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Electric Net Neutrality? May 3, 2010

Posted by Amir Roth in clean energy, economy, taxes.
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The recent developments in the net neutrality battle (see Comcast vs. FCC) and my general interest in clean energy and energy efficiency have led the following idea to kick around in my head for the last few months—does it make sense from both physical and end-goal standpoints to try and enforce some analog of net neutrality on the electric grid? Is it feasible to decouple maintenance and governance of the electric grid itself from electricity production at its edges, thereby opening up electricity production to consumer-facing competition? It appears to me that if this were the setup, then such competition—combined with a price on CO2 emissions—would be the most effective driver of a whole-scale move to clean energy production. Wind or solar clean-energy mini-utility startups would spring up by the thousands and coal-fired power-plants—CCS-enhanced or otherwise—would not survive the twenty-teens. Imagine that you were free to buy your electricity from any provider. Would you buy it from a company that had to pass its CO2 emissions costs to you?

Before I go on—and if you are a Bluejay regular, you know I’m going on—is a neutral grid with consumer-facing competition strictly necessary? Wouldn’t a plain carbon tax or a cap-and-trade system move electricity generation towards clean-energy? Not necessarily. A carbon tax without competition will likely not push a shift towards clean generation, or at least not quickly. Without competition—and many markets aren’t competitive—providers will just pass the tax onto consumers. Consumers in turn may choose to consume less electricity—or to purchase solar panels and water heaters—and the provider may generate less electricity produce less CO2 as a result. And this would be good too. But if the provider were guaranteed some level of consumption, there wouldn’t be much impetus for change. In the absence of competition, cap-and-trade may be similarly ineffective because an unchallenged provider would just pass the cost of CO2 allowances to consumers. Cap-and-trade does have the benefit of a CO2 cap, but providers may choose to meet that cap by producing less electricity rather than by producing additional electricity cleanly if the additional electricity could not be sold at a profit. In a competitive market, providers that did not pay a tax or allowance fees would have a cost advantage they could pass onto consumers. Competition is key. How do we make it pervasive?

For the internet, neutrality means that carriers must treat all traffic equally. Where the rubber meets the road—and where Comcast meets the FCC—they must give equal priority and resource to traffic they don’t profit from as they do to traffic they do profit from. This is the condition in which the internet grew and one of the facilitators of the massive innovation by content and application providers. ISPs charge a monthly fee for access. Content providers duke it out for the rest—sales, payed content, ad dollars, whatever. The problem starts when companies go vertical and provide both access and content, like Comcast. More accurately in the case of Comcast, the problem is when an already vertical access/content company gets into the internet business. Surprisingly, the Federal appeals court recently ruled against net neutrality—actually, it ruled against the FCC’s power to enforce net neutrality—but eventually, net neutrality should and will be placed on a legal footing. And Comcast will either toe the line or have its business broken up into Comcast access and Comcast content. In the electricity business, every company is Comcast. There are no separate electricity content and access providers. Providers provide both content (electrons) and access to it (wires). All companies have a vested interest in selling you their own electricity rather than someone else’s. The electric grid is not neutral because it did not grow up that way. But that doesn’t mean it can’t be regulated into neutrality.

To be sure, electricity is not internet data. Internet data is digital, can be transmitted without loss, and along a variety of media—telephone lines, coaxial cable, optical fiber, airwaves—all of which support wavelength division multiplexing. Electricity requires moving electrons along electrical media, which as far as I know does not support WDM and experiences loss over distance. But this doesn’t matter for neutrality. What matters is that, like the internet, electricity providers and their proprietary grids are interconneted and can pass payload to one another. An electricity provider should not be forced to sell you someone else’s electricity—that may be either impossible or inefficient—but they can be forced to sell you their own electricity at someone else’s price!

Here is the proposed setup. The electricity business gets broken into two pieces— a monthly connection or access fee, and content or usage charges. The access fee is collected by the local provider. The usage charge is collected by whichever provider you sign up with, with your local provider possibly tacking on a small “processing” fee, e.g., $0.0025/kWh. The electricity you get is produced by your local provider, but your contract is with the producer of your choice. The producers simply fulfill each other’s orders as necessary in an electric form of Nader-trading. Of course, producers cannot sell more electricity than they can actually produce. And so initially, not everyone would be able to sign up for green CO2 tax/allowance fee-free electrons. But any and all such electricity that comes online anywhere will be bought immediately—much like it currently is in China by state mandate—and there is nothing like perfectly elastic demand to encourage supply.

What say you, people?

P.S. Temperatures last week in Philadelphia: 60, 40, 50, 70, 90. I don’t think we’ve ever wanted to have the heat on and the A/C on in the same week. Climate change? What climate change?

P.P.P.S. For the past few weeks, I have been working on a 5,000 piece jigsaw puzzle of Breugel the Elder’s “Tower of Babel.” I have the sky and ocean part done or about 30% of it. I realized something yesterday that I suppose I should have realized a long time ago—the cuts in jigsaw puzzles are periodic! Entire sections can be exchanged for one another or even checkerboarded. I realized this when I noticed that a 4-piece section of the sky on the right side of the puzzle was slightly off-color relative to its surroundings as was a similarly shaped 4-piece section on the left side. Who knew?

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