Funding Technological Advancements through Utility Investment

By Cynthia A. Arcate 2 November, 2011

Technological advancements are changing almost every facet of our lives and have for some time. The energy marketplace is no different, and there are tremendous opportunities for utilizing technology to increase efficiencies, improve delivery and reduce costs.

But there are several roadblocks in the way of proper adaptation of technology and, to me, several easy ways utilities, regulators and technology developers could streamline the process to everyone’s benefit. A discussion took place recently among some of Massachusetts’ players in the energy industry at the offices of a Boston law firm. The title of the seminar was a little different than my title of this blog but, because of the presence at the event of three utilities, that’s where the discussion led.

The focus of the discussion was largely about technological innovation and how to foster it to encourage economic development. It’s a challenge – particularly in a restructured state regime where the value of some technological applications inure to the suppliers rather than the end use customer footing the tab, e.g. residential demand response. The discussion triggered a couple of thoughts in my mind as I draw on my past experience as a seller of energy control technology in the utility market.

The consensus of the panel was that utilities should not be penalized for making the wrong decisions about technology selection so that they are encouraged to adopt new technology. Many also agreed, however, that the utilities have to be prudent in their investment.

It’s a difficult balance. With all due respect to my colleagues in the regulatory community, they do not have and cannot buy the expertise to know whether a utility has chosen the wrong technology. In fact, I’m not sure the utilities have the ability to select the right advanced technology for their business.

The pace of technological change is far too great and, as we know from the brilliance of Steve Jobs, technology can be developed that can do things for a utility that they have not even thought about. In my experience, I often found utility managers specifying the technology they wanted rather than focusing on their goals and letting the market deliver the best approach.

Let’s face it, the developers of this – and most – technology are “scary smart.” Sales and business development people in the technology sector tell their customers that if they don’t have a product to fit a specific solution, they can develop one. And often they can. Yet, utilities consistently issue RFPs that specify the technology they want because they wrongly think they know better than the tech experts.

Therein lies the problem. I believe Massachusetts has made very little utility technology progress because the utilities are focused too much on the product and not enough on the solution.

One big benefit from advanced technology is load management, which can reduce supply costs to the individual consumer and the utility through avoidance of infrastructure upgrades. Yet we have seen little to no effort in this direction from the utilities. The reason often given is that the value cannot be captured for residential Basic Service customers because the benefit goes to the supplier rather than the customer. Ergo, the utilities (and perhaps regulators) believe that they cannot cost justify the investment. But that’s not the case and by that standard, we will never initiate advanced technology. Just as energy efficiency has been cost justified, in part, by the downward pressure it puts on the wholesale energy market, load management technology can be as well.

Massachusetts can make great strides in implementing advanced technology if our collective vision is clearly stated and cost tolerance is clearly set for utilities.

Open architecture is critical so that, no matter the choices, there is some assurance that all these systems can work together. Consistency among utilities would create greater benefits through economies of scale. Then the utilities should take an open, coordinated approach to delineating a pathway to getting there.

It may seem simple but it is, by far, the prudent course of action when it comes to harnessing technology in the energy marketplace.

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