The time-honored discounted cash flow method for determining appropriate utility returns falls short when interest rates are low. Inadequate ROEs ultimately increase cost of capital and wipe away...
Evolutionary directions for electric system architecture.
Electric transmission and distribution (T&D) systems today are going through substantial evolution. That evolution might proceed along any of several possible paths, each of which would affect the way utility companies operate in the United States.
To better understand how T&D systems are evolving, scenario analysis provides a method of disciplined speculation to help organize and articulate our thinking. The object isn’t to evaluate the relative probability or merit of different future outcomes, but rather to consider how specific factors might influence and shape these outcomes in a way that’s consistent with what we know today. Starting with explicit premises about cause-effect relationships, the exercise follows the logical implications of changes in specific variables in order to construct a set of distinct futures that are each plausible under different sets of conditions (see Figure 1) .
Yesterday, Today and Tomorrow
The analysis begins by observing the historical evolution of the T&D system 1 and identifying essential properties that have changed. A simplified view of this evolution is a transition from one era to another: “Yesterday,” extending from the 1890s to roughly the 1960s, to “Today,” from the 1970s to probably the 2020s. Crucial changes during this shift can be described in terms of three properties: function, operation, and form of the T&D system.
Yesterday’s system had the essential function of providing a physical link between a utility’s generators and customers’ meters to deliver a product—electric energy. Its operation was deterministic and planned, and its form was mostly radial. 2 Today’s system still has the function of providing a physical link, but among a more numerous and diverse set of nodes. Rather than facilitating the sale of energy by one party, the T&D system provides an infrastructure for multiple transactions among multiple parties. Its operation occurs increasingly in real-time and involves probabilistic estimation, as the number of variables and the strength of their interaction exceeds operators’ ability to always understand the system’s behavior deterministically. Its form is increasingly networked, allowing for greater connectivity among geographic regions.
The basic question of the scenario-analysis exercise can then be posed as follows: What would the function, operation and form of the T&D system evolve to be, under various sets of conditions?
A range of conditions or factors are likely to drive or influence the future evolution. These include societal factors, markets, policies, technological development, environmental factors and economic conditions. Of course, these broad categories are interactive and necessarily overlap in multiple dimensions. For the present purpose, though, they’re taken to be exogenous to the system under study, the T&D architecture. Graphically, Figures 1 and 2 represent the exogenous factors as clouds, symbolizing a lack of