Small Solar Frees Energy From Decades of Utility-Stifled Innovation — Episode 160 of Local Energy Rules

Bill Nussey:

I realized that the same economic laws that are driving, that drove down the price of computers, the price of internet bandwidth, of computer storage. Those same laws in different ways were going to drive down the price of solar and batteries. That this was gonna be the cheapest way to generate reliable electricity in the history of humanity. And so I said, wow, this is gonna be a lot of fun. I gotta jump on that horse. And I left IBM with the idea that I would write a book. So I could reach out to people like you, who understood it and had shaped the discussion and the vision and learn from them. As I did.

John Farrell:

If you took a time machine back to 1922 and brought the utility executive back to our time, they would probably be amazed at how little has changed in the electricity business in a hundred years. Bill Nussey, author of the new book Freeing Energy, was intrigued by this technological stasis – intrigued enough to leave his work in technology and to write a book exploring how the electricity business could change if rules aligned with the opportunities presented by widespread, cost-effective solar and batteries. He joined me in June, 2022 to discuss his book, his discoveries, and what local energy can do for our electricity system. I’m John Farrell, Director of the Energy Democracy Initiative at the Institute for Local Self-Reliance, and this is Local Energy Rules, a biweekly podcast sharing powerful stories about local, renewable energy. Bill Nussey, author of Freeing Energy, welcome to Local Energy Rules.

Bill Nussey:

John, thanks for having me. I’m really looking forward to talking about this with you.

John Farrell:

I really enjoyed reading the book and it, I’m sorry that it took me so long to get you on the podcast to talk about it. There’s so much to digest in the book. And I, I guess where I wanna start with though, is to say that ostensibly, the book is about technological innovation. You talk a lot about how things like solar and batteries at local scale can really disrupt the global energy industry. In fact, that’s a subtitle I should have just read that, you know, in quotes here, “how innovators are using local solar and batteries to disrupt the global energy industry from the outside in.” And it does a great job of telling that story. I mean, really thoroughly helping to explain to people what is so different about these technologies in the utility business, in the electricity business than the way we’ve been doing things for the past a hundred years. But what really appealed to me in your book was the discussion about market disruption from centralized to distributed, from monopoly to competitive, from remote to local. I guess, did you anticipate as you started writing this book, that this was going to discuss the very structure of the markets that deliver us electricity?

Bill Nussey:

I didn’t realize. I didn’t have any sense in my professional experience of just how dominant and overpowering the business model that’s propelled energy for a century would prove to be. So a couple years into it, I actually got a little thinking that I had chased a tree that I, you know, the dog chasing the car, so to speak, right. And I just never gonna catch it. And I kind of redoubled it down. And that’s when I came up with a notion that the economics of solar and battery were going to be so disruptive from the outside in that the well-entrenched monopolies who control electricity in most of the U.S., probably going to have to deal with that as much as they would try to avoid it. And so I, I didn’t start with realizing just how large the mountain to climb with the monopolies was. But I ultimately realized that the thesis that I started with, that is that technologies were getting cheaper and cheaper would eventually drive the disruption, I think to be determined how disruptive it proves, how disruptive and how long, if it takes a long time, it’s not very disruptive, but then the world is at a loss happens fast, which is how most disruptions play out. It will get to a cleaner, cheaper, more equitable world, but the utilities are gonna have some scrapes and bruises from the process.

John Farrell:

I really love actually that what you just said about disruption. If it takes too long, it’s not really disruption. And it sort of makes me think about the struggles that so many of us have in the advocacy space around utilities just wanting to delay things. And that’s funny thinking about it from that standpoint, right? That if it buys them enough time to co-opt or to, or to change  the way that solar and batteries come into the system, it does avoid disruption. That’s so interesting. I, you know, so I, I guess I wanna back up for a second. I should have asked you this to start, cuz I always like to give people some background of the guests that are coming onto the show. You didn’t start in the clean energy field in your career. I’m sitting here now, I’ve been 16 years doing this at the Institute for Local Self-Reliance. The joke to people that, for me, everything was on the job training at this point. But what inpired you to shift over from, you know, a long career in software to getting into the clean energy field at all? What, what was appealing to you about starting to look into this issue of energy?

Bill Nussey:

I stumbled into it work. I had run a company that was acquired by IBM and I was working in a role at IBM helping launch what is now the OT division for IBM. And we looked at all these different industries in which IOT could be transformative

John Farrell:

And it’s internet of things, right? It’s the IOT? Sorry to interrupt.

Bill Nussey:

Oh no, it’s all good. Internet of things. So I do keep one foot in the tech world. So that’s the common vernacular they all understand. Of course, no one knows what, what an RTO is in that world. But anyway, so I was, I was looking at all these pharma and insurance and financial services and medical devices. And I kind of took a double take on the power industry because it is one of the least digitized industries at scale in the world. The absence of technology from the power industry was staggering. And that caught my attention, but I moved on, but somewhere around there, I think I read an article in the New York Times that said that one day solar and wind were gonna be cheaper than coal and natural gas. And I was like, that can’t be.

And so I started looking at that question and that, John, is when I decided that this is what I had to do because I realized that the, the same economic laws that drove down the price of computers, the price of internet, bandwidth, of computer storage, those same laws in different ways were going to drive down the price of solar and batteries. If it was just solar, it would be hamstrung by the need to be part of what, how do you power things at night, et cetera. But when both batteries and solar were going to see and will see decades of price declines, I realized that this was gonna be the cheapest way to generate reliable electricity in the history of humanity. And so I said, wow, this is gonna be a lot of fun. I gotta jump on that horse. And I left IBM with the idea that I would write a book so I could reach out to people like you, who were the ones who understood it and had shaped the discussion and the vision and learn from them as I did. Some of the podcasts you were generous enough to join of mine early on. And I became more and more excited that there was a better, faster, cleaner, more equitable future than anyone was talking about other than you and a few folks. Otherwise, it was a nascent idea and I wanted to join, help tell the story of local energy and how disruptive it could be to things that really mattered.

John Farrell:

One of the things I really appreciated in Freeing Energy was how you gave some sense of the history of the grid. And I think it’s funny where you just mentioned like how little technology was in the grid system, as you were familiar with these other industries, like health or, or pharmaceuticals or whatnot. Do you ever feel like we’re so enamored of the marvel that is the electric grid… I mean, some people describe it as the engineering marvel of the 20th century. That it’s inhibiting our ability to accommodate technological change? So that’s why we’re sort of in stasis. Cause it’s like, well, this thing works. So like it’s a, it’s an engineering marvel. It works so well. We have electricity almost 24/7, 365, right? The uptime is so good. Maybe people are thinking, well, we should just shouldn’t mess with it. We shouldn’t bring in more technology to this.

Bill Nussey:

I think that makes it so that the people who every day come home from work and feed their children. And I think it keeps it from being an issue they’re concerned about – at least until climate change started rearing its ugly head as a potential threat. And now we see it in the last couple of years as an actual threat. But even then, people look at that aspect of the grid and see it as a political issue, not just through a political lens, but to solve it requires politicians. And that part of the United States and other parts of the world don’t seem to be working so great so more these days. So, um, <laugh> so I think that there’s a sense that there’s, it works well enough, I got bigger fish to fry.

But I think the reason that we haven’t made more progress is the business model that Sam Insull launched to create the regularly of monopolies, and I tell a story in the book, which is, I love is which is, if I had a time machine, I’d go back and I’d grab the Wright brothers from the 1920s and I’d bring them forward to 2022 and I’d show them an F18 or a 747. And I would say, look at this idea that you created, look how far it’s come. Right? And I would, I would go back to Alexander Graham Bell and I’d bring them forward to 2022 and say that telephone you invented, Watson, come in here. Well, now it’s this device that I can hold in my hand and I can speak to 7 billion people on the planet earth with 10 digits and access to some total of all human knowledge within seconds. That’s what you created. Right? And he would be like, man, this is awesome. I’m so glad I did this. And I’d go back and get Tesla and Edison and I’d bring them forward to 2022. And they would be shaking their heads. Like this is identical. You haven’t made any changes for the last hundred years.

I have pictures in my book of a substation from 1920 and 2020. And they look to an outsider to be identical. And in structure and architecture, they are nearly identical. There’s obviously some improvements on the margin, but generally it’s the exact same technology. And so why is that? Why that, I think the reason John, to your question, isn’t because people are complacent, it’s because the business model that a man named Sam Insull created, which was his way to, to create great wealth for himself, until it didn’t work for him… But he basically said to the government of the United States, please give me a monopoly on electricity and I’ll make bigger investments in larger power plants and more transmission. And in doing so I can lower the price and make it available to more people. And it actually worked great. It worked so great that millions of Americans had electricity affordably for the first and reliably for the first time. And so, but that model got locked in. That’s the problem.

John Farrell:

I love how you bring up for the time machine story in the book, the issue about phones, cuz one of the things I think people don’t appreciate about the telecommunication sector is if you had told the same story in about 1960 and said you were gonna bring Alexander Graham Bell to the present, he’d be like, really? This is all you’ve got. And then the government broke up AT&T and one of the things that people I think don’t appreciate, because a lot of those phone companies have then since consolidated and they have the same names or, or they’re just successors to the, you know, the Baby Bells as it were, to those broken up companies, is that it unlocked a lot of technology that was locked up in Bell Labs and AT&T that they were not doing anything with like, they had discovered things that could be used for example, to make cell phones, but they weren’t interested in doing it cuz they had a monopoly on the landline phone business. And why would you bother to bring cell phones into existence? Why would you bother to bring competing technology into existence? And I think that’s really intriguing to think about the same issue in the electricity business. It’s not that we first discovered how to generate electricity from solar 10 years ago. It’s been, we’ve known how to do it since we sent spacecraft to the moon. So why has it taken so long to get into the electricity sector? Well, I think you helped to sell that story in, in such a, a powerful way in the book.

Bill Nussey:

I think that competition, when done properly, and we see examples all day, how it can be done poorly or unfairly, but when you have a reasonably healthy, competitive market, like in the United States where individuals can participate in the upside of the ventures they create. I used to be in venture capital, which is an extreme example, you know, profit sharing and other areas where people who contribute to the success of an enterprise can and if they work harder, they end up getting paid more. I think that’s, that is the nature of competition and organizations that are in a position to be competitive attract people who wanna put the extra effort in, and it’s this virtuous cycle.

And while there’s always a lot of challenge with competition – companies go out of business, which no one likes and jobs are lost. The thrust, the excitement, the passion, the commitment that it can evoke, particularly for technology businesses, where they can move very quickly and make big changes. It attracts amazingly talented people and brings out their best efforts.

And I have always felt that the technologies are a dime a dozen. There’s certain exceptions to that. But tech generally, technologies are dime a dozen. It’s the assembly of teams that are able to bring those technologies, take huge risks, risks that many people wouldn’t choose to make. Most of them fail. Most of them declare personal bankruptcy one day, which a lot of people would never want to do, but some of them succeed and those are the folks, you know, that make massive changes in the world. And there’s just countless examples. And most of those changes, most of those people, starting with Thomas Edison, are not necessarily people of what I would call great character. They’re not people who do it… I’d like to think of myself as a nice guy. I don’t think Thomas Edison and I necessarily would’ve been friends. You know, he’s kind of a, he was kind of a difficult person and, you know, fast forward, Elon Musk may be the same kind of person. Right. I don’t know.

John Farrell:

He certainly came to mind as you were saying that <laugh>

Bill Nussey:

You know, I don’t tell my children grow up and act like Elon Musk does. Right. But history for, you know, at least the history Thomas, those parts of Thomas Edison’s personality seemed to have been forgotten. And we’re happy with the things that he did during his life, including the electric grid and the audio recordings and electric cars and all the things that have lived on past his bad personality <laugh>

John Farrell:

You know, I’m, it’s so interesting how you talked about the culture component of the utilities. You know, I think when I was thinking about AT&T I’m thinking about, oh, the structural issue, right? So the market structure was monopoly. The government broke it up, but the cultural thing, I’m really struck by that. I actually just did a podcast interview with Brian Hannigan. He’s the CEO of Holy Cross Energy –

Bill Nussey:

Brian’s, he’s a hero of mine. I love what he’s doing.

John Farrell:

Yeah. I, I was, it’s so funny because I had heard a little bit about sort of broadly the goal of that co-op around renewable energy. It was an amazing interview. It actually reminded me a lot of your book because one of the things he said so many times was we keep discovering we can do things twice as fast as we thought and at half the price, right. <laugh> like the, the story of technological innovation, but he really talked about the culture is, well, too, when I asked him, like, what was his advice for leaders of other electric utilities? He was like, you’ve gotta change the culture. You know, the thing that I hate the most when I go to conferences is hearing people say in the electricity business, you know, I go to work today to do what I did yesterday, basically, you know, to do the same thing. He’s like we have to break that. We have to start thinking differently about things. So many great examples in this podcast interview, but I just so much alignment with what you’re saying here about it. Isn’t just a, it just isn’t about, isn’t just about the rules of the system. It isn’t just about what Samuel Insull asked for in terms of protect U.S. government from competition. But it is the, the long term consequence of being protected from competition of that culture that doesn’t really allow utilities to embrace the technological change, the market change, what have you, any of the opportunities that might be present.

Bill Nussey:

I think that the utilities were born in an age and they haven’t changed, which is, you know, having a good, steady job was really appealing come out of the depression era. And so, and they were born sort of the same way our educational systems are born, which is it’s, everyone’s a sort of equal talent and wants to put in equal amount of work. And I think the great majority of people are happy to have a great job where they go to work every day and are paid well, but there’s a set of folks that are just Mavericks and rabble rousers. And some of them are gifted with having great talents. Some of them can write well, some of them I’m familiar with are programmers. And so it’s, it’s not widely understood, but I’ve seen it with my own eyes. I’ve witnessed it that, you know, there are a select set of programmers that are just a hundred times more productive than the next. It’s not like they’re 20% or 30% better, but they’re 10000% better. They’re artists. They’re, you know, we accept that Picasso and DaVinci can do things that others can’t, but for areas of technology, there are people that are the Picassos and Davincis of technology.

And when you have a competitive market and you have them able, as we do in the United States, to partake in the upside of the value they create, then they get engaged in a way. And I spent my entire life in businesses with people that had no idea what they were doing. Almost certainly outsiders to the ventures they were trying to compete with and just, you know, put everything into it and occasionally really make a dent in the universe. And that’s been the arc of my career. And I got excited about energy because I think it’s a time to do that. I think Edison would look at where we are today, Insull would look where we are today, and say, wow, we’re gonna get back to creating competitive, innovative products again.

John Farrell:

This is a perfect transition for my next example from your book that I really enjoyed. So one of my favorite anecdotes was a conversation that you’d had with a utility executive who was trying to convince you that large solar plants were cheaper. I feel like I have this conversation on Twitter and at conferences all the time, right? So people say, oh, you know, we could, solar is great, love solar, but it’s so much cheaper if we build it in a big field and the utility owns it and it’s better for everybody cuz we share those cost savings. I also have to mention, I can’t just let it slide, before I wanna turn to you to talk about it from the book, that I have an article I wrote about the farce of free delivery, which I think is always present in these conversations about how interesting, the cost of solar that, you know, yeah. You can generate it 500 miles from here much cheaper than me on my rooftop, but you still gotta deliver it to my house. And I think that actually gets to the point of your answer to this utility executive. I’d love you to just share what you said from the book and then talk a little bit about kind of what role that played in your thinking about this whole idea of competition and freeing energy.

Bill Nussey:

Well, this is something that I really have to tip my hat to you and ILSR on because I fell prey to the same dogmatic thinking that even the biggest advocates of local solar, rooftop solar, community solar fall prey to which is, well, of course, it’s always cheaper to build it in a utility. I mean, just look at the graphs from the National Renewable Energy Lab (NREL), right. It says it’s a penny a kilowatt hour versus three pennies or five pennies on the roof. So obviously we should be building utility scale. And it wasn’t until I read an article you have, and I remember it really clearly, you had a graph and you had three different size systems and you had the numbers and your point was, it’s actually cheaper to make it locally. And I was like, how could that be?

I mean, the numbers are so obvious. And so once I, as we sci-fi nerds say, groked your concept. I started having conversations like you do every day. And the utility executive who agreed to speak with me off the record, on the book said, you know, Bill – it was very condescending. Polite, but condescending. And he said, you know the problem. I said, listen, if he said Bill, if people wanna do their environmental thing and put solar on the roof, I’m all for that, right. If that makes ’em feel better, but I’m a dollars and cents, pencil it out kind of guy. And it’s just flat out cheaper to build solar, you know, out in a giant field, than it is to put it on a rooftop. You’ve seen the numbers. It’s cheaper. And I let it hang out there. And I said, well, it’s cheaper for you.

And he’s, I could just see his gears turning, like it’s cheaper for you to do that. It’s not cheaper for me to do that. And he’s like, he starts to disagree. And I said, listen, when you build that hundred megawatt plant south of the city, do my electricity bills go down the moment you turn it on? Well, no. I said, well, if I put a tiny little solar plant on my roof, do my electricity bills go down the moment it is turned on? Well, yeah, they do. I said so as far as I’m concerned, and I’m frankly the only one that really matters in this equation, is it’s much cheaper for me to build it on my own roof than it is for you to build it in a field. And he, he literally changed the subject.

But even the advocates, John, and I think you’re one of the few folks that sees through this. so clearly, but even advocates don’t understand that basic idea that we’re so, so built around this assumption that utilities, we, the term utility, right? They’re just, they’re just this infrastructure like bridges that deserve a different set of valuations. And there, we want those utilities to be successful. We want, if it’s cheaper for them, it must be better for everybody.

But people forget part of Insull’s genius when he invented the regulated monopoly. And the reason that most utilities are not owned by governments is that governments have very limited ability to access capital. Now, obviously at the United States scale, we do it in a big way, but private enterprise has much more efficient access to large capital infrastructure investments. And so Insull’s genius was that he could never have convinced towns and cities to raise taxes enough to get the capital, but he could easily get it from banks, but banks didn’t want to give him the money because someone else is gonna build the same coal power plant next door. One of them’s gonna lose, the bank’s gonna lose their money. So his genius was well, let’s just build one coal power plant and one set of wires and the bank will make its money back. And thus the world, the United States and world got electrified and it works so well. We haven’t even changed it a tiny bit in the last a hundred years.

John Farrell:

It’s such an interesting example too, of, I think, you know, once the proof of concept was out there that private utilities could do it, we did see the rise of public utilities. They did have access to capital then because the business model was the same, but it’s sort of intriguing to think about then that particular story, that particular anecdote you offer is, and this is the tension that I see a little bit for the consumer owned utilities for the, you know, whether it’s a municipal utility or a rural electric cooperative, right? So in a, in a cooperative case, right, I’m a member owner of that co-op. The answer to your question is exactly the same. But on the other hand, there isn’t this quite the same tension as there might be for an investor-owned utility as so many of the ones that serve our big cities where they’re gonna do that a hundred megawat solar array, and they’re gonna see some profit right away.

Now, when you talk about who makes the money right away, they’re gonna start profiting immediately from when that thing is built, they’ve spent the capital, they get their return on that equity investment. And the rest of us have to sort of wait to see if it shows up in our rates. And there’s no guarantee that it will. I think all the more pointed then for people who are customers of investor owned utilities who put on solar, where they’re like, you know, not only is this a question of who’s gonna, is someone gonna get a benefit at all? Am I gonna get a benefit at all from this installation of solar, but is it gonna be your shareholders or is it gonna be me as a consumer?

Bill Nussey:

I think that’s exactly the right tension. And you know, I’m under the impression that most of the Munis and RECs are largely distribution. They don’t actually do generation. And there’s generation where most of the capital intensity of the industry sits, where the giant projects live. And so that’s that part, there’s obviously exceptions like TVA and others, but I I’m under the impression that most of the power plants get built are privately funded. Is that your impression as well?

John Farrell:

You know, I don’t know if I certainly, that was the case early on in there definitely. Like Holy Cross Energy, for example, we talked about them a little bit earlier. They still get their wholesale power contract is with Xcel Energy, which is an investor-owned utility. But one of the things that co-ops actually did, and in some ways now to their detriment, is that they did pool together all of these distribution co-ops and they made power agencies to buy power on behalf of them, some of ’em are called generation and transmission co-ops. For example, TriState in Colorado. Great River Energy serves the Midwest.

But one of the things that they did then that’s been problematic is they sort of ceded away their local control in order to do that. Yes. Which had been sort of a core to their whole beginning, which was, hey, we’re gonna for ourselves construct this electricity system that no one will build for us. And it’s so funny now to see, and Holy Cross again, is this amazing example, right? They, when their wholesale supplier went bankrupt like 20, 30 years ago, they said, you know what? Let’s, let’s not be so reliant. Let’s make sure we sign a contract that gives us flexibility. And all of a sudden, and this is the thing that I think is so beautiful about your book, right, is that the technological change is coming. And it’s those utilities that have that sense of flexibility that are really able to grasp it. Because now they’re building local hydropower, local solar, local battery storage, you know, Kit Carson Electric is doing it. Lots of these little co-ops, municipal utilities. The ones that haven’t tied themselves down to those big collective investments are the ones that are best able to take advantage of the technological change.

Bill Nussey:

When I’ve talked to Brian Hannigan and the folks at Guzman who architected the Kit Carson separation from tri-state, you know, I think both of those are… they’re inspiring examples, but they’re also unique legally because in the case of Holy Cross, they had some history that allowed them to have flexibility that most of the co-ops do not have. And when Tri-State fought hard to keep Kit Carson in their co-op, under their control, it was a rather bold act, very expensive for Kit Carson to break out of that. And as soon as Tri-State saw that was possible, as I’ve interviewed Lewis and several of the folks on the Kit Carson side. And it, you know, once Tri-State figured out that it was actually doable and it worked really well, they, you know, the first thing did was lock it down so the others wouldn’t follow. And you may be much closer to this than me. And then under intense pressure from the co-ops they had served, they started finally relenting and pulling back on their coal investments. And, and I have no idea how effective that’s been, but publicly they’ve at least started to say the right things. Behind the scenes I, I can’t speak to it, but I do think that it’s, it was disappointing to me, John.

It was when I got into this and I realized how much the traditional monopoly is like the group that served me here, where I live in Atlanta, Georgia Power and Southern Company, how much control they have and how little they prefer not to have local energy or clean energy for most of the last couple of years, I thought, hey, the EMCs and the Munis are gonna be great. But then I went out and interviewed a lot of EMCs and I, first of all, they have these extremely limited contracts, so they cannot generate any of their own electricity. And then I’ve also discovered that many of them fall into the same trap that the large utilities have, which is it’s a profitable business. It, you just kind of show up and you keep it running or a caretaker everyone’s making, it’s working. No one’s complaining. And so there’s even these groups that theoretically, you could have the flexibility don’t embrace it, which is why a leader like Brian Hannigan is the fact that he’s doing it and he’s doing it boldly and telling the story broadly to you and others. That’s really important. So if listeners haven’t listened to Brian Hannigan interview, they must because he is the future. He sees what’s coming and his stories are gonna be universal in 20 years.

John Farrell:

We’re going to take a short break. When we come back, I ask Bill to share his parable of the hamburger monopoly, we talk about issues of scale, and of what role the utility should play in the 21st century grid system. You’re listening to a Local Energy Rules podcast with Bill Nussey, author of the new book Freeing Energy.

Hey, thanks for listening to Local Energy Rules. If you’ve made it this far, you’re obviously a fan and we could use your help for just two minutes. As you’ve probably noticed, we don’t have any corporate sponsors or ads for any of our podcasts. The reason is that our mission at ILSR is to reinvigorate democracy by decentralizing economic power. Instead, we rely on you, our listeners. Your donations not only underwrite this podcast, but also help us produce all of the research and resources that we make available on our website and all of the technical assistance we provide to grassroots organizations. Every year ILSR’s small staff helps hundreds of communities challenge monopoly power directly and rebuild their local economies. So please take a minute and go to ilsr.org and click on the donate button. And if making a donation isn’t something you can do, please consider helping us in other ways. You can help other folks find this podcast by telling them about it, or by giving it a review on iTunes, Stitcher, or wherever you get your podcasts. The more ratings from listeners like you, the more folks can find this podcast and ILSR’s other podcasts, Community Broadband Bits and Building Local Power. Thanks again for listening. Now, back to the program.

John Farrell:

I’d love to take a minute and hope to see if you have a short version of this monopoly parable that you offer in the book. I loved it. You tried to explain how a hamburger monopoly is like a utility monopoly. We’re definitely gonna put the full story, we’ll excerpt it and put it on our show page, and definitely encourage people to read the entire book to get a sense for how it fits in the context. But for, I thought what you did was amazing there in terms of helping tell the story in a way that people can relate to, right. They know about going out to buy a burger at McDonald’s or something like that. So if you can, I don’t know if it’s possible to do a short version of that or not, or a fast version of that, but could you share a little bit about how you explained the sort of inanity of keeping a monopoly in the utility business through the lens of a hamburger restaurant?

Bill Nussey:

Oh, just first of all, I love that you love that John, there was a lot of feedback from the editors that I needed to remove it. It just didn’t fit the tone and style of the book. And I felt strongly, and after hearing you ask about this makes me feel even better about leaving it in there because it does. I tried. And if it worked for you, maybe it’ll work for others to make just how crazy the utility monopolies, which we have come to completely accept. And so I knew this question was coming. So I made an attempt to cut it down about two thirds. So I will tell the story as briefly as I can.

So I made this character named Ronald McDonald, and he was a hamburger entrepreneur and he was excited about that people should eat more hamburgers. And he was inspired by Sam Insull. So to really help grow and make hamburgers available to everybody, he convinced the government to give him, also like Sam Insull got for electricity, a regulated monopoly. But he knew that the government would be concerned, as they were with Insull that they might abuse it and raise prices unfairly. They created the oversight that basically regulated that industry. But the cool thing for Ronald McDonald and Sam Insull and all the utilities is that they were guaranteed perpetual high profits. And essentially it would be illegal in the case of Ronald McDonald for anyone else to sell any kind of food. And it was a big bet, but in this parable, guess what? Everyone ended up getting hamburgers that were affordable, universally available, and nobody went to bed hungry.

But there was a problem. A couple years later, a scientist came to Ronald and said, hey, we’ve done some research and we’ve discovered there’s this alternative food. And it’s called a salad. It’s actually much healthier. It’s much more nutritious and believe it or not, it’s also a lot cheaper. And Ronald’s like, Hmm, I hear this salad stuff has got some problems. It uses this thing called lettuce. And I hear that you have to grow it. And you can only grow this lettuce stuff sometimes in the year. So it sounds to me like if we do this lettuce stuff that the people are gonna be starving the half of the year. I just don’t see how it works.

But Ronald had just he’d seen the future. And so while he played off the scientist, he called his team and said, listen, folks, we’re dead. So I want you to go out and donate all the money to the politicians that will support our hamburger monopoly. I want you to find some scientists who will publicly declare that hamburgers are perfectly healthy and lettuce is terrible because we’re gonna starve half the time. And I want to create some grassroots organizations called Americans for Hamburgers. And I want you to pay them under the table to run some ads about how the high price of salads and the risk of starvation is we should not go anywhere near salads. So the problem was that people kept getting sicker and sicker, and eventually legislators got involved and they sat down with Ronald and said, admit you have to do something. So Ronald does what he did. He just, he’s a brilliant business person and a leader. He gets all the politicians on the state house steps. He announces, we are going to be adding a piece of this lettuce stuff to each hamburger. We’re gonna solve the problem by just adding a piece of lettuce and the supporters and politicians are like the man’s a visionary. He sees the future of lettuce he’s putting on, on his hamburgers. It’s fantastic.

But the scientist came back a couple years later and says, but, but there’s a new idea. It’s even better: get this. It’s called a garden. So people can actually plant lettuce in their own backyards and generate their own lettuce for almost no money at all. And it’s even cheaper and even healthier. I mean, think about like all the innovations that people can do with their own lettuce. Like they can invent new products and new dishes and new recipes, like what’s more American than being self-reliant and innovative. This is the epitome of American culture. And now Ronald was really concerned, cuz this garden thing could absolutely kill him. So he went out and called all of his friends. He’d been lobbying all his legislators for years. They had a huge amount of money from him. And so almost overnight, anyone who owned a garden was now paying extra fees. If they grew their own salads, they were charged fees. If the garden was particularly large and to even plant a garden, they had to actually get permits, which often took months. And the biggest problem was if they had a little bit of extra lettuce, it was actually illegal for them to even walk across the street and hand the lettuce to their neighbor. They just had to throw it away. And if they wanted to sell it, they couldn’t sell it to their neighbor. They couldn’t sell it at a farmer’s market. The only place they could sell it was back to Ronald McDonald and Ronald could say, well, I’m gonna pay you way below what it’s worth, because that’s kind of what I wanna pay and, and wrap that in.

So anyway, the salad demand was strong and Ronald said, listen, this thing’s happening. I can’t get around it. So what we’re gonna do, last part of the story, is he says, we’re gonna make these salad things, but we’re gonna make ’em in our giant factories. And so just like hamburgers, it’s gonna use our distribution and our, you know, economies of scale. And a scientist comes in and says, wait a minute. But your salads are like twice as expensive as the ones when people grow it themselves. And they’re the same price as hamburgers and Ronald just laughed. So that’s the short, short, short version of the story, but thank you for calling it out, John. I really like that you like that.

John Farrell:

I just think it’s so important to help people understand whether it’s the culture within a utility that prevents the influx of technology or innovation or the sort of passivity of the consumer in sort of a saying like, well, I get this service and I pay for it every month and it works. And then I don’t care about it. And I don’t think about it. And what I loved about this story, and so I’m really glad you fought your editors on this one, is that it helps us to realize that there is in fact a completely different way to think about this, that we don’t have to have a hamburger monopoly, you know, and we don’t, you have lots of options for hamburgers and salads and growing your own food and all this kind of stuff. And that with the electricity system, we should think of it, you know, are all of the parallels exactly the same? No, but the, I think the fact that you went through the effort to help people question whether or not like how much of this parallel is there, right? Like how much is salad like solar energy, how much of this restriction on distribution is reasonable in a society that normally just allows you to kind of do anything you want, to have that choice to be entrepreneurial, to have, you know, to have a market without limits.

So I thought it was brilliant and you know, whether or not it was perfect, whether or not it fit with the tone of the book… I mean, I thought it fit great with the tone of the book, which was, just as we have to question whether or not the technology and the way we generate electricity from a technical standpoint makes sense, from a cost standpoint, you brought in with this one, philosophically, are we doing this in a way that makes the most sense, or are we just doing it this way because we’ve always done it this way? And people can’t conceive of doing it a different way. So I thought it was great.

Bill Nussey:

It’s the craziest thing about local energy is that it gets caught in the same culture and political wars as big scale clean energy. But I did a lot of research into the surveys that had been done on people’s preferences. And it turns out that local energy, putting solar on your roof, is nearly universally appealing regardless of your political affiliation or where you live. Everybody wants their own local energy, and they do it sometimes for different reasons, depending on their politics. But, you know, I think it’s something that, I live in the south, was raised in the north. And I feel like a child of both cultures. And, you know, one of the things that in the south is there’s a sense of rugged individualism. And when you talk to people here who dismiss solar energy out of hand, because that’s what they hear from their communities, then you say, but you could take care of yourself. You’re not, you know, right now you’re feeding a giant corporation that’s highly regulated. And they’re like, yeah, I hadn’t thought of it that way. And you could be entirely independent or much more independent and take care of yourself and like, yeah, I hadn’t thought of it that way. And so part of what you and I are doing is hopefully getting a story out there that crosses the political divide and is one of the most unifying messages to anyone in America, anyone in the world, but really a particularly American story that solar and batteries is pretty much as American as it gets.

John Farrell:

One of the things that you talk about as well in the book around this is around this issue of scale. We’ve been kind of touching on it, both in the, you know, the story that you tell, the parable that you tell, as well as in different parts of the book, when you talk about technology. One of the things I thought was really interesting, first of all, I just wanna say, thank you for mentioning that chart that you’d seen of mine that made you think about this notion about local solar and being cheaper. It’s from this report we wrote called Is Bigger Best and I’m actually doing an update right now. I’ve got an intern looking at that NREL data and we’re gonna kind of produce a similar kind of update to that, to give people a sense for the economies of scale. But one of the things that I really liked in what you talked about is that the difference between economies of scale and economies of volume.

And I think this is so important for people trying to understand the difference between like large scale and small scale and why lots of small scale stuff can be very cost effective as compared to a few large things, which is sort of the, when you just boil it all down, that is the tension between, you know, utility scale solar and utility scale wind and local solar and wind is this notion that for some people that if it’s not done in a big chunk, it doesn’t count at all. So can you talk a little bit about this economies of scale economies of volume issue?

Bill Nussey:

I’m so glad you asked about this because this just makes me pull my hair out, right? Because there’s people are so wedded their whole lives, their grandparents, great grandparents, all grew up with this notion that if you build a bigger power plant, that’s better. And that same thinking makes us think that we need a lot of nuclear power, cuz it’s bigger. It’s a giant thing and we should do fusion power. I don’t have any problem with nuclear fission or fusion ideologically, but they’re both giant projects. They’re billions and billions and billions of dollars. And it turns out that the bigger you build something, if it gets bigger and bigger, at some point, actually the complexity overtakes the economies of scale. So you can think about this like a little graph, right? So the price goes down, down, down, down because the economies of scale to the price per kilowatt hour, for example, but then at some point the complexity of that project, nuclear plants being a fantastic example, starts to become so complex that you actually see the price per kilowat go back up.

And in fact, one of my, the people I quote a lot in the book, in addition to you is Peter Fox Penner who’s the author of several books in the space. And he has some data that said that the size of new power plants actually peaked in 2003 at under just under 500 megawatts. And ever since then they’ve been shrinking. And this is just big power plants. It’s not the rooftop stuff you and I talk about. And so I think that the notion of big smaller is better is so commonplace in other parts of our lives. And it just drives me crazy that people can’t make this obvious leap to electricity generation or for that matter oil and gas.

And so for example, some of us are old enough to have heard about this thing called a mainframe and early computing days were entirely about these gigantic, centrally run computers, you can look up pictures on the internet and these men with white lab coats sitting around with clipboards studying this machine, which today would’ve been an equivalent of 50 million. And that was, and so IBM in their heyday made larger and larger mainframes and therefore the larger they got the better. And there’s this crazy notion that maybe we could make these little computers called personal computers. In the garage, Stephen Jobs and Steve Wosniak and Apple and it worked that you could, and that absolutely changed the world. And so next thing, you know, mainframes are a sort of dinosaurs and personal computers are taking off and then they become laptops and they take off even further, and then they become smartphones. And there’s, you know, I think seven or 8 billion smartphones on the planet earth. And it’s impossible to argue the scale of that impact, certainly some negative components, but by and large information and productivity has soared because of it. And so why people can’t see that same lens that has so clearly have benefited them.

I think about media right back when I was growing up, there was only a couple of channels and a couple of radio and a couple of newspapers. Now I have the choice of things. So that’s led to its own new problems, which is separate conversation, but the fact it’s proliferated. So, you know, why is it that we can’t apply that same logic to power? I think that’s what you and I have to help people see that bigger is not better. It was not better 10 years ago, and it’s not even, it’s actually much worse, whatever bigger is that the, you know, if you have a, don’t have a problem with nuclear because of waste or weapons proliferation, I have a problem with it cuz it’s just a big, expensive thing.

And we’re living proof to go look what we do here in Georgia. You know, we’re 10 years over behind budget on the one nuclear plant being built in the United States. And we’re twice over the budget and every six months like clockwork, oh, we’re gonna be not done in six months and it’s gonna be another six months. And so I don’t know when those plants will go online, but I’m already paying a massive fee specifically on my bill here in Georgia every month to pay for the overages of the nuclear power plant that our state doesn’t need. And there are places where nuclear’s gonna be great, right? And I’d much rather have China have a lot of nuclear plants than coal plants, right. But they’re pulling back on both of those in China, hopefully much faster in the coming years. But I think small is the future and it’s better to run and organize. It’s more reliable, it’s more secure and it also is cheaper.

John Farrell:

You get, I think this is one of the things that you talk about just this I, and I think about this actually in the context of people often compared Germany in the United States in terms of our renewable energy progress, kind of in the earlier days, 10 to 15 years ago. And the things that the Germans were essentially saying is we’re gonna build a lot of solar. We’re gonna build it at smaller scale. So we might not capture every possible savings on every individual project, but because we’re gonna invest so heavily in the development of the industry. I mean,  it’s just like the same thing with computer chips, right? That they kept getting cheaper and cheaper because we made so many of them and you know, it’s hard to build a lot of mainframes, just like it’s hard to build a lot of nuclear power plants. It’s easy to build a million laptops or a billion phones, right? Like once you’ve got that going, once you’ve developed that process, you find cheaper materials, you find savings and mass production. And all of a sudden that small stuff, if you can allow it to connect easily is, is very competitive.

Bill Nussey:

Those price declines from mass production or what I call economies of volume are incredibly predictable. People don’t understand that. And I try to explain in the book, you know, the economics from a business point of view. Why is it that Silicon PV solar and lithium batteries have so predictably and stably become cheaper year over year. And it’s a fascinating underlying business model that drives that reality. But it’s one that’s played out across multiple industries, particularly where mass manufacturing is involved and you know, no one’s surprised to know that if Apple comes out with a new iPhone, that that’s gonna have a massively better camera and it’s gonna have, you know, it’s gonna be 20% faster. No one’s like this is the most amazing story I’ve ever heard. This is world changing. We just expect it because that’s how it’s been for 20 years, right? But we just somehow can’t put that same expectation on our power systems, but we can’t, we just, we just have to realize that the model, the business model is completely inhibitive of allowing that technology learning curve to take place for power.

John Farrell:

Bill, I’ve got a couple questions left for you. One that sort of delves into this issue about the opportunity in the market. And then the second one is kind of hearkening back to our conversation about AT&T. And hopefully I can squeeze these both in, under the wire in terms of the time we have left. The first one is really just, and I’ll just boil it down really quick. You know, we talk a lot about the way in which consumers are finding opportunities to save money, right? The customer installing solar saves more money than waiting for the utility to do it. Obviously there are some scale limits when most of our cities, there’s not enough rooftops, parking lots, whatever to generate all the energy that a city would use. So utilities still have a business here. They’re not like gonna sell all the electricity, but they’re certainly gonna sell a lot of the electricity. What do you see as the business opportunity for utilities in this technological change opportunity in the scaling down of energy, obviously there’s still stuff for them to do, right?

Bill Nussey:

This is one of the biggest lessons I learned in the process of writing the book, because when I started it, I had this romantic notion that we would all have solar and batteries in our house. And there would be no such thing as the grid. And I actually did a 180 through the process and learned that the grid is incredibly important going forward, at least some portions of the grid. That having our houses interconnected is not only great for security and stability, it creates markets. And I think the utilities have a really clear and frankly far more profitable role, the ones that choose to embrace this future as marketplaces. So I think about it as the utilities switching their roles from being ConAgra to eBay and Etsy, right? They’re no longer the people making it and owning the distribution. They’re the people that help make it, but they are also primarily the place where people can buy and sell it.

And we need the power lines to our houses. That’s I think a natural monopoly, I think where Edison and Insull got it wrong was that the power plants are not a natural monopoly at all. Certainly not with today’s technology. The power lines are, so let’s have one or two companies. It could be the government that owns it. It could be private companies. That’s above my pay grade to determine, but, whatever works, a single organization, one throat to choke, as we say in the startup world, when the power goes down,  the wires go bad. Who goes and fixes it. And I think that’s where the monopolies can exist. And I think the companies overseeing, maintaining and allowing the trade to take place. That’s a great business for the utilities – if they choose to embrace it. I think a lot of them are gonna fight it like crazy and they’re gonna die trying, be irrelevant. And there’s, you know, one of my favorite books is The Innovator’s Dilemma by Clayton Christensen and he describes this just large incumbents in every industry, just basically self-humiliating as they try to preserve a future that’s just, doesn’t go. Isn’t going to exist.

John Farrell:

It’s so hard. You know, as you mentioned before, that cultural change in an organization that doesn’t change, let’s touch on that. We just here in our, on my last question for you, I’m wondering if you see, you know, we talked about AT&T and it being broken up as sort of an interesting inflection point, I think, for how telecommunications went from monopoly and sort of stagnant and boring, like electricity has been for so many years, it’s being very innovative and then accelerating in terms of its pace of change and that innovation that we saw. Do you see, and in terms of just what we were talking about too, like this idea of switching from being the sole provider to being like the platform operator, you know, the eBay or the Etsy, what do you see as changes that we might need to make in the electricity markets or what, you know, how do we have to change the rules of the system? And in particular, are there changes that we need to make so that local energy can thrive and that everyone, you know, regardless of their race or income can have access to a more innovative future.

Bill Nussey:

I think that AT&T is an amazing story. And I did a lot of research, probably several months worth of research. And, you know, to the point that AT&T’s CEO, when they were fighting to be de-monopolized, went in front of an audience and said, listen, this is gonna be a cost shifting problem. If AT&T loses its monopoly, our competitors are gonna come in and take off the most profitable parts of the business. And we’re gonna be stuck maintaining the infrastructure and low income households who have to are left paying for the cost of that infrastructure will get higher bills. And this is what he said verbatim. And I have the full quote in my book. And the argument of cost shifting is as old as the AT&T monopoly.

And, you know, history says otherwise, actually bills did go up a little bit. I did check on that. Part of his concern was validated, but that quickly changed. And now the very thing that he was so concerned about, long distance calls are effectively free. You and I are in different places in the world – U.S. – having a free conversation for the cost of two cents of electricity and two cents of bandwidth. And so AT&T is a great example. And the breakup of AT&T was triggered by competition by MCI basically forcing themselves into that equation and convincing the government to break AT&T up. So I think that’s a great example for people that struggle with a post monopoly electricity utility, to look at and learn from there’s some great books on it.

And I think, but I think we don’t have to look nearly that existentially or that intellectually. We can just look at places like Hawaii, right? We can, Hawaii’s doing a range of things, some of which I’m sure will regret and histories look back, but they’re doing a lot of things that are smart, and they’re incentivizing homeowners to own batteries,  economically very attractively. And you know, the regulators in Hawaii have said, we know we didn’t wanna move to renewables, which not every state says, but they know they wanna move to renewables. But they said, we have this beautiful land and mountains. We don’t wanna build giant solar farms. And so they actually intentionally need to build their grid with rooftop solar, and they’ve leaned into it. They stumbled along the way, but they’re doing wholesale changes. You know, one of the most advanced things they’re doing is changing how they incentivize utilities called performance-based rate making. You know more about that than me, John, but, but they’re looking at every single angle of this from consumers to regulators to capital and they’re showing, and I just read something from a Hawaiian regulator. It’s like, look at us. This is possible. Don’t say it’s not possible.

It’s like Brian Hannigan and Holy Cross, look at us. This is totally possible. The things you said were impossible are possible. Just take a second to look at what we’re doing. And you’ll realize that the things that concern you legitimately in some cases, and just fear of losing a monopoly in others, those are not real. Those are what I call monsters under the bed. And they’re not real. So move past your fears, embrace the future and go pay attention to Hawaii. Go look what FDR did in the 1930s with the rural electrification act and how that financed the build out. We just need to do a rural electrification act, except it’s a local energy electrification act, easy peasy. Politicians in DC will jump on it probably by this afternoon.

John Farrell:

<laugh> well, Bill, thank you so much for taking the time to share about your journey and the research that you put into Freeing Energy, sharing your wonderful parable of monopoly and all of your thoughts coming from the technology sector to under help us understand better what’s possible in the electricity sector. It was a pure joy to have you on the program. We will be linking through our show notes to independent book sellers where you can buy Bill’s book, which you should read it, and you should give it to your friends to read, to convince them that we have a different way that we can look at how we do the electricity business.

Bill Nussey:

Well, thank you. That’s a real honor to be sharing this story with you and your community. I am inspired. You were one of their first people that really gave me the vision that formed to make the book. I am grateful for all the work that you guys do, that you do and your colleagues and your community. So I’m always in your service. If there’s ever anything I can do, please just let me know. Let’s go fight the good fight and change the world.

John Farrell:

Thank you so much for listening to this episode of Local Energy Rules discussing the new book Freeing Energy with its author Bill Nussey. On the show page, look for the full length monopoly parable that Bill shared during our conversation, a link to ILSR’s report on economies of scale called Is Bigger Best, as well as links to purchase Bill’s book from independent book sellers and other resources Bill shares from his book. Local Energy Rules is produced by myself and Maria McCoy with editing provided by audio engineer Drew Birschbach. Tune back into Local Energy Rules every two weeks to hear more powerful stories of communities taking on concentrated power to transform the energy system. Until next time, keep your energy local and thanks for listening.