All that, coupled with the fact that they have no real market competition, means utilities are extremely risk-averse, and their unwillingness to take risks feeds the inertia. They want to know that they are going to recover their costs via a rate increase before they go out on a limb investing in a new technology.
On the other side, regulators typically are skeptical of new technologies, making it difficult for utilities to successfully lobby them for a rate increase. Even assuming that consumers wouldn't mind tacking some pennies onto their monthly bills to help build out the smart grid, utilities have a difficult time getting regulators on board.
"There are limited things you can do by going halfway; there are some things you can only do in one big leap," Rábago said. "And it's tough for the regulators."
Without that vote of confidence from regulators, who are often unfamiliar with new technologies, utilities shy away from smart-grid upgrades or enhancements to cyber or physical grid security and instead fall back on what's worked in the past: major capital investments in new power plants or substations. "Not taking risks means not moving ahead with potentially valuable additions to the grid," Sedano said.
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There's also the fact that utilities make money by selling electricity, and reducing their sales volume isn't necessarily in their best interests. A rate increase based on a capital investment in grid infrastructure is good for the bottom line, but there's a built-in disincentive to take efficiency improvements too far.
For instance, a utility might be considering upgrading its meters, with a choice between automated meter reading (AMR) and advanced metering interface (AMI) technologies. The former allows a meter to beam its data to a passing truck, simplifying the job of meter reading. The latter consists of technologies like Google's recently acquired Nest smart meter, technology that opens two-way communication between the consumer and the utility. While AMR is less expensive, AMI offers better utility and efficiency for the consumer, ultimately offering customers more control over their energy usage (and energy bill).
Although AMI is in most cases the better long-term option, a utility often has stronger incentive to go with AMR, Rábago said. Aside from being less expensive, a last-generation technology locks other companies—technology-driven concerns like Google, Cisco, or IBM that work at the cutting edge of smart-grid technology—out of the ecosystem.
Integrating technologies a generation behind cutting-edge can erect a barrier to competition, keeping customers tied to services offered by the utility itself. And because it's less expensive, the utility can do so under the guise of responsible frugality, keeping rate increases minimal and electricity consumption even.
"At a progressive utility, they may say, 'We're willing to take the hit, but we have a responsibility to shareholders. We're willing to do this at no growth, but we need an earnings opportunity,'" Rábago said. "And that's often where things derail. What ends up driving the conversation: 'How will this hurt sales of electricity?'"