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Technology for the Masses

The consumer-centric smart grid and its challenge for regulators.

Fortnightly Magazine - October 2011

these energy management tools, who will attempt to bypass regulation and seek access to their own energy use information in some time frame well short of normal utility billing periods.

More traditional regulatory matters will also emerge, such as implementation of time-of-use and retail tariffs and the determination of avoidable utility costs. Suppose a legal mandate to permit access to their use information is granted to consumers and their designees. Regulators and utility companies will need to determine if they want consumers to manage their energy use based upon their applicable regulated tariff, or something approaching the utility company’s avoidable costs. There’s no more important question for regulators.

Consider a standard 10 cents-per-kWh tariff, which includes the recovery of generation, transmission, transformation, distribution, and customer services costs. If lights or other appliances are turned off or energy use is otherwise reduced, the consumer saves 10 cents/kWh. The electric utility might avoid the costs of fuel or purchased power and losses of providing and delivering the energy—amounting to perhaps 5 cents, for example. The difference between a 10-cent and 5-cent reduction in customer payments and utility receipts is more than important. The reasons for accepting the challenges and doing the hard work are staggeringly important for the nation. People want to save money and do more with less. But the details matter and every major decision or regulatory option seems to make things more complicated.

Two-way communications over a smart grid with devices that communicate with consumers and their appliances are most useful and efficient. This combination would support real-time tariff reform. It will also encourage utilities and regulators to make other tariff changes. Utilities that continue to bundle other utility costs in their tariffs, particularly fixed costs in the real-time energy price component, would lose money if smart technology encourages consumers to adjust to real-time cost increases. Any improved end user efficiency would save MWhs valued at the retail prices charged, unless regulators take steps to design new tariffs. If retail customers act on their own under current tariffs, they would save the fully bundled retail price. The challenge for regulators is how to redesign an already mostly incomprehensible utility tariff, likely making it even more complex. This regulatory task isn’t easy, nor is it politically palatable. The use of technology of the type contemplated, along with user-friendly applications, might be the only solution available for regulators and utility companies.

Changes of this magnitude will be complicated. Yet, the benefits of overcoming the current gap in information and understanding in a rapidly changing digital world are staggering. There would certainly need to be agreements between retail consumers, software design and implementation companies, and retail appliance vendors. State regulators obviously would need to become involved if these services are part of the growing number of utility-sponsored or partially utility-funded energy efficiency and distributed retail renewable energy services. Regardless, there’s likely a major role for state regulators to help protect retail consumers. State regulators and utilities are the first responding players when it comes to electricity and natural gas delivery and end use. They