Bruce Biewald is the Founder and Chief Executive Office of Synapse Energy Economics, Inc. For more than thirty years, Bruce has worked at the intersections of energy economics, climate policy, and electric industry regulation. His analysis has been presented before state and federal courts, Congress, and key regulatory agencies such as the Federal Energy Regulatory Commission (FERC) and the Nuclear Regulatory Commission (NRC).
Charlie Adams: Most conversations on climate change and energy policy seem to be grounded in a sense of urgency for action now. When it comes to action from utilities and public utility commissions, is time on our side?
Bruce Biewald: The utility grid in the US is like the largest machine ever. It’s a lot of capital investment and there’s a lot of political and financial and organizational inertia in the system. So it’s hard to move. It’s hard to move fast. There’s been some positive change, but the clean energy revolution has got to get moving faster. I think there’s not just one or two things to be done, but many. Right now, a lot of the issues have to do with the bottlenecks to the rate of transformation. These include transmission interconnections and getting the transmission queues moving faster, getting heat pumps installed, getting electric vehicle (EV) charging installed around the country. There’s got to be a broader deployment of those things. And there are a lot of old, inefficient, fossil-fueled power plants that ought to be retired, economically. But there’s an inertia to not do that. So, broadly, I see utilities at the center of this, and we’ve got to get them to move from being part of the problem to being part of the solution, in fact, central to the solution. A lot of moving utilities need to come from the public utility commissions defining policy goals and designing the details of rate recovery. There’s also work at the federal, state, and local level for lawmakers. And there’s work for individual citizens who can make lifestyle decisions about their use of energy and carbon footprint. But even more importantly, it’s people getting involved as groups of citizens and organizations to promote change.
CA: So focusing in on, let’s say, the federal level–what has the reaction been so far to the Inflation Reduction Act (IRA)? Has there been a newfound embrace of renewables or sort of sneaky doubling down on “hydrogen ready” or natural gas infrastructure?
BB: Well, it looks to me like the IRA has lots of money for almost everything. So there’s a lot of interest in taking full advantage of those programs, subsidies, grants, and investments. Some things are moving, but it’s slow to get them off the ground. One of the issues is just how complicated it is—do you have a shovel ready project? Do the local groups that ought to be part of this have the capacity to efficiently absorb these quantities of money and run effective programs quickly? Designing programs is hard. I see a lot of interest and a lot of action, and a fair amount of it is kind of just getting organized and trying to figure out, “What can we do?” “What would be a good program design?” And, “How can we use some of the IRA incentives in a positive and efficient way to really help people and address the core problems?”
CA: On that note, there’s been a lot in the news about the coming surge in electricity demand and the need to build out massive infrastructure to support it. Some skeptics have called for caution on those claims, saying a lot of this frenzy is attributable to utilities eager to reap the benefits of capital intensive projects. How should legislators and regulators and ratepayers responsibly navigate this dynamic?
BB: Well, you can’t really say throw caution to the wind, right? I think there will be new electric load. A lot of that is going to go along with declining gas load. So there’s a big puzzle of how to think broadly in terms of energy or heat or services that customers need for their homes or businesses. And in that sense, even though there might not be a massive overall growth in total energy, there’ll surely be an enormously challenging transition. And there’s investment needed for that transition, and I think we need to get moving on those investments and get some projects done. There’s not a lot of time, and some of the bigger, more ambitious projects or more foolish boondoggle projects are not going to provide any significant dent in carbon emissions prior to 2030 or even 2035. We should be thinking about the long term, but longer term considerations shouldn’t distract us from focusing on the near term. We’ve got to build a lot of new renewable capacity, this year and next year and the year after.
CA: Thinking more about those time horizons and your paper Investing in Failure, you called attention to some of the lack of meaningful actions that major utilities are taking to decarbonize despite their ambitious public-facing plans. How do these companies expect to get away with those promises, and have any of them responded to your research at all, whether positively or negatively?
BB: It’s actually worse than lack of action. There are large investments being made that just fly right in the face of sensible investments for a decarbonized future. There’s also a level of inconsistency or even hypocrisy around the corporate goals. At a high level, a company will announce a corporate goal for, say, net zero emissions by 2040 or “x” percent carbon reduction by 2045, but then when we look at what these same companies are actually investing in, it’s contradictory. There are currently fossil fuel power plant investments that are clearly going to be stranded and not a part of an efficient, clean system in a decade or two. So in a lot of cases there’s this contradiction between what utilities are saying and what they’re doing.
In terms of the paper itself, there’s a deafening silence. Utilities don’t really want to engage in that conversation. But those same conversations are going on in the planning dockets state by state, utility by utility, and plan by plan. There’s a fair amount of arguing and some portion of it is, I think, denial. It’s easier in the near term for big energy companies to take a view that, “Oh, these carbon regulations aren’t really going to happen. They’re going to be challenged successfully in the courts.” So there’s this kind of denial, and then there’s also a certain amount of, “Well, you can’t make us do this.” And then there’s pretending that some of these resources are less expensive than they are.
CA: Can you talk about that second to last piece? “You can’t make us do this.” What is the power dynamic between regulators and regulatees when it comes to decarbonization?
BB: Utilities in America are mostly regulated monopolies, so they’re businesses, but their profits and much of their behavior is regulated. But, there are challenges with regulation. There’s a long history of regulatory capture where regulators rely on the industry they regulate for information. Regulators are spread pretty thin, and they’ve got a lot of work to do. They’re regulating a lot of companies. They might be in their job as a state utility regulator for three or four years on average, and that’s not a lot of time to learn the ropes and develop the kind of expertise that one would really want in order to regulate the companies effectively. And then there’s just the time and effort. Regulating utilities and the power grids is a very detailed thing. You need to work on a lot of pieces; it’s got legal, economic, engineering, and all kinds of things. It can be pretty overwhelming for regulators, so it’s natural that they rely on the utilities they regulate for information. But it’s unfortunate. A lot of times, they have to rely too much on the utilities who can overwhelm regulators with their own perspective and what they want to do. In principle, utilities should only make prudent decisions, they should be looking out for their customers and for the environment. In practice, if there are things that the utilities don’t want to do, it can be very difficult to change their minds.
CA: What space and opportunities do you think there are for regulators at the Public Utilities Commission (PUC) or state level to shake the frost off of slow moving utilities and incentivize them to innovate?
BB: There are lots of ways. I mean, sometimes the solution is to get utilities out of the way. There can, for example, be ways to carve out parts of energy activities such that the utility would be a platform and then allow for more agile competitors to work in that space. There are a lot of things around automation and metering and grid technologies, and there’s a lot of interest from the private sector in offering innovative things there. The main thing for the utility in that role is to kind of get out of the way and build open platforms where things can be plug and play without the utility, the 800 pound gorilla, stifling that innovation.
I think one of the things that regulators can and should always do is thinking about incentives and performance as they regulate. So, instead of just saying the utility needs “X” billion dollars and their sales are “Y” billion kilowatt hours and dividing the two to set rates, there’s a lot of room for innovative rate designs and for having extra compensation and/or penalties associated with particular activities. So if the regulators are clear-thinking and detailed, or if they have good consultants helping them work out these performance metrics, then they can specifically tell the utility, “These are the things we want to see in the next few years and here are the metrics that we’re going to be looking at. And if you achieve x, y, or z, then this is the implication for your compensation.” Financial rate-making incentives of this type can be an effective tool for regulators to motivate utilities appropriately.
CA: I’m hoping to pivot to another topic that you’ve discussed. Lots of students at Brown are interested in careers in clean energy policy, but they’re easily lured in by the consulting industry right out of college. From your experience observing the revolving doors of energy and regulators, what advice or warnings do you have for undergrads in that position?
BB: General advice for undergrads and people early in their careers is make sure you’re always learning and figuring out where you fit. Where are you and your skills and interests going to thrive? Another bit of advice is look at where the money is coming from. Who’s funding it? Who are the investors and who are the customers? That tends to say a lot about what the constraints and priorities are going to be in that organization. It shocks me sometimes that people are surprised that because a certain organization gets money from a certain place, they can’t say certain things that the owners or customers don’t want to hear. Like, well, duh. Also pay attention to where you can thrive and learn a useful skill that you enjoy refining and honing. Over the years, that skill will probably serve you and people around you and the local and broader world.
CA: And for those who aren’t as familiar with the dynamic of this revolving door that you pointed to, could you describe the pervasiveness of that, or how it’s relevant in these regulatory conversations?
BB: The big energy companies, utilities and others, have a lot of money, and that tends to affect things. There are definitely people who make decisions based on the prospects for being employable at a big company in the future. There are also definitely consultants who think one thing and say another because of their clients and funders. I think that’s unfortunate, but understandable. But, if you’re the kind of person who’s going to be uncomfortable with that, then you should be very careful who you choose to work for.
*This interview has been edited for length and clarity.