2 Smart Grid Lessons Learned: Increasing Stimulus Grant was Mistaken. Utilities Must be restructured

Jose Antonio Vanderhorst-Silverio | Aug 25, 2010

        

“SmartGridCity Too Costly To Duplicate: Xcel To Ask Customers To Pay High Cost Of Pilot Program,”is a news report  written by Tyler Lopez, a 7NEWS Reporter at TheDenverChannel.com. Next is a comment that I posted under it:

Although the SmartGridCity project did not apply for Smart Grid Stimulus BillI funding, there are two very important lessons to be learned. In the April 2009 EWPC post DOE's WISE NOI for an FOA,  I wrote that "I believe that the small grant size is well thought out. Like IBM with the PC development, IOUs need to set up independent units if they want to be funded and to stay in the game."   

However, borrowing at text intended as a forecast, that Jesse Berst wrote, DOE raised "the ceiling 'after major electric utilities complained that the proposed $20 million-per-grant limit was too low to encourage commercial-scale deployment of advanced technologies."   

In the Next three paragraphs, taken from the news report of TheDenverChannel, there is a clear lesson learned relative to the “commercial-scale deployment of advanced technologies:”  

 

Pomerance said the pilot program with 23,000 customers should have been tried with 500 to 1,000 customers.  

 

"As a pilot program, this was way, way too big," Pomerance said. "It was Xcel's failures, not the idea's failures. Quite to the contrary, this is where things are going to have to head if we're going to shift out of fossil fuels into renewables."  

 

Pomerance believes Xcel shareholders should bear the costs.

 

In addition, as a general lesson learned for both utilities and regulators, I too suggest that Xcel Energy should bear the cost. That is in sharp contrast to the following two paragraph quote from the same report:  

 

Gov. Ritter approves of Xcel's attempt to recoup its costs.  

 

"While we acknowledge the challenges and costs associated with the project, the development of the Smart Grid is a critical market transformation for the future of utilities. We need a 21st century grid for a 21st century society; these investments will build energy security by reducing peak demand, balancing conventional and renewable energy, and save consumers money as their homes, appliances and devices use electricity in a vastly more efficient and responsive manner," wrote Todd Hartman, media relations manager for the Governor's Energy Office. "It’s important to understand that the rate increase associated with Smart Grid City is a very small portion of a broader rate request, the bulk of which is tied to costs associated with the Comanche power plant in Pueblo."  

 

Especially because it “is a very small portion of a broader rate request,” the reason of my suggestion as a strong lesson to other Smart Grid projects, can be found in the EWPC article Answering “What Energy Business Are You In?” As the Way Out of The Third Depression,  whose summary and conclusion are as follows:  

 

During a similar time of great change, railroads and utilities have defined their business incorrectly, by ignoring several insights, like the one Theodore Levitt gave us in his 1960’s Marketing Myopia manifesto. A quote on the 1982 book Megatrends explains utility investors why the attempt to keep a monopoly on the customer relationship, with an ineffective old economy Big-Bang Advanced Metering Infrastructure will further extend the uneconomic overexpansion of the resources of the supply side. To reduce the odds of the return of the depression, we need policies for the new economy, like power industry transformation and boring banking, which mutually reinforce each other with the coming communications’ boom to enable innovative value creation and long term jobs.  

 

I conclude that any forward looking utility savvy investors, based on the above insights, will now be able to answer without distractions the question “What business are you in,” as either the T&D Grid or the Enterprise side of the EWPC-AF. Hence, I further predict that the opposition of state governments and the special interest utility lobby that aims to disallow the emerging creative destruction of the power industry will fade, in order to decrease the likelihood of The Third Depression.

yyy