People speak reverentially about the electricity grid, and rightly so. The U.S.’ electricity grid is an awesome technical, operational, and public policy accomplishment. Who can deny the matchless service it delivers, occasional weather-related breakdowns notwithstanding? In fact, acts of Mother Nature — Hurricane Sandy, say — only highlight its otherwise stellar reliability. And rural electrification, like rural telephony, is a triumph of public policy with foresight.
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The AT&T system and Bell Labs once evoked similar awe. The reliability was wondrous. From any phone in any corner of the U.S., one could reach any other corner of the U.S. Who could quarrel with the perfection that was the Public Switched Telephone Network (PSTN)?
But then the industrial order changed. The Bell Labs of yesterday barely exists today, and the telephone network has metamorphosed in amazing ways during the last twenty years. In July 2014, the new incarnation of AT&T installed their U verse high-speed Internet service at our home, and upgraded the network to Voice over Internet Protocol (VoIP). The Class 5 switch, payphones, and pagers are history.
The electricity grid as we know it today, shall also pass, and a new one will take its place. How do we manage the transition to Electricity 2.0?
As Telephone So Electricity
NY State’s Public Services Commission, in their April 2014 Reforming the Energy Vision (REV) document proposes one new approach. It envisages a new mission for utilities, that of Distributed Services Platform Providers (DSPP). “The DSPP will identify, plan, design, construct, operate, and maintain the needed modifications to existing distribution facilities to allow wide deployment of distributed energy resources.”
From grid-based electricity we are moving toward personal electricity, or home-based electricity. From one-way flow, we are moving toward two-way, transactive electricity flows on mesh networks. Electricians are now service providers of personal solar power plants. The natural monopoly is giving way to numerous electricity providers. In economics terms, the barriers to entry in electricity production have fallen.
Off-grid solar homeowners enter the electricity business and compete with the utility. Such market entry undermines the natural monopoly principle at the heart of the industry structure. The REV document notes, “The introduction of widespread distributed resources can be perceived as challenging the natural monopoly model of utilities.” With the end of natural monopoly, “rate of return” regulations and geographical franchises begin to crumble.
Ease of market entry notwithstanding, the REV proposal continues to value monopoly elements in the interest of reliability. To quote, “The REV vision does not eliminate the natural monopoly of the distribution system operator; rather the locus of the natural monopoly is shifted from sheer physical delivery to management of a complex system of inputs and outputs while maintaining reliability [emphasis added].”
The New Public Interest
With technological advance and easy market entry, what constitutes the new public interest? It doubtless includes:
The public interest, however, no longer lies in regulating monopoly investments to support low electricity prices; solar affordably price competes with grid power in many markets.
People want green electricity – renewables – in the generation mix. Reliability has to be a given, no matter what the technology, or the topology, or the size of an operation. Microgrids – between off grid homes and the macrogrid – are expected to be more resilient during hurricanes.
Daniel Esty, Connecticut’s Department of Environment and Energy Services states, “our microgrid strategy aims at providing a mechanism at facilities like hospitals, sewage treatment plants and prisons where the power must stay on” and “… keep police and fire stations, a place to charge cellphones, perhaps a school as a warming center, a grocery store, a gas station, a bank and a pharmacy … supported by distributed generation … while the grid is down.”
Microgrids, however, are a work-in-progress. And microgrid-based services are constrained by archaic laws, such as not being able to offer service to customers across a public right of way. Such laws, inconsistent with technological possibilities, are no longer in the public interest.
Laws changed in telecom in response to new business realities. For instance, Competitive Local Exchange Carriers (CLEC) were hosted at telephone company facilities; they used the unbundled “loop,” hitherto exclusive to the Bell system operators, to offer competitive and new services. Could microgrid operators be similarly co-located at a utility’s sub-station, and offer competitive electricity services to a neighborhood?