Wednesday, August 11, 2010

maintenance and smart grid

I read this and was blinded by rage:

http://www.cnn.com/2010/TECH/innovation/08/09/smart.grid/index.html?hpt=C1

Apparently, the smart grid would have prevented the 2003 blackout that took out the Northeast and caused $6B in damage.

I don’t know how the magic of smart grid would have prevented the utility from slashing its tree trimming budget to boost profits or how it would have prevented the SCADA system from failing to communicate that the lines were overheating or how it would have convinced the operators to listen to the operators from the neighboring utilities or how it would have created an effective regional decision-making structure to force utilities to shed load to prevent the problem from spreading, but somehow, magically, it would have. Maybe by letting the utility know that 20,000 toasters were being used in Tulsa, smart grid would have saved the day.

Outages doubled because of one reason: lack of maintenance. Anyone who says otherwise is trying to sell an expensive and largely useless smart grid.

Seriously, this is a simple problem that has been badly mishandled. And the fundamental cause is weird financial arrangements. Utilities use loans to build their system. The interest rate they pay on these loans is based on their credit rating. Their credit rating is based largely on how much they owe on outstanding loans as a fraction of what their system is worth. The value of their system is based on money spent to upgrade the system. Additionally, for profit utilities have the rate they are allowed to charge their customers based on the value of their system, so money put into the system means more profits.

So, if they get loans and use the money to improve their system it improves their credit rating, making it cheaper to get loans, which makes delivering power less expensive and/or more profitable.

Money spent on maintenance isn’t treated the same way. It is a current expense – money down the drain.

From an MBA CEO perspective, this is the entire story. Money spent on system improvements makes profits while money spent on maintenance is just gone. Only an idiot would throw money away on maintenance. So nobody does. Instead, you run equipment until it fails, then replace it using a capital improvement budget. And when you can convince your regulators to let you do it, you throw more layers of expensive useless crap like the smart grid on top of your teetering system because it is another way to make more profits. Even if it doesn’t serve any useful purpose, the utility still gets to charge their customers for installing it and extract a profit.

The solution is to let utilities treat maintenance costs the same way capital improvements costs are treated and to increase the cost of blackouts through a fine of some variety. Maybe something like a free week of service for every hour of an outage not caused by unusual weather would do the trick.