Beyond the Investor Owned Utility Model
by Lauren Ballesteros-Watanabe, Chapter Organizer | Reading time: 4 minutes
Most people are at least vaguely aware that Hawaiian Electric’s lawsuits are having significant implications for our energy future. However, even before the August wildfires, HECO had been struggling to implement an equitable transition to renewable energy—battling rooftop solar, neglecting infrastructure, and generally dragging its feet on cleaning up the grid. Serving 95% of Hawaiʻi’s population, the investor-owned utility whose parent company, Hawaiian Electric Industries (HEI), has long been deeply entrenched in our political, social, and economic landscapes due to the essential service it provides. Now that HEI faces steep financial woes, is it time to move away from a profit-driven, shareholder-driven utility model that serves outside interests and create something more aligned with local community values?
The many major natural disasters across the globe are changing the way we view our centralized grid. They have also exposed how profits get in the way of monopoly utilities following through with providing safe, reliable, and affordable energy to its customers. Locally, we pay one of the highest utility bills in the nation, and financial burdens keep getting placed on ratepayers' shoulders. This system design begs for a fundamental shift in where the decision-making power lies in our energy system. By cutting ties to build a publicly owned and operated energy utility, we would have a chance at more transparency and accountability in what our energy future looks like. Local communities could be at the head of the table, mostly, deciding on everything from project siting and planning, effectively lowering the high costs of energy burden, choosing energy sources, and transitioning more rapidly to community-scale renewable energy projects. Rather than begging investors to change their stripes, invested community members would put equity at the center. This is not a pipe dream; it is already happening in places around the world.
The European Union has become a champion of community energy, with an EU directive mandating that all member countries enact laws that make community energy not only possible but also profitable. "Community energy is a way to open the clean energy transition happening across Europe to more players," says Dirk Vansintjan, president of the European Federation of Citizen Energy Cooperatives. "When renewable energy is generated where people live, revenue is kept in the locality rather than going to out-of-town utilities or foreign countries." By 2050, the commission estimates that half of Europe’s population could be producing energy through rooftop solar on homes and other methods, with 37 percent of that energy coming from energy cooperatives.
What are our options?
Publicly Owned: A publicly owned utility is a not-for-profit entity owned by taxpayers and run as a division of government (city, state or federal) or an independent public utility district. When run by city governments, publicly owned utilities are called “municipal utilities,” or “munis” for short. On average, public utilities deliver cheaper and more reliable electricity because of their not-for-profit model. Since public power utilities are directly accountable to their local communities, they may have more flexibility in setting rates and investing in infrastructure upgrades without the pressure to maximize profits. Additionally, public power utilities may benefit from access to tax-exempt financing and other cost-saving measures that can help keep rates lower for customers.
Cooperative: A cooperative utility, also known as an electric co-op, is a private, not-for-profit provider of power owned by the people it serves. In the US they tend to serve rural areas. Their small size can make co-ops more adaptable to the evolving needs of communities, like publicly owned utilities, good test beds for innovative ways of managing grid power. Another major plus for cooperatives, is that they often contribute to local economic development by reinvesting revenues back into the community and supporting local businesses and workforce development. A powerful example underway is the Hoʻāhu Energy Cooperative Molokaʻi.
Community Choice Aggregation (CCA): A program that allows local governments to buy electricity on behalf of their residents and businesses. Instead of relying solely on the utility company to choose their electricity source, communities can band together to negotiate better rates and choose cleaner energy options. Essentially, it gives communities more control over where their electricity comes from and how much they pay for it. A noteworthy example of CCA is Marin Clean Energy (MCE) in California. MCE serves communities in Marin County, Napa County, and several other areas in Northern California. It allows local governments in these areas to join together to procure electricity from renewable sources and offer it to residents and businesses as an alternative to the incumbent utility provider. MCE offers various renewable energy options, including solar, wind, and hydroelectric power, allowing customers to choose the level of renewable energy they prefer.
What comes next?
While these alternatives are appealing to ratepayers, regulators, and advocates, there is a potentially large downside to utility shareholders and major developers. The IOU model created a centralized energy system with a strong preference for capital investments which increase returns on investments for shareholders. However, the clean energy transition is a real opportunity to stop building bigger and more projects. Smarter decentralized grids and privately owned DERs have the effect of reducing demand for grid power and grid infrastructure and are more climate resilient than the current centralized model, this is decreases returns for investors.
The investor owned utility model has historically been regulated to abide by two values: reliability and low cost. But over a century after their creation, regulators and customers want more than just reliable power. We want lower carbon and air pollution; they want resilience, and most importantly we all want equity and justice. This is a growing issue nationwide as monopoly utilities, disconnect millions of customers for nonpayment, yet rake in billions of dollars for their shareholders and executives. Post-Lahaina, HECO executives are still making millions but that is just how the investor-owned utility model works.
Meanwhile, local ownership of clean energy has big benefits: reduced energy costs, a boost to local economies, and opportunities to address the historic harms of the fossil fuel industry. Energy justice is about creating a fuller picture of the total societal value of power in our energy future.Building a decentralized, resilient, community-scale grid may or may not turn into directly lowering the cost of our bills either. But at the very least, local control would support local energy economies, builds up small local developers, community ownership with The investor owned utility model is an outdated costly system that is fundamentally unjust and unsustainable.
Not only is this possible, it is doable too. Communities can have meaningful choices if their states and cities step up to the challenge. States can pass policies that empower communities or hold utilities to the public interest. Cities also have a lot of power through permitting, pressuring state regulatory agencies, or even setting up local climate action funds. Let’s take this moment to “not settle” on keeping the investor-owned utility model intact because that’s all we know. This could be a huge opportunity in growing what some communities are already doing across Hawaiʻi to take back the power in our grid to co-create energy systems rooted in community values and priorities. Community co-creation and self-determination can save the energy system.