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By Paul Alvarez
In fact, the value of investing into the distribution business has long been considered a given; as long as improvements are needed, are fairly procured, and are appropriately commissioned, the new assets are deemed ‘used and useful’ and are allowed into an IOU’s rate base for cost recovery.
Now for something completely different
Smart grid assets are altogether different in two ways. First, the decision to invest is optional and not generally related to immediate needs. Second, the value delivered is highly variable and almost wholly dependent on the actions a utility takes during design, implementation and optimization phases of deployment. Consider the following:
· If a utility fails to use the 80/20 rule in prioritizing circuits for distribution automation, is it optimizing capital investment?
· If a tiny minority of customers is billed on time-differentiated rates, isn’t a substantial chunk of the AMI business case forfeited?
· If a utility fails to use meter/sensor data to right-size transformers, identify challenging demand increases from electric vehicles, or provide improved outage information services, is it maximizing the value of smart grid data?
· If IOUs choose not to implement Integrated Volt/VAR control -- out of concern that their rates of return will be harmed by the resulting reduction in sales volume -- should you blame them?
The traditional modes of motivating an IOU to invest capital in its distribution system – providing a fair rate of return on shareholders’ equity – do not necessarily motivate an IOU to maximize the value of smart grid investments. The operational, organizational and regulatory changes required to maximize smart grid value are difficult in the best of circumstances; they are almost certain to be even slower to materialize without incentives or indeed with outright disincentives.
Read more on page 2 >>
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