keys to Transmission and Distribution Reliability

A coordinated approach helps control costs.

Historically, transmission and distribution assets have been quiet utility stepchildren- generally ignored by both regulators and senior utility management while, their generating asset relations remained in the limelight. But as restructuring of the electric industry evolved in the 1990s, a looming competitive environment created strong pressures within utilities to reduce spending.

Many utility distribution engineers will tell you that under-investment has been occurring since that time. Rate freezes, the removal of regulatory protections for generating assets, and management of transmission and distribution (T D) assets by holding companies with significant unregulated operations also have contributed to pressures to reduce spending on T D assets and infrastructure.

The problems created by reduced infrastructure spending are evident when one considers the highly capital-intensive cost structure of the T D business. Electric utilities are roughly three to four times more capital-intensive than other capital intensive industries in the United States, requiring roughly four dollars of physical capital for every dollar of annual revenue The ratio of capital requirements per dollar of annual revenue indicates the value-added of the production process; it measures the willingness of the market to pay for capital recovery. Whereas companies like Intel can recover the cost of a multi-billion dollar investment in four or five years, the electric power industry requires 15 to 20 years to recover investments.