2013-08-23

Co.Exist

How Big Power Companies Are Trying To Quash The Disownership Economy

Entrenched industries have never liked the sharing economy. Solar leasing company Sunrun has faced more hurdles than most from big utilities.

Entrenched industries are working tirelessly to save you from the new products and services you want. As established companies stifle innovation in industries as diverse as energy, housing, and transportation, entrepreneurs are increasingly finding themselves fighting not only to win customers, but also the hearts and minds of the very legislators and regulators whose campaigns have often been funded by, you guessed it, the established companies.

In 2007, I co-founded Sunrun to tackle one such engrained industry: electric energy. We developed a way for families to get rooftop solar power without incurring upfront costs or having to understand solar technology. We choose the equipment, foot the installation cost, and charge monthly for the power these systems generate, as a utility might. In 11 states, the average Sunrun family typically pays us 15% less than they used to pay their monopoly utility.

Utilities don't like this. Since co-founding Sunrun six years ago, we’ve had box seats to stunningly brazen attempts by utilities to squash our business. And the rooftop solar industry is not alone in these battles. Like Sunrun, many innovative and creative business models emerged from the economic recession to shape a multi-billion dollar “sharing economy” characterized by what we at Sunrun call “disownership.” Companies like hotel alternative Airbnb, taxi alternative Uber, and car ownership alternative RelayRides, are just a few—and they face similar attacks.

But how far will companies go to protect their franchises from open market competition? Further than I ever thought imaginable.

Utilities Throw Down

An early eye opener came in 2010, when Pacific Gas & Eclectic (PG&E) sunk $30 million dollars into a ballot initiative that would have changed the California state constitution, effectively restricting competition from municipal power programs, such as San Francisco’s community choice aggregation program.

More recently, California utilities have tried turning consumers off to solar by framing it as a race issue. Despite the fact that two-thirds of California home solar installations now occur in low and median income neighborhoods, utilities walk the halls of Sacramento pointing to decade-old data suggesting solar is only for the rich.

Arturo Carmona, executive director of Presente.org, said in August of this year, “The utilities are trying to get Latino leaders to support efforts to obstruct California’s rooftop solar growth. California Latino voters support rooftop solar by wide margins. Latino leaders in the state legislature should listen to Latino voters instead of siding with the big utilities.” Presente.org is a national organization whose mission is to amplify the political voice of Latino communities.

Most utilities hold a monopoly on how people get electricity. Unlike normal companies, regulated utilities are allowed to set rates as high as is necessary to earn a guaranteed profit on the infrastructure they build (transmission lines, power plants, etc.), no matter the cost or reliability. Utilities have become so good at arguing for this profit that even in today’s low interest rate environment, their guaranteed return is typically 10% or more. The theory behind the guarantee is that utilities need to attract billions of dollars to maintain the grid. At the same time, banks today have access to nearly unlimited capital despite typically earning lower returns, which are notoriously not guaranteed. Why should public utilities have it better than Wall Street banks?

People who go solar are in effect privatizing investment that the utilities would otherwise make “on behalf of” their ratepayers, charging them the cost plus guaranteed profit. So utilities naturally want to stifle rooftop solar innovation to maximize profit growth. Utilities are among the so-called “rent-seekers” serial entrepreneur and lecturer Steve Blank described in the Wall Street Journal as companies that “look to the government and regulators as their first line of defense against innovative competition.” Stodgy old companies are better at this than most startups give credit. But we’re on to them.

Don’t Tread On Me

Across industries, incumbents are clever about how they wage their battles, typically propping up unlikely third-party groups to support their anti-innovation efforts. In the cases of Airbnb and Uber, spokespeople against their innovative models always seem to be a taxi driver, rather than the wealthy medallion owner, or the odd neighbor of a shared apartment, rather than a hotel—though we know who is really behind it.

In Sunrun’s case, a group named Prosper emerged in Arizona with a single unusual issue: stopping rooftop solar. Not surprisingly, after Prosper refused to cite its source of funds, news outlets linked the unknown organization to Phoenix utility company Arizona Public Service.

Recently, the D.C. Taxicab Commission passed a new regulation stacked so in favor of taxi owners that the Federal Trade Commission felt the need to weigh in, saying the rules “may unnecessarily impede competition.” Around the same time, a New York City judge ruled that Airbnb—the company that allows people to rent out their houses or apartments to visitors temporarily—is illegal because it violates the city’s hotel laws. But who exactly are hotel laws designed to protect? Airbnb announced that it will fight these challenges despite a potentially lengthy appeals process.

We’ll Win the War

As entrepreneurs, we invent more efficient means of addressing problems in traditional industries that service millions of Americans every day—energy, housing, transportation, and beyond. In a time of constrained wages, gridlocked consumer spending and shrinking global economies, our companies have seen untapped opportunities to challenge the status quo and bring real solutions to people at a critical time.

But that’s not always enough to win. Regulation needs to protect and encourage new ideas, rather than restrict consumer choice and threaten our country’s position as a global leader in innovation. As Silicon Valley increasingly moves past software into “off-line” industries, these clashes are only going to become more frequent and more intense. I can only imagine the resistance Google may face with its self-driving cars. Luckily, when you’re on the right side of history, it’s easier to hire great people and to win wars, even if you lose the occasional battle.

[Image: Abstract via Shutterstock]

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2 Comments

  • Jose Henrique Hoeschl Mendonca

    I also have a dream... to do the same here in Brazil... maybe one day. Who knows??

  • bill edwards

    There are only a couple of non-concrete specifics in this article. For instance, phrases like "typically", "seems to be" are argumentatively weak.

    Power, as an industry, was forced recently to split between production and distribution. When you argue against utility companies having to get such a large return on their transmission rates, you neglect the idea that these utilities are really only the highways for this power and that this is where their profit comes from. With the average corporation making approximately 8% profit on earnings, 10% doesn't seem so bad. There may be price gouging in some limited markets, but its not unreasonable to think these utilities would need economic incentive to build the grid. That part seems reasonable to "hey maybe we should keep our eyes on this".

    The price discrepancy between buying and serving power off of and onto (respectively) the utility grid comes from the overhead of transmitting this power over someone else's infrastructure. All individual point sources also become a source of AC power sync'ing. As these sources grow in number and overall generation, this will continue to become a nuisance.

    For me, there are two sources of innovation in the power industry you are describing. Similar to cable/internet, how we distribute power has room for improvement, namely in HVDC transmission systems. No sync'ing, great interconnectivity and scalability. We aren't there yet in terms of hardware. Secondly, there is room for improvement in who owns the infrastructure. If built publically by coalition, there would be much better incentive for competition. Sort of the way you can drive any vehicle on a major highway.

    While I do not agree with the tactics corporations use, especially some of the ones you've outlined here, I don't blame them for trying. And I think that innovation always overcomes these type of hurdles. Good luck with your business and your battle.