The Hidden Cost of “Run-to-Failure” Grid Strategies: Who Really Pays the Price?

The Electric Utility Industry’s Moment of Truth: A Call for Proactive Maintenance

The electric utility sector stands at a crossroads. On one side, tools like advanced ADMS platforms, Volt/VAR optimization, and digital twins promise unprecedented visibility, control, and operational precision. On the other, operational decisions—often made quietly and without much public scrutiny—are undermining those investments and increasing long-term costs for customers.

One of the clearest examples is the growing reliance on run-to-failure strategies for capacitor banks and field devices, particularly those without communication capabilities. Failures often remain undetected until system performance suffers.

The Problem: When “Saving O&M” Costs Customers More

Many utilities are scaling back or eliminating routine capacitor bank inspections. They opt instead to respond reactively when voltage or power quality issues surface at the substation. This may appear efficient—fewer truck rolls, less routine work, and a leaner O&M budget—but the risks to reliability, data integrity, and lifecycle costs are significant.

Research shows that many capacitor banks still do not communicate their status back to SCADA or ADMS. For example, Georgia Power had to deploy AMI-based monitoring because many units lacked telemetry (Marwell T&D Case Study). NREL notes that model integrity is essential for ADMS convergence and that GIS often lacks the detailed data ADMS requires (NREL, 2019 – “Data Improvement for ADMS”). Additionally, DOE confirms that many feeders were historically built without operational visibility, forcing conservative system design (DOE, 2012 – “Application of Automated Controls for Voltage and Reactive Power”).

When capacitor banks go offline but remain modeled as active:

• ADMS still assumes they’re providing VAR support.

• GIS shows them “in service.”

• Engineering studies include their reactive power in load-flow calculations.

  
  

This misalignment leads to voltage optimization failures, inaccurate load studies, shifted protection coordination, and overstated DER hosting capacity—all of which are significantly more expensive to address once problems surface.

The Financial Incentive Few Talk About

A key driver behind this reactive approach is cost classification. Routine inspections and preventive maintenance are booked as O&M expenses, recovered through base rates but earning no regulated return. In contrast, when a device fails and is replaced, that work is classified as a capital project (CapEx), added to the rate base, and earns a regulated return for decades.

This structure creates a subtle incentive: delay maintenance today and capitalize the fix tomorrow. O&M budgets appear lean, regulatory benchmarks are met, and the eventual cost—plus profit—is recovered over time. But customers ultimately foot the bill.

• The utility’s short-term O&M spending looks efficient.

• Replacement costs are capitalized and added to the rate base.

• Ratepayers pay for the new asset—plus the utility’s return—over decades.

  
  

📚 References:

• Copperleaf – “Capital vs O&M: What’s the Cost to Customers?”

• Southern California Edison – 2024 Risk Spending Accountability Report (PDF)

  
  

When “Lean” Isn’t Leadership

It’s tempting to view low O&M spending as a sign of operational excellence, but that assumption often doesn’t hold up. As regulatory filings and industry analyses have shown, extremely lean O&M budgets are frequently a warning sign—not a success story.

They can indicate that critical inspection, validation, and preventive work is being deferred because it doesn’t generate a return. This deferral might make financial statements look healthier in the short term, but it typically results in:

• Higher long-term costs when failures require capital replacements.

• Increased outage risks and degraded reliability.

• Erosion of data quality and model fidelity across ADMS and GIS.

• Cost shifts to customers, who pay for avoidable capital projects over decades.

  
  

In other words, the utilities with the leanest O&M budgets are not always the most efficient—they may be the ones quietly building tomorrow’s failures.

The Hidden Consequences of Model Drift

This problem extends beyond capacitor banks. Across the industry, reclosers, switches, sectionalizers, and protective devices are frequently bypassed or removed without being updated in GIS or ADMS. The result:

• ADMS may send control commands to devices that no longer exist.

• Reliability studies assume sectionalization capabilities that aren’t present.

• Capital investment decisions are made based on inaccurate models.

  
  

As ESRI and Oracle have noted, ADMS and smart grid applications are only as effective as the models they rely on. Without consistent field validation and data synchronization, model drift steadily erodes the value of these advanced systems.

The Bigger Picture: Ratepayers Pay Twice

At first glance, a run-to-failure approach may look like responsible budgeting. But a deeper look shows that customers pay twice:

• Operationally – through degraded voltage performance, longer outages, inefficiencies, and hidden energy losses.

• Financially – through capitalized replacements that include a regulated return, often far exceeding what proactive maintenance would have cost.

  
  

Because capital costs are amortized over decades, the total burden on ratepayers can significantly exceed the cost of a structured inspection and validation program.

A Call to Action

Are you seeing reactive maintenance become the norm in your utility? Do short-term O&M savings truly outweigh long-term costs to customers? How is your organization verifying non-communicating field devices before they become reliability risks?

At Vanguard Virtues, we help utilities close this gap by:

• Auditing capacitor banks, reclosers, and field devices system-wide.

• Designing annual or bi-annual inspection programs.

• Developing mobile tools that integrate with GIS and ADMS for real-time validation.

• Building governance frameworks to present lifecycle cost savings to regulators and leadership.

  
  

A proactive inspection and model validation strategy isn’t just good engineering—it’s essential to grid reliability, financial stewardship, and ratepayer protection. The question isn’t whether we can afford to change; it’s whether we can afford not to.

Conclusion

In conclusion, the electric utility industry is at a pivotal moment. The choices made today will shape the future of service reliability and customer costs. By prioritizing proactive maintenance and investing in advanced monitoring technologies, utilities can ensure a more resilient grid. This shift not only protects customers but also enhances operational efficiency and long-term sustainability. Embracing these changes is crucial for the industry's future.

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