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Perspective

Regulators will have to decide who pays to upgrade the transmission system.
Fortnightly Magazine - November 1 2001

consumer advocates have a small window of opportunity to examine the critical issue of who pays and how much. Regulators must address the issues of cost versus reliability demanded, now.

Regulating Reliability: A Delicate Balance

The allocation of fixed costs in transmission and distribution systems will increase in response to technological innovations, new capital and depreciation requirements, and changing regulatory strategies. System upgrades that are unnecessary for residential electric service may cost hundreds of billions of dollars. The policy question is, who pays for system upgrades and how will cost allocations be applied? Regulators have difficult questions to consider. Will transmission and distribution upgrades result in stranded investments with associated revenue requirement deficiencies? Reliability improvements may be implemented for the commercial and industrial customers who may decide not to support general system upgrades and invest in their own strategies. Will this leave residual revenue requirements to be recovered from residential customers?

Shifting the cost of the investment for upgraded service not needed by residential ratepayers will threaten some residential customers' ability to afford electric service and will be unfair. In this scenario, regulators will need to see evidence of any benefits that will accrue to residential customers. However, in our judgment, evidence of benefits to residential customers is unlikely since the benefits of an upgraded system are inherently directed toward commercial and industrial customers.

Energy Requirements of a Digital Economy:
A Brief History of Reliability

Some call it power quality and others, reliability. Whatever it is termed, regulators and customers are concerned about the frequency and duration of power outages. It is common for electric utilities to assure customers that there is adequate generation and that transmission and distribution systems are fully operational. Today, existing transmission systems provide 4-nines (99.99 percent) reliability while distribution systems provide 3-nines (99.9 percent) reliability. This means that 99.9 percent of the time, power will not be interrupted. It's that 0.1 percent of the time that that has some customers worried.

An energy problem has recently emerged for many customers. Computers have created a situation that was not anticipated by the electric industry a few years ago. Today, many personal computers are used continually to access the Internet. This type of computer use requires power in ways not traditionally seen by the electric industry. Power is required by servers, routers, and other trafficking infrastructure components located many miles, cities, or even states away from the end-user. This infrastructure is housed in huge, air-conditioned warehouses called server farms. It is common knowledge that an unprotected microprocessor will malfunction if power is interrupted for even a single AC cycle-one-sixtieth of a second.

Presently, momentary power surges and declines are common on grid systems. This is a reliability issue. Power quality today isn't essential just for personal computers. Obviously, manufacturing any product also requires quality power. Reliable power is needed for generating pulp, producing paper, making plastic bags, weaving textiles, fabricating light bulb filaments, manufacturing aluminum rails, molding plastics, and all other manufacturing industries that require a continuous process. If power is interrupted, all unfinished products must be reprocessed or