Tuesday, April 20, 2010

Pushmi-pullyu: Utilities and Regulators Tussle over Forward-looking Projections vs. Backward-looking Reporting

What matters more for forecasting: imagining where you're going or describing where you've been?

We've had talks with utilities who, facing looming, life-altering technology, regulatory and business model changes, are trying to do more than merely recount the budgetary planning steps they've taken in previous years. We've also spoken with ones who aren't ready for this kind of change and don't want to hear about "future test years," for example.

But as the Washington Utilities and Transportation Commission (UTC) noted several years ago:
"... as imprecise as forecasting may be, projected test year data based on reasonable forecasts should consistently come closer to expressing future conditions than purely historic data will."
I'd say that's doubly and maybe triple-y true given the current and foreseeable state of major flux the industry is going to be in for the next bunch of years.

What has set this in motion, at least in part, is the Energy Independence and Security Act (EISA) of 2007, that lays out the requirement for utilities to get more future oriented in their thinking and planning. Here's the applicable part (Section 1307) that's causing some contention:

(a) Section 111(d) of the Public Utility Regulatory Policies Act of
1978 (16 U.S.C. 2621(d)) is amended by adding at the end the


A) IN GENERAL- Each State shall consider
requiring that, prior to undertaking investments in
non-advanced grid technologies, an electric utility of
the State demonstrate to the State that the electric
utility considered an investment in a qualified smart
grid system based on appropriate factors, including:

(i) total costs;
(ii) cost-effectiveness;
(iii) improved reliability;
(iv) security;
(v) system performance; and
(vi) societal benefit.

Sounds like a great idea to me, but of course I'm far removed from the operational trenches, not to mention the politics involved in these activities. As other language in the act stipulates, states don't have to play along with this guidance, and as this GTM article points out, North Carolina is just saying no. In the ensuing policy vaccuum, that leaves the state regulatory org, the NCUC, battling it out over what its utilities (Progress, Duke, Dominion) should be reporting on.

Fortunately, security reporting has survived in both the proposed NCUC guidance as well as in the counter proposals of two of the three utilities involved. But seems to me that in an industry where many of the constituents are embracing new information and energy technologies, new relationships with its customers and partners, and new ways of defining and monetizing its capabilities, stalling on EISA is a short-sighted rear-guard action.

In any sector, little, including security posture, is enhanced by clinging to outmoded planning and reporting practices. In battles between the past and the future, the future (almost) always wins. It'll be a great thing for all involved when the entire industry is moving in the same direction.

Imaginary animal credit: http://3dcadnews.blog.com/

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