With Great Technology Comes Great Upheaval

We’ve all seen how the Internet has changed certain businesses.

For the last 60 to 70 years, we have lived in an era of significant stability. That seems to be over. We’ve all seen how the Internet has changed certain businesses, such as music, newspapers, and bookstores. Technology can be a huge boon but it can be quite disruptive.

The transition from gasoline to electric or hybrid vehicles has been somewhat bumpy as governing bodies struggle with whether dealerships are required and how to pay for roads when less (or no) gasoline will be used. This is a growing issue as more electric and hybrid vehicles take to the road and as the condition of our Michigan roads continues to cry out for repairs.

Recent rhetoric suggests that Oakland and Macomb counties may declare their independence from the Detroit Water and Sewerage Department. With both counties now spending money to evaluate their options, what happens next reflects a crossroads not previously contemplated.

Given that the water department has apparently not set its rates high enough to cover all the infrastructure improvements needed over the next 5-10 years, it is possible, although perhaps unlikely, that a Macomb-Oakland system might actually cost less to develop, construct and operate than the existing water system would cost to upgrade. Such a separation could lead Detriot to owning over-sized water and waste treatment systems relative to their customer base and the oldest waste and water lines which are most likely in need of repair.

Given the water department’s well publicized collection issues, this has to be making the investment community nervous as reflected in two investment firms’ recent subpoenas served on Oakland County to see what they know about the water department. This much turmoil would seem to make the department’s recent request for proposals less appealing to the financial community than would previously have been the case.

Finally (for the moment), we have seen many advances in the development of solar energy and while those are exciting, they, like changes to gas driven cars and changes to 100+ years of centralized water and sewer systems, challenge the status quo.

For more than 75 years, utilities have generated and supplied the electricity and natural gas that we consume in our homes and businesses from centralized points. As part of the deal, those same utilities have maintained the infrastructure needed to both generate and transmit gas and electricity. So, what happens when people can start generating electricity on their own roofs? Some hail it as a triple win (saving money, the environment, and societal benefits) but most solar generators stay “on the grid” and as a result sometimes are contributing electricity to the grid and other times are drawing on the grid. Under most systems, including Michigan’s, smaller generators can sell their electricity back to the grid at the utility’s retail price — so called “net metering.”

The ability to sell excess power back at the retail — not wholesale — price, raises the question of who pays for the infrastructure necessary to provide the electricity to those on the grid. Utilities argue that those installing solar are not paying their “fair share” of such costs which the utility’s other retail-paying customers pay.

There are those who say that the price of electric service includes roughly 50 percent for non-generation expenses. Some experts argue that there is no such “cost-shifting” occurring because there are savings on power plants, transmissions lines, lost energy as well as the ability to meet greenhouse gas reduction goals without utilities having to make the capital investment. This is a tough debate and is not something easily reduced to 60 second soundbites and at present is being decided on a state by state basis.

Ultimately, the challenge of existing infrastructure combined with legacy costs makes the transition in technology and improving efficiency much harder and far more political than a free market would prefer. But, as with prior technical revolutions, change tends to be messy and the larger the change, the greater the mess.