Utility veterans: Smart grid investment helps utilities 'beat the peak'

NEW YORK -- Investment in smarter infrastructure for the nation's power grid is not only justified, but critical to halting system-wide failures, said veterans of the utility industry on Tuesday.

Retired NVEnergy CEO Walter Higgins and former Consolidated Edison CEO Eugene McGrath took to the stage with Braemar Energy Ventures partner Neil Suslak at the Cleantech Group’s Forum New York 2010 to offer "straight talk" on the smart grid and a little insight into what happens when the power grid fails.

"When I took over the job, after the loss of a substation in Manhattan -- one of twenty-some networks -- in a 15-minute period, I got the following phone calls," McGrath said. "The president of the Federal Reserve, telling me there's $15 billion at stake. Another was the manager of Highbridge [Water] Tower, telling me that people are bringing water in buckets upstairs [to the reservoir]. Another was from a nurse, telling me that they're trying to keep 11 patients alive. The last was someone from the Fulton Fish Market who asked me, 'Young man, have you ever smelled two tons of rotting fish?' "

McGrath said the potential cost reductions for the smart grid are "significant" and help ConEd, New York City's largest utility company, manage peak load -- the time when energy demand is highest.

"Because electricity is a life-or-death situation in the city, we have to operate our system as if we lost two major components at any part of the city and still manage our peak load," McGrath said. "It's been estimated that [with the smart grid] we can reduce energy use by 20 percent and we can reduce the peak demand even more significantly."

Even though the average utility company will spend $200 to $400 million to upgrade to a smarter grid, Higgins said the money can be recovered "in the normal rate-making process."

"The capitalization of the utility is probably in the $6 to $8 billion range, so the size of the [impact] rate increase would be pretty small," Higgins said. "It would be lost in rounding compared to other parts of the system."

In fact, smart grid investment could even result in a net gain, Higgins said.

"The amount of the [financial] effect on the smart grid infrastructure itself is pretty inconsequential," he said. "There could be enough savings on more intelligent management of the grid and certainly in demand reduction so that there is a net reduction in cost."

But hurdles remain.

"Managing customer expectations is crucial here," McGrath said, adding that it would be a five-year process for ConEd to change all its meters to smart meters. "We could make this investment and consumers see their rates go up, but they'll go up at a slower rate than if we hadn't done this. It's going to be very complicated and much tailored to an individual utility."

One horror story elsewhere may not translate in another part of the country, Higgins said.

"One can't count on the initial direction being the final direction," Higgins said. "There have been some fits and starts in smart grid rollouts. Where the use of energy is highly variable -- Texas and the West, with summer air conditioning -- there's been impetus to move into more smart grid awareness. That's different than the relatively low energy use of a place like New York is."

Still, the benefits cannot be understated, McGrath said.

"There are real, concrete, measurable savings -- real stuff [for which] we can justify the smart grid," McGrath said. "The foundation has to be better, more efficient operation of the grid, [especially] considering these intermittent power sources like wind that are coming. If we have a million vehicles and we could actually pump vehicle power back into the grid, that would also help us beat the peak."

The executives also discussed the emergence of tech companies in the energy space.

"What I see here is collision that's taking place inside the customer's premise," McGrath said. "On one side you have [utilities], and on the other the Googles and Intels of the world. There are huge numbers of parties involved, each bringing different parts to the equation. That's going to have to sort itself out. Utilities need to be more comfortable dealing with the people they've been dealing with for 50 or 100 years."

Higgins said technological solutions will vary by geography.

"Some technologies that feel and look really good don't work as well in some environments for other technologies," he said. "There's not much of an appetite for turning off meters remotely in some parts of the United States. It's extremely interesting in Brazil, where they have problems with people [tampering with] meters. Over time, there's going to be consolidation."

Security was also top of mind. Higgins said it's not a question of "if," but "when."

"It won't be very long where every smart meter at every premise will have to have a degree of security implicit in the meter that is every bit as robust as what we expect to see on grid management so that you can't enter the grid backwards to disrupt things," he said. "It's very important that this be a secure system. It will be a requirement, it's just a matter of time."

McGrath said establishing standard protocols across the power grid are the biggest hurdle the smart grid faces.

"Standards are crucial. Utilities are not going to want to jump into this and make huge multi-year investments if there's uncertainty around standards," he said. "That whole act has got to get together and there has to be some clarity and certainty before utilities are going to make investments."

He added: "I'd want systems that are more under my control. The infrastructure needed to manage the distribution system needs to be extremely fast. In New York, our operator had 17 seconds between first noticing [the June 27, 2007 power failure] and having to do something. But that information started long before 17 seconds, and having that smart grid could really help nip this in the bud."

Higgins said policy will soon play a part in the security of the smart grid.

"There's certainly going to be a lot more pressure around who owns the data, who gets to use the data, who gets to even look in the premise to decide what to do -- turn off the air conditioner, et cetera," Higgins said.

McGrath said utilities are going to be careful about who they let "into the cabinet."

"It's valuable information to someone," he said. "The regulators are going to have to decide who owns that information and how it's going to be used."

When it comes to cost, the "tipping point" is the ongoing development of energy storage, the executives said.

"It's going to be a combination of storage and shifting usage. But if the customer doesn't do it, it won't work," McGrath said. "The grid is robust. We can improve it. ConEd spends $2 billion a year upgrading the grid. What we're talking with the smart grid is overlaying it with communications and getting ahead of the curve. If we can stop the domino effect, we can stop these kinds of outages we've had in the past."

McGrath also said the grid needs to give consumers a reason to change their behavior.

"If we can shift the load in New York from five or nine at night to two in the morning, huge savings. But it's going to require a change in the way we do things," such as washer-dryer combination appliances so you don't have to switch clothes manually, he said.

Higgins said the weak connections between the separate parts of the nation's haphazard, spread out power grid need reinforcement.

"There is a need for increased robustness in the way these parts are connected, so we can avoid the blackout of 2003," he said. "But the biggest need of the country is to make sure that the interconnected grid doesn't fall apart."

Despite these hurdles, the executives agreed that the smart grid is inevitable.

"Without a smart grid and smart meters, you really can't do much with electric vehicles except make more problems for yourself," Higgins said.

Suslak agreed. "The power system with more intelligence is something that's hard to argue against," he said.

This post was originally published on Smartplanet.com