Achieving the smart grid’s potential requires a revolution in electricity pricing.
Rick Morgan is a commissioner on the District of Columbia Public Service Commission. He chairs NARUC’s climate policy task force, and serves on the NARUC-FERC smart grid collaborative. The statements in this article reflect Commissioner Morgan’s general views and in no way constitute a judgment on any proposal or issue currently before the D.C. Commission.
Change is in the air throughout all segments of our society, and our electric system is no exception.
The smart grid that’s beginning to emerge in North America will rely on hardware like “smart” meters, “smart” appliances and thermostats, remote sensors, and sophisticated communications systems. These devices, when linked together, will enable utilities and their customers to respond in real time to conditions on the power grid, thereby creating new opportunities to reduce costs and increase customer value.1
Indeed, for the vast majority of customers, electricity still is measured the same way it was in the 19th century: A “dumb” electromechanical meter tallies kilowatt-hours of consumption and is read manually about once a month. With today’s 21st century technology, we can do much better!
Achieving the full potential of the smart grid, however, will require a revolution in the way we price electricity at the retail level. This involves replacing flat or “blended” retail prices that ignore variations in wholesale market prices (or generation costs, outside of organized markets). Instead of charging the customer a single price reflecting the average of costs between monthly meter reads, utilities will offer “dynamic” prices that reflect hourly variations in power costs.