The Power Industry’s Coming Big Bang

by Dan Watkiss, Bracewell & Giuliani

In March 1876, Alexander Graham Bell, using an early prototype telephone, transmitted the momentous request to his assistant in an adjoining room, “Mr. Watson, come here. I want to see you,” and thereby became the father of telephony.

He incorporated the Bell Telephone Co. the following year. Four years later in 1880, Thomas Edison obtained a patent on his system for electricity distribution and switched on his Pearl Street station in lower Manhattan. And Nikola Tesla and George Westinghouse demonstrated alternating current power at the 1893 Chicago World’s Fair Columbian Exposition.

A friend (with years of experience in designing power systems) explained to me that if Bell and Watson were brought back to life in 2010, they would find little to nothing familiar in today’s telecommunications, but if Edison, Tesla and Westinghouse similarly were brought back to life, they would find nearly everything familiar (with the possible exception of some technology associated with nuclear generating stations). As the administration and Congress prepare to take up energy legislation, understanding why my friend is right should be a starting point.

The authors of two recent, noteworthy documents–one an open letter to President Barack Obama and the other a wide-ranging report on structural deficiencies in the power industry–ask why and, though taking different routes, come to surprisingly similar answers. The letter and the research report conclude that for the power industry to experience the innovation and progress that has characterized telecommunications since U.S. District Court Judge Harold Greene broke up AT&T, power consumers must be empowered with access to information and the ability to communicate directly with power suppliers.

The April 5 letter, “A Letter to the President of the United States,” is a remarkable document because of its motley authorship, a who’s who of industry, high-tech, retail and environmental advocacy, ranging from Dow to Google to Best Buy to the Natural Resources Defense Counsel. Their message to the president is simple. It asks the administration “to adopt the goal of giving every household and business access to timely, useful and actionable information on their energy use.”

Empowered with information on the sources and causes of their consumption, alternative pricing plans and generation attributes, the diverse authors project that a 15 percent reduction in power consumption by all U.S. households could be achieved by 2020, reducing costs by $46 billion and reducing greenhouse gas emissions equivalent to taking 35 million cars off the road. To expedite these savings, the letter’s authors ask that consumer access to energy usage information become part of all federal rule making, programs and grants.

The Feb. 4 research report “Electricity 2.0: Unlocking the Power of the Open Energy Network” is the combined work of think tanks NDN and the New Policy Institute (NPI) and principal author Michael Moynihan. It concludes that the 20th-century regulatory structure of the power industry prevents innovation and progress by cutting the connection between performance risk and reward, eliminating market discipline, giving standards and engineering the force of law, and disenfranchising customers. The authors make thoughtful recommendations for transforming “Electricity 1.0″ into “Electricity 2.0″–a process they analogize to the big-bang theory–including upgrading the grid and making fundamental changes to traditional cost-plus-return rate making, which they argue fails to reward and frequently discourages research, development and innovation. Noteworthy is how implementation of many, if not most, of this report’s recommendations will require precisely what the authors of the letter to Obama propose: Inform and empower energy consumers so they can understand and communicate their needs and preferences directly to suppliers.

For example, the NDN-NPI report observes that 20 years ago the typical home had one twisted copper pair of wires for telephone and one 120-volt copper wire for electricity, but that same home today would have up to six low-voltage cables wired to each room for phone, computer, video and audio home theater, but still only one 120-volt wire for electricity (or possibly an additional 220-volt wire for the air conditioning). In the open architecture of Electricity 2.0, an informed power consumer should be able to understand and demand from service providers an array of lower-voltage connections. Together with feed-in tariffs, those connections could provide low-cost service for the ever-increasing low-voltage applications in homes or businesses, create wide-area storage in certain of those applications (including computers and an anticipated fleet of hybrid and electric vehicles), and accommodate consumer sales of power back to the grid at prices set in the feed-in tariff.

The industry, Congress and the administration can benefit from the letter and report as new national energy policy is crafted. The report authors expressly ask Obama to charter a commission composed of network and electricity experts to design a new, open-architecture Electricity 2.0. The letter’s authors have volunteered to host a consumer energy technology showcase that “will highlight energy information and control solutions” that could produce the big bang toward Electricity 2.0.

Author

Dan Watkiss is a partner with Bracewell & Giuliani in Washington, D.C., representing power companies, exploration and production and midmarket companies, natural gas pipelines, power and liquefied natural gas project developers and lenders, as well as government agencies and regulators. Reach him at dan.watkiss@bgllp.com.

 

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