Moving Toward a More Democratized Electric System
The information contained in this article is not intended as legal advice and may no longer be accurate due to changes in the law. Consult NHMA's legal services or your municipal attorney.
When the electric industry first developed, its design and implementation was as local as one could imagine. Oftentimes, a community would decide that a local resource (typically the water flowing through a dam) was an appropriate place to locate a turbine and electric generation equipment. From there, the community would decide how to build out the delivery systems. Poles, wires and other distribution equipment would run to local businesses and homes that surrounded the generator. The availability of electricity would spur the development of other businesses and encourage new residential development. As technology advanced and prices got cheaper, these systems would expand out to more rural areas. This utility system development was sometimes done by a private entity; more often, though, the development was initiated and owned by the local municipality. Eventually with the advancement of larger generation technology and high volt-age transmission lines, the electric system became more centralized and smaller public utilities were consolidated into larger private utilities. Although this current system has some advantages (e.g., lower cost per kilowatt-hour), it lacks in flexibility, cost-control and reliability. It is a significant contrast with the roots of the electric system, which were characterized by small, decentralized, renewable and, most importantly, locally-owned systems.
The trend of the electric industry has reversed its course over the past couple of decades. There is an understanding that the electric grid can be cleaner, cheaper and more resilient when the sources of power, delivery and storage are more distributed. As the technology has trended this way, it has taken longer for law and regulation to catch up. The community power bill (SB 286), which passed in 2019, is a critical step in the continued path toward a more democratized electric system. It authorizes municipalities and counties to utilize all of the resources available to them in order to establish an energy system that reflects the values of the community they represent.
Municipally-owned electric utilities have existed for well over 100 years. They have given communities the opportunity to decide how they want to deliver electricity to their residents and at what price. But operating an electric utility requires a huge capital investment to build out the necessary infrastructure. Community power is not a new idea either, and SB 286 builds off a number of provisions that existed in New Hampshire law for years. For instance, the ability for a municipality to act as an aggregator of electric customers already existed in statute. Aggregation simply means an entity collects individual customers and makes a purchase of electricity on behalf of those customers. SB 286 makes some necessary and critical additions to the law that would allow communities to develop and successfully operate a community power system.
The best thing about the new legislation is that it gives so many options to a municipality regarding how to address energy in its community and the flexibility to create the structure it desires. As will typically happen with an aggregator, it could mean contracting with large national brokers or regional generators for the purchase of electricity. It could also mean contracting with local, renewable generators or even developing its own local generation. It could even mean collaborating with local residents and businesses to encourage smaller-scale generation like rooftop solar. The community could decide to incorporate battery storage to take advantage of hourly changes in electricity prices in the wholesale market. Because of breadth of the law, the opportunities do not end on the supply side; the community power entity is able to influence behavior on the delivery side. This can include special metering that allows for direct communication with in-home devices and implementation of special rates that encourage conservation at economically appropriate times. It would even allow for the installation of electric vehicle charging stations. In addition, none of this requires the municipality to build or own utility infra-structure; it would use the existing transmission, distribution and metering network to deliver these products at rates that it determines are appropriate. There is no regulation of these services by the Public Utilities Commission (except for the relationship between the community power entity and distribution utility (1). Lastly, the legislation allows the municipality to set up an enterprise fund to make sure the operation of the community power entity stays separate from the rest of the municipalities’ operations and it allows for the issuance of revenue bonds to support the development and operation of the system.
The process to create a community power system is both simple in terms of steps and complex from a planning perspective. The governing body of the municipal or country first votes to create a community power committee. This can be a newly constituted committee or it can utilize an existing energy committee. That committee then develops a plan for the design and implementation of the community power system. The plan can be developed jointly with other municipalities. During the process, the committee must hold public hearings and solicit public input. Then the voters of that municipal or county need to vote to approve the community power plan. The complexity arises in the planning. The provision of electricity is a critically important function of modern life, and the electric industry is a complicated one. It is not a service that a municipality typically does. And under the community power law, there are many options for what the system will feature and services that it will offer to its customers. This speaks to the importance of getting knowledgeable people involved early and taking advantage of efforts among similarly-situated communities.
Some of the important questions that a municipality must answer in the planning process are obvious. What mixes of power do the systems want to be a part of their portfolio? Does this system want to rely on existing resources or develop its own local resources? Does it want to participate in wholesale markets as a utility would? Then there are questions that are not so obvious but equally important. Does it want to interact with its customers on the delivery side, like offering unique rates and services? How will the municipality initially fund the system, and then how will its finances work once it is up and operating? What are the risks, especially for a public entity? How will the community power system interface with the distribution utility and its metering system? Will the system allow customers to opt in or will it require them to opt out? The breadth of the possibilities is what really presents the biggest challenge when designing the system. Under past attempts to instigate community-based power, the municipality was oftentimes asked to structure its program and goals around the existing gaps in electricity production and delivery. That was very limiting and very discouraging. Under this new paradigm, a community can start by asking what are its values and how does it want its energy delivery and usage system to reflect those values. It can then plan as much detail into the structure of the system as it deems appropriate. It can also partner with other municipalities to achieve economies of scale and share back office operation, and it can enlist industry experts to help in areas that are not natural to municipal operations.
Smaller scale and more local electric energy systems are the direction that the country and the world is heading. While this certainly helps control costs, it also provides a more reliable electric system that is designed around the goals of a community or set of communities. Community power will lead the way in this evolution and New Hampshire is now in a position to be one of those leaders.
(1) The PUC has opened a rulemaking to ad-dress issues related to impacts on the utilities and their provision of default service.
Elijah D. Emerson is an attorney with Primmer Piper Eggleston & Cramer, PC. Eli can be reached at their Littleton office at 603.444.4008 or via email at firstname.lastname@example.org.