Utilities' caution on BPL systems may cost them, but officials downplay concern about slow pace

The sporadic deployment of broadband-over-power-line service at most utilities in the country may harbor a missed opportunity to capture both operational benefits and revenue from broadband sales, BPL advocates are asserting.

Utility representatives, however, counter that the cautious approach to BPL deployment makes sense for most utilities, given past experiences with unregulated ventures, the relatively new nature of the technology involved and the lack of interest in competing with other broadband providers.
Although BPL systems have been deployed at about 30 utilities, many of them are small in scale and involve only pilot projects, with no sales to customers. Several rural or municipal utilities are pursuing BPL because of the lack of broadband access in their regions.

For utilities in some regions, because topography or other issues pose a challenge to wireless broadband services, BPL may offer a distinct advantage in meeting customer demand, said Brett Kilbourne, associate counsel for the United Power Line Council. Broadband deployment in general is expected to grow, but the services used will vary based on customer preference and the costs to providers, Kilbourne and others said in a series of interviews.

"For someone on the road a lot, wireless will be the answer," and for rural areas maybe satellite broadband services are best, while densely populated areas will see offers for digital subscriber line (DSL) service from cable or phone companies, said Lawrence Silverman, president of Broadband Energy Networks. BPL may not be the broadband solution, but it will be one of many options customers will have some years down the road, Silverman said.

How many years will that take is a question that's not being answered with a lot of certainty, reflecting the hesitancy of utilities and questions about market penetration of other broadband options. Wireless broadband options or other technologies may grow exponentially compared with the pace of BPL deployments, leaving BPL providers as niche players fighting over the scraps left from cable or phone companies, Kilbourne said.

"There is presumably some window after which the broadband gains will pass by," leaving BPL providers with a tougher challenge to make sales, "but I think there's more time than one or two years," said Jay Birnbaum, general counsel of Current Communications. Current is teaming with Cinergy to make BPL sales in the Cincinnati area in one of the few commercial deployments, and for utilities "the longer you wait the more you have to catch up" with cable and DSL providers, Birnbaum said.

"Utility reluctance has been understandable" given the services they provide, since it pays to be conservative in most regulated industries, Birnbaum said. And while that cautious approach to BPL may cost utilities if they hope to take advantage of the growth in broadband sales, utilities aren't really aiming to compete with incumbent broadband providers such as phone and cable companies, officials said.

Most utilities "still have their heads in the sand, essentially" when it comes to making sales of BPL service, with Cinergy and some municipal utilities providing the service at rates comparable to or lower than other broadband options, said Kilbourne.

Cable and phone companies are in broadband sales for their livelihood, offering the "triple play" of voice, Internet and video services, Kilbourne noted. Utilities could team up with Internet service providers or others to offer those three services in addition to electricity, but "they'll need to move faster than they're doing it right now," he said.

"I'm not saying throw caution to the wind," but IOUs by their nature are slow to adopt new technologies and if they wait for the perfect application on BPL service they'll miss an opportunity to capture a growing market, Kilbourne said.

Similarly, Earthlink believes BPL "could be a significant broadband technology" and is looking for more activity from utilities, said Kevin Brand, vice president of product management for the Internet service provider. Earthlink has partnered with some utilities and BPL equipment vendors to provide BPL service in pilot projects, but widespread deployment hasn't occurred.

"We'd love for things to move faster. We want to give customers more choices" in broadband services, but "we also understand the core mission of utilities is to deliver power to their customers. They don't want to jeopardize that" with investments in unregulated ventures that have harmed them in the past, Brand said.

The lesson some utilities seem to be applying from those past ventures is to not handle every aspect on their own, and to partner with ISPs and other companies in offering BPL services. For the most part, "they don't want to be the ISP that runs the network," so they'll leverage their investment and turn to companies more familiar with that. Earthlink is being approached by utilities, Brand said, declining to provide details.

Utility struggles to find the right business model in providing BPL service is one of the factors hindering deployment, Brand and others said.

Brand noted that BPL standards are being developed and bigger players like Motorola, Sony and Google have shown an interest in the BPL market. The signs are positive for more growth, and "we're hoping to move quicker" than the developments in the past two years, he said.

One of the reasons utilities are taking a go-slow approach on BPL is the regulatory uncertainty at the state level on their cost recovery, because some BPL applications benefit regulated utility services and others benefit unregulated services, Silverman said. Trying to break down the costs for regulated and unregulated services "is a huge inhibitor" on BPL sales, but it's contributing to more pilot projects that give utilities time to figure out such issues, Silverman said.

UPLC last year formed a committee to facilitate finding internal applications utilities can use with BPL technology, such as enhanced monitoring of facilities, and many observers believe that the "smart grid" or two-way communication capabilities allowed by BPL service may be more of a driver for utility interest in BPL than broadband sales.

The fact that BPL poses a risk as a new technology "is the source of an awful lot of the caution" utilities are using before jumping into the BPL market, said Mike McGrath, executive director of retail energy services for the Edison Electric Institute. The "back to basics" mentality adopted by many utilities may be an impediment, too, "but I've not detected that yet," he said. "I think they're just looking at BPL on the merits" of whether it's right for their system, their internal needs and the desires of their customers, McGrath said.

He agreed with others that the regulatory uncertainty at the state level also is a factor. Utilities are asking themselves and state regulators about BPL, he said: "If we do this and make money at it, will we be able to keep it?"

A National Assn. of Regulatory Utility Commissioners task force this year issued its report on BPL, preferring to let individual states determine how utilities should split the costs on BPL service among regulated or unregulated investments. That approach was welcomed by EEI, since a stronger stance about how to sort out such issues may have hindered utility interest, McGrath said.

"In the end it's probably going to be a niche service" offered by utilities in some areas based on geography and other broadband options, he suggested.

Broadband sales is not something utilities have experience in, and some utilities have lost plenty of money on failed telecom ventures in the past, said Karen George, research director with EPRI Solutions. Utility interest in BPL varies case-by-case, with some interested in it only for internal uses and others ignoring it if they serve a market that's saturated with other broadband providers, George said.

"They're all being cautious, and rightfully so," she said of utilities, because "they'd be foolish to try and compete with Verizon or Comcast" in the broadband market. More utilities may partner with ISPs to provide broadband sales through BPL service at some point, "but I expect it'll be a very niche market," she said.

Birnbaum expects BPL to grow beyond that level and become a bona fide option for broadband services, as envisioned by the Federal Communications Commission when it issued its rulemaking on the service last year. "It took DSL and cable companies 10 years to get to where they are now, and there's still great portions of the country underserved," he said.

The limited number of cable and phone companies, with about seven or eight covering 90% of the U.S. population, compared with the smaller size of utilities, also is a factor in the limited BPL deployments to date, Birnbaum noted. About 30 utilities may cover 70% of the population, so BPL investments will be more diverse than cable and DSL services "and the rollout will be slower," he said.

Another factor utilities are struggling with is that BPL allows plenty of enhanced monitoring, load control and other services that have not been available before, meaning there's no history of what such services are worth to a utility, Birnbaum and others said. "No one can say what it's worth to monitor a transformer" or detect outages much faster, but answering such questions may lead to more BPL deployments, Silverman said.

"I don't know of anything being done" at a specific utility to help others answer those questions, but EPRI has done some studies on the values of smart-grid technology in general, McGrath said.

The energy bill passed by Congress in August calls for states to investigate the use of smart meters and demand-side management options such as time-of-use pricing, McGrath pointed out. "BPL is an enabling technology" that makes it easier for utilities to provide those services, and the bill may cause state regulators to prod utilities to take a closer look at BPL than they currently are, he said.