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Rethinking 'Dumb' Rates

Achieving the smart grid’s potential requires a revolution in electricity pricing.

Fortnightly Magazine - March 2009

time, so regulatory decisions won’t be made overnight.

In time, widespread deployment of AMI and dynamic pricing in the United States might become increasingly attractive, as costs decline and customer benefits become more apparent. The soaring costs of new investment in generation and transmission make demand-side solutions look ever-more appealing. The compelling need to address global climate change increases the urgency of exploring the potential of demand-side options like dynamic pricing.

The pace of AMI deployment may depend on our success in revealing benefits that are not easily quantifiable, such as the hedge premium we pay for the privilege of having flat rates. The new administration’s promise of federal grants to support smart-grid projects might provide further impetus. Inexorably, technological and economic forces will bring major changes to the electricity sector, as the smart grid takes shape and the full net benefits of AMI and dynamic pricing are revealed to utilities and consumers.

 

Endnotes:

1. U.S. Department of Energy, The Smart Grid: An Introduction , 2008.

2. Commissioner Bob Lieberman, presentation to Energy Resources & Environment Committee, National Association of Regulatory Utility Commissioners, New York, N.Y., July 2007.

3. Michael T. Burr, “ 2008 Regulators Forum: Putting Efficiency First ,” Public Utilities Fortnightly , November 2008, p. 35.

4. Plexus Research, Inc., Deciding on Smart Meters , Edison Electric Institute, September 2006.

5. PowerCentsDCTM Program Fact Sheet .

6. Smart Grid and PHEVs: Components of the Future Electricity Network , panel at NARUC Annual Meeting, Nov. 17, 2008, New Orleans, LA.

7. E-mail communication from Professor Lynne Kiesling, Northwestern University, Aug. 4, 2008, posted at: http://www.knowledgeproblem.com.

8. See, for example, Barbara Alexander, Smart Meters, Real Time Pricing, and Demand Response Programs: Implications for Low Income Customers , May 30, 2007 and Synapse Energy Economics, Advanced Metering Infrastructure—Implications for Residential Customers in New Jersey , July 8, 2008.

9. The Brattle Group, Quantifying Demand Response Benefits in PJM, Jan. 29, 2007.

10. Federal Energy Regulatory Commission press release, “FERC Report Marks Significant Progress in Demand Response, Advanced Metering,” Dec. 29, 2008.

11. Ahmad Faruqui and Lisa Wood, “Appendix F: Impact of Dynamic Pricing on Low-income Customers,” in Quantifying the Benefits of Dynamic Pricing in the Mass Market , The Brattle Group, January 2008.

12. Ahmad Faruqui and Lisa Wood, Quantifying the Benefits of Dynamic Pricing in the Mass Market , The Brattle Group, January 2008.

13. These issues are explored in Nancy Brockway, Advanced Metering Infrastructure: What Regulators Need to Know About Its Value to Residential Customers , National Regulatory Research Institute, February 2008.

14. Ahmad Faruqui, “ Inclining Toward Efficiency ,” Public Utilities Fortnightly , August 2008, p. 27.

15. Federal Energy Regulatory Commission, Assessment of Demand Response & Advanced Metering: Staff Report , December 2008, pp. 15-16; Lisa Wood, Institute for Energy Efficiency, personal communication, Jan. 12, 2009.

16. Federal Energy Regulatory Commission, Assessment of Demand Response & Advanced Metering: Staff Report , December 2008, p. 15.

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