Because affordable, reliable electric service is an essential element of our lives, voters tend to worry about it, and to react strongly to the risk of its loss.
The provision of energy services over a centralized network of transmission lines is a collective service, one that can be organized or performed by government or private sector actors. In the United States, we rely on both, depending upon your location. Most people get their electricity and natural gas from an investor owned utility, but some receive the service from a government entity or cooperative.
The U.S. also has a tradition of prohibiting price discrimination within customer categories. State public utility commissions regulate the provision of energy services utility-by-utility, and do so in ways that ensure that every “similarly situated” customer pays the same rate. So we have price variation across utility service areas, but not across customers within the same customer class — residential, commercial or industrial.
This system always leaves some people unhappy with their service, either because they think they are paying more than they should or because the level of service isn’t to their liking.
Adjusted for inflation, average U.S. electricity prices have gone down over time. But some utilities do manage to serve their customers better and less expensively than others. People paying higher rates than their friends in other states or utility service areas suspect their utility is exploiting them, and that a captured regulator is in on the scam. And because it costs more to provide electric service to some customers than others — e.g., to extend infrastructure to sparsely populated rural areas than densely populated cities — one-size-fits all rates seem unfair to those who would pay a lower rate in an unregulated market that allows price discrimination.
But no system of providing collective goods will ever seem perfectly “fair” at the individual level. No one agrees with all of the spending priorities of the governments to which we contribute our tax dollars. I may wish that they spent more/less on roads and public infrastructure, national defense, welfare programs, regulation to protect consumers, etc. But regardless of my preferences, living within a society organized through democratic governance is immeasurably better for me than living in a lawless state of nature or a dictatorship. The fact that society’s collective choices do not match up perfectly with my preferences is an unavoidable consequence of group decision making.
In that sense, grid-based energy service is like any other collectively provided good. Because we each value different attributes of energy services differently, it is not possible to satisfy everyone’s individual preferences simultaneously. We cannot discriminate over the attributes of the energy service — how reliable, how green or how affordable the energy is — even if we tried to. The delivery network is managed for our collective benefit, and decision-makers balance the energy trilemma in ways dictated by policymakers.
Nor is price discrimination the answer. Some people who are unhappy with the size of their energy bills argue that they don’t want or need the level of energy reliability that policymakers choose. Why not charge individual customers based on how much reliability they are willing to pay for? Or spend less on grid based energy reserves and let customers invest in backup power? We allow price discrimination in other kinds of markets, like air, travel and concert tickets (through secondary markets, like StubHub). Why not do the same here?
Two reasons. Varying grid-based reliability at the individual customer level is either impossible or prohibitively costly. More importantly, shifting responsibility for ensuring reliability to customers is economically regressive — that is, it hurts poor people more than rich people. Invariably the people arguing in favor of devolving more supply responsibility to consumers are sufficiently well off to be able to afford home investments in back up energy supply or energy storage. Their willingness to pay for these things is a function of their ability to pay. Only in a world that seeks “economic efficiency,” and is blind to the distributional consequences of meeting that goal, does that kind of price discrimination make sense.
People are willing to tolerate price discrimination for nonessential services like air travel, and concert tickets, but not for energy. That is why public utility statutes prohibit price discrimination within customer classes. Restructured markets get around that prohibition by defining market pricing as non-discriminatory because customers choose their price. But even in restructured markets reliability levels are provided at regulated prices, separate from the price of power.
Still, people who are sufficiently unhappy with the energy services they receive from the centralized grid are threatening to go “off the grid.” California seems to be the epicenter of that urge in recent years. An email list to which I belong had an interesting exchange on this issue recently. One poster, an advocate of decentralizing responsibility for provision of energy services, recommended a book to another list member in support of the idea that we pay for too much grid-based reliability:
You might be interested in taking a look at At Day’s End: Night In Times Past by A. Roger Ekrich (Norton, 2005). This is a rather extensive account of how humanity organized its activities at night in the absence of electric light. Chapter 12 concludes with an account of the sleep we have lost (Rhythms and Revelations). It is quite impressive how ‘modern’ humans have adapted to the introduction of electric light and the behaviors that we have institutionalized…not necessarily all of them to our collective benefit.
That post elicited this response (which I have edited for brevity) from another list member:
When I was little we did not have electricity. My grandparents on my father’s side had a wind charger with some batteries, but that was not very reliable. Kerosene lamps were the rule. Wick care and replacing broken mantles were common chores. The smell of kerosene is still a memory. We used flashlights with these big blocky batteries in the barn because of all the hay and the risk of fire.
… We got power and got the house wired by the time I started first grade. … The refrigerator ran on propane. We used corn cobs for heat. No plumbing until I was thirteen, and that water was not potable, it came from a stock dam.
I regularly woke up in the dark, and in the cold.
We did not wash clothes very often. Showers were non existent, and baths were summer events. We had a big iron stove that burnt wood. Potable water came from a cistern that we trucked water in to fill. We ignored the dead rodents we sometimes had to fish out of the cistern.
… The REA brought in the power lines in the 1950s. … The REA newsletter that came every month had a column on what life was like Before Electricity, B.E. they called it.
… I do not think it is credible to align the downfall of humans with knowledge brought about by electricity. I think we ate from that apple a long time ago, way before artificial light.
Nevertheless, complaints about public utility service are on the increase. More than 20 California communities have “exited” utility systems by forming Community Choice Associations (CCAs). CCAs pay an exit fee that (theoretically) represents their share of the unpaid capital cost of the infrastructure that the utility built to serve them. But CCAs are not “off the grid”; they still rely on grid based power.
Still, as wildfire liability and risk, expensive long term legacy contracts for power, and other forces drive up rates for PG&E customers in California, more and more people of means say they are thinking about installing a self-sufficient home electricity system: that is, disconnecting from the grid and relying only on their rooftop solar panels, battery storage, and maybe a backup generator.
This is an idea has some appeal to people across the political spectrum. Conservatives who are suspicious of collectively provided public goods like it for philosophical reasons. People on the ideological left particularly like the idea of clean energy independence, a home served by its own solar panels, storage system, etc. But so far, despite a lot of huffing and puffing, very few people choose to go truly off the grid. Even if building codes require connections to the grid, no law requires using and paying for grid-based energy. The reason so few people go truly off the grid is because even in states like California that charge a lot for electricity, grid based service is still cheaper and more reliable than going it alone. One look at the levelized cost of rooftop solar (compared to utility scale solar) offers a clue as to part of the reason why.
Which is not to say that that will always be true. If solar cells and batteries continue to get cheaper and grid-based electricity continues to get more expensive, the tipping point will come. But who can say when and if that will happen. Meanwhile, it has become easier than ever to learn about aspects of the energy system that make us unhappy, and to find others online who are more than willing to fan that unhappiness. But again, real electricity rates are lower today than they were 50 years ago.
Going off the grid may be romantic. But the American energy delivery networks have been an engine of economic progress, and the envy of other nations. Markets underinvest in delivery networks like the electric grid, pipelines, interstate highways because of positive externalities — i.e, because the benefits of the network flow beyond the set of people who contract to use the network. So government intervenes to provide or encourage positive net benefit network investments. Unfortunately, Republican policymakers and judges (citing economic efficiency) have turned against those kinds of policy interventions in recent decades, stranding billions of dollars worth of potential economic gains for investors and ratepayers alike.
Hating your utility is a time honored tradition. But we need a healthy energy grid. Hopefully that will become a shared, nonpartisan goal again soon. — David Spence
