IEEE Power & Energy Magazine - May/June 2014 - 128

in my view

Gerald Sheblé

utilities in the eye
caught in the perfect financial storm

D

Deregulation, reregulation,
distributed generation, renewable
energy, solar cells, wind generation,
geothermal generation, microgrids, off
the grid, battery storage, electric vehicles, hybrid electric vehicles, fracking
for natural gas, oil production slowing,
oil exploration costs increasing, natural
gas exploration costs increasing, pollution, emissions, public forums, green
movements, "not in my backyard" parties, hydro destroyed to restore river
flows, nuclear energy short-term storage, nuclear energy long-term storage, radioactive waste transportation,
homeland security, demand-side management, demand-side bidding, tariff
simplification, reliability, hurricane
and storm response, and others are the
phrases on the debris encircling utilities just as such debris circled the eye
of Hurricane Sandy. all is quiet in the
eye of the storm, so the disaster about
to hit cannot be absorbed.
Deregulation (reregulation) in
the 1990s led to an alphabet soup of
new terms-genCos, DiStCos,
tranSCos-and expanded to more
terms to include eSCos, iSos, and
eMCoS. reregulation led to mergers
and bankruptcies, to a new library of
regulations to macro-manage utility
business, and to implement markets.
Market-based computer exchanges
were installed as were monitoring systems and settlement systems. the total
costs of these changes cannot be estimated as the process is still in progress
Digital Object Identifier 10.1109/MPE.2014.2302220
Date of publication: 17 April 2014

128

ieee power & energy magazine

or stalled in some states. Yet retail
competition is being raised once again
in California. Most utilities were not
prepared for the alterations in legislature and did not survive
the transition due to the
economic risks.
Political and technological change has always
upset the industrial portfolio. the Pony express,
wired telegraphy, stagecoaches, railroads, each
in turn was a threat. the
computer altered the value of information during
war and, afterward, in all
business processes. the
microprocessor changed
business processes, leading to the demise of several mainframe computer
firms. the technology
changed anyway as the
economic efficiencies overwhelmed
the previous.

improved transmission access, etc. tariffs are still evolving as the goal of a
regulated environment is to converge to
the prices of a competitive market.
the first task is
to identify the costs
of operation. these
are generally separated into centralized
services, generation,
transmission, and distribution. Centralized
services include system-wide activities
from construction and
maintenance crews to
energy management
systems and system
protection. Such centralized services are
often provided for
a large geographic
region to gain economies of scale. Pooling companies such as aeP, PJM, and
Southern Company have provided such
economies of scale. the coordination
of renewable resources, distributed
generation, distributed storage, microgrids, reliability, as well as the traditional fuel supply chains have increased
in complexity and accordingly in costs.
Pooling, now recognized as umbrella
companies, is surely to continue to reap
the benefits of economies of scale.
generation was based on long-term
assets to use fossil fuels with lifetimes
expressed in decades. the capital
expenses were then divided over the

Tariffs are still
evolving as
the goal of
a regulated
environment
is to converge
to the
prices of a
competitive
market.

Revenue
tariffs have been studied, developed,
implemented, and revised since the
first regulation of utilities. tariffs are
to allocate the costs of operations over
time to present and future consumers to
provide service not only for the present but also for the future. tariffs are
calculated as rates based on approved
expenses, capital as well as operating costs, including approved return
on investment, incentive-based or performance-based incentives, incentive
efficiency/productivity improvement,
1540-7977/14/$31.00©2014IEEE

(continued on p. 124)
may/june 2014



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