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

corrective action in certain capacity-constrained distribution systems, typically in older, densely populated urban areas. Distributed generation technologies could provide capacity-constrained utilities with an innovative and inexpensive opportunity to simultaneously meet load growth and relieve transmission constraints.

-R.K.K. and K.E.H.

Residential customers will accrue benefits only as commercial and industrial customers are able to produce higher quality products and services. However, this is not necessarily a benefit to residential customers, since they already pay for the products and services they require.

It may well be that most residential customers will not be interested in a higher level of reliability, especially if their electric bills are going to increase dramatically. As regulators, we have options. We can decide to maintain the status quo and keep system reliability at the current standard of 3-nines. Alternatively, we can promote an upgrade in system reliability from the current standard of 3-nines to a new standard of 6-nines and let individual customers invest their own resources to bring their level of reliability to 9-nines. Whatever path we take, we are faced with a number of questions that must be considered.

How much to upgrade? A series of open questions

Are transmission and distribution system upgrades needed? Given the effects of aging transmission and distribution systems built to serve local generator monopolies, what level of reliability is needed? Is there only a need for routine maintenance to counter the effects of constraints due to market-based competition or must systems be upgraded to a higher level of reliability in the process? If transmission and distribution companies invest in system upgrades beyond the current 3-nines standard, who should pay the cost for the higher standard of reliability? Can we reasonably expect residential customers to pay for systems upgrades that will primarily benefit commercial and industrial customers?

One strategy for implementing the upgrade would be to have large commercial and industrial customers purchase service, resulting in upgraded systems and the installation of necessary facilities/equipment. Then, mid-size and small commercial and industrial customers could be solicited based on the assumption that they too will need a higher level of reliability and will be willing to pay for it. Regulators should establish safeguards to ensure that basic monopoly service ratepayers are not required to support, through higher rates, the initial improvements in transmission and distribution reliability. Large commercial and industrial customers should bear these costs since they will be the major benefactors of improved reliability. Wherever this discussion leads, there are five relevant public policy objectives that must be considered:

  • Protect residential customers from cost-shifting
  • Encourage competition
  • Maintain a healthy and sustainable utility
  • Safeguard the environment
  • Ensure safety and grid reliability

When discussion of a competitive electric industry first began, customers were told that opening the electric market to competition would provide benefits. One benefit would be the right to choose a supplier of electricity. Another benefit would be that competition would lower the price of electricity. Today, residential customers are questioning the "benefit" of choosing a supplier, and the "benefit" of lower prices is rarely mentioned. In fact, many customers are concerned that