Four Good Questions: NCUC Commissioner Ervin on Smart Grid Deployment

Commissioner Sam J. Ervin IV (“Jimmy”) of North Carolina chaired the US Electricity Delivery Working Group that planned the National Electricity Delivery Forum.  The US Department of Energy and the National Association of Regulatory Utility Commissioners (NARUC) jointly sponsored the forum, which was held in Washington, D.C. in late February.  The prospects for and benefits available from Smart Grid deployment were important topics at the Forum.  In that light, SGN recently interviewed Commissioner Ervin about Smart Grid deployment at the state level.  He had some timely questions for both the utility industry and Smart Grid technology vendors.

Commissioner Ervin has been a member of the North Carolina Utilities Commission (NCUC) for nearly nine years.  He practiced as a lawyer in front of the NCUC before becoming a commissioner.  He recently served as Chairman of the NARUC Committee on Electricity and formerly served as Chairman of NARUC’s Subcommittee on Nuclear Issues and Waste Disposal.  Commissioner Ervin currently serves as a member of the NARUC Electricity and Consumer Affairs Committees and the NARUC Task Force on Climate Policy.  His current term as a North Carolina Commissioner ends June 30, 2015.

Nothing new under the sun

Commissioner Ervin, in his direct style, said that while modern Smart Grid technology was different and much improved, the discussions at the forum were similar to conversations he has heard during the past 20 years.  Smart Grid technology is simply a new and improved way to obtain lower cost electricity and to make more efficient use of our electricity infrastructure.  He understands the innovative impact of Smart Grid technology, but thinks that the goal of Smart Grid deployment is the achievement of the same goal that the industry has had all along.

He pointed out that no two people define the Smart Grid the same way and acknowledged that he was still learning about the exact nature of Smart Grid technology.  For example, when SGN used the word “digitization”, he expressed uncertainty about the meaning of that term in the Smart Grid context.  Having said that, Commissioner Ervin agreed that the new technology seemed to offer substantial potential benefits, especially in light of rising fossil fuel costs and the need to deliver electricity to increasingly sensitive end uses (such as manufacturing equipment) in a reliable manner.

Commissioner Ervin’s four questions

Commissioner Ervin raised several questions that any utility seeking to justify Smart Grid deployment will need to answer:

·         Is it cost effective?  Can the utility justify the deployment in light of the expected benefits?

·         How extensive?  Is universal deployment of Smart Grid technology needed?  Or can most of the benefits available from Smart Grid technology be achieved with less than universal deployment?  In other words, does everyone need to have an advanced meter and be served under time-differentiated rates?

·         What level of complexity?  Commissioner Ervin doubted that many consumers wanted increased complexity.  Instead, he thought that a substantial number of customers, particularly residential customers, liked the simplicity of the current structure.  He did not see the benefit of implementing new technologies to the extent that they made it more difficult for consumers to understand what they were paying for or getting in return.  As he put it, subjecting all consumers to time-differentiated, marginal cost rates might not be in anyone’s interest if that action resulted in a customer backlash against the widespread use of Smart Grid technology.

·         Why change average rates?  He quoted the frequently heard expression that there is no point in having smart meters and retaining dumb rates.  In a state where consumers were used to average cost rates and where traditional time-of-use rates had never achieved a high degree of penetration, he indicated that customers might question the overall benefit of changing the current rate structure to justify deployment of these new technologies.  Such customers would require proof that the benefits would exceed the costs.  For that reason, utilities seeking to deploy Smart Grid technology would need to do a good job of educating customers about the benefits to be derived from such a development.

How does the Smart Grid get deployed?

Having discussed these questions, the obvious next question was what should a utility do in order to successfully deploy Smart Grid technology?  Commissioner Ervin indicated that he thought Smart Grid deployment would be beneficial, but that a utility had to take the situation at the local level into account in order to justify incurring the associated costs.  The bottom line is that a utility seeking to deploy Smart Grid technology would need to convince both regulators and customers that such an action would be cost-effective and benefit customers.

He pointed out that North Carolina had a different regulatory approach than some other states.  Some states, such as California, appear to emphasize the adoption of rules and policies requiring that utilities act in a certain manner on a prescriptive basis.  Other states, such as North Carolina, operate under a more traditional judicial model, in which utility decisions, such as a decision to deploy Smart Grid technology, are reviewed for reasonableness and prudence on the basis of an evidentiary record developed in rate cases and similar proceedings. 

For that reason, he questioned whether the NCUC would become heavily involved in prescribing the adoption of particular Smart Grid technologies.  However, he also pointed out that North Carolina utilities had a good track record of deploying new technology, such as the ultimately successful use made of nuclear plants by those companies.  Thus, Commissioner Ervin emphasized, North Carolina has a history of successfully adopting new, more costly, technologies.