Economic barriers complicate T&D modernization.
James M. Seibert (email@example.com) is the managing partner of management consulting firm Chicago Energy Associates. The author acknowledges the contributions of Jeffrey Cummings, principal at UMS Group.
Industry interest in transmission and distribution (T&D) network modernization and the ubiquitous smart grid seemingly couldn’t be higher. The infrastructure security challenge that developed in the wake of September 11th, 2001 and the August 2003 blackout elevated the modernization topic, and it has more recently become a white-hot industry need that has been supercharged by the American Recovery and Reinvestment Act of 2009.
While enthusiastic equipment vendors and zealous environmentalists push for the comfort of mandated modernization requirements, more thoughtful industry stakeholders are seeking to develop a technically and economically rational approach to modernize the T&D network. The core of this challenge lies in making modernization a financially attractive investment and it has two essential ingredients. First, investment resources must be available through consumer rates to provide utilities with the capability to invest in T&D modernization. Second, future rates (and ratemaking policies) need to embody the economic relativities of new, rapidly changing (and thus obsolescing) technologies that are replacing the industry’s technically stable assets. In both of these areas, challenging the industry’s conservative investment and depreciation practices likely will be necessary to make widespread, economically rational T&D modernization occur.