are governed by state law, if at all. While exclusive utility franchise rights can prevent microgrids from crossing public ways, this is not always the case. For example, a legal analysis completed at the request of the City of Boston revealed that Massachusetts state law does not require utility consent for microgrids to cross public ways.

The Massachusetts example highlights a broader problem with microgrid deployment: regulatory uncertainty, as the majority of states still lack any statute explicitly defining and governing microgrids. But neighboring Connecticut has demonstrated how state lawmakers can create an environment favorable to microgrid deployment from scratch. In an effort to boost resilience of critical facilities after hurricanes Irene and Sandy, lawmakers passed a bill to define microgrids under state law and ordered the state’s Department of Energy and Environmental Protection to create a grant program to fund microgrids at sites like hospitals, schools, and supermarkets. Follow-up legislation clarified microgrids’ exemption from public-utility regulation, and ability to build across public ways.

Third-party solar financing, meanwhile, has been legalized to some extent in 34 states, ranging from Colorado to West Virginia. States including Connecticut have initiated public solar leasing programs that successfully facilitated access to rooftop solar for lower- and middle-income residents.

With regard to EV charging, states have pursued various strategies to restrict utility ownership and promote competition. In 2023, Oklahoma passed into law a bill that prohibits utilities from owning or operating charging stations except through a separate, unregulated entity that does not benefit from ratepayer subsidization; a similar bill has been proposed in South Carolina. A stronger bill introduced in Florida would have flat-out prohibited utilities from using ratepayer money to build or operate charging stations. Meanwhile, a 2021 New York law required utilities to devise alternative rate structures for commercial EV charging, exempting them from traditional demand charges and lightening their utility bills.