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Collateralize This: Can Utilities Leverage New Models for Future O&M Savings?

April 12, 2018
In balancing long-term ROI vs. shorter-term payback, why can’t utilities tap into bigger capital funds by leveraging new and better models of future O&M savings?

In the movie Analyze This, a hit man (Robert De Niro), tired of carrying out his contracts, seeks help from a psychiatrist (Billy Crystal).  In my Electric Utility Engineering Economics version, De Niro Light & Power approaches Crystal Savings & Loan with an offer that (this writer at least hopes) cannot be refused.

De Niro L&P:  I miss the good old days, when I could be an engineer.  You’ve made me an accountant.

Crystal S&L:  Get over it.  You have to make decisions that meet financial hurdles.

De Niro L&P:  Good engineering economics should still come first.  We used to do things right, buying based on total cost of ownership.  It used to be OK for my people to pay more up front for better equipment, as long as it ran longer or more efficiently and yielded a lower total cost of ownership.

Crystal S&L:  That was then.  This is now.  We don’t have unlimited funds to support every such project.

De Niro L&P:  Look, I know, how you’ve been, ever since the housing bubble and debt crisis and all, tightening your belt and doing things in the name of the bottom line—but the long term bottom line is better this way.

Crystal S&L:  C’mon—isn’t your Least Cost Planning process okay?

De Niro L&P:  Least Cost Planning?  We need Greatest Benefits Planning here!

Crystal S&L:  [Motions hand back and forth with pinched thumb and index finger]  You see this?  It’s the world’s tiniest violin playing a sad song for you.

De Niro L&P:  [Leans forward and winces a smile angrily]  You’ll have higher electric bills if we DON’T do this!

Crystal S&L:  Get outta here!  Don’t regulators at public utility commissions already make sure your operations are efficient?

De Niro L&P:  Within the circle of trust there’s efficiency, but within the wider circle, we could do better, since my power plants are still running below 45% of capacity when they could be charging electric vehicles at night instead of running idle.

Crystal S&L:  What do you want from me?

De Niro L&P:  Look.  Think of how you give a home loan based on your assessment of the future stream of mortgage payments.  Here, you give me an infrastructure improvement loan.  But instead of your assessing a stream of mortgage payments from me, I want you to assess the lower annual O&M costs for utilities from grid improvements.

You can do this sort of thing with other great ideas that don’t get implemented because of short-sighted, short term thinking—like the lower energy bills from aggregated residential, commercial, and industrial customers from energy efficiency investments and from real-time DR.  These can be streams of future revenues for you, just the same way the mortgage payments you used to also represent streams of future revenues.

Crystal S&L:  What’s in it for me?

De Niro L&P:  There’ll be big savings every year going forward, from better utilization of capacity, and lowering of fuel costs, and improving maintenance for utilities, and from lower energy bills for residential and commercial and industrial utility customers.

Crystal S&L:  I’m not sure….

De Niro L&P:  I’m figuring your bank gets a piece of it, my utility gets a piece, and the customers get a piece.

Crystal S&L:  The customers?

De Niro L&P:  Why not?  Regular folks only get half a percent when they put money in one of your checking accounts right?  With this, can’t you do a lot better than that for them?  Raise yourself some extra capital?

Crystal S&L:  [Pauses thoughtfully]  Sure!

De Niro L&P:  So?  What do you think?

Crystal S&L:  Well, I’m not allowed to make forward-looking statements…but I’m sure looking forward to this!  And by the way….you look marvelous!

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