Utility 2.0 or Just Utility 1.X

On Tuesday, 2013 October 29, I attended a discussion of the report “Utility 2.0: Building the Next-Gen Electric Grid through Innovation.”  I left feeling that the innovations discussed are just more of the same, just as I have often described the smartgrid as SCADA[1] on steroids.  The innovations are not creating Utility 2.0 as much as making slow changes to the existing utility structure, just varying the X in Utility 1.X.

Electric utilities began automating the electric system as soon as Edison started his first microgrid, the Pearl Street Station.  At one time, an operator would read a frequency meter to determine the balance between supply and demand.  In the earliest days, Edison had a panel of light bulbs that would be switched on and off to maintain that balance, which was a strange form of load management.  The operator would also be able to vary the generation by change the water flow to a hydro-turbine, the steam from the boiler, and the fuel into the boiler.  Edison invented control mechanisms that were cheaper than the labor costs of the operator, control mechanisms that his companies also sold to other utilities.  These control mechanisms can be considered to be some of the first SCADA systems.  As the control mechanisms and telephony got cheaper and labor become more expensive, more labor saving devices could be installed.  The policy of having an operator at every substation was replaced by remote devices, lowering the cost of utility service.  The smartgrid concept is just more of the same, as computers become cheaper and faster, remote metering less expensive, and remote control easier to accomplish.

The true quantum change in utility operations occurred in federal law.  PUHCA[2] effectively prohibited private individuals from selling electricity to a utility, by defining the seller to be a utility, subject to utility type regulation and to prohibitions on non-utility operations.  Because of PUHCA, Dow Chemical operated its chemical plants as the ultimate microgrid, running asynchronously and unconnected to local utilities.  Dupont installed disconnect switches that would separate its microgrid chemical plant from the local utility if power began to flow out of the plant.  International Power and Paper became International Paper.  Exxon intentionally underinvested in its steam plants, limiting its ability to produce low cost electricity.  PURPA[3] provided exemptions from PUHCA for cogeneration plants such as those mentioned here and for qualifying small producers using renewable resources.  The latter exemption was almost in anticipation to the growth of roof top solar photovoltaics (PV).  These facilities needed utility markets into which to sell their surplus, which generally resulted in individually negotiated contracts.  The creation of the ISO[4] concept could be considered to be an outgrowth of the desire by these large independent power producers (IPPs) for a broader, more competitive market, instead of the monopsony into which they had been selling.  ISOs now have a footprint covering about 2/3 of the lower US, excluding Alaska and Hawaii.

ISOs generally deal only with larger blocks of power, some requiring participants to aggregate at least 25 MW of generation or load.  ISO control generally does not reach down into the distribution system.  The continued growth of labor costs and the continued decline of automation costs has allowed the SCADA concept to be economic on the distribution grid, including down to the customer level.  This expansion of SCADA to the distribution system will soon require changes in the way the distribution system is priced, both for purposes of equity and for Edison’s purpose of controlling the system.

  • The growth in rooftop PV is dramatically reducing the energy that utilities transport across their distribution system.  This energy reduction generally reduces utility revenue and utility income.  Under conventional utility rate making, the result is an increase in the unit price charged by the utility for that service.  Some pundits point out that the owners of the rooftop PV panels are generally richer than the rest of the population served by the utility.  These solar customers are cutting the energy they consumer, though not necessarily their requirements on the utility to provide some service through the same wires.  The rate making dynamics thus result in other, poorer customers seemingly subsidizing the richer customers who have made the choice for rooftop solar.  This seems inequitable to some.
  • The growth in rooftop PV has outstripped the loads on some distribution feeders, with reports that the generation capacity has sometimes reached three times the load on the feeder.  These loading levels cause operating problems in the form of high voltages and excessive line losses.  During periods of high voltage and excessive line loss, prices can provide an incentive for consumers to modify their behavior.  The genie seems to be out of the bottle in regard to allowing the utility to exert direct physical control over PV solar, but real time prices could provide some economic control in place of the tradition utility command and control approach.

I have discussed the need for real time pricing of the use of the distribution grid in “Net Metering:  Identifying The Hidden Costs;  Then Paying For Them,” Energy Central, 2013September 20.[5] I have described a method in “Dynamic ‘Distribution’ Grid Pricing.”[6]

Changes in state regulations have also impacted this balance between labor costs and automation costs.  Some states now have performance incentives based on the number of outages and the typical restoration times.  The cost associated with the time of sending a line crew to close a circuit breaker now competes with the incentives to get that closure faster, through the use of automation.

In conclusion, the increase in utility automation is not so much innovation as it is a continuation of the historic utility practice of the economic substitution of lower cost technology for the ever increasing cost of labor.  The 1978 change in federal law led to the growth of ISOs and bulk power markets, but did not reach down to the distribution level, perhaps of the lack of non-utility industrial support.  The growth in rooftop PV will provide the incentives for expanding the real time markets down the distribution grid to retail consumers.  Though computers indeed have gone from 1.0 (vacuum tubes), to 2.0 (transistors), to 3.0 (integrated circuits), I don’t see the current changes proposed for utilities to be much more than following the competition between labor costs and automation costs.  We are still Utility 1.X, not Utility 2.0.

[1] Supervisory Control And Data Acquisition.

[2] Public Utility Holding Company Act of 1935

[3] Public Utility Regulatory Policies Act of 1978

[4] Independent System Operator

[6] A draft of this paper is available for free download on my web page, www.LivelyUtility.com

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Mark Lively earned a BS in Electrical Engineering from MIT in 1969 and a MS in Management from MIT Sloan School in 1971. He worked for American Electric Power Service Corporation in New York City from 1971 to 1976 and at Ernst & Ernst, Ernst & Whinney, Ernst & Young in its Washington Utility Group from 1976 to 1991.

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