The Power Puzzle
Electricity is the challenge of our times.
Today’s post is part of my larger look at the electricity system through the window of the proposed merger of two companies that would form the largest utility in the world. Read the first post in the series here.
Making more electricity is among America’s biggest challenges today.
It’s a little like solving a Rubik’s Cube — over and over endlessly, by committee, surrounded by a manic crowd shouting from the grandstands of a Roman-style colosseum, the emperor looking on from the sidelines eager to jump in.
That’s the vibe I get at energy conferences, speaking with industry insiders and tuning into hundreds of webinars these days.
Combining NextEra Energy and Dominion Energy would create the largest electricity company in U.S. history. It begs the question: would one humungous company work better than two very large ones?
Getting the answer right is crucial because rapidly expanding access to electricity could help address so many other big challenges, including energy poverty, national security, economic growth, climate change and, the issue of the hour, artificial intelligence.
Theoretically, this is just a puzzle, a technical question: What’s the best path to reliably generate and deliver maximum electricity at minimum cost by the most sustainable means?
But then come the complicating factors:
— It’s a complex technical problem that has to be resolved continuously, second-by-second along the way, to match rising demand with power available. Also over years, decades and generations in determining what should be built versus other means to meet the challenge. In that sense, it’s building a bigger airplane while flying it.
— There’s no one puzzle-solver. A patchwork of interested parties get to participate in each turn of the Rubix. These parties include power generators making electricity, grid operators transmitting it, regulatory bodies overseeing it, and politicians chime in at all levels of the process. Each has different interests and motivations.
— And then there’s the masses, also known as electricity users, or in industry lingo, the “rate base.” Mostly households, these “ratepayers” foot much of the bill for the system. They are now piping up, whether by rallying against data centers — the biggest and most easily identifiable new sources of demand — and venting about rising utility bills.
But meeting the challenge is now mostly hampered by an impediment of our own making: the way we’ve always done things. And the way we’ve always done things is to heavily lean on what economists like to call…pompous throat-clear…the regulated monopoly.
Building a new system was costly. Best to divide the task up into territories and let one company handle everything, rather than have all utilities compete to build everything everywhere. To raise the vast sums needed, many of these monopolies would need to be investor-owned, for-profit private companies.
That would leave ratepayers vulnerable to price gouging, since they’d have nowhere else to turn for a must-have service. Thus the regulation.
Generally, regulators would be appointed by governors or directly elected to public commissions that oversee the utilities.
Commissioners represent ratepayers — or at least are supposed to represent ratepayers — in determining what’s needed and then approving the fees customers pay for the new system. These fees include a guaranteed, locked-in profit for the utility’s investor-owners.
So you can imagine how utilities like NextEra and Dominion came to love building things. It was the only way to make more electricity available and a sure-fire way to profit in the process.
These regulated businesses are still the main drivers of earnings for both companies. For NextEra, that business is mainly in Florida, where Florida Power & Light serves about 12 million customers. For Dominion, it’s Virginia and North Carolina, a territory with some 3.6 million customers.
But the nature of electricity production is changing fast.
New fuel sources have emerged such as solar, far cheaper than fossil fuels but unavailable at night. New kinds of demand like data centers for artificial intelligence have arrived, single buildings consuming as much as whole cities. Electric vehicles, the future of mobility even in the U.S., can be both — sucking in power from the grid while charging, selling it back when the grid needs electricity.
All that is really just the start of a wholesale transformation of the electricity system, a revolution artificial intelligence will accelerate both by spurring demand and puzzling through ways to squeeze more from the system.
NextEra and Dominion have begun adapting to these new realities. Neither has fundamentally changed its ways.
In our next post we’ll look at the companies and how combining them may or may not meet the Rubik’s challenge.
Somehow this makes me think of electricity's pioneer days, when utility poles had wires from a dozen or so different companies carrying power. While I'm not recommending that sort of chaos, it seems clear that the power 'establishment' is too restrictive and risk-averse to allow creative new solutions. Your piece didn't mention compact nuclear for on-site power in large datacenters, but that's another option, IMHO.