A long-term failure to maintain the electric grid combined with more common and severe extreme weather events has challenged the resiliency and reliability of many electric grids. This has led to more frequent and lengthier power outages. Utilities are therefore considering more frequent, expensive upgrades to their electric grid at an expected cost of hundreds of billions of dollars. For example, Texas’s power grid was just minutes away from completely collapsing during a major winter storm in 2021. More than 4.5 million people lost power. Dozens of people died. The need for grid upgrades across the country is only expected to rise, whether because companies have not kept up with repairs or there is a need to respond to new technologies. For example, utilities are already planning upgrades to prepare for expected higher electricity consumption that will come with increased electrification of cars and buildings.
These proposed investments, often called grid modernization, can create greater grid resilience, reliability, and security. However, they are also extremely costly. Ratepayers could see substantial increases in their bills, especially in the short term. If large rate increases go into effect suddenly, rather than being phased in, many people could have difficulty affording their essential energy needs. This includes older adults on fixed incomes as well as those with low and moderate incomes.
There are additional issues to consider when utilities plan grid modernization in anticipation of increases in future electricity use. Often, they rely on projected revenue increases. However, the increased revenues may not be available until after the modernization is complete. As such, the utility may need to borrow money in order to finance the cost. Moreover, if the anticipated increase in revenue does not fully materialize, ratepayers could suddenly see rapid increases in costs.
Another issue is what investments are approved as part of the modernization. Costs can be contained by approving only prudent investments whose benefits to ratepayers outweigh costs. Transparent and evidence-based proceedings, with input from residential ratepayers, are important in determining what investments should be made to minimize the cost of the modernization.
GRID MODERNIZATION: Policy
GRID MODERNIZATION: Policy
Electric grid upgrades
Policymakers should engage in evidence-based, transparent planning and decision-making when considering upgrades to the electric grid. The process should include input from residential ratepayers to ensure that the needs of older adults are considered and addressed. Older residential ratepayers should have affordable and reliable access to energy throughout the day. Regulators should analyze the impact of new use patterns on older adult residential rate affordability. They should also target assistance to households with low and moderate incomes. Decisions should be based on an analysis of local and regional electric generation profiles, which vary considerably.
The grid-upgrade process should ensure that regulators:
- Only approve equitable proposals in which the benefits to consumers, including older adults and people with low and moderate incomes, outweigh the costs. These populations must be able to afford their essential energy needs.
- Use evidence-based proceedings to evaluate proposed infrastructure investments and financing options. Investments should be prudent and fair. They should reach all communities. This includes those that are underserved, rural, low-income, or a combination of these.
- Ensure that any rate increases needed to pay for new investments are phased in gradually. Protections should be included to ensure affordable rates for people with low and moderate incomes and those on fixed incomes. Alternative funding resources should be explored to ensure affordability.
Investments that are paid for based on future revenue projections from expected higher demand for electricity should be evaluated transparently and publicly. If necessary, they should be modified to avoid unreasonable residential rate increases. Regulators should approve investments, if at all, in staggered stages to ensure ratepayer affordability.