Like a physician with her stethoscope at the outset of a check-up, astute shareholders and directors should use the level and trend of a utility’s market-to-book ratio (MtB) as one of the first...
Business Case Tradeoffs
Shaping long-term smart-grid strategy.
often narrowly, and around specific technology platforms and projects ( i.e., commonly smart metering). The endeavor begins as a validation effort about implicit decisions already made, not as a deep assessment of alternatives and tradeoffs.
First, by not providing clearer definition early in the business case endeavor, the utility can create fragmented internal efforts that over time turn into separate full-blown initiatives. Instead of coherence and alignment of a broad initiative, say, to provide customers greater control and convenience in their energy choices, the utility ends up with separate programs around technologies for advanced metering, price-responsive demand response, load control, and energy efficiency. Somewhere else, groups are evaluating tariff-change requirements, impacts to the energy and capacity supply portfolios, and customer outreach initiatives in support of these other initiatives.
Second, and related, the scope of the business-case endeavor can be discretionary and incomplete and lead to questions about cost and benefit allocations. The team might wrestle with how expansive in scope the work ought to be. Should it include home area network options, program considerations, and costs? Should it deal with backhaul communication issues impacting future distribution communication and automation? And what can the program take credit for in terms of benefits? Does it get credit for enabling demand response-driven reductions when that program already has been cast in stone?
Third, by a de facto narrowing of the scope resulting from the up-front bias, the business-case work never engages expansively about alternatives, whether technology, program design or implementation tactics-related. For example, if the AMI initiative isn’t integrated with the demand-response critical peak pricing (CPP) initiative, how does the utility explore the tradeoffs of money, time, risk and outcomes of various CPP program designs? The CPP program design choice may help stretch out or contract capital spending, restrict or expand choices around network design, create different priorities for IT system changes and alter energy efficiency program priorities. These choices present their own tradeoffs to other potential smart-grid efforts as well.
Part of the reason that the business-case efforts are set up this way can sometimes be traced back to the forcing regulatory requirements, which might be technology prescriptive and narrow. Programs get aligned to meet the regulatory mandate before key questions about the mandate are resolved. It’s also convenient to align the organization’s efforts to the technology itself, and so, for example, the company’s evaluation of a high- speed backbone communication network might go to one group while the AMI system goes to another.
The purpose and scope of the utility smart-grid business case can be designed to mitigate the issues raised above, and to look at the complex tradeoffs associated with multiple technologies and programs. In fact, DOE’s Smart Grid Systems Report (July 2009) identified “properly constructing the scope of the business case” as one of the key challenges facing smart-grid adoption in the United States:
The business case for a smart grid needs to be firmly established for deployment decisions to progress. In many situations, individual applications may not be cost effective in isolation, but where common hardware and information network