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Xcel’s SmartGridCity Can Thank Fiber For Ballooning Costs

Xcel Energy’s showcase smart grid project in Boulder, Colo. has cost a lot more than originally expected, and the Colorado Public Utility Commission is now asking the utility to prove why it needs its Colorado customers to foot part of the bill. The main culprit for the cost overruns? — fiber.

According to a Friday story in the Boulder Daily Camera newspaper, SmartGridCity — one of the most widely publicized experiments in bringing smart grid systems to an entire city, with a who’s who of industry partners including GridPoint, Accenture (s ACCN), Current Group, SmartSynch, Ventyx and OSISoft — has seen capital costs balloon from an initially projected $15.3 million to a new estimate of $42.1 million, and that doesn’t include operations and maintenance (the entire project is expected to cost in excess of $100 million).

The CPUC has approved the utility’s $11 million rate hike to cover additional SmartGridCity costs as part of a broader rate case approved in December. But it has also ordered the utility to file a “Certificate of Public Convenience and Necessity” proving that the hike will serve the public interest, something that Xcel hasn’t yet had to do for the project.

According to Xcel, it’s the cost of building the fiber optic network that serves as the backbone of SmartGridCity’s communications, a task that was given to consortium partner Current Group, that’s mainly responsible for the ballooning cost. Not only did the utility need far more underground fiber than it originally anticipated, it also faced other unexpected costs, such as using diamond-tipped drill bits to tear through granite and bringing in cranes and dump trucks to remove boulders, the utility reported in a May document.

Until now, Xcel and its SmartGridCity partners have footed the entire bill for the project without a rate increase, said utility spokesman Tom Henley. Just how much of the additional costs, absent the most recent rate recovery, are being borne by Xcel versus its partners, including Current Group, he didn’t say. (He also declined to comment on a January report from Greentech Media that Xcel demanded $5 million from each of its partners to take part in the project, saying that he couldn’t disclose dollar amounts contributed by each partner.)

Rumors that SmartGridCity was facing fiber-related cost overruns have been circulating for some time. The whole affair brings into question whether smart grid services alone can justify the cost of building out a fiber optic network. While many utilities have fiber optic networks installed, they’re usually limited to major transmission lines and end at big substations, rarely venturing out into neighborhood distribution grids.

Granted, some municipal utilities have installed fiber optic lines to homes and businesses and are now looking at providing smart meter connectivity through them — but those investments have typically been justified by including the potential to sell video, data and voice communications over the same lines. Examples include Tacoma, Wash. municipal utility Tacoma Power, which has turned to vendor MuNet to hook up some 17,000 smart meters via already-laid fiber optic lines, and Chattanooga, Tenn.. where municipal utility EPB won a $111.6 million Department of Energy smart grid grant to build a $200 million fiber optic, teaming up with Tantalus for the smart meters and Alcatel-Lucent for the fiber optic network.

Xcel has until late February to file its certificate of public convenience and necessity, and the CPUC could take six months or so to review it, said commission spokesman Terry Bote. In the meantime, Xcel can continue to collect ratepayer money to cover the $11 million — but might have to refund that amount if the CPUC rejects the certificate, he said. As for how it will make this decision, “The commission is looking to make sure the project is in the public interest,” he said. “That’s about as specific as I can get at this point.”

But he did say that the CPUC was considering opening a separate “investigatory docket” to review various aspects of the SmartGridCity project — including the matter of the costs and benefits of using fiber optic networks versus other forms of communications for further expansion of smart grid services in Xcel’s Colorado territory. Fiber is undoubtedly the fastest and most reliable communications network available to utilities, but costs can be a killer, and many utilities are deploying cheaper alternatives, such as utility-owned wireless or power line-carrier networks — as well as turning to public cellular networks such as Sprint, AT&T and Verizon — to get the job done at lower cost. CPUC’s docket on the matter could yield some very interesting information on these questions — stay tuned.

As for Xcel, “We’re looking at all types of options for which parts (of SmartGridCity) we’d like to transport to other parts of our service territories” as the utility seeks to expand its smart grid system, Henley said. “We have to determine what’s the best way to do that.” Xcel is using multiple technologies in SmartGridCity, including broadband-over-power line communications over the same lines that carry electricity, as well as existing DSL lines from Qwest, to bring connectivity to homes, and both fiber and cellular for the “backhaul” networks that bring data back to utility control centers.

Notably, Xcel hasn’t chosen to use wireless mesh technologies from vendors such as Silver Spring Networks and Trilliant to connect smart meters — the first choice of most of the U.S. utilities doing smart meter deployments. In the meantime, Xcel has hooked up about 20,000 Boulder customers, of an eventual 45,000 or so, with smart meters, and is seeking permission to start a pilot variable pricing program with about 2,000 of those customers, and hopes to get CPUC approval by June. No doubt it’s eager to get CPUC approval of its rate hike being in the public interest, to avoid having the uncertainty weigh down on the entire project.

Image courtesy of Xcel SmartGridCity.

10 Responses to “Xcel’s SmartGridCity Can Thank Fiber For Ballooning Costs”

  1. Giordano Bruno

    According to public testimony submitted to the CPUC non-fiber related IT was $16.7M of the $29.4M increase. $13.5M of that was just software purchase and integration. Why are we blaming fiber? Over 50% of this increase was because of poor IT project management. Classic stuff. I think the fiber is a not such a bad thing. Much less bad than poor partner coordination and requirements planning.

  2. Not surprising. Building a seperate fiber network is complete overkill for the data demands of a real time, two way smart grid communications system. Ask any cable company about the cost to lay fiber deep into its system; there is a reason most subscribers continue to have coaxial cable drops into their homes. In the planning stage, someone at Xcel must have decided to build an over-engineered solution rather than a cost-effective one. IMO either the utillity regulators lacked the skill to manage the process or Xcel did. As a project, it will help other utilities better plan their future efforts, but Colorado ratepayers are getting a bad deal. Silverspring is rumored to have the opposite problem, its mesh network is not delivering enough effective bandwidth in the field to enable real time two-way communication so at least Xcel dodged that bullet.