Is the utility of the future a natural monopoly?

As part of our Future Electric Utility Regulation series, Steve Corneli and Steve Kihm revisited the concept of natural monopoly and asked whether electric distribution utilities will remain natural monopolies if the capabilities and affordability of distributed energy technologies improve sufficiently.   

Their basic conclusion: Don’t count on it.  

Their work was recently featured in ElectricityPolicy.com, an online think tank for the electric power industry.  You can read the article here.  

As they explain in the article:

The reasons are straightforward. Natural monopolies only exist when cheaper alternatives can’t be provided by multiple firms. The power sector has already seen cheaper and smaller electric generating technologies and competition from independent power producers (IPPs) erode the utility natural monopoly in generation.   

In much the same way, continued improvements in the capabilities of distributed energy resources (DERs) to produce, manage and store electricity at ever lower price points would create widespread competitive alternatives to local electric utility delivery service.   

If and when that happens, the distribution natural monopoly would fade, as a simple matter of economics.   

This does not mean the distribution system or the grid itself should disappear or that it no longer provides critical value to society. But new regulatory paradigms and business models would be needed to ensure and enhance the benefits the grid can continue to deliver....  

Finding such a path could become a priority for utility investors, managers and regulators who need to reduce the costs of the distribution system while enhancing its value to all customers. Doing so will entice customers with DERs to remain connected to the distribution system, while contributing to its lower cost and its ability to provide greater benefits to all.

The report, Electric Industry Structure and Regulatory Responses in a Distributed Energy Resources (DERs) Future, along with presentation slides, a webinar recording and more, is available at FEUR.lbl.gov.