For the past several years, national attention in the electric industry has focused on generation and transmission. Merchant power seemed to capture everyone's attention for a spell, as did energy trading, corporate mergers, restructuring and the Federal Energy Regulatory Commission's (FERC) push to create regional transmission organizations (RTOs).

The distribution segment of the electric-utilities industry, which is actually quite a bit larger than transmission, has been out of the limelight. According to EPRI (Palo Alto, California, U.S.) estimates, there is currently some US$261 billion plant in-service in the distribution side of electric utilities compared to $97 in-service in transmission. Distribution also has a larger and more dramatic impact on the day-to-day lives of electric consumers.

At least one EPRI expert argues that the current electric distribution system in the United States has been overlooked and underappreciated for far too long. “We have a system that was set up in the 1950s, and it is going to require a substantial upgrade,” says Clark Gellings, vice president for power delivery and markets for EPRI. “Will it serve tomorrow's customers? No. The value of the asset alone makes it a national treasure, and we really must raise awareness of how valuable it is.”

An EPRI position paper buttresses Gellings' point, saying the country's utility-distribution system faces greater challenges now than at any time in its 125-year history. Statistics from the U.S. Energy Information Agency (EIA) underline the significant impact of the country's electric-distribution system. In 2000, EIA counted more than 3152 electric utilities nationwide, serving a total more than 3.3 billion megawatt-hours of electricity to customers.

Gellings' primary concern is that our current electric-distribution infrastructure has been neglected over the years, to the point at which we are starting to see outages and other difficulties associated with an overburdened system. The recent industry-wide focus on building new power plants and on investing in deregulated businesses, Gellings argues, have come at the expense of investments in poles, wires and cables. A study by the National Science Foundation (NSF; Arlington, Virginia, U.S.), Gellings points out, shows that research and development (R&D) as a percentage of revenue is actually less than 1% per year in the electric-utilities field. The only industries that the NSF studied that showed a lower rate of R&D as a percentage of revenues were restaurants and building materials; by way of comparison, the pharmaceutical industry spends an estimated 13% per year on R&D, while the office machinery and electronics industries hover at around 10% per year.

“This is just about the largest, most expensive infrastructure in the world,” Gellings contends, “but investment is lagging. We need more incentives to upgrade it. We have had rate caps for years. Liquidity has become a serious issue, and many companies have no access to capital. We are walking away from maintaining the system because there is a very low return on investment for anyone to upgrade the distribution system.”

Gellings admits that it is easier to identify the problem — lack of investment — than to suggest a solution. He says a partial solution would be greater coordination of regulatory policies throughout the country, which would presumably lead to increased investor confidence that there would be solid returns on infrastructure investments.

“Restructuring has atomized the electricity sector,” Gellings claims. “It has led to a dysfunctional hybrid of three loosely connected policy agendas — wholesale competition on the one hand, varying degrees of retail competition on another, and some states rejecting retail choice. We can understand how they got there, but it causes them to be so narrow in their view that they are unwilling to work together to address the issues or find solutions.”

Enter New Technology

Mike Smart, vice president of distribution services for Sierra Pacific Power Co. (Reno, Nevada, U.S.), sees a partial solution in new technology to improve distribution efficiency. His company has distributed laptop computers to field workers, eliminating the need to fill out paper forms and file them with central processing. Sierra Pacific is also using technology to upgrade its central dispatch facility, adding more customers to its dispatch grid and increasing technology investments in outage reporting and system management software.

“We don't have any manned substations, we always had supervisory control and data acquisition (SCADA) controls in our facilities, and we are using state-of-the-art technologies for data acquisition and control,” Smart says. “Sierra has always looked to the future with technology.”

Sierra Pacific is also in the enviable position of having a fast-growing customer base that lets it spread the cost of new investments over growing revenue streams. Smart calls Las Vegas “the fastest growing city in the United States,” and says his overall customer base is growing by about 2.5% per year. Rapid growth also means the company can zero in on the one area where a reduction in costs will have the greatest bottom-line impact, reducing the cost of hooking up a new customer. “Our main focus is on cost of service for new connections, as well as maintaining reliability,” Smart says. “We are trying to wring as much cost as we can out of the new customer hook-ups.”

Mack Wathen, vice president for planning, finance and regulation for Conectiv Power Delivery (Newark, Delaware, U.S.), says keeping costs in check requires a renewed focus on customer service and reliability. “The most basic thing is to keep the work force focused on the customer, keep people from getting distracted in their day-to-day jobs,” Wathen says. “We are also going to be looking at how technology will help us better serve our customers, for instance by delivering bills electronically. From a reliability standpoint, we are putting in better outage management systems. We are going to know that a customer has a potential service problem before a customer knows it. Technology can help us get to that.”

Keeping the company's existing poles, wires and substations in good working order is all part of providing good reliability, Wathen adds. “Our utility and many others are investing a lot of money on making sure equipment is in good shape,” he says. “Reliability is as important to many customers as price.”

Going Beyond the Status Quo

Gellings argues that focusing solely on reliability — on keeping the distribution grid operating at maximum performance given the status quo — may not be enough. Customer demands are changing, he says, with utilities seeing different load patterns than those present when today's distribution systems were designed and constructed. A case in point is the increasing use of digital devices on grids that were never intended to meet the high-quality, clean-power demands of computers and other high-tech electronic devices.

“Twelve percent of electricity is delivered directly to a digital device or one controlled by microprocessors in a way that it appears to be digital,” he says. “That has caused an enormous increased demand for high-quality digital-grade power.” The unmet need for high-quality digital-grade electric current in this country, Gellings claims, tops $100 billion in lost productivity.

As with citing the need for increased investment in electric-utility R&D, it is easier to identify the problems with the existing grid than it is to find the right answer. “The solution may not be gold-plating the entire grid,” Gellings says. “We need to be realistic about delivering different levels of service reliability at varying prices.” Among his suggestions for possible solutions: mini-grids, perhaps even specialized mini-grids optimized for digital devices.

Tim Gardner, vice president of the energy practice at Booz Allen Hamilton, says that off-the-current-grid thinking is going to become increasingly necessary for the distribution utilities that hope to survive and thrive in the future. “No company is going to be a vital company that is just solely maintaining the day-to-day operations of existing long and short wires,” Gardner says. “It is going to be how do we do this better and how can we make more out of what we already have? We have skills we could profit from, and how will we do that?” That, he says, will in turn necessitate a change in the way utilities approach new service offerings. “For years, utilities have only wanted to do it as well as the guy who is already doing it,” Gardner contends. “They have not challenged themselves to be better or cheaper, but just to be as good as who is doing it today.

Gardner's suggestions for distribution companies: find value opportunities in operational expertise, or in customer solutions or as channels for broader retail. “They might improve operational efficiency by simplifying their asset base, embracing greater scale, reducing factor costs, introducing technological innovations or aggressively outsourcing,” he says.

Gellings is even more direct. Distribution companies, he says, simply need to rediscover a focus on customers. That, he argues, will lead them down the path of expanded services, increased kilowatt-hour sales, improved margin (by moving more power to off-peak usage), reduced O&M costs, improvements in customer satisfaction and the opportunity to offer product and service bundles in the future.

“We're not there yet, but I'm beginning to see first signs,” he notes. “Some distribution companies are actually talking about customers again. Heretofore, they have absolutely abandoned customers, but now I am beginning to hear everything from a back-to-basics dialogue to what is in it for the 22^nd century? People are starting to look at what the distribution system of the future is going to look like. That's a good first step.”

James Dukart is a freelance writer based in Minneapolis, Minnesota, U.S.

Distribution Vision 2010

One utility decided not to wait until the inherent chaos of restructuring subsides before it addressed critical distribution-infrastructure needs. Charlie Cole, senior vice president of distribution operations at We Energies (Milwaukee, Wisconsin, U.S.), challenged his team: “If money were no object, what would the distribution system look like in 2010”?

Bob Huber and Russ Fanning, both in research and development engineering, rose to the challenge by leading an internal effort to create reliable two-, three- and four-line distribution networks. Early results are promising with the company applying for a patent on the design concept.

Along the way to 2010, Huber and Fanning realized that We Energies would have more clout with vendors if it could replicate technical solutions nationwide. We Energies spearheaded the creation of a company composed of participating utilities. Distribution Vision 2010 LLC came into being on July 23, 2002, with six founding members — We Energies, Alliant, AEP, Oklahoma Gas and Electric, and Public Service Electric and Gas; BC Hydro is a limited contributing member.

The participating utilities are looking for ways to leverage innovations and technologies never before envisioned. The goal of the participating utilities is to quickly disseminate ideas to the vendor community and influence the development of solutions. The thinking is: “If we develop a consensus and we can all use product, we can impact the entire industry.”

For information contact Robert.Huber@we-energies.com or Russ.fanning@we-energies.com.