JUICE: Walking the Safety Line

By Published On: August 21, 2014

Last week’s approval of a 6.9 percent rate hike for Pacific Gas & Electric is surely to be the first of many increases on grounds the state’s utility infrastructure is so old it’s increasingly unsafe. That’s undeniable. • Gas pipeline explosions! • Raging wildfires sparked by downed electrical lines! • Residents electrocuted by fallen lines in their own backyards! • Massive outages exacerbated by rotten power line poles! Face it, energy utility infrastructure—much of it 50 to 100 years old and never envisioned to last that long—is getting decrepit. The rot’s become evident just as concern has surfaced about sabotaging that infrastructure after the shoot up of a Pacific Gas & Electric substation in 2013 and recent revelations that criminals or foreign governments have probed the grid for cyber vulnerabilities. In light of these events, the California Public Utilities Commission and state lawmakers understandably have reacted by imposing new safety requirements on utilities. Discussions about enhanced security of utility infrastructure also have gained prominence. As regulators respond by authorizing massive safety investments—with more money likely to come—metrics for determining the cost-effectiveness of the expenditures remain uncertain. Metrics, to the extent they exist at all, are of limited use, noted commissioner Mike Picker Aug. 14 when the commission considered PG&E’s rate hike. Picker thinks better metrics for guiding safety investment need to be developed. He sees another gap too: the lack of strong advocacy for safety when the commission deals with general rate cases, those interminable hearings in which three-year investment plans for utilities are approved. Good point. That’s because in the traditional ratemaking process, a utility proposes and the commission disposes—as influenced largely by ratepayer advocates. Nobody involved says, “Hey, wait a minute, how about doing something entirely different than what’s proposed to enhance safety?” Perhaps there’s a better strategy that should have been proposed that’s been entirely overlooked. As I ruminated on Picker’s observations, I got to thinking about what types of things a safety advocate in ratemaking cases might raise, or least be thinking about. That led me to a lot of questions. The first was how do regulators decide what safety investments to allow at a time when rapidly changing technologies stand to dramatically alter the nature of the energy utility business itself? Distributed generation, coupled with energy storage, efficiency, solar water heating, and demand-response have the potential to substantially whittle down the role of energy utilities—or at least centralized infrastructure—as do ongoing changes in the economy. For instance, as more people telecommute and shop from home, major office buildings and shopping centers are becoming obsolete. Against this backdrop, do regulators authorize money to completely rebuild the state’s energy utility infrastructure to serve another hundred years as we’ve known it, or will there really be a need for new power poles, wires, and gas pipelines in 20 or 30 years? And if there is no or substantially less need, how much of the safety investment money could be wasted? Should regulators seek equivalent safety enhancements by steering investments to advance new distributed technologies on the customer side of the meter and to begin strategically deemphasizing new spending to replace centralized utility infrastructure? Look at telecommunications. Why replace and upgrade all that copper wire when more and more people are going to wireless phones? When wires break, isn’t it sometimes cheaper just to convert to wireless? Unfortunately, it’s a chicken and egg problem, a matter of timing. We can’t completely change where and how energy is produced and how it’s used overnight, leaving regulators damned when accidents occur due to aging infrastructure and damned when they raise rates for upgrades. And as long as people depend upon a centralized grid and centralized gas distribution network, the prospect of safety hazards remains real. Yet, it’s clear that as regulators seek safety, increasingly they are going to have to make decisions about whether to rebuild systems much as they are today or to replace them altogether with new distributed technologies that don’t pose the same safety risk as centralized infrastructure, but no doubt pose other risks that probably are not yet fully known. It’s an unenviable task, but somebody has to do it. The trick is to strike the right balance while walking the line between lengthening the life of existing centralized systems and investing in wholly new distributed technologies. It’s a line regulators are likely to walk for a decade or two to come.

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