IEEE Power & Energy Magazine - September/October 2016 - 59

on capital just prior to a rate case, shoring up the rate base
just in time. this approach resulted in large requested rate
increases during a period of economic instability, resulting
in extreme regulatory pushback.
dramatic changes have also taken place in terms of industry structure. in much of the country, customers are no longer
served by a single vertically integrated utility that owns generation, transmission, and distribution. in some states, wholesale
electricity generators sell to energy service companies, who
pay independent transmission companies and a local distribution company to deliver power to its customers (see Figure 2).
Further changes are required due to the rapid deployment of
utility-scale renewable generation and the rapid deployment
of small-scale solar generation at customer facilities. in terms
of payment, the historical volumetric rates of utilities seemed
to be increasingly unrelated to cost of service.
the business environment for electric utilities is a far cry
from the glory days of load growth and infrastructure expansion. are utilities up to the task of business transformation
to capture new value streams for existing and potential new
customers? this article cannot answer this question but
does address the risks and opportunities that utility business
transformation should consider.

Aging Infrastructure

Generation

Distribution
Energy Services
(e.g., Billing)
(a)

Vertical
Unbundling

Transmission

Generation

Transmission

Generation

Transmission

Generation

Transmission

Generation

Transmission

Generation

Transmission

Generation

Transmission

Generation

Transmission

Vertically Integrated Utility

when utilities were expanding their infrastructure by 7-10%
per year, their amount of infrastructure doubled every seven
to ten years. half of all equipment was always fewer than ten
years old. old equipment was always a small percentage of
total equipment.
that no longer holds. when load growth is small and
construction is correspondingly small, average asset age gets

older every year. it is common for utilities today to have the
average age of an asset class to exceed its expected useful
life. For example, many utilities have the average age of their
power transformer exceeding 40 years, with some exceeding 50 years. the same situation exists for circuit breakers,
transmission towers, distribution poles, and a host of other
critical assets.
utilities used to be in the business of building new stuff.
increasingly, utilities are in the business of managing old
stuff. unfortunately, the core competencies, organizational
structures, skills, and regulatory approaches that are appropriate for building new stuff to serve new load are not appropriate for managing old stuff.
an efficient approach to building new stuff is almost
military in nature, with a hierarchical command-and-control
structure, where orders are issued at the top and flow down
the chain of command. since new infrastructure is required
to serve new load, the associated construction costs are
simply added to the utility's rate base as a "prudent expenditure" and recovered through rates.
an efficient approach to managing old stuff requires
analysis and fungible budgets. decisions should be made
about where to best allocate scarce maintenance dollars,
what data to collect, when to replace old equipment, when
to defer projects, and a host of other asset management decisions. the typical utility structure (and culture) is not conducive to these sorts of processes, as organizational "silos"
tend to have their own budgets, increase in power as their
budgets increase, and generally do not coordinate well with
other groups with separate budgets. utilities need to spend
less in many situations, but how many utility budget owners
have ever requested that their budgets be cut?

Distribution

Energy Services
(e.g., Billing)

Many Wholesale
Generation Companies
(Wholesale Competition)

Many Independent
Transmission Companies

The Same Historical
Distribution Company
Many Energy
Service Companies
(Retail Competition)

(b)

figure 2. The electric utility industry has dramatically restructured. (a) shows the historical vertically integrated utility
where a single company owns generation, transmission, distribution, and energy services. (b) shows a fully unbundled utility where each function (except the local distribution company) is subject to competition.
september/october 2016

ieee power & energy magazine

59



Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - September/October 2016

IEEE Power & Energy Magazine - September/October 2016 - Cover1
IEEE Power & Energy Magazine - September/October 2016 - Cover2
IEEE Power & Energy Magazine - September/October 2016 - 1
IEEE Power & Energy Magazine - September/October 2016 - 2
IEEE Power & Energy Magazine - September/October 2016 - 3
IEEE Power & Energy Magazine - September/October 2016 - 4
IEEE Power & Energy Magazine - September/October 2016 - 5
IEEE Power & Energy Magazine - September/October 2016 - 6
IEEE Power & Energy Magazine - September/October 2016 - 7
IEEE Power & Energy Magazine - September/October 2016 - 8
IEEE Power & Energy Magazine - September/October 2016 - 9
IEEE Power & Energy Magazine - September/October 2016 - 10
IEEE Power & Energy Magazine - September/October 2016 - 11
IEEE Power & Energy Magazine - September/October 2016 - 12
IEEE Power & Energy Magazine - September/October 2016 - 13
IEEE Power & Energy Magazine - September/October 2016 - 14
IEEE Power & Energy Magazine - September/October 2016 - 15
IEEE Power & Energy Magazine - September/October 2016 - 16
IEEE Power & Energy Magazine - September/October 2016 - 17
IEEE Power & Energy Magazine - September/October 2016 - 18
IEEE Power & Energy Magazine - September/October 2016 - 19
IEEE Power & Energy Magazine - September/October 2016 - 20
IEEE Power & Energy Magazine - September/October 2016 - 21
IEEE Power & Energy Magazine - September/October 2016 - 22
IEEE Power & Energy Magazine - September/October 2016 - 23
IEEE Power & Energy Magazine - September/October 2016 - 24
IEEE Power & Energy Magazine - September/October 2016 - 25
IEEE Power & Energy Magazine - September/October 2016 - 26
IEEE Power & Energy Magazine - September/October 2016 - 27
IEEE Power & Energy Magazine - September/October 2016 - 28
IEEE Power & Energy Magazine - September/October 2016 - 29
IEEE Power & Energy Magazine - September/October 2016 - 30
IEEE Power & Energy Magazine - September/October 2016 - 31
IEEE Power & Energy Magazine - September/October 2016 - 32
IEEE Power & Energy Magazine - September/October 2016 - 33
IEEE Power & Energy Magazine - September/October 2016 - 34
IEEE Power & Energy Magazine - September/October 2016 - 35
IEEE Power & Energy Magazine - September/October 2016 - 36
IEEE Power & Energy Magazine - September/October 2016 - 37
IEEE Power & Energy Magazine - September/October 2016 - 38
IEEE Power & Energy Magazine - September/October 2016 - 39
IEEE Power & Energy Magazine - September/October 2016 - 40
IEEE Power & Energy Magazine - September/October 2016 - 41
IEEE Power & Energy Magazine - September/October 2016 - 42
IEEE Power & Energy Magazine - September/October 2016 - 43
IEEE Power & Energy Magazine - September/October 2016 - 44
IEEE Power & Energy Magazine - September/October 2016 - 45
IEEE Power & Energy Magazine - September/October 2016 - 46
IEEE Power & Energy Magazine - September/October 2016 - 47
IEEE Power & Energy Magazine - September/October 2016 - 48
IEEE Power & Energy Magazine - September/October 2016 - 49
IEEE Power & Energy Magazine - September/October 2016 - 50
IEEE Power & Energy Magazine - September/October 2016 - 51
IEEE Power & Energy Magazine - September/October 2016 - 52
IEEE Power & Energy Magazine - September/October 2016 - 53
IEEE Power & Energy Magazine - September/October 2016 - 54
IEEE Power & Energy Magazine - September/October 2016 - 55
IEEE Power & Energy Magazine - September/October 2016 - 56
IEEE Power & Energy Magazine - September/October 2016 - 57
IEEE Power & Energy Magazine - September/October 2016 - 58
IEEE Power & Energy Magazine - September/October 2016 - 59
IEEE Power & Energy Magazine - September/October 2016 - 60
IEEE Power & Energy Magazine - September/October 2016 - 61
IEEE Power & Energy Magazine - September/October 2016 - 62
IEEE Power & Energy Magazine - September/October 2016 - 63
IEEE Power & Energy Magazine - September/October 2016 - 64
IEEE Power & Energy Magazine - September/October 2016 - 65
IEEE Power & Energy Magazine - September/October 2016 - 66
IEEE Power & Energy Magazine - September/October 2016 - 67
IEEE Power & Energy Magazine - September/October 2016 - 68
IEEE Power & Energy Magazine - September/October 2016 - 69
IEEE Power & Energy Magazine - September/October 2016 - 70
IEEE Power & Energy Magazine - September/October 2016 - 71
IEEE Power & Energy Magazine - September/October 2016 - 72
IEEE Power & Energy Magazine - September/October 2016 - 73
IEEE Power & Energy Magazine - September/October 2016 - 74
IEEE Power & Energy Magazine - September/October 2016 - 75
IEEE Power & Energy Magazine - September/October 2016 - 76
IEEE Power & Energy Magazine - September/October 2016 - 77
IEEE Power & Energy Magazine - September/October 2016 - 78
IEEE Power & Energy Magazine - September/October 2016 - 79
IEEE Power & Energy Magazine - September/October 2016 - 80
IEEE Power & Energy Magazine - September/October 2016 - 81
IEEE Power & Energy Magazine - September/October 2016 - 82
IEEE Power & Energy Magazine - September/October 2016 - 83
IEEE Power & Energy Magazine - September/October 2016 - 84
IEEE Power & Energy Magazine - September/October 2016 - 85
IEEE Power & Energy Magazine - September/October 2016 - 86
IEEE Power & Energy Magazine - September/October 2016 - 87
IEEE Power & Energy Magazine - September/October 2016 - 88
IEEE Power & Energy Magazine - September/October 2016 - 89
IEEE Power & Energy Magazine - September/October 2016 - 90
IEEE Power & Energy Magazine - September/October 2016 - 91
IEEE Power & Energy Magazine - September/October 2016 - 92
IEEE Power & Energy Magazine - September/October 2016 - Cover3
IEEE Power & Energy Magazine - September/October 2016 - Cover4
https://www.nxtbook.com/nxtbooks/pes/powerenergy_091020
https://www.nxtbook.com/nxtbooks/pes/powerenergy_070820
https://www.nxtbook.com/nxtbooks/pes/powerenergy_050620
https://www.nxtbook.com/nxtbooks/pes/powerenergy_030420
https://www.nxtbook.com/nxtbooks/pes/powerenergy_010220
https://www.nxtbook.com/nxtbooks/pes/powerenergy_111219
https://www.nxtbook.com/nxtbooks/pes/powerenergy_091019
https://www.nxtbook.com/nxtbooks/pes/powerenergy_070819
https://www.nxtbook.com/nxtbooks/pes/powerenergy_050619
https://www.nxtbook.com/nxtbooks/pes/powerenergy_030419
https://www.nxtbook.com/nxtbooks/pes/powerenergy_010219
https://www.nxtbook.com/nxtbooks/pes/powerenergy_111218
https://www.nxtbook.com/nxtbooks/pes/powerenergy_091018
https://www.nxtbook.com/nxtbooks/pes/powerenergy_070818
https://www.nxtbook.com/nxtbooks/pes/powerenergy_050618
https://www.nxtbook.com/nxtbooks/pes/powerenergy_030418
https://www.nxtbook.com/nxtbooks/pes/powerenergy_010218
https://www.nxtbook.com/nxtbooks/pes/powerenergy_111217
https://www.nxtbook.com/nxtbooks/pes/powerenergy_091017
https://www.nxtbook.com/nxtbooks/pes/powerenergy_070817
https://www.nxtbook.com/nxtbooks/pes/powerenergy_050617
https://www.nxtbook.com/nxtbooks/pes/powerenergy_030417
https://www.nxtbook.com/nxtbooks/pes/powerenergy_010217
https://www.nxtbook.com/nxtbooks/pes/powerenergy_111216
https://www.nxtbook.com/nxtbooks/pes/powerenergy_091016
https://www.nxtbook.com/nxtbooks/pes/powerenergy_070816
https://www.nxtbook.com/nxtbooks/pes/powerenergy_050616
https://www.nxtbook.com/nxtbooks/pes/powerenergy_030416
https://www.nxtbook.com/nxtbooks/pes/powerenergy_010216
https://www.nxtbook.com/nxtbooks/ieee/powerenergy_010216
https://www.nxtbook.com/nxtbooks/pes/powerenergy_111215
https://www.nxtbook.com/nxtbooks/pes/powerenergy_091015
https://www.nxtbook.com/nxtbooks/pes/powerenergy_070815
https://www.nxtbook.com/nxtbooks/pes/powerenergy_050615
https://www.nxtbook.com/nxtbooks/pes/powerenergy_030415
https://www.nxtbook.com/nxtbooks/pes/powerenergy_010215
https://www.nxtbook.com/nxtbooks/pes/powerenergy_111214
https://www.nxtbook.com/nxtbooks/pes/powerenergy_091014
https://www.nxtbook.com/nxtbooks/pes/powerenergy_070814
https://www.nxtbook.com/nxtbooks/pes/powerenergy_050614
https://www.nxtbook.com/nxtbooks/pes/powerenergy_030414
https://www.nxtbook.com/nxtbooks/pes/powerenergy_010214
https://www.nxtbookmedia.com