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SpotlightWrong, wrong, and wrong. 3 things politicians don't understand about ComEd's smart grid plans
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Sep 20, 2011
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Click here for David O'Brien's commentary >>
As you know from our coverage, Illinois Governor Pat Quinn vetoed legislation that would pay for ComEd's smart grid rollout. And he didn't just veto it. He issued a press release full of inflammatory condemnations and insults aimed at ComEd.
Under the theory that it takes two to tango, let's assume that ComEd did make some mistakes. Perhaps they overreached financially. Or perhaps they failed to adequately communicate the benefits of the smart grid. But whatever their share of the mess, they didn't deserve the insinuations that they are evil overlords trying to bilk the unsuspecting public.
If we are going to realize the dream of a smart grid, we need both modernized technology AND modernized policy. Consider, for instance, the remarks below from David O'Brien, one of the country's top regulatory experts. (A former Vermont regulator, David is now Director of Regulatory Strategy & Compliance at BRIDGE Energy Group, a leading utility solutions provider.) David got in touch with me for some back channel discussion. I found his commentary insightful, so I asked him if I could share it with you here. – Jesse Berst
Click here for David O'Brien's commentary >>
| Don't Blame the Governor |
| Let’s be honest about the way ComEd presented it case. First, it hires Black and Veatch to present a report with unrealistic savings- eliminating non-recorded energy losses and bad debt. Both of these could be controlled with better financial procedures and aggressive collection practices. The monetary savings from these losses were obviously overstated by B&V. NOBODY in the utility industries see these kind of losses on a $/customer basis. Next, system reliability is correlated to a properly designed and maintained infrastructure. If your system is experiencing excessive cable failures, equipment failures, right-of-way problems, and slow response, there is not a Smart Grid system out there that can help. |
| Todd Sumner - 09/21/2011 - 07:07 |
| Illinois Statewide Collaborative Report |
| Much of the groundwork for ComEd's smart grid plans are based on the two year collaborative effort ordered by the Illinois Commerce Commission. The final report is the result of that broad stakeholder collaboration and concensus but it seems many have forgotten about it already. Check it out at http://www.ilgridplan.org/ - it is a model for other states to follow and a broadly useful document on its own. |
| Erich W. Gunther - 09/21/2011 - 07:57 |
| Modify the incentive structure for unbiased analysis |
| One observation is that the economics change from a utility perspective if one compares consumer-owned utilities vs. shareholder-owned utilities. Cost/Benefit can be all over the map and sometimes that can be explained (urban/tight service are vs. rural/spread out service area) Shareholder owned utilities receive a guarranteed rate of return on capital investment (10-12%). Plus there are tax benefits associated with accellerated depreciation. Tax exempt bond financing is available for consumer-owned utilities so I'm not trying to point fingers - just illustrate how conventional regulatory incentives work. My point is that if one removed the rate of return for capital on AMI deployment at the customer level then it might level out the analysis of smart grid deployment across different utility sectors. |
| Jeff Nelson - 09/21/2011 - 09:50 |
| Pot Meet Kettle |
| I find it amusing that Illinois / Chicago, one of the most corrupt political places in the nation are going to call someone else corrupt. Wow.... just... wow. These knee jerk 'fixes' they are trying to ram through their legislation is just your typical political pacification and granting favors to those in a position to help re elect these people in the future, A chicago tradition. With that being said, what the entire smart grid, and yes, ComEd needs is some HONEST PR. Someone who can explain in plain English to people, what smart grid is, from the power generation and distribution side to the customers side. Explain what it can and can NOT do, and how it can help the customer. Once we clear the air of number juggling and spin doctoring and in some cases, outright lies, and get some honest truth out there; I believe that folks will find that perhaps the public is not so 'stubborn' after all to accept changes. Besides for a few outliers, I really don't think the public is all against 'smart' technology, it's just that they really don't know what it is, or what it can do. Traditionally utilities are perceived as 'evil empires' Now add to that, that politicians have lost what little trust they may have had. People are going to balk both at nebulous requests to spend more money, as well as the politician with questionable motives saying they are trying to 'protect the people'. Government and Utilities need to put their self interests aside and work together if there is ever going to be a chance of this genuinely working. Sadly I don't see that happening anytime soon, no matter WHICH side is in charge. |
| Aaron Scholten - 09/21/2011 - 11:54 |
| Accounting Issues |
| As a power supply manager for a utility it has becoming increasingly appaarent that the accounting system I am use to using to managing the system does not provide the time of use cost data that is getting to be so important, nor are the total cost of ownership associated with each resource or power purchase best captured and computed on an hourly or other time of use basis. Smart grid economics require a time component for electricity costs that is reliable and meet accounting standards. Without that it is a tango between two people who can not dance and it then degrades into he said, she said. I can't do the tango, probably never will, but I think I get the accounting thing worked out, but it will not be easy. |
| Fredric Fletcher - 09/22/2011 - 10:53 |
| 3 Wrongs |
| Wrong #1 - generally true in many states. Not true in California. However it does depend on usage patterns, and I'm not sure one can generalize that low income folks have flatter load profiles than wealthier folks. Wrong #2 - one needs to put a value on the beneficial impact of faster outage restoration. Would the capital outlay for digital sensors and controls be better spent on other enhancements that could reduce the frequency of outages in the first place? Perhaps instead of smart meters, we need wires infrastructure that stands up better in bad weather? Wrong #3 - agreed, but there needs to be a way of ensuring accountability. In a competitive business, customers can switch to another provider. For electric distribution, I think it has to be the prospect of having a franchise taken away, having assets appropriated, or foregoing cost recovery until things are fixed. Otherwise regulators are essentially sanctioning a wealth transfer from consumers to Com Ed's shareholders. |
| Jack Ellis - 09/22/2011 - 20:40 |
| Regulatory Pushback |
| David - Your comments, as usual, are spot on and quite meaningful. I made similar observations in a recent blog (http://smartgridsherpa.com/blog/illinois-smart-grid-investments-on-halt-after-smart-grid-bill-is-rejected), including the notion that regulators are not always willing to consider the avoidance of future cost increases, rather than absolute cost reductions, as an investment benefit. |
| Rob Wilhite - 09/24/2011 - 07:44 |
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