The history of the monopoly electrical system dates back to the 1880s. After only a decade of small lighting systems providing electricity in every city in the nation, big bankers and oil tycoons, such as J. Pierpont Morgan, John D. Rockefeller, and George Westinghouse snatched up all the small electrical providers to consolidate all electrical providers and exert corporate control over the energy system. Morgan set out on a quest to establish only one utility that would be owned by him. These robber barons established an empire and monopolized lighting, power, and trolley systems. Shortly after, grassroots communities revolted, and established their own municipal systems to produce power under public control, excluding monopolies. As soon as 1895, Detroit established its own municipally owned utility (muni). Rates shot down, and soon a number of cities established their own muni. By 1912, a total of 1,737 publicly owned utilities had formed, compared to 3,659 monopoly private utilities. However, Samual Insull created a third model, a public-private combination. Insull formed the National Electrical Association, which would become the business model of modern times. This public-private model publicly regulated all privately owned monopolies, while protecting each company’s territory, thus guaranteeing a return on investment. This model established the current electric regulatory commissions that are controlled by monopoly capitalists. By 1921, almost every state formed a utility regulatory commission. By the 1920s, Insull and 15 other monopoly capitalists owned 85% of the nation’s electricity supply.
During the early 1930s at the advent of the Great Depression, eight of the largest utility companies owned 73% of the investor-owned utilities. Government stepped in and passed the Public Utilities Holding Company Act (PUHCA) in 1935 to address the imbalance in the energy market. As the first attempt at regulation of the energy industry, PUHCA’s goal was to prohibit companies from recovering their expenses twice by allowing ratepayers to pay only the share of common service expenses and prohibiting utilities from artificially raising rates. Through PUHCA, companies divested billions of dollars in assets, and the number holding companies drastically lowered.
Today, Public Utilities Commissions (PUCs) have been established to regulate monopoly utilities. However, utilities continue to enjoy profits by a faulty design. In 1865, the Supreme Court laid out a “regulatory compact” where PUCs determine how much a utility is allowed to invest, how much it can charge, and what the profit margin can be. In exchange, utilities are allowed exclusive rights to sell electricity in a given area. Utilities are allowed a “rate of return” on their assets that drives profits. This rate of return model is still used today and incentivizes unnecessary investments, while deprioritizing good services, environmental outcomes, and benefits to communities. As of July 2019, the largest electric utilities in the nation have a market value of $64.9 billion. This list of most profitable electric utilities includes: NextEra Energy (ranked 1), Duke Energy (ranked 2), Exelon (ranked 5), Xcel Energy (ranked 8), and Pacific Gas & Electric (ranked 10).
However, with the increased demand for clean, renewable energy and the growing movement to transition off of fossil fuels, utilities are concerned about their continued rate of return and the guarantee of profits. As a result, for-profit utilities have engaged in tactics, such as raising the monthly fixed charges of customers. In 2014, utilities charged about $5 to $10 per month for fixed customer charges, but some utilities have proposed raising those rates to $20 dollars per month or more. Some utilities have been found to be responsible for wildfires due to old infrastructure and negligence in wire maintenance, yet these same utilities turn around and pass those costs onto ratepayers. Faulty power lines and poles owned by Pacific Gas & Electric (PG&E) caused the 2015 Butte fire and the 2017 Camp Fire in Northern California—the worst and deadliest fire in California history—resulting in $7 billion in claims. However, PG&E is demanding $20 billion in tax-exempt bonds that would essentially bail them out and prevent them from going into bankruptcy.
Shift away from for-profit investor owned utilities. Although the monopoly utility model is a deeply embedded model, energy policies must shift away from this for-profit model to one that is publicly-owned and controlled. Instead of accepting a pro-profit, investor-owned utility model, advocates should:
- Promote Publicly Owned Utilities (POUs). POUs have an ownership structure that is locally governed and/or owned by customers/members. They are non-profit entities that are managed by local elected officials and public employees. Rates are set by each POU governing body or city council. The mission of the POU is to optimize benefits for local customers. Although there is a long history of creating POUs to shift away from the monopoly utility model, POUs must also be held to higher standards to fully meet the mission of benefiting customers. Two-thirds of public power systems buy their power on the wholesale market. Whether they self-generate or purchase power, they are as concerned as their for-profit counterparts about regulatory changes and their potential effect on reliable, affordable power.
- Promote Community Choice Aggregation (CCAs). CCAs are a new type of utility that enable communities to make decisions themselves about what kinds of energy to purchase rather than relying on traditional investor-owned utilities (IOUs). CCAs are created by cities, counties, or joint powers authorities (made up of municipalities), which enable them to be more reflective of distinct community preferences than the regional IOUs. Community members have direct input into CCA decision-making through their boards of directors, which are comprised of local elected officials. Through their CCAs, these communities have thus far revealed strong preferences for renewable energy. Some CCAs have specifically focused on developing local electricity generation from renewable energy.
- Promote Energy Cooperatives. Energy co-ops have voluntary membership, democratic member control, and transparent economic participation. Co-ops operate under seven principles including, voluntary membership, democratic member control, member economic participation, autonomy and independence, education and training, cooperation among cooperatives, and concern for the community. Energy co-ops are appealing in the transition to local distributed energy system. The challenge is energy co-ops need to reach the scale necessary to be competitive. And, as service territories are already fixed, consumers do not necessarily have a choice about where they get their electricity.
Reform the current utility system. Although the shift away from a monopoly investor owned utility system is the ideal pathway from communities, the reality is that many BIPOC and frontline communities still must operate within the existing IOU model. The recommendation is to transition away from the for-profit IOU model, while simultaneously reforming the current utility system. The following are a suite of policy recommendations to reform the current utility system:
Example of public utility model: Nebraska is the only state where all residents receive electricity from a community owned utility, as opposed to a for-profit utility. In 2015, 121 publicly owned utilities, 10 cooperatives, and 30 public power districts provided electricity to a population of around 1.8 million people. As a result, residents now have some of the lowest electricity rates and reinvest any revenue to guarantee reliability and affordability. Of course, this publicly-owned model should also be coupled with the use of clean renewable energy sources, and not coal and gas.
Example of an Environmental Justice Adder: New York Lawyers for the Public Interest advocated for an Environmental Justice Adder in a case that determined the value of distributed energy resources. The primary objectives of this Environmental Justice Adder are:
- targeted air pollution reduction;
- significant utility bill reduction for low-income individuals living in environmental justice communities;
- participation in community solar projects as owners, members, and/or subscribers by low-income individuals living in environmental justice communities;
- supporting workforce development and local hiring within environmental justice communities;
- supporting sponsorship of community solar projects by member-based and community representative organizations in environmental justice communities;
- supporting energy efficiency upgrades and overall energy burden reduction for housing units that serve low-income individuals in environmental justice communities.