Wednesday, January 28, 2015


One of the topics that I am frequently invited to address at conferences and workshops is what electric utilities, especially electric distribution utilities, should be thinking about, planning for and implementing as the industry undergoes revolutionary restructuring. Here is my list of the Top Ten (Plus 1) Challenges for electric distribution utilities.

1. Bulk Power Grid - The reliability and economy of the bulk power grid has been declining at an alarming rate and is expected to continue to do so. A groundbreaking 2009 report by the industry's Electric Advisory Committee to the USDOE stated that:
" . . . the current electric power delivery system infrastructure . . . will be unable to ensure a reliable, cost-effective, secure, and environmentally sustainable supply of energy for the next two decades . . . is nearing the end of its useful life."
This is in part because the grid is simply wearing out . . . depreciation expense exceeds new investment. And, because new circumstances and requirements exist, simply investing more in the traditional centralized grid model will not suffice.

2. Climate - Even aside from the hotly disputed linkage of climate change and utility use of carbon-based fuels, the number, duration and severity of weather events have been steadily growing. The result is undeniable even if the cause may be disputed. This further degrades the reliability and economy of the grid, further reinforcing customers' interest in alternatives to grid service.

3. Security - The grid is not adequately secure. While much of the dialogue in the industry is about cyber security, the grid is, even more troublesome, dramatically insecure physically.This is especially true for large, centrally controlled, synchronous AC grids. There is really not a critical facility (e.g., generation, transmission, distribution) in the grid that is not readily approachable.

4. Change / Complexity - The fundamentals of the electric utility business have changed and will continue to do so. Not only are the foundations of the legacy industry eroding, but there are entirely new requirements that the grid was not designed for. Almost all of them make the business more complex.

5. Customers / Competitors - Customers in the 21st century have new expectations and opportunities They have an increasing variety of alternatives to the all-requirements service from their incumbent utility that prevailed for nearly a century. These range from conservation and energy efficiency to demand management to distributed generation and storage to competitive transactive energy markets.

6. Distributed Energy Generation, Storage & Management - There is now an order of magnitude more energy generation units at the distribution edges of the grid than all the utility owned generators in the entire bulk power grid. The benefit versus cost for these “grid edge” components continues to improve exponentially. Monitoring and control is not longer the sole domain of the local electric utility or it's power pool or system operator. Add to this the growing number of electric vehicles which represent roaming energy consumption, storage and even generation.

7. Costs / Revenue - Costs of generation, both fixed and variable are rising. Costs of transmission and distribution are rising. The costs of doing business are rising. On the other hand, utility revenues from energy sales are declining as a result of conservation, energy efficiency, competition and distributed generation. Utilities generally collect a majority of their revenue through charges for energy usage, a variable quantity yet the majority of their costs are due to capacity, a fixed quantity that doesn’t diminish with diminished energy consumption. Traditional approaches to rate design are no longer sufficient. Simply raising rates to overcome declining revenues only increases the incentivize for customers and competitors to further displace purchases from their utility.

8. Technology - A rapidly growing array of new energy, electronics, information, and telecommunications technologies, devices and applications are available. The Internet of Things has arrived. These are helpful, even necessary to meet the challenges of “Grid Edge.” What are they, what do they do, and how can they be properly evaluated, deployed and operated?

9. Digital Enterprise - To stay competitive, utilities must transform themselves into fully digital businesses. Information technology (IT) and operations technology (OT) must merge. Customers' expectations of digital sophistication must be met. New kinds of competitors will come into existence as digital enterprises, not slowed by the need to overcome an incumbent, non-digital business structure and culture.

10. Workforce - It is necessary to rethink the recruitment and management of utility personnel given both the new realities of the grid and the unique characteristics of the next generations of employees.

+1 - Who really knows what can and will happen next? Realize that Moore’s Law for electronic components is just a special case of a more universal truth (a la Wright's and Kurzweil's Laws) that change is exponential in technologies enabling exponential change in business. Utilities will require unprecedented agility and innovation to face a rapidly changing future and largely unpredictable future. The only way to reduce the uncertainty and risk is to aggressively shape the future.


The industry's response has been, shall we say, less than enthusiastic. In a way that is both humorous and sad, many electric utility executives, professionals and line employees tend to react to this list with something akin to the well known Kubler-Ross five sequential stages of grief:

Denial and Isolation - Insist that grid restructuring isn’t necessary, that the legacy grid just needs some tender loving care, maybe some CPR. Avoid those who say otherwise. Try to get out of the business or make it to retirement instead of facing reality.

Anger and Resentment - Assert that the new realities are unreasonable and unfair. Protest that the problems are arbitrarily caused by others and that it could be eliminated by them. Seethe and sulk because business is so hard without the beloved legacy grid.

Bargaining - Try for exemption from the future by lobbying for favorable legislation, petitioning for regulatory relief, or suing for judicial intervention. Try to persuade customers to change their behavior to make the problems go away.

Depression - Mourn for the old burnt out light bulb and take no joy in the new and better LED one. Have no joy or enthusiasm for the future of the grid.

Acceptance - This stage is attainable by only a few incumbents (e.g., NRG) who realize that denying the passing of the old grid model only hinders finding peace and success. More importantly, those who were never really attached to the dearly departed (e.g., customers, entrepreneurs, innovators, competitors, developing economies) are at this stage from the very beginning. They are free to move on to new and better things. Acceptance can be accelerated by associating with them as well as with those who have experienced and triumphed over a similar loss (i.e., a devastating industry restructuring).

To successfully meet the challenges, and, more importantly, to exploit the opportunities, they must be recognized, understood and accepted. The industry, like Norman Bates, cannot prosper by trying to preserve the departed!


A reader posted a comment questioning Item 2. Here is a graph based upon a compilation of reports by utilities to the Energy Information Agency.

There are two motivating forces here. One is the increasing frequency and severity of weather events. The other is the declining reliability of the legacy grid which would mean growing frequency of weather related outages even if there was no growth in the frequency or severity of weather events.


  1. Great article! I wonder about item 2, though, where you state the number, duration, etc, of storms has been increasing. Could you please share your source for that? Everything I've read is that tornadoes and hurricanes are at historic lows. Thank you, Matt Berry, Midwest Electric,

    1. Matt,

      Thanks for taking the time to read my post and comment. I just sent you three emails with a collection of graphs demonstrating the increasing frequency, severity and duration of severe weather events.


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