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Transforming the Grid: The Challenge

Electricity is one of the few sectors where performance and earnings are not directly aligned with the interests of consumers or their satisfaction. Instead, utilities answer primarily to state regulatory agencies, elected officials and federal authorities, operating under numerous rules that precede the New Deal. But like many elements of the U.S. infrastructure, much of the equipment in the electricity grid is near the end of its functional lifespan. We therefore face a choice of reinvesting in a system that served the past, or transforming it in ways that serve the consumers, businesses and society of tomorrow.

The case for change is clear. Consider, for instance, the unreliability of today’s grid. Despite great efforts by utilities to improve reliability, each day roughly 500,000 Americans spend at least two hours without electricity. Brownouts, power spikes and even minor blips can bring high-tech production lines to a halt. Such impurities and failures cost business and consumers an estimated $150 billion a year. Moreover, the system is vulnerable to terrorist attack, major storms and even moderately turbulent weather.

The system is also inefficient. While nearly half of America’s electricity comes from coal-fired generation plants, more than 60 percent of the energy in each ton of coal is lost through smokestacks and cooling towers in the form of emissions, heat and warm water. When electricity from coal, nuclear or hydroelectric plants is moved long distances over transmission lines made from copper cables – just like a century ago – still more power is lost as heat, at times up to 10 percent. In homes, telephone chargers and “instant-on” televisions bleed power even when not in use, devouring an average of 7 percent of a household’s total consumption. In some cases, more than 90 percent of the thermal units that go into electricity never light a room or run a motor.

The inefficiency in turn contributes greatly to electricity’s environmental impact. Power plants produce more pollution than any other single industry, and more carbon dioxide than the entire transportation sector. What’s more, nearly a quarter of the total investment in power generation is devoted to providing electricity for peak periods of demand, which occurs 5 percent or less of the time.

Today’s electricity industry is much like the old telephone system, when rotary-dial phones came only in black and were owned by the phone company and rented to consumers who legally had no other option. In most jurisdictions microgrids are currently illegal, simply because utilities hold an exclusive right to string wire across roads. Utilities are compensated with a fixed return on how much they invest in facilities to meet maximum power demand, charging consumers for the average cost of providing power. But there are no incentives to give consumers information on costs or choices of when and how much power to use.