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Maximizing Customer Benefits

Performance measurement and action steps for smart grid investments.

Fortnightly Magazine - January 2012

Scores of investor-owned utilities (IOUs) have invested hundreds of millions of dollars to improve distribution capabilities. Now those utilities are beginning to consider how best to utilize the new capabilities. Other IOUs are in testing and strategy development phases. And regulators are considering what role they should play in encouraging IOUs to make prudent grid investments while minimizing risks and maximizing benefits for distribution customers.

As more utilities make smart grid business cases public, and as more independent smart grid performance evaluations are completed, 1 a picture of the principal smart grid customer benefits, costs, risks, and drivers is emerging. Many observers, from the Maryland PSC to the governor of Illinois, have concluded—correctly in the author’s opinion—that the business case for the smart grid is far from being a “no brainer,” and that significant post-deployment efforts are required if benefits are to be maximized. It’s becoming increasingly clear that most investments in smart grid capabilities are different from traditional generation, transmission, and distribution investments in one fundamental respect: commissioning doesn’t automatically translate to customer value.

Traditional utility investments are made, more often than not, to replace aging assets or to meet increases in demand for capacity. Once the case for investment is made, procurement proceeds, assets are placed into service, and customers enjoy the value in terms of improved reliability, reduced emissions, and similar benefits. Many, if not most, smart grid capabilities are different in that utilities must make concerted, post-commission efforts—in organizational changes, operating process redesigns, and customer program development—to maximize value for customers. Variation in time-of-use pricing program designs and adoption rates will impact the level of benefits received by both participating and non-participating customers. The extent and design of interactive volt/VAR control deployment will impact the degree of improvement in distribution efficiency. And the vigor and timing of meter-related staff reductions will impact the amount of O&M savings realized.

To summarize, smart grid benefits are driven in large part by utilities’ design and post-commission implementation choices. In the case of IOUs, these choices are in turn driven largely by regulation. As a result it’s appropriate for customers to ask some tough questions related to the smart grid:

• Is my utility maximizing the value of smart grid investments? And how would I know?

• Who should take the lead in measuring benefits—regulators or IOUs?

• What can regulators do to encourage IOUs to make prudent investments and maximize benefits for customers?

• What can IOUs do to maximize benefits for customers?

Answering these questions will require regulators to establish the conditions necessary to encourage and enable IOUs to maximize customer benefits, and IOUs must make the organizational and operational changes—and develop the customer programs—necessary to maximize those benefits. Failure on the part of either party