Middle Mile Moxie

Fortnightly Magazine - January 2010

As chief architect of Xcel Energy’s Smart Grid City project in Boulder, Colo., Ray Gogel served on the front lines in the industry’s technology revolution.

With the Smart Grid City project, Xcel proposes to create America’s first fully functional intelligent grid, with communications and automation systems linking the network from end to end, power plants to meters. Although Xcel still is deploying the system, Gogel says the project already has yielded some important results. Most notably, it’s shown that the early payoff from smart-grid investments won’t necessarily come from automated metering, but from automation in the distribution network—the “middle mile.”

Moreover, he says, these investments are driving the industry toward a new world of risks and opportunities for utilities.

Fortnightly spoke with Gogel in late 2009, after he left Xcel to take the helm at Current Group—one of the companies that’s providing distribution automation technology for Xcel’s Smart Grid City.

 

Fortnightly: What do you mean by the “middle mile,” and why is it important?

Gogel: The smart grid started when people realized we should re-engineer the existing grid, because its design principles were fundamentally flawed. The distribution system was designed to run to failure. When it failed, customers would complain, and that was the intelligence in the value chain. That’s not a business model that most industries can survive with, but we’ve done it for decades.

What I see now is a deepening of thought. First people began asking how we’ll leverage technology in the last mile to bring customers into the system. The middle mile is the next step in the grid’s evolution.

Traditionally, we’ve had very little visibility beyond the transformer. Xcel Energy’s Boulder pilot showed that if you can light up every transformer and see the voltage that’s there, you can use software to analyze quickly what’s taking place, and you can use the same software to control network elements, like load tap changers and capacitor banks. If you can start manipulating a complex grid on the fly, you can deal with VARs automatically. You can improve power factors and reduce losses.

First, you make the grid transparent, then you put in automated controls, and then the middle mile becomes an optimization play. For example, it becomes the condition of possibility for energy to flow in both directions. If you can anticipate bilateral flows and consider multiple inputs on a feeder-by-feeder basis, then you can manage distributed generation and plug-in hybrid electric vehicles (PHEV) that will be coming onto the grid.

This leads to some interesting possibilities. In the new world, companies will aggregate distributed generators on peoples’ houses, similar to the way EnerNOC or Comverge aggregate demand response, and they’ll make automation investments in the middle mile that will allow them to create and sell virtual power. They’ll back it up with traditional offerings, but their role fundamentally revolutionizes and accelerates the evolution of the smart grid.

 

Fortnightly: How might these changes affect the evolution of electricity markets?

Gogel: The market will have to change, because we’ll be looking at smaller pieces of the puzzle to dispatch. Can you imagine a day when we’re aggregating distributed resources as a first call for energy into a feeder, instead of just calling on bigger bulk-power plays? The future won’t be about just [base-load plant] retrofits and building peaking plants. And the nature of the peaking plant is fundamentally changing, because the more volatility you put on the grid, the more backup you need. Peakers will be running more than they were before.

As for retail markets, I’m not yet a believer that retail markets fundamentally will shift, and I believe utilities are a very efficient way to make capital investments. But we have to change the model so utilities aren’t making their money on iron in the ground and sales volume. The revenue model has to change so utilities make their money on innovation and cleverness. But that also means we have to get away from this Monday-morning quarterback practice where the regulators say an investment wasn’t prudent because it was imperfect. That doesn’t encourage innovation. Instead it maintains the status quo. The market should reward innovation and new entrants into the industry, and we should change any framework that doesn’t reward that.

 

Fortnightly: That would require some fundamental changes in the business model. Isn’t that asking a lot of the industry?

Gogel: Well, we are asking a lot already. We’re asking utilities to change the tires while they’re driving the car. Going from a product mentality to a service mentality requires re-engineering our whole delivery model. Contacts with shareholders, employees and consumers are fundamentally shifting.

 

Fortnightly: What lessons have been learned so far from Xcel’s Smart Grid City project?

Gogel: Obviously there’s much more yet to be seen, but the initial results are coming from the middle mile, the distribution grid. They’re around things that don’t sound as sexy as PHEVs, but are really important to the charter of the utility. We know, for instance, that service investigations resulting from voltage fluctuations at the customer premise went from 50 in 2007, before the smart build out, to zero thus far in 2009. Admittedly that’s not a huge universe, but it shows the benefits of making the grid proactive, where you can see every transformer and use software to analyze the data and make recommendations. There hasn’t been a transformer event that the software hasn’t predicted. It’s going from a reactive world, where you run to fail, to a world where you can dispatch resources to avoid outages. I hope soon we’ll see how dynamic voltage optimization is implemented and what consequences that has for the grid in general.

Also we’re still awaiting results around customer buy-in, the use of smart meters, changing lifestyles, all those things. It’s too early to judge, and you have to be realistic when you talk about disruptive technologies changing people’s behavior. Until the technology is smooth and sophisticated—which isn’t the definition of disruptive technology—people’s lifestyles won’t change. It will take a generation for it to happen.

But Boulder is proving that utilities are willing to rethink their traditional business models. They’re willing and able to take risks and be innovative.

And it’s showed how vendors and utility departments can come together and drive innovation. By focusing on their customers, utilities can start tying together different silos. They can work together and create something new. In fact, if people go naively into the smart grid and don’t think about how they will manage across silos, they’ll inevitably fail.

 

Fortnightly: Xcel is known for managing successful collaborations, with things like its Utility Innovations initiative and now the Boulder project. How is that accomplished?

Gogel: You create strategic advisory boards, with not only technical people but also CEOs of different companies. That’s what we did at Boulder, going back to 2002. The selection process focused on functionality, and also on each entity’s ability to partner with other players.

The tricky part is handling the creation of new intellectual property. It requires discipline on everybody’s part.

 

Fortnightly: What do you see as the biggest questions now as the smart grid emerges in the context of changing energy policies?

Gogel: We’re at the beginning of a journey, and so far it’s been successful in that a dialogue is taking place among stakeholders. However, by injecting real innovation into the space, you’re going to change the paradigms. We’ve got to find ways to keep utilities whole in that process.

Sometimes in policy debates we forget the fact that in this industry people go out and climb poles in the middle of ice storms and hurricanes, to keep consistently delivering power to customers. This is a job of a higher order. Utilities are maintaining their franchises and their charters, and we’re making their lives significantly more complicated. We’re tapping into the fifth fuel. Renewable power producers are entering the market, and there’s a movement toward cap-and-trade, with a lot of unanswered questions.

A key question is how we drive this concept of virtual power, of conjoining supply and demand and managing them at the distribution level. How do you make virtual power a reality, not just to serve the 40 to 80 hours of critical peak each year, but for the other 8,700 hours as well? It’s in the consumer’s interest, but how are regulators going to treat the hard work and innovation utilities are doing? Utilities should be compensated for doing that work and managing those risks—with multiples—but charters have to be reinvented one step at a time.

There’s a lot of hard work to be done, and there’s a lot of opportunity. I’m looking forward to the best and brightest companies showing what the grid can be.