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Smart Grid innovations create new threats and opportunities to the Utilities. Historically, utilities’ monopoly status allowed tariff based pricing, to obtain an average price. However, Smart Grid’s new entrants and energy substitutes like solar and wind, require the traditional utility franchise to value margins at the customer level instead of in aggregate. This more granular level is new to utilities, and requires household level financial valuation across many years of actual hourly costs and risks. Standard financial derivatives do not provide sufficient valuations, as they tend to use average values instead of hourly and sub-hourly costs and prices. The distribution of prices are often very non-linear, requiring a more accurate set of methods. Further, forecasting future conditions and prices require a detailed understanding of how customers, participate in demand response, and other emerging innovative activities.

