Preserving the value of free money

Bart Thielbar | Jan 14, 2010

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Earlier this year, Sierra Energy Group, a division of Energy Central, surveyed investor owned utilities about their intentions related to the American Recovery and Reinvestment Act (ARRA) funding that would be available for smart grid investments. The results of the survey were interesting because it demonstrated that while a vast majority intended to apply, only a slim majority felt that the stimulus funding would be effective.

More specifically, respondents were asked, "Does your utility plan to apply for smart grid funding from the government?" The results were not surprising with 78 percent indicating that they planned to apply. It is very difficult not to pursue free money. Respondents were also asked, "Do you think all the government intervention/funding in the intelligent utility enterprise/smart grid areas will be effective in getting systems built?" To that question, 57 percent responded with a "yes" and 43 percent with a "no." Clearly, many wanted the money, but far fewer thought the money would actually be effective in building the smart grid.

At first glance, it is easy to raise a lot of questions about why 21 percent of the respondents would even apply for the ARRA funding if they didn’t think it would be effective in getting systems built. It is a legitimate question that was, hopefully, resolved during the application process. Unfortunately, though, the lack of transparency into the business cases behind the applications and into the application vetting process leaves that question largely unanswered. We must extend our trust to those responsible and assume that any concerns about effectiveness were resolved.

Looking deeper, though, we need to recognize that the second question also included the phrase "government intervention." Utilities are familiar with government intervention and have worked effectively in a highly regulated environment for many decades. Even with that experience, utilities are adjusting to increased regulatory involvement in smart grid initiatives, particularly those that bring the regulators uncomfortably close to the conceptual and practical design of transmission and distribution systems. There are many smart grid "experts" today and all seem to have an opinion regarding how utilities should design and build their systems. This makes utilities nervous, and rightfully so.

When it comes to building highly reliable systems that last for generations, no one does it better than utilities. Smart grid technologies are new and, of course, provide the tools to allow utilities to operate more efficiently than they otherwise are able to do. But, when it comes to determining how those tools should be applied to complex and proprietary transmission and distribution systems, I sleep well knowing that engineers employed by the utilities will be making those decisions -- not regulatory personnel who have just finished reading the latest smart grid news.

With that said, regulators should be encouraged to do what they do best. Meaningful and lasting changes to the regulatory frameworks need to be resolved so that utilities are able to make prudent investments in new and better technologies. When that framework is in place and when utilities are free to do what they do best without "government intervention," the consumer will be well positioned to benefit from the opportunities inherent to the smart grid. And, the value of the ARRA grants will be preserved.

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