By Gina S. Warren, Associate Professor, University of Houston Law Center
Imagine a situation where technology companies have the motive, means and opportunity to supply energy with one click. It may not be too far-fetched, and already some of the ramifications for utilities and consumers are becoming clear.
Private tech companies like Apple and Google have emerged onto the energy landscape, a shift that could have a significant impact on the existing energy delivery system. In June 2016, Apple Energy received federal approval to sell wholesale electricity into the national grid. Prior to that, Google Energy received approval to do the same. Globally we are seeing more private businesses, especially Fortune 500 companies, generating their own electricity, investing in renewable energy facilities and voluntarily purchasing renewable energy credits to cover their carbon footprints.
While multiple reasons have factored into this shift, one reason may be that utilities are unable to supply the amount of renewable energy now in demand by large businesses, and those businesses are working to meet the market demands of millennials who are seeking sustainable products.
According to a 2015 market study conducted by Morgan Stanley, millennials – and especially female millennials – care significantly more about sustainability than previous generations. With a whopping 84% of millennial investors identifying sustainability as an important factor when making living and investment decisions, private businesses are taking note.
Apple, Google and 70 more of the world’s most influential companies have joined RE100, a collaborative of businesses who are committed to only using electricity generated from renewable sources and to increasing the demand for and access to renewable energy around the globe. While they each have varying goals, these companies have all made commitments to become 100% renewable by a certain date, with nearly half using some form of on-site power generation. According to a 2016 RE report, most companies do not want to become energy providers, but “the lack of responsiveness from utilities in some regions has forced them to do exactly this.” Unless the power sector can find “more proactive and creative solutions,” it may be the wave of the future.
The energy delivery landscape will continue to change as more and more businesses self-generate. This change can be positive in that we are adding much needed renewable energy. As the negative impacts of climate change accelerate around the globe, the goal of decreasing reliance on fossil fuels is certainly an important one. It is a time of opportunity for collaboration between utilities and businesses that would allow companies to access the renewable energy they demand and utilities to avoid lost profits and stranded investments.
One concern, however, is the private disruption of what has historically been a highly regulated public service industry, potentially resulting in a slippery slope of market power and a loosening of consumer protection.
Safeguarding consumer protections will be key. As large multinational corporations seek to sell electricity, the Federal Energy Regulatory Commission (FERC), the agency in charge of regulating wholesale energy sales, will need to implement more protective measures to ensure consumers are charged reasonable and nondiscriminatory rates for electricity and energy products. Under FERC’s current rule, these large corporations are allowed to use market-based rates and given a lot of leeway in setting customer rates for electricity or energy products, so long as they do not own or control more than a certain amount of electricity within any given region. This is called the horizontal market power rule. The rule was intended to promote competition and entry into the market by small utilities and independent power producers. Large utilities holding horizontal market power do not qualify but instead are subject to more stringent regulation by FERC so as to ensure their rates are fair, reasonable and non-discriminatory.