Thank you so much for this piece. Accessible as always and such helpful background.
Access to capital and inability to capitalize is a constant problem for Operations (and veg management in particular) teams at utilities. It is mind numbing that states are not pulling some of the levers available to them to experiment more heavily with PBR at least, especially given the intensity of justified public outcry over events like those after Beryl. PUCT's SRP requirement might count as a start, but is so light-touch (and has no real impact on incentives) that it's unlikely to make a big difference.
Would love to know your thoughts on when or where you see opportunities for larger incentive shifts, or your analysis on ones that are being attempted.
Lynne, really enjoyed your article, even though I am London based. It has made me think more broadly about regulation in other areas. Thank you, Lawrence Morris
At the other extreme, China's State Grid serves 1 billion people. It contains the #4 AI lab in the world, which has helped manage its grid for several years. The Chinese pay half as much for their power as us, and their grid is down 8 minutes a year, compared to our 8 hours.
Better yet, their grid is maintained in as-new condition. Being publicly owned, there's no incentive to prioritize dividends over maintenance..
You have much greater confidence than I do in a large unaccountable bureaucracy's ability to make economically sensible and sustainable investments, both for information reasons and for incentive reasons. Large bureaucracies (both public and regulated) also don't have the error correction negative feedback dynamics that good market processes provide.
Lynne, China's bureaucracy is neither large nor unaccountable.
China's fiscal picture resembles Switzerland's semi-autonomous federation of states.
China's government is accountable to the Chinese people, via its 3,000-member, volunteer congress. They're tight-fisted working people who can and do delay legislation for decades. Evidence that their approach is working can be found in many public surveys: 96% of Chinese say their country is headed in the right direction.
It 100% originates in the regulatory regime. The US has more outages than other other developed nation. Extreme weather events are increasing. Utility operators like to joke that customers calling are the outage management system. Or the fire department.
Utilities strive for 2-9s Availability (99%), when 3 or 4 should be industry standard (99.99%).
So yes hardening. Also sectionalizing, grid automation, and very basic technologies along with inherent resilience provided by DER. The state of affairs is shocking, relative to the entire remainder of the economy and modern technical world.
Only a concerted uncaptured, regulatory 2 value driven effort will change this. The interests of the electric utility industry and Society are not aligned. There is no competitive market that can fix that.
Warren Buffet's Nov 2023 shareholder's letter basically stated the utilities will fail to adapt and the grid will be taken public, since the economic costs of failure are too great. But it's hard to find many utilities that share any sense of urgency.
Thanks Byron! I think we're entirely in "theory of second best" territory, comparing imperfect markets and imperfect regulation (which is a false dichotomy anyway), but I would argue against taking the grid public. I'd rather identify ways to reduce barriers to non-utility private transmission investment.
Thanks for the article! Helps contextualise my understanding of Distribution Network Operator regulation here in the UK!
Thank you so much for this piece. Accessible as always and such helpful background.
Access to capital and inability to capitalize is a constant problem for Operations (and veg management in particular) teams at utilities. It is mind numbing that states are not pulling some of the levers available to them to experiment more heavily with PBR at least, especially given the intensity of justified public outcry over events like those after Beryl. PUCT's SRP requirement might count as a start, but is so light-touch (and has no real impact on incentives) that it's unlikely to make a big difference.
Would love to know your thoughts on when or where you see opportunities for larger incentive shifts, or your analysis on ones that are being attempted.
Lynne, really enjoyed your article, even though I am London based. It has made me think more broadly about regulation in other areas. Thank you, Lawrence Morris
Thank you Lawrence; that's my goal, thinking more broadly!
At the other extreme, China's State Grid serves 1 billion people. It contains the #4 AI lab in the world, which has helped manage its grid for several years. The Chinese pay half as much for their power as us, and their grid is down 8 minutes a year, compared to our 8 hours.
Better yet, their grid is maintained in as-new condition. Being publicly owned, there's no incentive to prioritize dividends over maintenance..
You have much greater confidence than I do in a large unaccountable bureaucracy's ability to make economically sensible and sustainable investments, both for information reasons and for incentive reasons. Large bureaucracies (both public and regulated) also don't have the error correction negative feedback dynamics that good market processes provide.
Lynne, China's bureaucracy is neither large nor unaccountable.
China's fiscal picture resembles Switzerland's semi-autonomous federation of states.
China's government is accountable to the Chinese people, via its 3,000-member, volunteer congress. They're tight-fisted working people who can and do delay legislation for decades. Evidence that their approach is working can be found in many public surveys: 96% of Chinese say their country is headed in the right direction.
Thanks another great piece Lynne.
It 100% originates in the regulatory regime. The US has more outages than other other developed nation. Extreme weather events are increasing. Utility operators like to joke that customers calling are the outage management system. Or the fire department.
Utilities strive for 2-9s Availability (99%), when 3 or 4 should be industry standard (99.99%).
So yes hardening. Also sectionalizing, grid automation, and very basic technologies along with inherent resilience provided by DER. The state of affairs is shocking, relative to the entire remainder of the economy and modern technical world.
Only a concerted uncaptured, regulatory 2 value driven effort will change this. The interests of the electric utility industry and Society are not aligned. There is no competitive market that can fix that.
Warren Buffet's Nov 2023 shareholder's letter basically stated the utilities will fail to adapt and the grid will be taken public, since the economic costs of failure are too great. But it's hard to find many utilities that share any sense of urgency.
Thanks Byron! I think we're entirely in "theory of second best" territory, comparing imperfect markets and imperfect regulation (which is a false dichotomy anyway), but I would argue against taking the grid public. I'd rather identify ways to reduce barriers to non-utility private transmission investment.
I'm hoping Troy Helming and others will drive the next breakthroughs in private transmission. https://earthgrid.io/
Though Transmission isn't Resilience, won't enable DER at scale, or deliver Electrification.
Does the Theory of Second Best also apply when the primary market failure is unearned monopoly rents and regulatory capture? ;)
Cheers
This is a superb post - thanks! Should be mandatory reading for any one serving on a PUC.
Thanks Andy! Well, I do direct an annual workshop for regulators, so at least some will ...