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2008 CEO Forum: Conservation Compact

Utilities test new models to encourage investments in efficiency and conservation.

Fortnightly Magazine - June 2008

the smart grid figure into PHI’s business strategy?

Wraase: It’s a critical component. We’re investing heavily in the smart grid, and a key component is smart metering, which we believe is critical. There are a lot of efficiencies and improvements we can get on our distribution system just from having an intelligent grid, and those efficiencies can translate into lower costs for customers, in addition to better service—in terms of knowing when customers are out and managing outages.

Critical peak pricing is an important component of that. We’ve had some very limited experience with it, but that sort of disappeared with deregulation. We have an experiment now in D.C. We’re trying different kinds of critical peak pricing techniques on 1,400 customers, to test which type will have the best result.

If we’re going to have any real impact on the future energy needs of this country, we need to solve the peak problem, and that will have a dramatic overall impact on customers’ bills. It won’t happen without critical peak pricing.

Fortnightly: Do you think the utility business proposition is changing in America, given the combined pressures of resource constraints, environmental concerns and evolving technology? If so, how does the regulatory compact need to change?

Wraase: Everyone in this industry would say we’ve always been customer focused. But we’ve never developed our equivalent of call waiting, as occurred in the telephone industry. I believe we’re going to become more customer focused. Customers need to be in charge of their energy use, and we need to give them the tools to make their own decisions.

We can offer them tools like different pricing structures, and things like electric transportation. We can provide off-peak pricing to plug in your hybrid, and the ability to sell back energy from your hybrid during peak periods at a premium price. That’s the major change I see coming. Technology will allow us to do that.

As a T&D company, there’s very little I can do about the price of coal, oil and gas. Those costs will be reflected in rates. Likewise if there’s a carbon tax, that will increase rates. The place where I can benefit my customers is in helping them consume less so they can minimize their bills. That’s the future role for utilities.

Decoupling goes with that. But it doesn’t necessarily require a change in the regulatory construct. Nothing in the compact would restrict us from doing what we’re doing. We can still file rate cases as before, it’s just a matter of how you recover your money. But there’s protection added for the customer with regard to cost.

I’d like to see commissions take a broader perspective on this. It’s not just about a short-term rate increase, because there are huge long-term benefits. If you’re putting in smart meters, yes, there’s a modest rate increase. But if you couple that with critical-peak pricing and other tools, customers can benefit because their overall energy bill will come down. That’s part of our blueprint filing. The end game is the total cost to customers, and that