2.1 Why Are Distribution Systems Becoming an Issue for Regulators?

2.1.2 How Can Technological Obsolescence Best Be Managed?

There is a paradigm shift underway in the distribution utility world. In some locations this shift is moving very slowly or not visibly, while in other locations, the shift is breathtakingly rapid. This paradigm shift can be stated simply as “In the future, distribution utilities may no longer just supply electric energy to customers, but may have  to plan for, coordinate, and manage the flow of electric energy to, from, and between customers..”

With these rapidly changing technological challenges and opportunities, there will never be a perfect understanding ahead of time as to the “most optimal” path forward.  There will be obsolescence of equipment and systems as technologies and market forces drive decisions with imperfect knowledge and with less-than-mature devices and software. Waiting for more perfect knowledge or more mature technology is also risky since certain challenges may become overwhelming and costly, and many opportunities for realizing benefits may be lost.

Managing new technology investments requires taking small incremental steps, placing off-ramps and go-forward decision points on plans, and implementing modular technologies. For instance, laboratory pilot projects can test and evaluate new technologies, while field pilot projects can determine whether and where the technology may benefit operations.  Modular technologies can allow portions of a system to be replaced or the software updated without requiring the entire system to be fork-lifted out.

Federal and State funding sources have often been used to assist in financing these pilot projects, including the 2009 American Recovery and Reinvestment Act (ARRA). Utility regulators have sometimes allowed incremental investments as part of rate recovery. For instance, Arizona Corporation Commission “No Objection” to both Arizona Public Service (APS) and Tucson Electric Power (TEP) proposal to rate-base rooftop solar investments was considered a research project. “No Objection” means utilities will need to prove in a future rate case that the investment was prudent and gain approval to expand any high risk program.

With these rapidly changing challenges and opportunities, there will never be a perfect understanding ahead of time as to the “most optimal” path forward.  There will be obsolescence of equipment and systems as technologies and market forces drive decisions with imperfect knowledge and with less-than-mature devices and software. Waiting for more perfect knowledge or more mature technology is also risky since certain challenges may become overwhelming and costly, and many opportunities for realizing benefits may be lost.

Distribution utilities are struggling to accommodate the new demands of high penetrations of DER systems while trying to determine how to make good use of the smart DER system capabilities. Third parties, whether they are DER aggregators, independent power producers, or retail energy providers, are also wending their ways through the many potential business strategies and the rapidly proliferating technologies. Customers are slowly becoming more aware of possible ways of reducing their energy costs. Regulators are struggling to enable utilities to meet the increasingly demanding renewable energy standards or goals, while balancing the allocation of costs among all the stakeholders.

Given this complex web of stakeholders, challenges, and opportunities, there is no time to analyze what the best solution to a particular problem, even if enough information were available to permit this. So the best advice is for stakeholders to follow a “Policy of Least Regrets” *.

• For utilities, which are naturally conservative in implementing new technologies since their overarching purpose is to support a reliable and safe power grid, this policy of least regrets means that they may have to explore new ideas through pilot projects and in-depth studies, but fairly quickly come to resolutions on which of these new ideas they bring to the field and to the customers.

• For third parties, which are typically the opposite of utilities in wanting to quickly deploy new technologies and can become very impatient with the utilities’ careful approaches, this policy of least regrets means that they take the time understand the utility concerns related to reliability and safety, and work with them to resolve problems. All too often it is easy to fall into adversarial relationships which end up causing even more problems.

• For customers, who are mostly concerned about electricity prices but also occasionally on the impact of new technologies on their privacy and life styles, the policy of least regrets means that they should look at longer term solutions as well as immediate solutions to reducing those energy costs and understanding the privacy and life style impacts of their decisions. They should be willing to spend the time exploring different avenues for working with both third parties and the utilities to arrive at mutually acceptable programs, but also be willing to make some decisions.

• Regulators, whose purpose is to balance utility needs with customer needs, the policy of least regrets needs to include gaining enough understanding of the opportunities provided by new technologies and stakeholder ideas, and balance these against the challenges that these might pose to utility planning and operations.

For all of these stakeholders, the policy of least regrets entails being willing to explore the new ideas without jumping too quickly, while nonetheless making active decisions even if all the information is not available. There will be some decisions which will be regretted – but not making decisions could be a cause for even more regrets.