Nov/Dec 2009

State News: August 2009



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What are Smart Grids and Decoupling?

By Doug Myers, CSG Energy Policy Analyst
Two major energy-related provisions of the American Recovery and Reinvestment Act are Smart Grid technology and electric rate decoupling. The U.S. Department of Energy believes both represent significant opportunities to improve the electricity system, create jobs and curb greenhouse gases.
Smart Grids
Smart grid technology is designed to modernize and make more efficient the nation’s electric infrastructure. Much of the grid is outdated and overloaded, resulting in frequent blackouts, brownouts and higher electricity costs. The Department of Energy, through the Recovery Act, will provide $4.5 billion for states to develop Smart Grid technology demonstration projects.
The Smart Grid will use computer systems and advanced sensors to self-heal, repairing problems more quickly and safely than even a utility worker could. It also will allow consumers to use smart meters to gauge the real-time price of the electricity they use, which varies throughout the day and seasonally. A smart meter would allow consumers to use this information to decide the best time to run the dishwasher or air conditioner, for example.
The technology will also allow utilities to control electricity use in buildings by sending signals to intelligent appliances, such as dishwashers and washing machines, and adjusting temperatures of heating and cooling systems.
Although Smart Grid funding in the Recovery Act is minimal compared to what will ultimately be needed to upgrade the grid—estimates are in the neighborhood of $100 billion—the Department of Energy thinks the money will do a lot to stimulate new businesses and products that will find their way to market.
Decoupling is a financial mechanism intended to promote energy efficiency and maintain revenues for utilities as energy efficient practices reduce demand. Traditional utility profits are driven by sales, providing little incentive to implement energy efficiency policies. Decoupling is designed to provide utilities with incentive to conserve and expand efficiency practices.
If a utility decouples the cost of energy production from the price charged to the customer in electricity rates, it allows the utilities revenue to remain steady and in-line with needed maintenance and growth—rather than relying solely on a traditional pricing schedule that depends on customer usage for revenue.
Critics of decoupling during Congressional hearings on the stimulus plan contended that while decoupling provides the utilities with incentives, it takes away cost-savings incentives for businesses and homeowners practice energy efficiency.
According The American Recovery and Reinvestment Act of 2009: A Guide for State and Local Governments, the House version of the Recovery Act bill provided a pretty clear mandate to decouple, but the final version of the act is not as clear and only says the governor must certify “that the state will take certain actions that seem to amount to decoupling.”


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