Investing in reliability benefits shareholders and ratepayers alike

Growing up in the U.S. Virgin Islands, I could give you some tales about the reliability of our electricity grid. Blackouts were monthly, unannounced, unexpected. They could last through the night and when power came back on, one kept their fingers tightly crossed that the relief would last more than five minutes. To this day, brownouts and blackouts are still a problem. Consumers face exorbitant rates in excess of thirty cents per kilowatt hour and compounding the expense is the use of oil as the primary fuel source for generating electricity.  Throw in the occasional hurricane and hilly terrain and our challenges are further increased.

Having lived in the States for 37 years, I am now spoiled. The hours-long monthly blackouts I experienced back home have been replaced with temporary outages occurring every couple years.. This reliability in service is a result of public policy that requires a certain level of quality service delivery combined with billions of dollars of investment by the utility industry in a resilient electricity grid.

And that investment in America’s national grid has been hefty. In 2016, investor-owned utilities invested $52.8 billion in transmission and distribution facilities.  Because the business of generating, transmitting, and distributing electricity is very capital intensive, investment in the electric grid has always been costly. 21st century demands on the grid are changing it from a one-way service delivery system to a multi-directional service delivery platform.

The grid is becoming “smart”, allowing customers to use mobile broadband to manage energy consumption. These upgrades to the grid will require adding digital technologies like smart meters. Seventy million smart meters were projected to be installed by the end of 2016.

Alternative generating fuels such as solar and wind are being incorporated into the modern grid. In Florida, state law requires investor-owned utilities meet state-mandated conservation goals including the incorporation of various demand-side management programs, energy efficiency programs, and alternative fuel sources like solar.

The two-way exchange of information and, in the case of net metered ratepayers, electricity means that the once stodgy electric company is becoming a data company. Like its sister firms in the broadband and internet information sector, the modern utility can collect information that could be used in the future to design innovative services for ratepayers based on past consumer behavior. The stodgy days of the 20th century are gone.

Regulators should consider these changes in the electric utility industry when making decisions on utility revenue requirements and rates. Capital expended by utilities to accommodate alternative fuel sources, facilitate demand management, and keep the grid up and running 24 hours a day, seven days a week should be recovered by rates that contribute to capital while providing a grid that contributes to the well-being of the consumer.

About Alton Drew

Alton Drew brings a straight forward and insightful brand of political market intelligence. Alton Drew graduated from the Florida State University with a Bachelor of Science in economics and political science (1984); a Master of Public Administration (1993); and a Juris Doctor (1999). You can also follow Alton Drew on Twitter @altondrew.
This entry was posted in consumer welfare, consumers, Economy, energy, Uncategorized and tagged . Bookmark the permalink.

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