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The Widening Technological Divide

Increased business and regulatory challenges have utilities lagging in investments to meet energy demand a decade from now.

Fortnightly Magazine - April 2005

more energy-efficient technological innovations are available to support such standards. At the same time, regulators need to protect supplier profitability in the face of declining unit sales through measures that reward efficiency improvements, rather than simply the number of kilowatt-hours sold. Annual trueing-up of rates is suggested as a promising way of solving this problem.

The third recommended policy initiative is directed primarily at state regulatory practices, specifically, greater reliance on performance-based regulation. This will, of course, place greater responsibilities on each public utility commission to benchmark utility performance, set standards, and reward performance accordingly. Certainly, the knowledge and mechanisms to apply these regulatory leadership principles wisely are widely available. Until this transformation in regulatory practice is thoroughly applied, the nation's power system will remain incented to maintain the past, rather than to create a higher value future for consumers.

In sum, the clear lesson of the past decade has been that neither regulated nor deregulated electricity markets are conditioned or incented to pay today's true cost of just "keeping the lights on." Efforts to maintain an artificially low electricity cost structure at the expense of the necessary infrastructure development and investment are simply not sustainable. A new course must be taken in the coming decade that accepts this reality.

Implicit in the ability of the electricity sector to better control its destiny will be the re-establishment of the regulatory compact around a mutual, public/private obligation to serve more valuably and reliably through innovation. Uncertain regulatory treatment of costs, plus rising fuel, labor, interest, and equipment costs make it more difficult to modernize and expand the electricity supply system and raise its value proposition.

The cost/benefit of modernization is profoundly positive. For example, the cost to the average household would be less than $5 per month, taking no credit for the considerable energy savings opportunities that each consumer would be empowered to achieve through a modernized, more functional power system. In return, each consumer would save hundreds of dollars a year in the price of purchased goods and services as power reliability and quality improve.

Even more financially significant would be the income potential added to each household as the nation's productivity, security, and competitiveness increase. Over the next 10 years, the over-arching priority of the electricity sector will be to define and pursue a combination of policies and initiatives that will lead to substantial growth in sector value and investment. In support, a proactive technology-development program will be necessary. This should emphasize power system reliability and functionality, management of greenhouse gases, and the development of higher value, more efficient smart electricity services. Technological innovation will be, as it has been throughout the history of commercial electricity service, the essential asset determining the destiny of the electricity sector and its value to society.