Smart Grid 101: Utilities Are Very Risk Averse

There are a lot of similarities between the build out of telecom and Internet infrastructure, and the current rollout of the smart grid. But here’s one major, and very important, difference between the construction of communications and energy networking, which the President and Chief Operating Officer of utility ComEd, Anne Pramaggiore, mentioned on a panel at the Cleantech Investor Summit last week: unlike broadband and telecom service providers, utilities are very risk averse.

“There is very little tolerance for problems in this [the energy] industry. You need to understand this beast if you are going to work in the industry.” said Pramaggiore. Three-mile island single-handedly stalled nuclear power, and an issue like the one in Bakersfield (where residents in the region in California ended up suing PG&E last year over heightened rates that they claimed were due to smart meters) can send shock waves through the industry, said Pramaggiore.

Bakersfield and Three Mile Island, of course are very different, but, any appearance of a problem with the smart grid rollout and it will have serious effects on the way utilities react. “We have to get this [the smart grid rollout] right early on,” insisted Pramaggiore.

Scott Lang, the CEO of Silver Spring Networks, who also participated on the panel, had a similar sentiment to Pramaggiore and said the industry needs to make sure that the early rollouts of the smart grid are flawless. Bakersfield was “a perfect storm,” said Lang. We installed the smart meters at the same time as a customer care program had just expired in the area, a new rate case had recently hit the area, and the region experienced an unusually warm period of weather, said Lang, who’s infrastructure technology was installed in Bakersfield. The meters are accurate, we’ve done testing,” added Lang.

One reason for the differences in the tolerance for risk between telecom/Internet and energy industries, is that the stakes can be a lot higher for energy than for communications. If your calls drop periodically, web and mobile services don’t work as advertised, or your Internet connection goes out for a day, it’s really irritating but not necessarily life threatening (GPS for 911 calls not included). But say your heat or electricity goes out for many days, or there’s a dangerous electrical mistake or glitch, that can be a lot more serious.

In addition in the Internet industry in particular, but also for telecom, there’s a history of building new products and innovations that are market risks. Google is the classic example — Google’s energy guru Bill Weihl told the New York Times recently that “[I]f you don’t say five years later, “We never should have done that” about a significant percentage of it , then you’re being way too conservative.” That statement would never be uttered by a utility executive.

Finally, most utilities are regulated and can’t make big decisions without getting the approval of, and justifying their actions to, their public utility commissions. It just naturally makes building out network infrastructure that much slower and more conservative. That’s also why utilities often times prefer to work with large companies as opposed to small startups. As Pramaggiore put it, that’s just the nature of the animal, so companies looking to sell into the new smart grid market, better be prepared.

Image courtesy of Ian Muttoo’s photostream Flickr Creative Commons.

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