Smart Grid City Stumbles, Who Pays?

Phil Carson | Aug 25, 2010

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Yesterday I proposed that "smart grid is local," just like politics. And I suggested that, just like politics, smart grid proponents need to define themselves or their opponents will do it for them.

This maxim is nowhere more apparent this week than in my backyard, where the greatly heralded SmartGridCity in Boulder, Colo., has tripled in cost and unleashed widespread condemnation.

A $15 million projected cost has mushroomed to nearly $45 million and who pays the inflated cost is at issue, according to The Denver Post this week. That's pocket change to Xcel and to one million ratepayers over, say, three years. Obviously, that math won't fly with citizens or public utility commissions, nor should it.

This issue gets legs based on principle—who should pay, and why?—as well as the yawning chasm between hype and reality. 

David Eves, CEO of Xcel Energy's Public Service Co. of Colorado, delivered the bad news as softly as possible this week when he acknowledged Monday "we would not do that again over the whole service area." Perhaps Eves meant that any future pilot program would be significantly smaller than the 23,000 homes in SmartGridCity's coverage area.

Of course, if you contrast that remark with the project's heady days two years ago, you get a sense of that chasm between hype and reality. In November 2008, project leader Ray Gogel, then an Xcel vice president and executive in charge, said:

"We like to think of smart grid as bringing the world of Thomas Edison together with the world of Bill Gates. We're doing something that the whole world is looking at right now."

The latter statement rings true today, but not for good reasons; the former statement, perhaps not so much.  

Personally, I have no stake in this particular situation, though, like many, I have a compelling interest in the eventual outcome. I get the intent (of Xcel, Boulder, participating vendors). I get the discontent (of Boulder residents, Xcel ratepayers, naysayers). For me, the fits and starts we're now experiencing across the country are simply part of an arduous journey we've undertaken.

Yet I'm also a taxpayer and wage-earner and cognizant of the toxic effect of hard times on fellow taxpayers and wage-earners. Experiments such as SmartGridCity are appropriate, as are criticisms when they underperform or costs run over.

A look at media coverage of SmartGridCity this week offers an opportunity to juxtapose the vision and the visceral reaction to expensive missteps. Proponents of smarter grids must be ready to argue their case and counter critics emboldened by high costs and occasional failures.

Next week, the game gets serious as Xcel appears before the Colorado Public Utilities Commission (CPUC) to argue why its customers should pay for a radical cost overrun due, it said, to laying fiber optic cable to 23,000 homes and software expenses, the company said.

The city of Boulder, which at first backed Xcel's request, has withdrawn its support. The city council said in a CPUC filing that it lacked consensus on "the value of SmartGridCity in its present state or the prudence of this investment." The office of outgoing Gov. Bill Ritter supports cost recovery through ratepayers' rates. Colorado's Office of Consumer Counsel holds that Xcel is entitled to recover $27.9 million, a project cost identified in 2009.

The Denver Post's article this week on cost overruns generated commentary, of course, reflecting several themes running through what passes for public discourse these days, including the good, the bad and the ugly. The "good" will need to be encouraged, the "bad" (possibly) educated and the "ugly" totally ignored.

"Xcel I honor the courage it took to take a risk like that and be a leader. We can all (second guess) your decisions at this point, but having been involved in large endeavors like yours, I know the courage and principles it takes to claim new ground."

"Let the residents of Boulder pay for it! Their deal, they pay."

"Just another example that the new energy economy is a sham. It's a failed industry propped up by taxpayers."

"So Xcel decides to do an experiment, then wants us to pay for it?!!! Instead of mugging us, they should take it out of their executives' pay and perks. They can probably recoup $45 million in a matter of weeks."

Phil Carson
Editor-in-chief
Intelligent Utility Daily
pcarson@energycentral.com
303-228-4757

 

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Comments

The Huge Positive Side of SmartGridCity for the Global Market

Who pays? Clearly it should be Xcel.

Let's keep in mind a bit of the chronology here.  Before they even laid the first millimeter of cable, PSCo cavalierly announced that this $100 million SGC project was fully funded by Xcel and its partners and would NOT COST RATEPAYERS ONE DIME!  Then, suddenly we're on the receiving end of a request for a $48 million bill for cost recovery.  When a utility wants to play in the emerging technology game in the name of R&D, why shouldn't the burden fall to share holders like it does for every other company that must later recoup its costs and a profit on the basis of having a successful project?  You can't have it both ways.  It seems that the Maryland utilities commission is the only one that has got this right.  Make an investment and if it works out, then you get to profit from it.  It baffles me why investor owned utilities never get the the idea that the I in ROI stands for their investment, not their customers'.

Boulder is in the Best Position to Initiate the Transformation

I agree that the Maryland PSC got it right, but under their circumstances. In fact, back in June I wrote the post Every State Government Should Follow Maryland PSC's Leadership, meaning that state regulators need a new regulation mandate as explained in that post. That is how “Boulder is right now in the best position to be the first place to initiate the transformation of the power industry,” as I wrote below.

As an Xcel customer...

I get this sentiment. Rather than take the torches and pitchforks down to Xcel's offices, however, I'm going to attend next week's Colorado Public Utility Commission hearings on the matter and see how the commission handles it.

Regards, Phil Carson

Vultures are circling, prematurely

These comments remind of Mark Twain's protestation that notices of his death were premature. And it's by far too big a stretch to indict "environmentalism" on the basis of cost overruns in Boulder. Obviously.

My point in the column is that these high-profile cases do indeed make fodder for media highlighting -- and thus influence public opinion -- but the number of successful pilot programs and smart meter rollouts far outnumber those that fall short.

Besides, if we recognize pilot programs properly as research-and-development, and we acknowledge this is the onset of the grid's high-tech era, negative results are as important as positive results. That's standard in scientific enquiry.

The relevant question remains: who pays for such R&D-related projects? Personally, I like the notion advanced by the Colorado Office of Consumer Counsel, that some R&D costs might be shared by shareholders and ratepayers. The market governs the shareholders' exposure, the local PUC oversees the ratepayers' exposure.

I think we'll know more next week as the Colorado PUC tackles the issue of who pays.

Regards, Phil Carson

I Most Respectfully Disagree: The EWPC-AF is NOT About Vultures

Dear Phil,

I most respectfully disagree with you. The Electricity Without Price Controls is NOT about vultures. It is about very serious and dedicated research work on the architecture of the emerging power industry. It is about the end of the Mass Market Revolution where oil was the low cost input driver of the old economy, which is being phased out.

What we are seeing is the emergence of the System Revolution, where information and communication technologies are the high value input that drives the new economy. We need to let the creative destruction replace the obsolete business model of the utilities, which run out of steam a long time ago, to enable huge value creation with an architecture competition of business models.

I understand that the best place to start such a revolution is precisely Boulder, Colorado, as " the franchise agreement between Xcel and Boulder expired. The company is now operating under a revocable permit that expires at the end of the year," as Michael Kanellos wrote yesterday on his article "Boulder Prepares to Wash Its Hands of SmartGridCity,” on greentechmedia.com

By the way, my suggestion is not at all premature. On the contrary, the utility lobby bypassed the creative destruction of power industry at the beginning of this century, with what I explained in the highly viewed (close to 10,000 hits) 2007 EWPC article The BIG California LIE, whose summary says "

"The BIG LIE is that retail competition is impossible in electric markets. The implementation of a competitive retail market was the center of the debate in California. Instead of cooperating to implement it, the three big California utilities, that didn't care about the end-custumers, acted very irresponsibly. EWPC is the paradigm shift to show that retail competition is not only possible, but absolutely necessary to turn the electricity industry into a vibrant value added business for all stakeholders."

Finally, to respond the question, Who pays?, I propose to use the EWPC-AF to allow payment of all prudent investments on the T&D Grid side and disallow any payment on Enterprise side.

Best regards,

José Antonio Vanderhorst-Silverio, Ph.D.

 

 

 

 

3X?

Crikey....how do theoretically intelligent, educated and experienced people miss a project budget by 3X? Seriously, 3X?? Did they even put a pencil to a paper napkin?

This sort of monumental credibility loss could have been avoided had "demonstration projects" actually been of "demonstration project" scale. Instead, "free money" from the DOE and the utterly false promise of "Green Jobs" fostered a ruse: the premature rollout of smart meter implementation under the "demonstration project" umbrella.

Conspiracy? No. I prefer to think of this broiling debacle as the result of a convergence-of-similar-objectives....made worse by an order of magnitude (or two) by the advent of "free money". To be clear, no one with a dog in the fight is going to surrender to the economic facts as long as the stream of paychecks continues. The corollary is that when the paychecks stop flowing, the scrap left behind will be reduced to melt value.

The notion that "cleaner air" is essentially "priceless" relieves green enthusiasts from the rigor of an authentic economic evaluation. In fact, "cleaner air" has an intrinsic value...and it's not infinite. It might even be 0.

Until "regular folks" finally wake up to the intellectual dishonesty that passes for the green movement, we're destined to economic suicide.

Where are the nuclear demonstration projects?

What else would you expect?

Why is this like Ground Hog Day? 

I predict this will be just one in many examples of how 'Moral Hazard' investments will play out...  Sure, go ahead and promise the moon on a beer budget - but when they break out the champaign and realize the investment is an inverted "3-bagger" - why worry?

"The Taxpayers can bail us out, right"?

I mean it worked with the auto companies, it worked with the banking industry, it worked for the broke pension plans of the unions...  Just go ahead and roll the dice.. take a huge risk cuz we all know "We" (the utilities) won't have to pay for it...

I'm probably one you'd like to ignore (the ugly) for just reflecting what most honest average working Americans are thinking, the truth about Gov't subsidies and grand illusions of saving the planet with a remote-controlled electric meter...

I hope CPUC makes them take it out of their investment/profits and requires the rates to remain the same... that would teach the utility a lesson about ROI... just sayin'

I Expect an Emerging Order

Your post begs a new order. However, your conclusion "... that would teach the utility a lesson about ROI... just sayin'," seems to be inconsistent with such order.

If you look deeper in the supporting evidence of the two lesson I added below, you will see that I am asking that federal and state governments initiate as soon as possible the process for the transformation of the power industry to help emerge the new order, which requires utility restructuring to enable a boom that mitigates the damages of The Third Depression in the making.

 

Two Very Important Lessons

Hi Phil,

Please take a look at the EWPC post 2 Smart Grid Lessons Learned: Increasing Stimulus Grant was Mistaken. Utilities Must be Restructured, that shoud send a strong message to the federal and state governments all over the place.

Regards,

José Antonio Vanderhorst-Silverio, Ph.D. - LinkedIn