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Stable Revenue Helps Utilities Invest in Grid Updates

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Tony Sleva's picture
President, Prescient Transmission Systems

Tony Sleva is president and co-founder of Prescient Transmission Systems, where he provides risk assessments and innovative solutions for updating the electric power grid. Tony has more than 50...

  • Member since 2021
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  • Mar 30, 2022
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This item is part of the Investing in the Grid - March 2022 SPECIAL ISSUE, click here for more

Currently, electric utilities bill customers are using an outdated rate structure that will not continue to provide sustainable revenue. The challenges utilities face due to climate change, including recovery efforts from more severe and frequent storms and the need to embrace significantly more distributed renewable energy resources, will force utilities to reconsider their billing structure.

By updating their rate structure, electric utilities could funnel a set amount of funds directly into an escrow-style account each month. Escrowed funds would be specifically designated for use towards utilities’ climate change mitigation strategies, such as proactive updates to grid infrastructure or grid repairs after a climate change-related event.

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To proactively mitigate the worst impacts of climate change, and more efficiently use electric utility resources, utilities should follow three steps, outlined below. With an updated rate structure, electric utilities could take a more intentional approach to funding these three steps. Before we look at them in more detail, let’s take a closer look at prudent updates to utilities’ rate structure.

Prescient Updates to Utilities’ Rate Structure

Updated rate structures should include a set infrastructure fee and set consumption charges. Some infrastructure charges should be funneled into an escrow account for use towards utilities’ climate change mitigation strategies. Funds could also be used to replace components that have reached end of life with updated components.

Infrastructure charges should be a fixed amount based on maximum 15 minute usage in kilowatts during the previous twelve months. If, for example, the set cost is $10 per KW and the maximum fifteen minute usage is 3 KW, then the monthly infrastructure charge would be $30. If the maximum fifteen minute usage is 10 KW, the monthly infrastructure charge would be $100.

Consumption charges should be a fixed amount of around 4 ₵ per KWH multiplied by maximum thirty day usage during the previous twelve months. If, for example, the maximum thirty day usage is 1000 KWH, the monthly consumption charge would be $40. If the maximum thirty day usage is 2000 KWH, the monthly consumption charge would be $80.

This means that in each billing cycle throughout the year, electricity consumers will pay the same amount. However, individual households and businesses will pay an amount that is unique to their specific energy usage. With this structure in place, utilities will have consistent revenue throughout the year, with funds available to put in escrow.

Money in Escrow Funds Climate Updates

To proactively mitigate the worst impacts of climate change, and more efficiently use electric utility resources, utilities should follow three steps:

  1. Develop operating diagrams that display multiple risk factors, including those related to atmospheric conditions.
  2. Create multidisciplinary teams at electric utilities to improve system performance.
  3. Enhance grid components and design so that the electric power grid is prepared for increased renewable sources and can withstand extreme storms.

The funding for these steps would come directly out of utilities’ escrow accounts. Let’s take a closer look at each of these three goals.

Step 1: Update Operating Diagrams

Operating diagrams should be updated to include parameters that impact the response of the electric grid during adverse weather conditions. Updated operating diagrams should be multi-layered electronic drawings that display a variety of important parameters on hidden layers, which can be displayed as needed. Figure 1 shows an updated operating diagram with multiple layers displayed.

Figure 1 shows an updated operating diagram with some hidden layers displayed.

The first layer could show all transmission lines that are built on double circuit towers, as well as all transmission lines that are within 100 feet of other transmission lines. The second layer could show substations located in a 100 year flood plain. The third layer could show all areas that are at extreme risk of wildfires.

Additional layers, including atmospheric conditions and projections, could be added when climate change-related weather events are occurring to assist in modeling the grid’s response. Other layers could show additional parameters as identified by new members of multidisciplinary teams.

Step 2: Create Multidisciplinary Teams

Traditionally, electric utilities hired electrical engineers to design and maintain their grid infrastructure. Electrical engineers understand the intricacies of the electrical system; however, they lack perspectives that are not included in their field of study.

Instead, the electric power industry needs to create multidisciplinary teams that include material scientists, vegetation managers, meteorologists, metallurgists, mathematicians, mechanical engineers, security professionals, and reliability engineers to support the electrical and civil engineers they currently employ.

These specialists are better able to identify potential weaknesses in grid infrastructure and surrounding right of ways that would otherwise be missed. Multidisciplinary teams will be better able to anticipate and annunciate challenges created by aged equipment and extreme weather.

By building a team with the right mix of people, all of whom understand different aspects of the components they are working with, overall grid resilience can be improved. Infrastructure can be appropriately maintained, and issues resolved, before a major stressor on the grid causes widespread outages.

Step 3: Enhance Grid Components

Electric power grid components must be updated to both prepare for increased renewable energy resources and withstand more frequent, severe weather. New approaches to transmission and distribution via electric powerways and serviceways will optimize the transfer and use of renewable energy, creating a more resilient system. Energy storage modules at new electric warehouses will improve the grid’s resilience to wide area blackouts. These updated components will require new technologies to be added to the grid, though a total system overhaul will not be necessary.

Updates to power grid design is another key factor. Eliminating transmission line corridors would increase grid resilience to climate change-related severe weather. Figure 2 shows six 230 KV transmission lines that were constructed on three separate structures, separated by less than 100 feet. A microburst of wind could knock down these towers and reduce power transfer capability by 3600 mega-watts. Should a severe storm occur, these transmission lines are vulnerable to simultaneous damage because of their proximity. Relocating two of these lines will significantly reduce their vulnerability.

Figure 2 shows six transmission lines supported by three structures on the same right of way.

Another needed change is to clear distribution line corridors of trees that can fall on lines during ice storms, windstorms, and snowstorms. Figure 3 shows a typical 12.47 KV distribution pole that supports four distribution lines. These lines are at risk of damage due to tree falls during high winds often associated with severe weather.Figure 2 shows six transmission lines supported by three structures on the same right of way.

Figure 3 shows four distribution lines that are at risk of damage from trees falling onto them during severe weather.

Save For a Better Future with Escrow

Escrow accounts are an ideal way for electric utilities to prepare for investments in vital grid updates in the face of climate change. With money placed in escrow, utilities would be able spend a little more to enhance the system every year, rather than simply replacing damaged components with the same components. The hidden costs associated with lack of upgrades would diminish. Moreover, an updated rate structure would direct electric utilities’ funds more intentionally to enhance utilities’ climate change mitigation strategies through the three steps outlined above.

Discussions
Matt Chester's picture
Matt Chester on Mar 30, 2022

Escrow accounts are an ideal way for electric utilities to prepare for investments in vital grid updates in the face of climate change. With money placed in escrow, utilities would be able spend a little more to enhance the system every year, rather than simply replacing damaged components with the same components.

This is interesting-- will this result in savings/benefits for the customers who pay the rates in the long term as well? 

Jim Stack's picture
Jim Stack on Mar 30, 2022

Tony, That sounds like extra billing that many customers won't be happy to pay each month. Maybe a fee like that once a year might be acceptable if it's $100 or less a month. 

    Also for customers who have solar and make 100 kWh a month extra they would pay us an extra $80 to $100 a month right? 

 

Rafael Herzberg's picture
Rafael Herzberg on Apr 4, 2022

In addition to the proposed enhancements I would strongly suggest an evolution of the rate structure. Basically to better reflect the CAPEX costs that are incurred specially when there are expansions

For a century most of the rates are variable (per kWh). This is so for the residential sector (100% variable) and for larger energy users (commercial, industrial and institutional) it is about 80% variable (20% being the demand charges).

But... in real life, costs are actually fixed in terms of USD/installed kW. And becoming more so as renewable plays a more significant role. 

My suggestion is designing a basically fixed fee per kW. This would signal in the right direction. Energy efficiency, higher load factor energy usage, cost arbitration among a list of energy sources would be very carefully considered because it would make a huge difference.

Lets take a real life example of two right next door neighbors that consume the same amount of kWh/month and of course pay the same monthly power bill to their local utility company. But.... one has installed instant water heaters and the other uses a centralized tank. From an energy consumption prospective both end up using the same amount of energy to heat water BUT.. one uses the triple in kW demand.. This higher demand energy users requests a higher capacity from the grid and accordingly investments (grid infrastructure). BUT, again, the ongoing rate system does not recognize that.

The is a huge opportunity there to be discovered! 

Tony Sleva's picture
Thank Tony for the Post!
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