The Smartgrid: powering socio-economic growth

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January 28, 2014

…these utilities also contribute in bridging the digital divide by delivering affordable access to fast broadband services in their service areas.

The deployment of smart grids by electric utilities worldwide has provided significant benefits to the utilities as well as to the wider communities (for a further discussion of the socio-economic benefits of fibre broadband see our accompanying paper). Through the ability to deploy fibre alongside their existing networks, and vast experience in the deployment and operation of infrastructure, utilities are able to enter the telecommunications market with ease and compete fiercely with existing operators. It is therefore unsurprising that many telcos have legally challenged such utilities in an attempt to stamp out or delay competition.

The Electric Power Board of Chattanooga (Tennessee, United States), Lyse Energi (Norway), and Lafayette’s LUS Fiber (Louisiana, United States) have all deployed or are deploying smart grids. Expected benefits include improved efficiencies in the delivery of electric services, environmental benefits, new revenue streams, better innovation and improved quality of life of residents. The United States Energy Department in February 2012 noted:

As the modernization of the nation’s electric grid moves forward, consumers and businesses are experiencing fewer outages, faster power restoration when outages do occur, more efficient operations and cost savings.

A reliable electricity supply has been cited by businesses as one of the primary reasons for choosing Chattanooga as a business location and major corporations such as Volkswagen and have moved into the area. It is estimated by EPB that the 170,000 local businesses and homeowners will benefit from a 40% reduction in costs (approximately USD40 million / NZD58 million ) by a faster response to power outages. In providing a grant to the Electric Power Board (EPB) of Chattanooga, the US government also recognised the potential benefits its smart grid could offer. Apart from increased service reliability and reduced greenhouse gas and pollutant emissions, the following costs would be reduced:

  • electricity costs for consumers
  • operating and maintenance
  • meter reading
  • costs from distribution line losses, equipment failures and theft
  • truck fleet fuel usage.

Smart grids can achieve these benefits through modern metering systems and communications infrastructure which:

  • provide consumers better information about and tools to control their energy usage
  • allow utility companies to discover and react to incidents faster and more efficiently
  • allow the rerouting of power in the case of a damaged power line
  • increase access to energy information leading to innovations and the development of better products / services including renewable energy.

The provision of telecommunications services has become an added source of revenue for EPB whereas the wider community is also benefiting from the availability of fast 1Gbit/s broadband and triple-play services (television / video, Internet and telephony services) to all households and businesses in the region.

Altibox (a subsidiary of the Norwegian power company Lyse Energi) was the recipient of the FTTH Council Europe Operators Award in 2012 in recognition of its success in the FTTH market:

The 2012 winner in the Operator category is Altibox, who have realised very high household penetration numbers in Norway. Their enthusiasm for FTTH has resulted in a very successful concept. This combines unique go-to-market approach, highly appealing applications that were developed in-house and with selected experts, plus an original franchise system involving subsidiaries and partners. Quite an achievement in Norway's highly competitive market and a testament to entrepreneurial creativity backed by fibre technology!

Altibox had a 75% share of the Norwegian FTTH market in 2012 after its entry into the FTTH market almost a decade ago. According to the CEO telecommunications was a natural fit for the company as experts at the installation and operation of infrastructure following its experience in the electricity industry.

LUS Fiber is a division of the community owned US utility Lafayette Utilities System (LUS). The establishment of LUS Fiber, and the provision of telecommunications services by LUS was made possible through a community approved bond issue in 2005. A federal grant for a smart grid system was also awarded to LUS in 2009 and according to its Director the fibre network was an important factor in LUS’s selection for the award. While LUS Fiber was designed to improve the LUS facilities and operations, according to LUS it has also been a catalyst for socio-economic development in the community and enhanced telecommunications services as well as education innovation:

With a fiber infrastructure prepared for the future, Lafayette is poised to develop new technological tools and applications that will help us work smarter, educate our students more effectively, deliver healthcare more efficiently and improve our overall quality of life.

While the benefits to the utility as well as the wider community are obvious, the deployment of fibre broadband networks by utilities has not gone unchallenged by competitors. For example, the Tennessee Cable Telecommunications Association (TCTA) and ComCast of the South (cable and Internet services provider and a member of TCTA) brought actions against EPB which subsequently failed in the trial and appeal courts for a number of different reasons. TCTA and ComCast both argued that EPB was improperly funding its fibre network in violation of the laws of Tennessee which prevent cross subsidisation between the utility and broadband division of the company. TCTA also argued that the plan submitted by EBP to the comptroller for review in Davidson County was defective and therefore EPB did not meet the prerequisites needed to offer broadband services.

Telecommunications companies BellSouth (now AT&T) and Cox Communications also mounted a legal battle against LUS Fiber in an attempt to ban community-owned networks. This included petitioning voters to sign up against the project (the petition was ruled as invalid by the Lafayette Registrar of Voters) debatably through providing misleading information. In requesting the companies to drop their lawsuit the City Leaders stated, in recognition of the benefits the fibre network would provide the community:

… this lawsuit is against the people of Lafayette and only serves the purposes of corporate officials in Atlanta. We are offended by their continued tactics to try and block the future of our community with their profit-driven motives.

While the courts ruled in favour of LUS Fiber, the legal battles managed to delay the project. Although LUS had embarked on the idea of building a fibre network in 2004, it was not until February 2009 that it started signing up retail customers. LUS' prices were set at 20% below Cox’s rates and community / educational institutions were also provided access at discounted rates.

It is not surprising that local communities have supported the deployment of fibre networks by utilities. Worldwide electricity utilities have successfully entered into the broadband market and modernised their power grids to fuel economic growth not just for the company but also for the wider community. They have become strong competitors against existing telecommunications operators driving down prices. While electric services have been improved and the grid has become more resilient, these utilities also contribute in bridging the digital divide by delivering affordable access to fast broadband services in their service areas.

Note: All prices were converted to New Zealand dollars using 2012 Purchasing Power Parity (PPP) rates sourced from the World Bank.