US State regulators may adjust rules for electricity rate fixing


Frederick Butler,
National Association
of Regulatory Utility
Now that Congress has directed $4.6 billion in stimulus spending toward developing a “smart” electric grid, it will be up to the states to get consumers on board and adjust rates to pay for the technology. Regulators likely also will be asked to approve rate hikes to pay for improvements to the grid. Much of the $4.6 billion in the stimulus plan likely will be matching grants. State regulators could be asked to step in and approve rate hikes to cover the remaining costs.

“The state role is crucial. We’re the ones who know how ratepayers react. We’re the ones that know the bumps in the road. We’re the ones who know how what their tolerance level is for innovative things,” said Frederick Butler, president of the National Association of Regulatory Utility Commissioners.

The improvements, backers say, will change nearly every part of the nation’s aging power transmission system – from how power plants distribute power to how consumers use it at home.

The idea behind a smart grid – parts of which are already being introduced in Los Angeles, Boulder, Colo. and Austin, Texas – is to install devices that, working together, can save energy by increasing efficiency, reduce blackouts and cut customers’ bills.

“You can’t have a smart grid and dumb rates. We have been used to – for over 100 years – rates that are the same all day, every day. That’s not the way electricity is produced,” Butler said.

Already, states are pushing for major tests of smart grids.

Smart meters are probably the most visible component of the smart grid, because they are in customers’ homes.

But the technology is most effective when combined with other improvements. A utility has to be able to communicate fluctuating electric rates instantly, for example, for customers to save money by buying cheaper power.

Butler, the New Jersey regulator who heads the national group of commissioners, cautioned that states and utilities should focus on other improvements first, like improving the reliability of their grids, before moving to smart meters. Rolling out the meters too soon could lead to sticker shock for customers, especially if their rates go up to pay for the meters but they don’t see immediate benefits, he said.

“You’ve got to be very careful in how you deploy these things in a way that end-use customers … understand why it’s worth paying a little extra for this meter,” he said.

De Martini of Southern California Edison said that approach is a “bit oversimplified” because of different priorities among utilities.

While his company is working on getting smart meters and appliances to customers, it’s also pushing for upgrades that will help it better monitor its transmission system to get ready for new wind and solar plants in the area, De Martini said.

In Colorado, one utility is trying to combine many of the much-hyped smart grid technologies in Boulder CO, to see whether the smart grid lives up to the promises of its supporters.

Xcel Energy designated the university town of roughly 100,000 people as “Smart Grid City.” Xcel will compare customers with smart meters and those without to see whether the meters really pay off, said company spokesman Tom Henley.

So far, Boulder residents have welcomed the upgrades and frequently talking about adding higher-end features such as solar panels and plug-in hybrids, Henley said.