FERC is offering incentive rates to entice transmission investment. But the authors identify serious flaws in emerging policy regarding return on equity (ROE) incentive adders. Determining whether...
Selling the Smart Grid - The Policy
Why many state regulators still have qualms about endorsing smart meters.
A year ago, in its formal investigation of state policy on smart meters, the Florida Public Service Commission conceded that while three of the state’s five major investor-owned electric utilities offered an optional time-of-use rate to residential customers, participation in fact remained “typically quite small,” averaging only about 1 percent.
“This is most likely,” the commission ruled, “because the broad on-peak periods are difficult to avoid for most households.” In Florida, the typical TOU tariff charges higher peak prices from noon to 9 p.m. in summer, and between 6 and 9 a.m. and 6 and 10 p.m. in winter.
Nevertheless, despite this apparent lack of success, the PSC saw its approval of TOU rate options as “ample proof of our continued commitment” to demand response and time-based pricing for residential electric customers. With such policy already on the books, the commission saw no reason to go further. Thus, as many other states have done, it declined to adopt the new uniform federal standard on utility smart metering, otherwise known as the “time-based metering and communications standard,” or “PURPA Standard 14” for short, as enacted by Congress in the Energy Policy Act of 2005 (EPAct). (See Fla.P.S.C. Order No. PSC-07-0212, Docket No. 070022-EU, issued March 7, 2007.)
In fact, a careful reading of the regulatory decisions shows that the majority of state PUCs that have completed formal investigations of EPAct’s smart metering standard have followed Florida’s lead, opting to just say no. Their reasons are varied. Many cite a lack of convincing evidence that smart meters can prove cost-effective, especially for residential ratepayers. Others assert that customers aren’t very interested, as suggested by the Florida numbers, and by the similar and very modest 6 percent penetration rate for advanced meters across the country shown in surveys conducted by the Federal Energy Regulatory Commission. (See, e.g., “Advanced Metering Penetration by State,” Nov. 6, 2006, at www.ferc.gov/industries/electric/indus-act/demand-response/2006/survey).
Finally, many other PUCs simply echo the Florida argument—that since customers currently enjoy the option to choose a TOU rate, with installation of an interval meter, the state in effect already has a “comparable” policy on the books, and therefore need not consider or formally adopt the EPAct standard.
Three points stand out from the PUC rulings.
• Cost-Effectiveness: First, regulators insist that any state-sponsored deployment of smart meters must pass a cost-benefit test, even though the 2005 EPAct law appears mute on the point.
• Local Concerns: Second, while the EPAct standard might appear as a nationwide call for smart metering, the reality finds each PUC ignoring larger national concerns over energy independence, efficiency, and the environment, and instead focusing on its unique set of customer demographics and utility company characteristics.
• Technology vs. Tariffs: Third, the PUCs still appear to place greater faith in rate design and top-down programs for load management and demand response, than in bottom-up customer empowerment through whiz-bang technology.
These points bear remembering. For example, in the original