The economy has put state commissioners and regulated utilities in precarious positions. Seven state chairmen explain how they’re applying fair rate treatment.
Helping Legislators Understand and Manage Utility Risks
Performance, Political, Customer Expectation, and Fiscal Risk
Each of us face risks every day. Some are relatively minimal and thus not considered consciously. For example, we drive to work every day expecting that we will safely return home at the end of the day. However, some people do not.
Some risks may be minimal, but we address them. Most of us have homeowner's or renter's insurance to protect our interests and fire insurance in the event of a catastrophe. We assess the risk by determining which deductible level is acceptable to us.
Legislators assume a certain degree of risk simply by filing for office. Few have uncontested elections, and most of us have egos that will not permit the thought of defeat. Yet one half of the candidates do lose.
Other risks are greater. Within the political realm, there is the risk that one will be blamed for making an incorrect decision. That often means that not making decisions or remaining committed to the status quo is safer than embracing change.
Some electric utilities are struggling with a flat load. Demands for efficiency and distributed generation and federal regulatory requirements may be urgent. How can utility managers decide what risks to take with new technologies designed to improve system and financial performances? It is important to help legislators and regulators understand the utility's risk management decisions so that they can approve of the company's risk management strategies.
Identifying Political Risk
Technological and operational innovations can help electric utilities meet stakeholder expectations during a slow, flat or declining electric sales period. At the same time, the utilities must meet political and public policy objectives. Investing in expensive devices today may save millions of dollars in operational costs later.
In the new administration, Department of Energy grants for innovative technology pilot projects may be cancelled. The shelved AEP Mountaineer carbon capture and sequestration project was not completed because of state and federal aversion to risk.
The battery fires on Oahu in Hawaii hurt the utility and its customers financially and set back battery installation at other utilities. Ultimately the manufacturer of those batteries went out of business.
The installation of large scale batteries in California today offers opportunities to cost-effectively protect the grid and customer interests. It also includes significant political and economic risk if the projects do not meet performance expectations.
How can electric utilities and vendors reassure legislators and regulators about the viability of technological innovations when political and customer expectations are changing? Using an electric storage device as an example, how do we identify potential risks? Here is a list of potential risks and suggested questions to ask:
Performance Risk: What is the probability that a storage device will meet its projected charge/discharge cycle and life expectancy?
What is the probability that it