The main argument is that, by inaction, each State Government should be responsible to their constituencies for a very costly mistake that is being made by letting the smart grid process continue without giving State Regulators the proper mandate.
Is the smart grid that is being pushed a costly mistake?
By José Antonio Vanderhorst-Silverio, Ph.D.
Creator of the EWPC-AF
Systemic Consultant: Electricity
First posted in the GMH Blog, on March 14th 2010.
Copyright © 2010 José Antonio Vanderhorst-Silverio. All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from José Antonio Vanderhorst-Silverio. This article is an unedited, an uncorrected, draft material of The EWPC Textbook. Please write to email@example.com to contact the author for any kind of engagement.
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This article is complementary to the EWPC post States that Implement a Heterogeneous Grid are Poised to be the Winners, whose summary says:
States legislatures need to empower state regulators to do the innovative job to satisfy the need for their constituencies that a homogeneous grid is no longer able to provide. To consider a heterogeneous grid, legislatures can take a look at the now closed debate between Mr. James Carson and I, under the EWPC article The Electricity Without Price Controls Architecture Framework (EWPC-AF).
All state governments need to look very carefully to two excellent papers written by Robert Spencer and a second author in the Public Utilities Fortnightly of October 2009 and February 2010. He wrote last year, “A customer challenge,” with Mani Vadari, and this year, “Smart-Grid Roadblocks,” with Bernie Bujnowsky. Both articles are written under the flawed assumptions that state regulators can do a better high-tech job than the market can under a very risky proposition.
While I insist that responsible States Governments look at both articles in depth, in “A customer challenge: consumers hold the key to technology’s benefits,” Spencer and Vadari say that “If this goes wrong, benefits will be greatly delayed and societal costs increased, so prior deliberate and thoughtful action is imperative.” But that is exactly what happened with deregulation where the market architecture and the market design were flawed. It follows that State Government leadership is imperative to enable the process of “deliberate and thoughtful action.”
The authors add that “In the words of AARP spokesperson Marti Donaghy, “We vigorously oppose the mandatory imposition of these smart meters in peoples’ homes. Everybody has to pay for this change, and a lot of the 50-plus population simply isn’t that interested.” That imposition is a reflection of the requirements of the homogeneous grid, which is an incremental extension of the Investor Owned Utilities Architecture Framework that State Regulators are bound to follow.
Spencer and Vadary seem to be in line with the idea of a heterogeneous grid as they write that “If we are going to do better at influencing consumer behavior, the studies and theories concerning the diffusion of innovationscontain two helpful concepts: adopter categories and characteristics of the adoption process… Each adoption category is shaped by different kinds of motivations and capabilities (or limitations) that shape the segment’s propensity to adopt.”
However, one very dangerous element that is not recognized is the non-trivial aspects of high-tech marketing. As shown by Geoffrey A. Moore, in his book “Crossing the Chasm,” a BusinessWeek Bestseller, “The real news, however, is not the two cracks in the bell curve, the one between the innovators and the early adopters, the other between early and late majority. No, the real news is the deep and dividing chasm that separates the early adopters from the early majority. This is by far the most formidable and unforgiving transition in the Technology Adoption Life Cycle, and it is the more dangerous because it typically goes unrecognized.”
In the “Smart-Grid Roadblocks: strategies for surviving the smart grid transition,” Spencer and Bujnowsky say that “In the end, however, the question utilities will need to answer is whether they will serve the new market they are creating with smart grids or defer to other, more nimble organizations.” They add that “the smart grid represents a change that will be truly transformational in nature.” Please correct me if I am wrong, but the implied decision does not correspond to the utilities, that are installing smart meters without risk, under an obsolete business model of winning rate cases to the regulator, but to the corresponding State Government that are able to open the power industry to business model competitions under the EWPC-AF.
To understand from another angle that we are considering a very risky proposition, Spencer and Bujnowsky write the following conclusion:
It isn’t altogether clear that utilities are well suited to working in a more customer-focused environment. Fully exploiting the potential of the smart grid will require unprecedented functional integration, personal adaptability and cultural change. But as utilities choose to take on these changes, they should find developing their management capabilities and organizational talent, metrics and possible restructuring to be extremely helpful.
By repeating one of the above arguments, it is not the utilities that should take on the leadership on these changes, but the State Governments to start a restructuring process. It should now be very clear that the smart grid as it is being pushed is a costly mistake.