Prior Restraint

Deck: 

Revealing the true story on smart grid development.

Fortnightly Magazine - June 2008

I’ve worked hard over my career to maintain good relationships with public relations people. It’s not always easy. Too often PR people push me to publish things that might be important to their clients, but just don’t fit into the magazine’s mission or serve its readers. But what’s worse is when PR people try to keep an important story out of the magazine.

That happened this month. When the lawyers at a major Midwestern utility company found out about a story we were running (“Demonstrating the Smart Grid”), the utility’s PR representative asked us—with consequences implied if we refused—to remove the parts that discussed the company’s pilot projects.

At first my journalist’s hackles went up and I was inclined to ignore the … er, request. As the journal of record for the U.S. utility industry, Fortnightly has a duty to report the facts, thoroughly and in good faith, without fear or favor. I take that duty seriously. But on a few occasions over my 20-year career I’ve omitted certain text because a source wanted it that way. In each case there was a greater good at stake—sometimes a long-term relationship that deserved consideration—and I gritted my teeth and accepted the compromise.

This was one of those times, and I’m happy to say the downside was relatively minor. Namely, the story doesn’t identify the company that undertook this particular project. At the same time, the episode yielded an upside—insight into what’s happening in a smart grid related rate case in one of the country’s largest deregulated states.

Smart Grid Rider

When I learned why the company’s lawyers wanted me to kill this innocuous and complimentary article, I realized behind their reasons was hiding an even more important story.

In this case, consumer advocates are challenging the utility’s smart grid investment plans. The utility representative told me advocates were arguing the company’s grid is already as smart as it needs to be to deliver reliable service—particularly given the kinds of incremental advancements described in our story—and the facts reported in the story could be used against the company in litigation involving a billion-dollar rate case.

EES North America

After considering the pros and cons of acceding to the company’s wishes, I agreed not to publish the company’s name—largely because it didn’t make a big difference in the story, but more importantly it introduced an interesting angle that wasn’t there otherwise. Also the company agreed to make its executives available for on-the-record interviews for future coverage on this subject—namely, the challenges of getting smart grid investments into the rate base. So ultimately readers would gain more insight than if we just ran the story as it was. That’s the kind of compromise I can accept.

What I learned later, however, suggested maybe I shouldn’t have made that compromise. It seems the utility wasn’t entirely honest with me.

First, the primary consumer advocacy organization in the state hasn’t filed any lawsuit in 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 conflict with [the holding company’s] strategy.

“They’ve lobbied in the past against other things that would reduce consumers’ energy bills, so we’re skeptical about this rider.”

This observation suggests the company might be trying to avoid a transparent rate case because it fears the implications of a truly smart grid. To wit, the company might prefer an opaque process because it views the smart grid, and smart metering in particular, as the camel’s nose under the tent, portending the arrival of true retail competition—which never really got going under the state’s flawed restructuring legislation.

As Reliant CEO Mark Jacobs observes in this year’s CEO Forum feature, smart metering is the enabling technology for retail competition, and it will hurt companies that aren’t ready to compete in a truly open marketplace.

Stay tuned; this story isn’t over.