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When will we get the smart grid we deserve?

Posted by Chad O'Connor  December 4, 2012 11:00 AM

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There is a lot of cool innovation related to the smart grid. And it is sorely needed because our current electrical grid barely uses IT, or any of the smart ideas that start-up companies have come up with. Of course, in 2001 the National Academy of Engineering famously declared the electrical grid “the single most important engineering achievement of the 20th century,” and yet in 2012 it already seems clunky. The losses in the system are immense, and we keep huge amounts of power on standby all year for a few hours of heatwave in the summer. We have difficulties integrating renewable energy, and very few end consumers have a clue what they are paying for.

We could have smart phone apps telling us exactly which appliances use what power, and we could turn off those that leak our money while we don't pay attention. We could program washing machines to wash when electricity is cheap. We could charge our vehicles when electricity is cheap. Utilities could monitor their wires and transformer stations, dispatching repair personnel as soon as there is a problem – indeed, they could monitor their assets for signs of trouble and do repairs early.

Why have the utilities running the transmission and distribution wires not adopted IT, the way most other aspects of our lives have? Because the grid operates neither like a branch of government, nor like a business. It is a mix, but it does not select the best of both worlds.

It would be nonsense to attempt to frame the question in partisan terms of more or less regulation, or indeed of more or less government. Energy transmission and distribution are natural monopolies – it simply makes no sense to duplicate ugly electrical wires. Imagine if competing utilities all put up their own competing wires. With such monopolies you simply need regulation; there is no way around that.

That regulation needs to be smart, enabling innovation. The track record shows that regulation has not been smart. It is encouraging that the Massachusetts Department of Public Utilities Electric Grid Modernization Working Group is taking the bull by the horns to address this thorny issue, and invited the public to discuss it. A kickoff meeting took place on Nov 14, 2012, and a working group will develop a report to be presented to the DPU by June 2013.

The role of the electric utility regulator is an important question here. Should it try to understand the best way forward itself, formulate the best possible business plan, and then guide and force utilities to approximate to this plan? Or should it let utilities formulate their own business plans along with the most appropriate metrics, reward business plans that demonstrate most transparently how they will lead to policy goals, and develop best ways for the regulator to ascertain that the utility is actually proceeding according to plan? One might call the first approach one of treating utilities as children, and the second treating them as adults. Perhaps there are other ways, too.

Treating utilities as children puts the onus on the DPU to understand the best way forward in the exceedingly complex task of modernizing the grid. Treating utilities as adults puts the onus of that task on the utilities. However, holding the utilities to the fire would then become a more complex issue: Does the business plan deliver desirable outputs, such as customer satisfaction, safety, reliability, environmental impact and social obligations? How likely are these outputs to lead to the policy goals staked out by government – which might be long-term value balancing out the interests of current and future customers? How transparent are the utilities' actions, so that corrective measures (penalties or incentives) can be put in place by the regulatory body? And how does one balance the need to provide a stable environment for investments with the need to take action if a utility is not delivering on its promises?

At the kickoff meeting, the DPU Commissioners mentioned that Governor Patrick and others in the state government welcome the initiative and are very interested in the outcome. As well they should be. There is an opportunity here for supporting innovation, and for really making a difference for rate payers – especially those of the future. This could be a boon for the Massachusetts economy in the next years and decades, and yes, for our planet facing climate change.

Arne Hessenbruch is a Danish expat and the founder of Muninsight, helping Northern European companies navigate the US energy market.

This blog is not written or edited by or the Boston Globe.
The author is solely responsible for the content.

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