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Selling the Smart Grid - The Policy

Why many state regulators still have qualms about endorsing smart meters.

Fortnightly Magazine - April 2008

PURPA law, the Public Utility Regulatory Policies Act of 1978, Congress first imposed a TOU rate standard on state-regulated electric utilities:

“The rates charged … shall be on a time-of-day basis which reflects the cost of providing electric service to such class of electric consumers at different times of the day unless such rates are not cost-effective with respect to such class.”

And yet, by contrast, the 2005 EPAct law (which amends the 1978 PURPA statute) contains no such explicit requirement.

Second, note that Congress in EPAct sec. 1252 actually required states to consider two different smart metering goals. First, it encouraged state action to broaden reliance on TOU pricing for all customer classes (not just commercial and industrial). Second, it invited wider and perhaps even ubiquitous deployment of “advanced” or “smart” meters—that is, meters capable of reading customer usage at hourly or even shorter intervals, with an added capability of two-way communications:

“Each state regulatory authority shall conduct an investigation and issue a decision whether or not it is appropriate for electric utilities to provide and install time-based meters and communications devices for each of their customers.” (EPAct, sec. 1252(b)(3)).

Nevertheless, as was seen in Florida, the state PUC rulings have tended to treat smart-meter deployment as sort of an extra bonus option. In nearly all cases, they have ruled that availability of load-management and demand-response programs, along with an offering of TOU tariffs (regardless of actual participation) are sufficient to show that current state policies satisfy the intent of Congress.

The PUC rulings suggest that states openly can oppose any sponsored deployment of smart meters, and yet if they find that TOU rate options are available to customers, they can (and do) claim that they support the spirit of EPAct and the smart metering standard.

A Quick Survey

PUCs in at least ten states said they wanted more comprehensive and persuasive cost-benefit analyses before mandating deployment of smart meters, and in some cases called for workshops or pilot programs to gather the needed information (see sidebar, “More Study Needed”).

Other states were less equivocal. Regulators in Kentucky, Alaska, and Virginia cited a lack of volatility in wholesale power purchase costs as a factor in deciding not to adopt the EPAct smart metering standard.

The Kentucky PSC declined even though it found that few utilities in the state offered TOU rates to residential customers:

“As shown by the testimony … Kentucky’s low electricity rates and the minimal difference between current rates and real-time prices … make it inappropriate … to mandate a statewide smart metering standard. Those same factors also make it questionable whether Kentucky’s electricity consumers could enjoy reduced costs from mandated smart metering or real-time pricing.” (Ky.P.S.C., Admin. Case No. 2006-0045, Dec. 21, 2006, also reported at 254 PUR4th 124.)

Alaska raised a similar point: “The evidence ... reflects minimal incremental cost fluctuation per kilowatt-hour … [Anchorage Muni. L&P] provided specific analysis suggesting that the maximum variation in the incremental cost of energy is only 1.5 percent of the current residential energy charge.” (Alaska R.C.A., No. R-06-5, Aug. 8,