Mr. Yeager is correct when he notes utilities have little incentive to help consumers change the way in which they use electricity. Regulators and politicians are key players here, but even they have some perverse incentives to maintain the status quo.

Rapidly declining costs for new equipment due to technological innovation in the early years are likely the reason electric power industry leaders insisted on being regulated. Ruinous competition meant everyone was losing money and investors were not happy about it. Eighty years later, technological and economic conditions have changed and a regulatory structure developed for the early part of the 20th century may no longer be suitable in the early part of the 21st century. For all intents and purposes, a utility's regulators are its customers, for it is regulators that control prices and terms of service, not the people who buy the product. Moreover, the iron grip of the monopoly franchise makes utilities (and to some extent their regulators) gatekeepers who can decide which products and services are allowed to flourish in their service territories and which ones are not. Utilities assert a level of ownership and control over customers, reinforced and abetted by regulators, that limits innovation and rational economic decision-making by customers. The parallel universe of utility economics leads to choices and policies whose fairness and equity is proportional to the political strength of the constituencies that get what they want. None of this is conducive to development of the Smart Grid envisioned by the Galvin Initiative and others.

I won't go so far as to claim unfettered competition is the perfect antidote for what ails our industry because even in the best of circumstances, competition has its own weaknesses. However if regulators are serious about demand management (aka demand response), energy efficiency, carbon reduction, wider adoption of renewable energy technologies and distributed generation, they are going to adopt policies that scale back the dominant role of utilities and open the markets for equipment and services to other firms. There need to be reasonable and appropriate protections for small consumers, though regulators should also avoid being too protective lest they create unnecessary moral hazards. Politicians will have to find other avenues for achieving some of their social goals. Consumers need at least one price option that reflects grid conditions so they can install the smart devices everyone is talking about and have those devices operate in ways that benefit the grid. Grid operators will have to don black mock turtlenecks and learn to think much differently about power system operations and control than they do today.

If the past is any guide to the future, it's as an indication that we're stuck in a rut and we need some new ideas.

Jack Ellis
Resero Consulting

Anyone can implement a Smart Grid if the government is going to spend our tax dollars on it or is willing to promise the utilities that if they build it, there'll be legislation to force the un-consulted customer to pay for it. However, without the rigor of having the customer or an investor vote with his own dollars, it has the very real potential to be a big white elephant. Contractors and manufacturers will all be richer, but the poor customer and taxpayer will be the ones left paying for it.

The big challenge with the Smart Grid or any other public initiative is to figure how to give the person who is going to have to pay for the new functionality a say in just how much he can afford to spend on it. If the utilities were promised they could keep all the money they save but have to put up their own money, they wouldn't implement very much of the Smart Grid. Similarly, if customers could opt in or out of the Smart Grid but would also get to opt out of the questionable benefits and the high tariffs, most would.

Neither group would likely see life cycle value in the transaction. It is not that easy for either investors or customers to harvest all the apparent value the Smart Grid is promising to generate. I'm not sure North America can afford another white elephant right now.

How come cellular phones, satellite TV and the internet were able to self-finance their phenomenal growth? It's because they have a valid value proposition. The investor takes all the risks that he'll build just enough network to be useful but not so much that he'll go broke paying back the bank. The end-user decides which features he wants, and just buys those. And the services have tangible, exciting features and value. It's not going to take me long to stop being excited that I know exactly how much my electricity is going to cost this second or that I should turn off my dishwasher for half an hour to save 40 cents. I'll probably be too busy talking on my cell phone to notice.

If it were just a few bucks, no one would care, but we're talking in the trillion of dollars. Even the research funding already spent and committed is in the tens of billions. We need to give our collective heads a shake. Let's give the customer the quote ahead of time and see if he still thinks he wants to spend his money that way.

Allen Crowley