Lauren "Bubba" McDonald, commissioner of the Georgia Public Service Commission, describes himself as a very conservative regulator with a track record of being conservative over the years.
"I went to the power structure and suggested they needed some solar in the IRP. We are not here to just adopt anything the power company sends to us. The way I presented it to the utility was that we can take this on our own or we can be partners and we can make it work, and if we do it in an adversarial way, we both lose," McDonald said. "Utilities who say they don't include 'beyond the meter', sorry about that. You don't have the monopoly right to generate," McDonald said. "I answer to 8 million people in Georgia," he added.
Turning the lights out
SEPA's Mahrer said that "Bubba he is an odd bird example of when the renewable industry ends up finding itself pretty aligned with the tea party," but it speaks to the real issue: distributed generation solar is the first opportunity to passively deregulate the electric utility industry.
"Utilities have defended themselves from third-party rooftop by suggesting it infringes on franchise regulatory territory and it's been upheld in states. Legally and technically it's correct but I don't think utilities have had to defend against individual customers in past," Mahrer said. "It's an interesting conversation about what entity ultimately succeeds when the debate is directly against customers. We will see more industry transition. We will have utilities recognize distributed generation as contributing resource."
"Bubba McDonald may be the best friend the utility industry has ever seen because he is proposing a path forward using a utility model," Rabago said.
Shah said the issue is much more political, and much less heroic than McDonald being a champion for solar. "The question becomes, are public service commissions going to ban people's ability to have an alternative to higher-priced power and the answer is absolutely not."
Rogers, in his recent comments, placed much of the blame on the regulatory structure, though several energy experts contend there is nothing that would stop a utility from proposing any innovative idea it thinks should be considered.
The utility model invented in 1913—101 years ago—was tremendously effective at bringing big boilers to America but it has had no competition for a century. NRG's Corneli said it may not automatically be a death spiral, but "101 years of that has made it difficult for people to innovate and put capital at risk. That's not the way innovation works."
Experts note that even NRG has placed a much greater focus to date on large-scale solar plant construction over distributed generation that is under control of individual businesses and consumers.
Whether it is Duke or NRG, utilities are putting out mandates for hundreds of megawatts of large-scale solar (the Georgia example is also heavily tilted to large-scale solar plants), but "megawatts don't equal a market," Rabago said.
To this point, the comprise from the utility has been to put more solar on the system and ask the consumer, "OK, are you happy now?" Browning said. "It's a welcome development but unlikely to stop clamoring for more choice. I don't know a single investor-owned utility that has a business plan compatible with a livable planet."
Rabago sees an industry that has not taken the necessary steps, but isn't so stubborn as to want to be on the wrong side of history.
In any regulated utility boardroom, Rabago said it is easy to imagine the conversation about the state of the business in a flat to declining U.S. energy demand environment: The chairman of the company asks what can be done about flat earnings and the CEO says it's the state of the economy, and the weather and commodity fuel prices that make up 98 percent of the utility's financial outlook and it has no control over that 98 percent.
However, the other 2 percent of headwinds are things like energy efficiency and solar. "The utility board has been given two big choices: fundamentally transition the business or go on a full-blown attack against a tiny little thing like solar," Rabago said. He added that while solar is the most charismatic of distributed generation sources, behind it are storage, electric vehicles, savings from demand response, micro-grid security and intelligent management of a smarter grid. Electric vehicles stand out as a technology innovation that could actually benefit utilities. "Accelerated EV adoption could more than make up for the loss from distributed generation," Rabago said.
Utility regulation is filled with sticks and not many carrots, and no model has been proposed by companies or regulators that would financially reward a regulated utility for considering distributed generation as an opportunity—though there is no reason one could not be proposed along these lines.
If utilities have been hush, if not outright antagonistic on the topic to date, they are likely thinking about it. "Utilities aren't sleeping," Sedano said. "Technology will make consumers more powerful and that will change the utility system a lot. But what some innovators are trying to accomplish is threatening," Sedano said.
Shah has a dimmer view of the transition that Rabago and Sedano hope will be embraced by utilities. "There are 300 public utilities in this country and six might be successful on the other side. By 2020, this whole market will be firmly disrupted."
Shah said pension funds have started divesting shares of utilities saying they are no longer reliable because they are losing growth and now with solar energy on rooftops and other distributed generation and energy efficiency, the only way to protect themselves is by investing in opportunities their mindset and business model is not designed to accommodate.
"Hedge funds managers are calling me on whether they should be shorting utilities and that will be an actual strategy deployed by hedge funds in coming years, and when we are having that conversation that means the end is near."
—By Eric Rosenbaum, CNBC.com.