Despite the industry’s cautious and inconsistent approach, the smart grid is becoming a reality. Projects and pilots have provided valuable experience about what works and what doesn’t. Recent...
two-thirds of the resource chain lost to wasted heat.
Also, until recently relatively few opportunities existed for our nation's engineers and entrepreneurs to find productive uses for waste heat, as it is much harder to transport heat efficiently than to transport electricity. The cost-effective and efficiency-increasing uses that will be uncovered as these heat sources are increasingly distributed throughout the end-user community may far exceed the uses of today.
Unfortunately, they may remain undiscovered for a while. The current regulatory environment is a result of the co-evolution of the nation's regulated monopoly utilities and the (largely) state utility regulatory system. In most states, that regulatory environment continues to discourage the interconnection of distributed generation to the local distribution system. Worse, pursuing the public interest based on century-old assumptions and pearls of wisdom, public utility commissions and state laws continue to sanction arcane tariffs such as "customer retention rates" or "economic development rates" used to provide "secret" discounted rates in exchange for the promise not to install on-site generation-even if such generation would be up to 90 percent efficient and the utility itself may need more power! These arcane and perverse tariffs thus allow utilities to disrupt ventures aimed at providing more cost-effective and far more efficient cogeneration or combined heat and power alternatives.
In supporting such customer retention or economic development rates, regulators-perhaps unwittingly, and certainly without consideration of what is in the public interest today-help utilities retain customers at the expense of well established and proven technologies that can offer greater efficiency and, potentially, lower costs. More egregious still, perpetuating the out-of-date regulatory-utility paradigm thwarts realizing the greater public interest, which clearly should be focused on making the most efficient and cost-effective use of our resources.
Shareholders and ratepayers may benefit in the short term (only if externalities are not considered) from stable utility revenues. The public suffers, how-ever, from the continued inefficient use of fuel resources and the resulting high-er financial and environmental costs.
What Regulators Must Do
As a basic tenet, the public interest re-quires that where demand is growing or where an increase in generating capacity is required, regulators must eliminate or scutinize very carefully legacy rules and tariffs that work to exclude more economical CHP and other clean distributed energy resources-even when offered by third parties.
Regulators could fashion the necessary new guideposts largely through a case-by-case analysis of combined heat and power opportunities. As a general rule, however, regulators should eliminate economic development rates and customer retention rates where the objective of using those rates is to limit the introduction of energy-efficient generation in order to protect the revenue of the incumbent.
It is unrealistic to expect a century of regulatory practice and utility thinking to be swept away overnight. Instead, the road to creating a new regulatory paradigm that embraces new distributed generation and combined heat and power technologies will follow a series of steps. Among the first steps regulators should be prepared to take are the following.
- The nation's policy-makers must become aware of the enormous waste inherent in our electricity infrastructure. This waste