THE GREAT REINVENTION OF THE ELECTRIC UTILITY

This report by Energy Innovation argues that the traditional electric utility business model in the United States is facing a 'death spiral' due to technological advances, declining energy demand, and climate regulations. The author proposes a shift toward 'performance-based regulation,' where utilities are rewarded for achieving goals in reliability, affordability, and environmental performance rather than for the volume of electricity sold.

• Three primary drivers are forcing the reinvention of electric utilities: rapid technological improvements, declining energy demand, and increasing seriousness regarding climate change. Specifically, the cost of solar PV electricity has fallen 80 percent and wind costs have decreased by approximately half over the last five years.
• The traditional utility business model is threatened by a 'death spiral' where rising fixed costs for grid modernization and declining revenues from lower demand force utilities to raise rates. These rate increases encourage customers to switch to cost-effective self-generation options like solar PV, further reducing utility revenue and necessitating more rate hikes.
• The author proposes a transition to 'system optimization,' where utilities are tasked with managing the overall energy service needs of customers rather than just supplying electrons. This involves comparing demand-side options, such as efficient appliance rebates, against supply-side options like building new power plants to determine the most cost-effective solution.
• To align utility incentives with public interest, the report advocates for 'performance-based regulation.' Under this model, public utilities commissions (PUCs) would set quantitative goals for reliability, affordability, and environmental performance over five to seven years, rewarding utilities that meet or exceed these targets and penalizing those that fail.
• Utilities possess unique institutional assets that make them ideal vehicles for decarbonization, including 100 percent market penetration, 100 percent billing efficacy, 100 percent communications reach, and the ability to deploy large sums of capital efficiently.
• To prevent utilities from 'gaming' new incentive systems, the author suggests that PUCs implement a step-by-step design process and establish 'collars' or safety valves. These boundaries protect utilities from excessive losses while simultaneously prohibiting excessive profits.

APA

Harvey, H. (n.d.). THE GREAT REINVENTION OF THE ELECTRIC UTILITY. Energy Innovation. https://energyinnovation.org/wp-content/uploads/Reinventing-the-Electric-Utility.pdf

Chicago

Harvey, Hal. THE GREAT REINVENTION OF THE ELECTRIC UTILITY. Energy Innovation, n.d. https://energyinnovation.org/wp-content/uploads/Reinventing-the-Electric-Utility.pdf.

Wikipedia

{{cite report |last1=Harvey |first1=Hal |title=THE GREAT REINVENTION OF THE ELECTRIC UTILITY |publisher=Energy Innovation |url=https://energyinnovation.org/wp-content/uploads/Reinventing-the-Electric-Utility.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{harveyndgreat, author = {Harvey, Hal}, title = {{THE GREAT REINVENTION OF THE ELECTRIC UTILITY}}, institution = {Energy Innovation}, url = {https://energyinnovation.org/wp-content/uploads/Reinventing-the-Electric-Utility.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }