51st State Ideas I Determining the Scope of the Electric Distribution Utility of the Future (Dr. Carl Pechman)

Information access is key for the role of future utilities

Dr. Pechman proposes an analytical framework to address one of the critical questions in framing the utility of the future: What services can (and should) distribution utilities provide now and in the future. He begins by discussing the value proposition in traditional vertically integrated utilities, in particular as related to economies of scale and scope. The discussion draws together the roles that economies of scale and scope played throughout the development of the traditional utility business model. Dr. Pechman then describes how the changing nature of economies of scale played a pivotal role in the transformation of the industry away from a model based upon vertically integrated monopolies. He then lays out different rationale that has been used to determine whether the provision of specific products and services were in the scope of utility activity.

Dr. Pechman provides a decision tree for determining the scope of utility activities. Once the nature of the product is identified, options for determining the role of the utility and terms of provision can be better understood. He explains how current methods of utility planning in conjunction with “Grid Architecture” provide a method for implementing this framework. This analytical framework evaluates the way new products affect the operation of the power system, providing a vehicle for characterizing whether new services are competitive or natural monopolies (characterized by economies of scale or scope) – which are best supplied by regulated entities.

Author: Carl Pechman, PhD

This report was not written by or originated from any member of SEPA staff and SEPA does not endorse any opinions expressed in this paper.