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Prior Restraint

Revealing the true story on smart grid development.

Fortnightly Magazine - June 2008

the company’s rate case. The advocates have participated in public hearings—as per their mission—and they’ve engaged experts—whom I personally know to be well-informed and credible—to represent their position in the PUC’s public comment process.

Second, the rate case isn’t anywhere near a billion dollars in size. Probably the company has more plans in the works, but the one at issue is well under half a billion. I can only guess why the company wanted me to think a billion dollars was at stake in this case.

Third, the consumer advocates aren’t taking a knee-jerk position against smart grid investments. To the contrary, I spoke with the group’s executive director, and this person explained that they’ve long advocated a smart grid strategy, and pushed the utility to develop a smart grid vision. What they oppose is the utility’s approach to planning and paying for the investments—namely, the utility wants the commission to approve a catch-all rate rider for many kinds of cap-ex, not necessarily smart ones, without explaining its overall plans. The advocates argue the company should proffer a comprehensive vision for a smart grid that will benefit customers, and structure financing in a way that accounts for costs and benefits in a transparent and equitable way.

“Our preference is that smart grid investments be handled like any other investment,” the advocate said in a telephone interview. “The company would move forward, and to the extent they need a rate increase they’d come in for a rate case. We’re open to discussing other cost recovery mechanisms, but we’re very skeptical of riders where there’s just costs and no benefits for consumers.”

I can’t comment on the prudence of the utility’s investment plans, but the consumer advocate might have a point. Perhaps the company is using the flash and bang of the smart grid to conceal sandbags in its proposed rider. With the information I’ve gathered so far, I’m not sure. But I do know this: If this or any other utility tries to use the smart grid as a boondoggle—enriching shareholders rather than improving service and giving customers control over their energy choices—those tactics will fail.

As countless experiences have taught, the truth wins eventually. An opaque and self-serving strategy might seem to benefit shareholders in the short term, but it will hurt everyone in the end. Meanwhile it will delay important progress on smart-grid development, and the company will be less prepared than its peers to face the challenges ahead.

Gorillas and Camels

This episode sheds light on an 800-pound gorilla—namely market power, and its effect on investments and structural changes that can reduce customers’ bills.

The consumer advocate pointed out that although the state’s utility industry was restructured, the companies that generate most of the state’s power also own its two largest utilities (including this one). “There’s an inherent conflict of interest,” the advocate said, suggesting that a truly smart grid could mitigate that conflict. “We think a smart grid makes sense because if done correctly it will provide customers with tools to lower their energy costs. But that vision could