IEEE Power & Energy Magazine - September/October 2016 - 73

september/october 2016

7) Ongoing
Refinement

4) Granular
5) Tariff Dev. and 6) Roll Out and Ramp Up
of New Programs
Allocation of Costs
Negotiation
4-8 Years
~6 Months
9-18 Months
3) Develop
Forecasts
6-12 Months

d
Fin
ts ge
n
e
Ag rbitra
tive w A
c
A Ne

2) Aggregate
Spatial Data
6-12 Months

tal
en e
m
e
g
r
Inc Chan

0) Process of
Discovery
5-10 Years

engineers and scientists will recognize this outcome as a
return to the basics-the principle of locality, that an object
is only directly influenced by its immediate surroundings.
This is just as valid for newtonian mechanics and billiards
balls as it is for Maxwell's equations and the behavior of our
electrical grid. The true value of an electrical transaction
between an agent and the grid does not depend on the "class"
of that agent (residential, commercial, or industrial); nor
does it depend on the pedigree of the electricity (coal, solar,
or nuclear). rather, it depends only on the electrical proper-
ties of the transaction (e.g., voltage, real and reactive power,
frequency), at a particular place and time (since demand is
dynamic and grid congestion varies by node).
Transitioning to such a technology-agnostic system will
require re-imagining the role of a utility as a network owner.
Moreover, it will require new thinking on the part of policy
makers on the purpose of utility regulation and clarity on the
implicit subsidies that have long been obscured. a full dis-
cussion of this transformation process is beyond the scope of
this article, but it will likely be a multiyear process that will
progress through the following stages, as shown in Figure 5.

1) Understand the True
Scope of the Problem
1-2 Years

Road Map and Summary

Traditional System

not unique to regulated electric utilities; examples in other
price-regulated industries include telecommunications ("free"
conference calls) and aviation (low-cost carrier competition
versus legacy hub-and-spoke airlines).
Traditional active agents include wholesale generators and
some large industrial customers. Where pricing schemes prop-
erly reflect transaction value, as they generally do for these
traditional active agents, utilities can minimize the arbitrage
potential. increasingly, we are seeing new active agents, such
as consumers with ders at a small scale and office parks and
universities with microgrids at the large scale. one can even
consider cities such as boulder, colorado, that are pursuing
electric utility municipalization as newly active agents. Most
of these agents are presented by the utility with a historically
overly simplified pricing scheme that was designed for an era
without ubiquitous active agents. active agents can arbitrage
these pricing schemes to (selectively) extract value from and
(unintentionally) destabilize the rest of the system. The most
well-known example of this is the customer with pv self-gen-
eration who is compensated through net metering, leading to
a potential utility "death spiral," but this is simply the tip of
the iceberg as the agency becomes ubiquitous.
The utility sector will likely respond to these major para-
digm shifts with a variety of stop-gap measures such as tech-
nology-specific tariffs, fixed charges, and targeted incentives
to reward demand-response behavior. These are blunt instru-
ments that will only partially address the problem while mask-
ing and creating others. ultimately, utilities will be forced to
1) treat each electricity consumer/meter as a unique node on
its network (no more aggregation into customer classes) and
2) transact with each node at economically consistent pricing
(nonarbitragable, with the proper dynamic incentives).

w e
Ne lanc d
a nize
b
Im cog
Re

figure 5. A road map depicting a transition from a traditional electric system to a 21st-century technology-agnostic grid.
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Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - September/October 2016