Smart meters make it easy for utilities to monitor energy usage in real time, but unless the way we regulate utilities doesn’t change, the effectiveness of smart metering will be mitigated.
Jon Karlen of Flybridge Capital told us last month that utilities have “no incentive” to help consumers use less energy, because they get paid more if their customers are profligate in their energy usage. “They love it when energy is used,” said Karlen.
So the promise of intelligently monitoring our energy consumption isn’t exactly aligned with the business interest of the utilities responsible for providing that energy. To get those interests in line, the government should mandate decoupling revenue from energy production.
A push towards efficiency hurts their revenue under the current model. It helps the utility, especially when electricity use is in free fall, as it currently is. Decoupling is already happening in a few states, including California. Electricity consumption per capita has been flat for 20 years, because there is an emphasis on efficiency. Here’s California’s explanation of the program:
How decoupling works:
- Utilities submit their revenue requirements and estimated sales to regulators.
- The CPUC sets the rates by regularly applying adjustments to ensure that utilities collect no more and no less than is necessary to run the business and provide a fair return to investors.
- Any excess revenue gets credited back to customers.
- Any shortfall gets recovered later from customers.
Why decoupling works:
- Removes the disincentive for utilities to encourage energy conservation, since their revenues are not tied to the amount of energy sold.
- Provides an incentive for utilities to focus on effective energy efficiency programs and invest in activities that reduce load.
- Aligns shareholder and customer interests to provide for more economically and environmentally efficient resource decisions
While Karlen thinks that the government should still stimulate the start in smart metering, we think that just decoupling could be enough to kick the movement in high gear.
Cisco thinks the smart grid will be bigger than the internet. Did the government need to cut checks for Netscape to develop a browser for the web? No. Netscape saw an opportunity and pounced, which is what GE, Google, Cisco, Oracle, Silver Springs, Itron and many other companies are doing now.
Decouple the revenue stream from the production of electricity and watch the investments flow in. Regardless of whether the government is stimulating with billions of dollars or not.
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