Vision for a Modern Utility
Vision for a Modern Utility
Unlocking Energy Abundance Through Performance, Not Capital Spend
Executive Summary
Culture is the biggest barrier to energy abundance. We have the technology and tools, but the status quo is holding us back. Our utility regulation model is outdated, incentivizing infrastructure expansion rather than optimized performance. We have an opportunity to flip this paradigm—one that unlocks deflationary abundance, rewards utilities for outcomes, and empowers customers to be part of the solution while massively lowering their costs.
The Opportunity
Inverter-based resources are no longer just generators of watts. They are grid-forming assets, capable of voltage regulation, phase balancing, and localized hosting capacity—the precise services our modern grid needs, delivered exactly where they are needed most. These technologies offer unprecedented control, stability, and deflationary cost curves, often at a fraction of traditional costs.
But utilities are still operating as infrastructure companies, designed around centralized, capital-intensive models. Their profit model is tied to capital expenditure:
The larger the investment, the greater the return.
As a result, when utilities face a grid challenge, they are structurally biased toward the most capital-intensive solution.
This leads to overbuilding transmission and distribution (T&D) infrastructure to meet infrequent peaks, creating high-cost, low-utilization assets that drive unnecessary inflation.
This approach ignores the fact that we can now see and measure what’s happening every second, on every feeder, every transformer, and even every customer premise.
The Vision: Modern Utility Regulation
We can modernize the utility profit model to align with today’s technologies and tomorrow’s needs. We can simultaneously modernize utilities to become digital platforms that solve constraints by first seeking solutions that pay end-use customers, instead of building low-utilization capital projects that create massive inflation burdens.
1. Profit Tied to Performance, Not Capital Deployment
Utilities can still earn healthy, growing profits—but those profits are no longer tied to how much they spend, or how big they build. Instead, profits are linked to measurable outcomes:
Grid reliability (outages, SAIDI/SAIFI)
System utilization efficiency (%)
Customer satisfaction
Reduction in end-use retail rates
By decoupling profit from infrastructure investment and linking it to KPIs that matter, we incentivize utilities to embrace customer-owned assets, optimize the existing grid, and prioritize cost-effective, high-performance solutions.
We already have the foundation for this model in Performance-Based Ratemaking (PBR). But the next evolution ties 100% of utility profits to end-use KPIs, not investment levels. We can lock in utility profits today and grow them as utilities deliver improved service, reliability, affordability, and customer satisfaction.
By transforming the financial model, we create the space for utilities to transform into digital grid orchestrators, leveraging real-time data to deliver value and efficiency.
2. A New Kind of Utility: Digital, Customer-Centric Grid Operators
Utilities of the future don’t need to own every asset. They need to orchestrate them. By paying customers to be part of the solution—through demand response, DER participation, and VPPs—utilities can deliver lower-cost, more resilient energy systems, while customers put money back in their own pockets.
This is where Micro-PMUs (Phasor Measurement Units) become transformative.
Micro-PMUs give us granular, sub-second visibility into voltage, current, phase angles, and power quality on every segment of the distribution grid. They are the eyes and ears of a real-time, dynamic grid, enabling us to:
See local generation and local consumption at a hyper-local level
Understand where there is excess capacity or constraints
Create locational marginal pricing for distribution (think LMP for T&D)
Enable local energy markets where neighbors trade energy and services at prices reflecting true system needs
With this data, utilities can move from planning based on models to operating based on reality.
For example:
A solar-plus-storage system on Feeder 12 can offer voltage support during high load periods, instead of requiring a substation upgrade.
A commercial EV fleet charging on Feeder 7 can delay charging for an hour in exchange for cash payments, reducing peak load stress without building new capacity. Over time, these assets will also be able to export back to the grid to support the load on a distribution network.
All of this can be orchestrated without direct customer involvement - just integration of assets to a common platform, customer preferences to be registered, and market signals to be delivered. This digital structure leads to a highly deflationary energy future, where abundance drives down costs, and customers profit by participating in grid solutions.
3. Unlocking Local Energy Markets with Micro-PMUs
Now that we can measure the grid in real-time at the distribution level, we can monetize local flexibility and local generation in ways never before possible.
Consider this:
On sunny afternoons, a neighborhood with excess rooftop solar can export power locally to homes with higher demand at a fraction of the traditional rate.
Micro-PMUs confirm that the kilowatt-hour never leaves the local loop—traveling just 20 feet instead of 20 miles—and should be priced accordingly.
This enables hyper-local markets, where the price of energy reflects its true locational cost.
Low-cost energy when and where it’s abundant
Higher prices when and where the grid is stressed
By introducing locational pricing signals, we incentivize customers to shift load, store energy, and participate in grid services, reducing strain and delaying or eliminating capex on infrastructure.
Utilities can monetize orchestration, not ownership. Customers earn money by helping solve grid constraints.
This drives lower system costs, higher efficiency, and greater resilience.
4. End the Socialization of T&D Costs
The status quo socializes the costs of Transmission and Distribution, even though the value of delivery is highly locational.
With Micro-PMUs providing real-time insights, we can:
De-socialize T&D rates, rewarding customers for local consumption and generation
Charge less when energy stays local and tax less when infrastructure is less used
Avoid costly upgrades, because price signals move demand and supply into alignment
For example:
A neighborhood with DG overproduction should see ultra-low rates (90% lower) for consumption during those windows because the energy doesn’t touch the transmission grid and barely uses distribution.
This is impossible in today’s system because:
Price signals are uniform and blind to location
Utilities make less money if they avoid building capital projects
There is no market for local flexibility—yet.
5. Remove the Perverse Incentives
Utilities are artificially earning on their Return on Equity (ROE). As Mark Ellis has written, utilities set their ROE without competitive bidding, even though other parts of the capital stack—such as bonds—are priced in efficient markets.
We should mandate that utilities put their ROE out to bid each time they submit a new rate case. Doing so would collapse ROEs to mid-single digits. Without over-earning on their ROE—meaning making more from customers than the equity market requires—their bias to overbuilding would be significantly reduced.
Equity markets are liquid; we should use them to drive efficient capital allocation, not reward unproductive infrastructure expansion.
Why Now?
We are standing at the threshold of an energy-abundant future, driven by cheap, inverter-based resources and real-time data streams from Micro-PMUs.
But without regulatory reform, the current utility business model will continue to default to overbuilding and overspending, fueling unnecessary inflation.
It’s time to shift the culture—from "more steel in the ground" to "more value for customers."
The Outcome: 20–30% Reduction in End-Use Customer Rates for Everyone
The real prize of this transformation is a substantial reduction in customer energy bills.
Many regions today have 30–50¢ per kWh retail rates, driven largely by under-utilized, overbuilt T&D infrastructure and inefficient capital allocation.
By shifting to a performance-based profit model, unlocking local energy markets, and leveraging Micro-PMU data to create price signals that drive distribution-level grid services, we can optimize system utilization and reduce unnecessary capex.
These changes will reduce end-use retail rates by at least 20–30%, and likely more in regions with high current costs.
Customers earn by participating in demand flexibility programs
Utilities earn by orchestrating the system efficiently
The system delivers lower prices for everyone, even for those who choose not to participate directly
Because the system is more efficient, costs come down for everyone, not just those participating in the new marketplace
This isn’t just a theoretical model—it’s practical, proven, and ready to scale.
Call to Action
We can empower utilities to lead this transition by giving them a clear, profitable path to do so:
Lock in their profit independent of capital spend but instead linked to customer-centric KPIs
Reward them for customer-centered performance
Unleash local energy markets, using Micro-PMU data streams to deliver locational pricing and local incentives
Create a deflationary energy system where everyone wins
The future is ready. We just need the cultural courage to create it.
