Can electric utilities operate in the public good?

Kearny peaking plant. Electric utilities, public good

Kearny Generating Station in New Jersey. An obsolete baseline power plant converted to a peaking plant.

In 1898, electric utilities were in their infancy. Samuel Insull was head of Chicago Edison Company and president of the National Electric Light Association.

He proposed what eventually became their structural and legal framework. A regulated monopoly. He claimed his proposal was for the public good

A company had to build and maintain the necessary infrastructure to generate and sell electricity. That made the business a natural monopoly in his opinion.

Each utility would be vertically integrated. That is, it would both generate and distribute electricity. As such, competition would threaten the public good.

He argued that large utilities with a monopoly could generate and deliver the most inexpensive electricity. And they would earn a reasonable profit. Regulation would insure that the electric companies operate in the public good.

He proposed that state governments, not federal or local, should regulate utilities. They would set rates in exchange for protecting the utilities from competition.

Did the vertically integrated regulated monopoly ever truly work that way? It doesn’t any more. Regulations insist on the lowest possible rates at all costs. Suppose a utility wanted to stop using fossil fuels. No regulator would allow it as long as coal or natural gas costs less than other fuels.

The cost of alternative energy iscoming down so drastically. Solar and wind will soon be less expensive than fossil fuels. But the most efficient way to use them involves distributed energy and microgrids.

In other words, they bypass the utilities as they are now structured. And so utilities fight rooftop solar, net metering, and other recent innovations. They fear their business model can’t survive the onslaught. It’s easier to fight innovation than agree on how to change the business model.

Benefit corporations

Renewable energy in palm of hand. benefit corporation

A traditional corporation exists to maximize return on investment for shareholders. Whatever other goals it has must take a back seat to maximizing profit.

More and more corporations today have embraced Corporate Social Responsibility (CSR).

They make involvement in environmental protection or charitable activities a priority. They set up separate programs within the organizational structure to oversee these efforts. CSR has proven to benefit a corporation’s public image.  Sometimes even bottom line.

But what if a corporation’s social intentions interfere with maximizing profit? Legally, shareholders can sue in court. And they will win.

Nowadays, many people start corporations with a social benefit in mind. They want to make a profit, but it’s a secondary consideration. Not long ago, they had to avoid taking their companies public if they wanted to maintain social benefit as their core focus.

Recently a new corporate structure has emerged, called the benefit corporation. Or for companies that want a more rigorous accountability, Certified B Corporations.

For the socially-minded, the benefit corporation has an important advantage over CSR. Benefit corporations define for themselves what measurable benefit they want to produce. That benefit becomes a core responsibility. It becomes equal to providing return on investment for shareholders.

Right now, 31 states have passed legislation that enables benefit corporations. Laws differ. In most cases, the laws require an annual report that measures how well they have met their social goals. The corporation rates itself against an approved standard.

By now, a majority of Americans want to work for or buy from companies with a social mission. Many people prefer not deal with companies that don’t somehow give back to society. Benefit corporations, therefore, can attract employees, investors, and customers from among these people

Well-known B corporations include Etsy and Patagonia.

Green Mountain Power as a B corporation

House with both solar panels and wind turbine. electric utilities, public good

House with both solar panels and wind turbine

In 2014, Green Mountain Power in Vermont reinvented itself as a certified B corporation.

Instead of fighting net metering, it has expanded it. It helps customers retrofit their homes to be more energy efficient.

And instead of raising rates, it has lowered them three times over the last four years. Yet its net income continues to grow.

As a B corporation, it has defined sustainability as a core corporate function. It must demonstrate how it meets its environmental commitments in its annual reports. A certified B corporation can only maintain its status by seeking recertification every two years.

It still gets environmental complaints, but as a B corporation it has to take them more seriously than other utilities are required to.

Most utilities as regulated monopolies control both generation and distribution of electricity. When I first started investigating the impact of renewable energy on electric utilities, it appeared that their best means of survival was to abandon this structure.

Green Mountain Power remains a vertically integrated regulated monopoly. So far, of more than 2,000 benefit corporations operating in the US, Green Mountain Power is the only electric utility.

So far.

Perhaps others will see Green Mountain’s success as a model for reinventing themselves. It will require explicit commitment to support its customers and seek the public good. A level of public good Insull never imagined.

Related posts

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Up on the housetop: home solar energy going utility-scale
Will home solar kill electric utilities?

Sources:
How many benefit corporations are there? / Ellen Berrey, University of Buffalo, SUNY, University of Denver. May 5, 2015
Understanding benefit corporations / CT Corporation Staff, Wolters Kluwer. September 28, 2016
What if . . . your electric utility was a benefit corporation? / John Farrell, Renewable Energy World. February 14, 2017


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