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Technology Corridor

EPRI challenges the industry to modernize the grid.
Fortnightly Magazine - August 2004

Technology Corridor

EPRI challenges the industry to modernize the grid.

At a time when a secure and reliable electricity infrastructure should be one of our highest priorities, we find ourselves with a system that is increasingly vulnerable to power quality problems and to intrusion, both natural and man-made. The constraints on utility investment that have brought us to this state must be released so that we can move forward to enable a truly digital society and economy.

The reliability of our power supply needs to be fundamentally improved. Consumers are paying an increasingly high price in terms of unreliability, largely driven by the digital revolution. Computer technology is driving assembly lines and process control, and all the things in the flow of commerce. The cost of power disruptions, small and large, has grown to about $100 billion a year, or in effect a 50-cent surcharge for every dollar spent on electricity-a cost that is buried in the cost of goods and services. It can be eliminated.

Certainly, policy confusion depresses the financial health of the industry, and investment abhors uncertainty. You don't want to put your money in a venture when you don't know whether or not you're going to get it back. The system today makes it very difficult to justify investment because the rules are not clear and they're subject to almost whimsical change. That is not a situation that can be tolerated.

We have reached a state where there is a loss of clear accountability incentives for system development and investment. The obligation to serve, which was traditionally at the root of this business, has been clouded. Who is accountable? The public sector says, "We've turned it over to the market." The market says, "You haven't given us rules that allow us to do it." So the market, which was expected to solve the obligation-to-serve issue, and provide it in a market-driven system, can't do so within the confused system of rules guiding infrastructure investment, or in the analog system of infrastructure that exists today. As a result there is a sense of a growing tension between the electricity sector and national well being.

Rebound Dilemma?

If the utility industry has got problems now, what will happen as the economy continues to strengthen? Are the lights going to go off? Are they going to flicker? How is the industry going to keep up with demand? And what is it going to take for this industry to get the investment it needs?

The industry is currently in a low-growth period with single-digit rates of return. But what's going to happen when utilities have to compete with double-digit rates of return? What sorts of business structures are going to have to be created, perhaps at the expense of the public good, in order to justify those levels of return? Those are things that policy and decision-makers have to come to grips with in terms of stabilizing policies and providing leadership so that investments look not only to the immediate payback, but the strategic payback for future generations.

This electricity infrastructure is

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