More questions than answers

Warren Causey | Jan 15, 2010

 

My colleague, Bart Thielbar, wrote an excellent piece in this space last Thursday describing a perceived disconnect between utilities and the long-term build-out of smart grid, or the intelligent utility, as we prefer. That piece, entitled "Preserving the value of free money," drew from a survey of utility executives that we conducted concerning utility plans for stimulus funding -- the American Recovery and Reinvestment Act (ARRA).

As Thielbar described, there is a disconnect between utilities' natural willingness to obtain "free money," and their perception of the value of what would or could be done with that money. I had a conversation last week with a gentleman who shares those concerns, and who is closer to Washington, D.C., than either Bart or I, both geographically and by experience. He is Michael E. Ebert, principal research associate at George Mason University's Arlington, Va. campus, which is just across the Potomac River from D.C.

Ebert, who has been conducting energy and technology work at Mason since 2004, and goes back even further to days as a congressional staff member, perceives even more disconnects between what is happening in Washington and what is happening in the "real world" of utilities. 

"I'm active in the GridWise Alliance and the IEEE Power & Energy Society, and share their passion for advancing education of the electric power workforce for grids in transition. We've also been moving down the road to looking at utility reliability rules and cost recovery. How, in more than 54 (regulatory) jurisdictions, are we going to be able to keep the grid reliable when the industry is facing acute workforce challenges and as we transition to smart grid? I don't know if sufficient intelligent questioning is going on yet," he said.

He also has concerns about cost recovery. "I don't see prices (of electricity) going out the roof three to five years out, but significant increases could hurt the cause of smart grid without uptake of home automation networks (HAN). When you look at the Boulder (Colo.) experiment, which should be fertile ground for this sort of thing -- a very progressive population -- what was the uptake (of HAN)? It has been pretty low to date."

Ebert is concerned that uptake of the smart grid by consumers may follow the path of retail competition and we know that, "the uptake for retail competition was pretty low," Ebert continued. "Future prices are going to increase with demands for environmental controls and carbon mitigation, yet telling the public that smart grid will make their lives easier, their energy costs less expensive, and the planet greener, may not be the case. Smart grid will be more expensive, and electricity more costly. What happens when you have installed all this (advanced metering infrastructure) AMI and smart distribution assets in places like Florida and they have another series of serial hurricanes that destroys distribution systems? I don't know the answers. Recovery of smart grid costs following such storms, including the use of securitization, needs to be worked out."

Ebert also has similar questions to those of Thielbar about the stimulus money. "It's going to be on the utilities' books, but the federal contribution can't be recovered in a rate case -- that's my current understanding. Matching funds from the utilities will be on the books, but may not be fully recoverable. And, what occurs when something happens to these assets? If a mega-storm wrecks several hundred million dollars of smart grid assets, and the utilities can recover just fifty cents on the dollar, who will make up the difference? How will this gap be financed?"

Ebert also thinks smart grid investments and distribution reliability rules should be linked. "There are numerous, inconsistent state reliability rules, and in several states no rules with teeth," Ebert continued. "Smart grid is going to further blur jurisdictional lines between states and the federal government -- the FERC-NERC 'bulk power systems.' I think we need to ask more intelligent questions, get the answers and be honest with the results. This process is not going to happen in a two- or four-year political cycle. There is a lot to be worked out on public policies, economics, and reasonable, prudent business models."

As far as Thielbar, Ebert, or I know, there still isn't any determination of who will own assets bought with ARRA money, who is responsible for replacement if they are damaged or destroyed, and whether they are going to be of any real benefit to the public. Smart meters don't do much good if most consumers-taxpayers ignore them, or as is my case, in Georgia, if a smart meter sits on the wall for a year and all it is used for is to get a monthly reading for billing.

I wrote about the smart grid "hype cycle" a couple of weeks ago. We're in the midst of it and I'm not the only one who is asking fundamental questions about whether throwing a great deal of money at a concept that isn't fully worked out or justified is a good idea. Free money is never free, someone has to pay it (taxpayers and utility customers -- one and the same), and the people who are pushing it out don't seem to have publicly answered some very fundamental questions. 

It also can legitimately be pointed out that none of the ARRA money awarded to utilities has yet been spent. It's all balled up in the Gordian knot of contract negotiations where all of these difficult questions, that weren't answered in the first place, are being wrestled with. Almost a year after it was supposed to "stimulate" the economy and "remake the utility industry," it still hasn't stimulated anything except far more questions than there are answers.

I always enjoy hearing from readers and engaging in meaningful debate. Feel free to contact me anytime at wcausey@energycentral.com.

Warren Causey is vice president of Sierra Energy Group, a division of Energy Central.