2008 Regulators Forum: Putting Efficiency First

Deck: 

New rate structures prioritize conservation, but will customers buy it?

Fortnightly Magazine - November 2008

As the U.S. economy braces for hard times, American consumers and organizations of all types are seeking ways to stretch their resources. For some utilities, that means cutting back capital investment plans, and delaying things like advanced metering rollouts. For others, however, such investments show no signs of slowing down. They might even accelerate, given the tax benefits for smart-grid investments Congress included in the so-called bailout bill. Plus mechanisms like conservation programs, smart metering and smart pricing promise to deliver precisely the tools customers need to better manage their energy consumption—and hence their utility bills.

For example, the California Public Utilities Commission on September 19 approved Southern California Edison’s $1.63 billion SmartConnect program. And the Idaho Public Utilities Commission recently announced it would accept public comments through December 9 on Idaho Power’s $70 million proposal to install AMI throughout its southern Idaho service territory, with deployments beginning as early as January 2009. In the announcement, the commission stated: “The potential benefits of advanced metering to ratepayers and the company are too great to delay.”

Accounting for those benefits in utility rate structures, however, poses significant challenges for regulatory commissions in even the best of times. As customers face economic stress, ratepayer advocates are resisting structures they view as handouts for utility shareholders. In North Carolina, for example, AARP North Carolina and the North Carolina Public Interest Research Group (NCPIRG) petitioned regulators to reject Duke Energy’s Save-a-Watt proposal because it allegedly would overcharge customers in exchange for paltry benefits. Instead, they advocate an independent conservation program, similar to Vermont’s Efficiency Utility.

“Duke Energy lost any credibility as an energy efficiency steward when it proposed Save-a-Watt,” said Shana Becker, NCPIRG staff attorney. “It’s time to kick the fox out of the henhouse.”

To learn how regulators are dealing with such conflicting perspectives, Fortnightly convened a pair of teleconferences with utility commissioners from six states:

Fred Butler, Commissioner, New Jersey Board of Public Utilities

Sam (Jimmy) Ervin, Commissioner, North Carolina Utilities Commission

Rick Morgan, Commissioner, District of Columbia Public Service Commission

Jackalyne Pfannenstiel, Chairman, California Energy Commission

Marsha Smith, Commissioner, Idaho Public Utilities Commission

Barry Smitherman, Chairman, Public Utility Commission of Texas

In addition to this roundtable article, the commissioners’ recorded comments are presented in a series of webcasts featured in the multimedia section of Fortnightly.com.

 

Converging Forces

Fortnightly: What do you see as the state regulator’s role in increasing the efficiency of the electric system in general, and optimizing conservation? How is that role changing, given the trends we’re seeing in smart-metering and smart-grid technologies?

Butler (N.J.): System efficiency and conservation always have been concerns, at least among the good, smart regulators that I know. But it’s risen to a different level in recent years because of difficulties with other ways to approach the problem—i.e., building generation and transmission. Regulators always have had efficiency and demand in their list of concerns, but now they go way up to the top of the list.

[Duke Energy CEO James] Rogers talks about conservation being the fifth fuel. I think it should be the first fuel. It’s something we all can do. Americans use about twice the amount of electricity that the U.K. uses, and up to 10 times what people in some parts of the rest of the world use. We have a lot of areas where we can conserve.

Pfannenstiel (Calif.): Efficient use of resources has become somewhat more urgent for us all with climate change considerations. We know from virtually all the work that’s been done that efficiency is the cheapest way of reducing greenhouse gas (GHG) emissions. We’re all seeking ways of using our resources more efficiently. The ability to get more from demand response (DR) has eluded us for three decades now, but with the convergence of political will driven by a lot of forces, including global warming and the technology opportunities, this may be the moment we are actually poised to do something about it.

Morgan (D.C.): The convergence of advanced metering and information technologies means we can do things we couldn’t do before, or we can do them cheaper. Combined with the effect of climate change, it’s even more urgent than it’s been in the past.

Ervin (N.C.): It seems to me that [increasing the efficiency of the electric system and optimizing conservation] isn’t necessarily the regulator’s role. I think it’s an outgrowth of a role, at least in the traditionally regulated world, to ensure that customer demand was met at the least cost.

For a good while the cost of supply-side resources has been relatively low. Commodity prices for coal and gas have been relatively low. In recent years a couple of things have changed this equation pretty substantially. First, at least in the Southeast, we’ve seen continued demand growth, which has caused us for the first time in 20 to 25 years to look at adding new baseload resources. Second, the cost of virtually everything used to generate power has gone up. Most people believe that energy efficiency in particular has become a good bit more cost effective than it might have been a number of years ago. So the reason there’s been greater emphasis on energy efficiency is simply because we’ve seen these changes in the overall industry landscape.

Smitherman (Texas): It isn’t that different in Texas, because our TDUs, our transmission and distribution utilities, are still completely regulated. That’s where our legislature has decided to realize our energy efficiency objectives. We got started significantly a couple of years ago at the direction of the legislature to require our wires and poles companies to achieve a 10 percent reduction in the increase in demand through energy efficiency, and we’ve been monitoring, directing and auditing that program. In the last legislative session—and I have to give a lot of credit to the community of energy efficiency aficionados in our state who said 10 percent isn’t enough, we need to go to 15 or 20 or even 50 percent—the legislature passed a bill to do that. It has been fortuitous, because as prices for new construction have skyrocketed, energy efficiency objectives become very cost effective. I’m very happy that our legislators took this step a couple of years ago, because this is going to be some of the most inexpensive power we’re going to be able to put on the system.

 

Fortnightly: As utilities are investing in these areas, will structural changes be necessary to make sure those investments are most effective for ratepayers in the long term?

Morgan (D.C.): One of the messages we’ve heard over and over as we talk about DR and smart metering in the Mid-Atlantic region is there’s no point in having smart meters if you’re still going to have dumb rates. You’ve got to have rates that take advantage of the capability of those meters and provide customers with an opportunity to save energy and save money by avoiding consumption at the time when prices are high.

We need to learn what we can from the pilots that are under way. We have one here, PowerCentsDC, where we’re testing three different types of dynamic rates using smart meters, and some enabling technology, with a sample of about 1,200 residential customers. We’ll learn how customers respond.

Ervin (N.C.): I have to be fairly careful about answering that question because we’re conducting hearings on the Save-a-Watt program.

Our legislature passed a fairly comprehensive amendment to our efficiency plant certification and generating plant cost-recovery statutes last year in conjunction with our renewable portfolio standard. They were attempting, as best as I can interpret their statutory language, to make sure we had sufficient statutory authority to do what we needed to do to encourage an optimum level of investment in energy efficiency. We’ve certainly had energy efficiency programs for a good while. These programs are nothing new, but the degree of emphasis has increased. The general assembly seems to be saying to us, ‘We want you to have the full panoply of options available to ensure an optimal level of efficiency investment occurs,’ but leaves us considerable discretion as to how such incentives should be structured, what level of incentives are appropriate, that sort of thing.

In many instances it becomes a policy question and to some extent a fact question, based on the record of individual cases about whether a utility is investing optimally in energy efficiency and what we need to do to ensure that optimal level of investment is actually made. The only thing you really can do as a legislature is to set out the basic policy framework that you want the commission to implement, and then give them the tools and discretion to do the best they can. At least that’s what our legislature I think has done.

Smith (Idaho): In Idaho in 2007 we implemented a three-year pilot in which we calculated our fixed-cost adjustment, to ensure the utility is made whole for the fixed costs we calculated on a per-customer basis for the residential and small-commercial classes.

This frees the utility to be more aggressive in their conservation and efficiency programs, and if per-customer usage does happen to decline they won’t be short on the revenue side. That was our attempt to remove a disincentive that we thought existed for the company being enthusiastically engaged in these activities.

Smitherman (Texas): We have a mechanism for allowing TDUs to recover their costs for energy efficiency programs, so they’re not at risk of not being made whole. Our program has exceeded the goals every year in terms of the amount of increased demand we’re going to [avoid] through energy efficiency. That success provided a good foundation for the legislature to be comfortable with increasing the [goals]. We’re also happy that the numbers seemed to indicate for every dollar we spend on energy efficiency we’re saving about $2 in terms of what that power would otherwise cost. In 2007 we spent about $72 million, and we estimate we’re going to save about $155 million over the life of these energy efficiency measures.

 

Conservation Compact

Fortnightly: Things like advanced metering, TOU rates and decoupling have the potential to change utilities’ business models. How do you see the regulatory compact changing, if at all, as a result of these changes in the market?

Smith (Idaho): I don’t see this as a change in what regulators always have done. We’ve always encouraged our utilities to be as efficient as possible and we’ve always overseen their decisions to make sure they were prudent. We have for a long time encouraged incorporating new technology where it makes economic sense and there’s a business case. We’ve had TOU pricing for many years, especially for our larger customers, and they’ve enjoyed that as well as it bringing down overall costs for utilities.

Morgan (D.C.): The principles that regulators have followed for the better part of a century are still good principles to follow and provide appropriate guidance. I don’t see a problem with the regulatory compact.

The real challenge is how we create incentives for utilities to move forward and make investments in these technologies that are in the public interest. There’s a strong interest among both utilities and regulators in seeing this happen. There isn’t a clear-cut path to get from here to there. We have a lot of hard work to do.

Butler (N.J.): I think the compact has always been flexible. Again it needs to be flexible in a real way.

We’re all in this together—ratepayers, regulators, generators and utilities. We just need to make sure everybody gets what they need out of the system, and that’s the underlying basis of the regulatory compact. If that means we’re going to have T&D companies doing what they haven’t thought of doing before, which is to incent conservation, then we need to come up with a system that allows them not to be goring their own ox in doing it.

I don’t subscribe blindly to the idea of decoupling. Fortnightly published an article about a year ago in which we broke ranks with our sister states [on decoupling]. But that’s the kind of thing we need to be flexible in the regulatory compact.

Pfannenstiel (Calif.): I agree the regulatory compact isn’t in jeopardy. Those principles are as valid now as ever, which is that consumers are entitled to reliable energy at the least cost and utilities can earn a reasonable return on providing that. However, what does change is consumers will have a lot more control with advanced meters, assuming—and this is an enormous assumption—that we can get the rate structures appropriately designed. If we can do that, then consumers will choose when they are going to use power and when not, based on their needs and the cost. That will change how utilities think about resource planning and procurement.

I’m a big believer in decoupling, because disincentives get in the way and put utilities in a difficult position if conservation and efficiency really take hold. The only part of the regulatory compact that might have to be rethought is how that works. Do the utilities’ revenues get eroded from the price signals that we’re going to be passing on to customers? As regulators we’re going to have to think that through.

Ervin (N.C.): The issue isn’t whether the so-called regulatory compact is changed, but rather how it works. As technology changes, as the nature of capital markets changes, as customers’ use of the product changes, you see changes in the way regulators approach things. But at the bottom, all of us recognize that to the extent a utility makes prudent investments, they are entitled to recoup their operating expenses and earn a reasonable return on the capital investment they’ve made.

 

Fortnightly: Decoupling and negawatt rates seem to be ways to compensate the utility for doing the right thing. That’s partly why some ratepayer advocates oppose them; they don’t like the idea of paying utilities not to sell power. How do you think these structures will be made the most viable for the long term?

Butler (N.J.): I don’t think I’d ever vote for a program that simply paid utilities not to sell electricity. My view of a beneficial decoupling program is to require educational components, not just bill stuffers, but real outreach, and some actual steel-in-the-ground kinds of measures where they were deploying new burner tips and new thermostats and teaching people how to use them. Once that’s accomplished, then maybe these things get transformed in some way so you don’t have the criticism that we’re just paying them to not sell.

Morgan (D.C.): I don’t think customers think about it in those terms. It might come up in initial discussions about whether to adopt such a policy as decoupling, but once it’s in place the proof is in the pudding. Is it working or isn’t it? We’ve had enough experience with decoupling and similar measures to understand that there are some approaches that work better than others. It didn’t work well back in Maine in the 1990s, and they abandoned it. But California has had decoupling for most of the past 20 years, and by all accounts it’s been very successful, and is one of the reasons customer usage of electricity has remained essentially flat since the 1970s while it’s continued to grow across the country. We have evidence that suggests it isn’t going to be a problem.

Ervin (N.C.): There is a substantial public perception issue that needs to be addressed, and we ran smack into it with a natural gas case a couple of years ago. We had approved a two-schedule natural gas rate design that was intended to have categories for seasonal natural gas customers and year-round customers. It charged the year-round customers a lower rate in an attempt to reflect the better utilization they made of the system. We then got a huge public backlash, because in the preceding winter, when natural gas prices had spiked in the aftermath of Katrina, we’d done everything we could to encourage conservation and we got a reasonable response from that. When this two-schedule rate design went into effect, we got inundated by people who said, ‘You mean to tell me I followed your advice and conserved, and because of my conservation I don’t meet the usage necessary to qualify for this year-around rate, and therefore my rate goes up?’

We thought that was a valid point, and we changed the rate structure to a summer-winter rate, which made more sense. But the controversy over that rate put front and center the notion that people expect that if they conserve their rate will go down. We all know that’s unlikely. If you go down the efficiency road, the effect frequently is to increase per-unit costs to some extent in the interest of reducing overall bills. I’m not sure the average customer understands there may be a trade off, and their rate isn’t necessarily going down.

Smith (Idaho): In a pending rate case we’ve been asked to consider inclining block rates. With inclining block rates, if you do conserve you can get into a block with a lower rate. Maybe the message here is conservation may expose warts in our existing rate design.

Ervin (N.C.): A lot of us need to look at our rate designs. We’re engaged in a study at the request of our legislature to look at a host of rate designs, including decoupling.

Smitherman (Texas): The issue of decoupling is something we’re going to be talking about in my state, probably pretty soon. But I think it’s going to be driven more by advanced-meter issues than energy efficiency issues. Once you get these advanced meters deployed, then the customer has the ability not just to slow their increase in demand, but to save 10, 15 or 20 percent off their bill. That’s when I think the wires and poles companies and citizens will begin to ask hard questions.

Our wires and poles charge is a pretty small component of the total charge that any customer has today, and within that the recovery factor for energy efficiency is a small number within a small number. So presently it’s not a really big issue. Last year, our energy efficiency programs collectively saved about one-tenth of 1 percent of all energy consumed in ERCOT.

Now, if we continue to push the ball down the field, it could get to be a big number within, say, 10 years from now. At that point it may become a much bigger issue, because customers will be picking up the cost of it and they’ll begin asking harder questions.

 

AMI Dogfight

Fortnightly: It gets back to the rate incentive for utilities, and how ratemaking structures benefit customers. It’s one thing to say the utility is making a prudent investment. It’s another to say the utility is setting up rate plans that offer the best deal for customers. How can regulators make sure customers are getting the best possible deal?

Ervin (N.C.): I don’t know that you can make sure, but you can up the odds.

Some commissions, like North Carolina’s, function on almost a pure judicial model. We essentially rule on cases brought by parties. Other commissions are like FERC, and they operate principally on rule making.

In the near term, my commission is unlikely to order a utility to invest in a particular type of smart meter and do a certain thing with it. That type of order would exceed our institutional competence. What’s more likely to happen, at least in a state with a model like ours, is that a company will decide it will be beneficial to adopt a particular sort of meter. If that meter requires the use of specific rates, then they’d come forward with such a proposal. That’s been the practice in the past.

In the mid-’90s the utilities in North Carolina sat down with their industrial customers and developed what I think were pretty successful experiments with real-time pricing, at least in the cases of Duke and Progress Energy. We’ve also had TOU rates that haven’t gotten much response in the residential classes. Hopefully new metering technology would enable us to develop and implement a rate in North Carolina that would be more time sensitive, would be beneficial to customers, and would find more customer acceptance than the older style TOU rates.

Our utility companies have clearly indicated to us that they are interested in smart-grid, smart-metering types of things, but I think they understand that in order to persuade us to allow cost recovery of such meters, that they’re going to need to come forward with a proposal seeking approval of a particular rate. Similarly an intervener or public advocacy agency that thought something ought to be done would be free to propose it as well. That’s where our regulatory lever would be.

Smitherman (Texas): I need to be careful because two utilities have filed advanced-metering deployment cases recently. The commission has established the minimum functionality we’d like to see in meters. We’re not saying the brand of meter you have to buy, but if you want to get recovery you have to have this functionality.

Our rules say there’s a presumption that costs spent in accordance with a deployment plan that’s been approved by the commission are reasonable and necessary. Also our rules say very clearly that deployment of an AMI program is voluntary. If you want to recover a surcharge for the deployment of this large capital expenditure, then you need to deploy meters that meet the specifications and requirements that the commission has established, and the best way to do that is to file a deployment case. We’ve got two filed right now. We’ll make a determination as to whether what you’re planning and the costs to be incurred are reasonable and necessary.

I see meters as another piece of hardware that the wires and poles company owns and has to take care of. Since they’re fully regulated in our state, they’re entitled to a reasonable return on those. What we hope is companies in the deregulated retail sector—and we have very good indication it will happen soon—will come up with products they will offer to their customers or prospective customers that take advantage of the functionality of these meters. So we’re going to see what kind of creativity our retail electricity market has. We know that Reliant Energy, for example, is so eager to roll out a product using advanced meters that they’ve proposed they’ll pay for some of the meters up front, because they think many of their customers will want them.

I’m comforted by many of the pilot projects we’ve seen around the country, such as the one in the Pacific Northwest, which concluded that customers who are provisioned with these meters save between 10 and 15 percent on their monthly bills. That makes the meter cost-effective, at least given the price points we’ve seen. In our market it also facilitates some things we think are important, like quick move-in and move-out. If you have an advanced meter you can do that very quickly. We’re also able to facilitate retail switching. Today, if I want to switch from company A to company B, it might take three or four weeks to get done, unless I request an out-of-cycle meter read, which costs me an additional amount. With an advanced meter, ERCOT can do that through the TDU, literally the same day you put in the request to switch.

The last thing—which I know is important in my state because we have a couple of non-attainment areas—I think we’re going to be amazed with the reduction in overall energy consumption, particularly during the peak hours and during the summer. If you’ve got a metro area that’s dealing with non-attainment issues, that can be of tremendous benefit.

Morgan (D.C.): The first thing regulators need to do is thoroughly examine the business case for smart metering, beyond things like outage detection and remote turn-on and -off. You start totaling up all the potential benefits and costs of advanced metering, and that may require looking not only at the easily quantifiable things but also the more intangible benefits like customer choices and options and so on, and then make a public policy decision based on that package.

It’s important to look at things like interoperability of technology to make sure you’re not going to be locked into a proprietary technology that will end up reducing your options in the long run. It’s not just an up-or-down decision to pay for advanced metering or not. There’s a whole series of subsidiary decisions that need to be made along the way, and that’s really what makes it so complicated. It’s more like a jigsaw puzzle than a straight line.

Butler (N.J.): Rick has just described a large part of the agenda for the FERC-NARUC smart grid collaborative, which really is starting with AMI as a building block, with proposals or pilot programs on AMI in at least 35 of the 50 states. The discussion will revolve around how do we assure value for ratepayers? How do we assure ratepayers aren’t going to pay for a Betamax system that will be out of date and useless in five years? Anyone who wants to participate can take part in these meetings, which will take place at each of the NARUC meetings for the next couple of years. It will be announced on the website. We need all the input we can get.

One of the saving graces with this technology is there are benefits that can accrue from a smarter grid to almost every stakeholder involved. The benefits described from AMR were really for the company, for outage detection and meter reading and turning customers on and off. That’s still there, but now we’ve got a whole set of benefits that can accrue to ratepayers. Everyone’s got a dog in this fight.

 

Closing the Loop

Fortnightly: To what degree do commissions have a role in ensuring customers are fully educated and enabled to make use of these technologies? Is it the commission’s responsibility or the utility’s responsibility?

Ervin (N.C.): I think it’s both. We clearly have an obligation to try to educate the public better. We clearly are looking at different approaches to traditional problems and the use of new technologies and new rates. Customer acceptance of those things will be optimal only to the extent they understand those options are available and they make use of them. So therefore any of us involved in the process of trying to implement these changes and manage them to the benefit of customers needs to do what we can to educate the public.

It’s easier to say that than to do it.

Smith (Idaho): In all my years of being at the commission, one of the hardest things is getting customers interested and engaged, and getting their feedback on what utilities are proposing and what the commission should be doing. I’ve come to the conclusion that you get the customer’s attention when they open their bill. Because of the rising costs generally in the industry, they’re going to be opening some larger bills. We have an opportunity now where we will have their focus and their attention, and it behooves us and utilities to engage in all kinds of education to reach all kinds of users, wherever we can find them, because this is going to be very important.

General public awareness now of the issues regarding climate change and energy costs will help this education program succeed.

Smitherman (Texas): We need to engage in customer education for smart meters, but do it in a really smart way.

For example you can give a customer an inexpensive device they can put by the kitchen sink that will tell them how much they are consuming at that moment, what the price is, and at the present rate of consumption what their bill will be at the end of the month. That kind of instant feedback is probably more effective than taking out ads in the newspaper or having a television commercial, because you’ve gotten right into the home, instantaneously giving feedback to the customer.

Butler (N.J.): We have a huge challenge in how we deal with ratepayers. This is a new world where ratepayers will be able to take more control of what they do and what they pay for it, but that applies to perhaps a minority subset of ratepayers. It’s incredibly disruptive for the average ratepayer to go to a new system where they have a brand new meter [which they’ve had to partially pay for] that’s got all this great stuff, and now they’ve got to figure out how they need to change their behavior to avoid a larger bill and maybe even produce a smaller bill. That’s quite a change in behavior, and that’s the difficult part. That’s why we have to be very clever about how we go about this, so we don’t get a knee-jerk reaction.

Pfannenstiel (Calif.): One of the most difficult transition issues is going to be that frankly there will be winners and losers, and some people are going to have usage on peak that is just too difficult for them to move off peak, or not worth it. From an economist’s standpoint one can say rather blithely, ‘Well, they are imposing these costs on the system, and everybody else shouldn’t be subsidizing their use on peak. So therefore they should pay the higher prices.’ But in a real public-policy sense, if you have too many losers it’s just not going to work.

[Conversely,] I don’t think we want to be giving customers signals that say, ‘It doesn’t matter what you do on peak, we’ll hold you harmless.’ That might work on transition but ultimately it’s defeating the purpose.

We need to find a way to help people understand and adapt to these rates. I think we’ve underestimated the difficulty of doing that. We’ll have to move in wisely. We have to recognize it will take some time, and that transition time will vary for each state—and perhaps each utility service territory—to find the right balance of how quickly to move this in.

 

Fortnightly: Isn’t it really necessary to close the technology loop with home networking, or at least some degree of intelligence with the thermostat, which is the low hanging fruit?

Butler (N.J.): You’re right, it is the technology, but then it becomes a chicken-and-egg issue. I think the technology is somewhat there now. We’ve got thermostats that can do some pretty major things, and we have appliances that are ready to take advantage of TOU differential rate structures. The question is what part do you press on first? We’ve got to be careful about how we do this, so we don’t have people saying, ‘Hey I’ve got these appliances now, how do I use them? My meter isn’t smart enough.’ Or the converse, ‘Now I’ve got these smart meters, but I can’t afford the new refrigerator-freezer that can respond to these price signals.’

Pfannenstiel (Calif.): The first thing that needs to happen is some kind of in-home display. That information has to be inside the house, whether it’s on a computer or a refrigerator magnet or something. That should motivate the customer to seek out these enabling technologies. They are there now and the marketplace is just gearing up for this. This is an enormous new opportunity, and everybody is getting excited about it. But it’s going to be a demand pull. Customers are going to want those technologies, and they’re going to go out and seek them, once they start seeing what their usage patterns look like and what the costs are.

 

Knowledge and Control

Fortnightly: All the analysts I talk to agree that power costs are going up. If we go to consumers at this point saying we’re going to help you control your bill by putting in this technology, and then they see a big cost increase, could this turn into a PR nightmare? How do we avoid that possible outcome?

Pfannenstiel (Calif.): There’s always that danger. Public outcry over higher energy costs is really hard to control, because customers see higher rates and they are justifiably concerned, even if the reasons they are attributing to those higher rates are the wrong reasons. As with anything else, if the timing is off it could be brought down for reasons having nothing to do with itself.

That gets back to the utility business case. If it can be shown rather clearly that advanced meters will bring down the utility’s costs rather than drive them up, I think people will understand and will buy it, that this isn’t the cause of the problem.

Also there are other applications where people understand the concept of peak load or TOU pricing. Certainly telephone has always been that way, and there are other concepts of peak-load pricing where things are more expensive at certain times. We’ve never done that in electricity and people don’t see us that way. That’s part of the education effort. That’s got to be done massively.

I’m hoping that in California every time the utilities put in an advanced meter they target that home for some massive education effort. I don’t know they’re quite there yet, but that’s what needs to happen.

[With advanced metering and dynamic pricing], the customer has the opportunity to be better off, and in fact has more control. More knowledge and more control.

Morgan (D.C.): The danger [of ratepayer backlash] is also a great opportunity. Already we’ve seen in a number of jurisdictions—Maryland is one that comes to mind—where largely because of the price spikes they experienced a few years ago, policy makers have been looking for solutions and now are planning to invest aggressively in both energy efficiency and DR, and to take advantage of advanced metering as a way to forestall further price increases. So we’ve actually seen even greater interest in these technologies because of price increases that already happened.

Butler (N.J.): Given the discussion America is engaged in, we’ve got to start showing people simple ways they can conserve, and then point out that improvements in the grid are a tool that will help them find ways to be more efficient.

We have less leeway this time around for failure. This is not simply experimenting. We really have got to get it right and be careful as to how we go into this, because this is pretty central to a reliable, successful, reasonably priced system. This is central to the game.