Is Grid Modernization Always Cost Effective?

• Author: Costello, Kenneth W.

Some 60 percent of the U.S. electricity distribution system, which is the part of the grid that covers "the last mile" of delivering power to homes and businesses, is older than its 50-year life expectancy. It was designed when power plants in central locations exclusively controlled a one-way flow of electricity to customers. That is not the world we live in now; a modern system would accommodate greater consumer control and two-way flows of power, facilitating decentralized generation.

Grid Modernization (GM) can have different meanings, but it generally refers to actions making the electricity system more resilient, responsive, and interactive. GM investments digitize a utility's distribution system to improve operators' ability to monitor grid conditions, analyze those conditions with software, and take appropriate action in near-real time (e.g., restoring power after an outage). GM has the potential to improve the reliability of the electrical grid, better integrate alternative energy, and enable pricing that reflects the marginal cost of generation.

The U.S. Department of Energy (DOE) identifies five general GM technologies:

* integrated communications that allow for real-time information and control

* sensing and measuring technology that enhances rapid system and human responses

* advanced components such as electricity storage and superconductivity

* advanced control methods such as voltage optimization

* improved interfaces and decision support for distribution system managers

These technologies include advanced metering infrastructure and associated communications networks, intelligent grid devices for real-time or near-real-time system information, distribution system hardening projects for circuits and substations designed to reduce service outages or service restoration times, and systems or technologies that enhance or improve distribution system planning capabilities.

Previously in Regulation, Vanderbilt law professor Jim Rossi described state regulation that is stifling the development of new cost-effective long-distance transmission lines, which are what deliver electricity from far-away generators to the local distribution systems. (See "Promoting Cost-Effective Grid Modernization," Winter 2022-2023.) In this article I examine a very different problem: state regulations that promote the modernization of local distribution systems with little regard for costs.

The GM coalition / Proponents of GM vastly outnumber both skeptics and opponents. Proponents include utilities themselves, environmentalists, GM technology vendors, consultants, labor unions, and state and federal politicians and bureaucrats.

Environmentalists and some utilities, for example, view GM as necessary to satisfy "net zero emissions" aspirations. An example of this comes from a...