In an interesting development, the Public Utilities Commission of Ohio last week approved implementation of a smart grid project by FirstEnergy Corporation. However, because the PUCO declined to act on the company’s request for associated retail rate increases, FirstEnergy’s
Coming on the heals of the Maryland Public Service Commission’s rejection of Baltimore Gas and Electric’s request for smart meter cost recovery (see Post # 25), this may be evidence of heightened regulatory sensitivity to shifting smart grid costs from utilities to their customers.
To return to FirstEnergy, on June 30, 2010 the PUCO approved the company’s Smart Grid Modernization Initiative – a three-year pilot program involving 44,000 customers in the service territory of the Cleveland Electric Illuminating Company (a FirstEnergy subsidiary). The program would credit participating customers for power they did not use during times of high demand for two weeks in the summer. The credits would be calculated at electric rates up to seven times higher than standard rates.
But there is a catch. The program also involves the purchase and installation of expensive and sophisticated smart meters, switching equipment, and communications devices. The total projected price of the pilot program is over $70 million, and while FirstEnergy won $36 million in project funding from the U.S. Department of Energy, the company sought to recover the remaining costs through retail rate mechanisms. However, while approving the project itself, the PUCO elected to hold off addressing cost recovery issues until some future time. In response – and almost before the ink was dry on the PUCO’s June 30th order – FirstEnergy suspended the project (see here, here, and here).
In announcing the suspension, the company argued that the project “has potential benefits for our customers and would bring capital investments and jobs to our region.” Given “the widespread support we received for our federal stimulus application,” FirstEnergy also expressed surprise that the PUCO declined the company’s request for an associated rate increase. FirstEnergy said that “without [PUCO] approval of the matching funds, we are not in a position to move forward.”
But consumer groups had argued that further study was required to ensure that smart grid costs are allocated on the basis of kwh use – because, in the judgment of many consumer advocates, larger customers benefit most from a reliable distribution grid. Consumer groups also asserted that FirstEnergy should not receive lost revenues during this pilot program because FirstEnergy will not likely have any during the pilot program. They also argued that FirstEnergy should be required to credit its operational savings against the costs of the program before FirstEnergy collects any of the costs from customers (see, for example, the comments filed with the PUCO by
Certainly, the current PUCO/FirstEnergy stalemate is one more indication that the journey to smart grid nirvana is still very much at the starting point. As utilities move forward with actual smart grid implementation, regulators will ultimately have to address the key question: who pays?