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Who will cover my check?

Amidst the swirling interest in the electricity business these days around renewables, smart grid, plug-in electric vehicles and customer engagement schemes it appears that other people are writing checks for systems, software, hardware and a myriad of items that the incumbent utility is expected to happily cover.

And, not only is the regulated utility expected to cover these costs with a smile on its face, it should do so while potentially putting its system reliability at risk, not raising rates and collecting less revenue to cover imbedded costs.

Huge assumptions are being made by well intentioned -- or well invested -- individuals and companies with a stake in changing the game with regards to the provision of electric power. This is a good thing as disruptive technologies will help propel us to a cleaner, potentially more reliable future. However, the lack of understanding of how our electrical system actually operates -- from both a physics and financial perspective -- may leave us with some untenable choices.

PHEVs and EVs are an ideal example of a set of technologies that can help relieve our dependence on foreign oil, offer cleaner air at lower operating costs. Yet, assumptions of epic proportions are being made. With more than 1,000,000 cars expected on the road in the next five years it has been concluded that the dispersion will be random enough to not cause system problems. However, as has been the case in other technology adoption (computers, high speed internet, Prius's and flat screen TVs) chances are the demographics will find the PHEVs going into similar, higher income neighborhoods. The impact on the overall system will probably be small -- but the impact on specific feeders as a dozen, six (6) kilowatt loads are all plugged in over a short period of time could be dramatic. Of course the issue is resolvable with transformer and other equipment change outs. The question remains: will the local utility and its customers foot the bill?

An even greater challenge will be the impact on utility billing. These systems, often cobbled together after years of postponed investments, are rarely robust enough to handle minor changes, much less something as complex as cross customer billing. Imagine guests showing up at your home today and asking for $10 to cover the gas for their trip? Plugging in an EV or PHEV at a friend's house will have the same potential impact. Clearly this is not a technology challenge -- certainly it is easy to track usage -- but being able to match the sale to the individual's account within the same utility under the current billing regimes is virtually impossible. Now imagine the billing system has to reflect the sale to a different utility! Again the question remains: will the local utility and its customers foot the bill for a new billing system that serves so few?

The potential opening of customers' information to others presents another set of issues, aside from privacy and ownership questions. As in the case of the billing, the sister customer information systems have unlikely been set up to handle data flows to other places be it vendors selling products, software companies offering energy saving programs or competitive affiliates seeking to sell electricity and telephony services. The same question applies: how can the new customer information system be paid for in an era of declining revenue?

There are dozens of similar examples ranging from smart grid applications and carbon reduction strategies to distributed energy resources and renewables which all have a similar impact.

Utilities and their regulators around the U.S. are asking the tough questions but often without the benefit of the third parties causing the rise in costs being in the room. It is all too easy for others not in the utility mainstream to assume that "savings" from new technologies come without significant front end costs -- costs that need to be borne either by the ratepayers or individual companies.

None of this is to say that we should not move down the path to this newly envisioned future nor that utilities will be unwilling (or unable) to meet the challenges head on. The real issue is how to make sure the costs that are being incurred are not simply pushed onto the utility and its ratepayers. This is as true for public power, investor owned utilities as it is for ISOs/RTOs and the co-op community.

What then needs to be done?

  • Utilities and the energy enterprise needs to force itself to the table to present the issues -- even handedly and unemotionally in order to be seen, heard and engaged.
  • There will be tremendous opportunities in this changing environment. Winners will find their way to take advantage of the opportunities; losers will argue against the changes.
  • Being prepared means understanding the issues and having the data ready at hand. It will do little good to argue that the billing system replacement will be required in order to support the changing universe without having a solid idea of the costs, timeframe and risk.
  • Educating regulators and the public should be as natural as operating the utility system. Invite your regulators and the newcomers to the table and educate them as to the realities of the electric system.
  • Find ways to try and incorporate the new technologies and business models into your business.
As Mark Twain once said, "I am all for progress, its change I cannot stand." We have to figure out how to cover all those checks that others are writing for us.

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