After strong lobbying by state utility regulators, how does the final stimulus package address rate decoupling? What will the impact be on consumers and utilities? During today's OnPoint, Frederick Butler, president of the National Association of Regulatory Utility Commissioners and a New Jersey Board of Public Utilities commissioner, gives his take on how the stimulus addresses ratemaking procedures and energy efficiency for utilities. He gives an update on the federal electric transmission-siting issue and discusses how a federal renewable electricity standard will affect utilities.

Transcript

Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. With us today is Fred Butler, president of the National Association of Regulatory Utility Commissioners and a commissioner of the New Jersey Board of Public Utilities. Fred, it's nice to have you on the show.

Frederick Butler: Good morning, Monica, and thank you for having me.

Monica Trauzzi: Fred, the president recently signed the economic stimulus package into law. It was pretty controversial on the utility ratemaking and what's your take on how the final bill addresses ratemaking procedures and energy efficiency from utilities?

Frederick Butler: Well, we're very pleased that the bill has in it the kind of funding that it does for the states and for a number of the energy efficiency and Smart Grid kinds of projects. And we're also pleased that the language so was proposed to be in there that actually made it into the final bill is fairly general in terms of this ratemaking provision, almost a condition of accessing a portion of the money, a small portion of the money. It addresses kinds of ratemaking approaches that the states need to consider and governors have to certify to the Department of Energy that the commissions are looking into seeking to put in provisions for cost recovery by the utilities. But it wasn't as strict as the original language was, and that's something we worked very hard to see happen.

Monica Trauzzi: So, you feel like you got what you want or got partially ...

Frederick Butler: We got partially what we wanted, at least the original requirements, which were very strict, were changed substantially.

Monica Trauzzi: So, who benefits from a policy like the one that we saw included in the stimulus?

Frederick Butler: Well, the utilities benefit from something like that because it improves their ability to recover in a timely manner the costs that they incur. The ratepayers, of course, end-use customers have to pay for that, but if we all believe they're achieving some benefits from what's going on, it's their responsibility to pay for some of it, as it is for the utility company's shareholders to pay for some of it. So it is a balanced cost and benefit here.

Monica Trauzzi: So, is this a good compromise or is there a better way to be approaching this overall? I mean utilities, frankly, at this point, make money when people use energy. So how do you promote energy efficiency?

Frederick Butler: Right and there is a contradiction here. If you're asking utilities to sell less and to help us in the effort to sell less and for people to use less, it's obviously affecting their bottom line, the revenues that they bring in. So there has to be some consideration for the effect on the financial health of the utilities. At the same time, we can't ask end-use customers to also use less and then have to pay a higher rate per unit on the less that they're using. That's really not fair to them. So I think the provision in the final act allows for a whole variety of ways in which states can address this problem, this conflict between the interests of the utilities and the interests of the end-use customers and we're comfortable with that. We think states are creative. We think states are approaching this in a number of very creative ways and that's what we wanted to see, not a prescriptive, it must be this kind of way, and that's what was originally in the bill.

Monica Trauzzi: So it sounds like governors are going to be directly involved in these policies. How concerned are you that this could become pretty political?

Frederick Butler: I'm not concerned it's going to be overly political. Governors are required to give assurances to the Department of Energy at the federal level that their commissions are taking up this issue and are seeking to put these things in place. Now, the commissions are quasi-judicial. We cannot promise to have a certain outcome come from our deliberations. And our deliberations are, again, quasi-judicial. It's like asking a judge to assure that some type of verdict is going to be coming out at the end of the case. That's not something the governors can do and that's not something that commissions can allow to be prescribed for them. So I don't think this will become political. We'll see as it goes along and, again, it could be modified if we find that there are problems. But we don't think there will be. We think it's the general enough so that most of the states will be able to comply.

Monica Trauzzi: There's about $11 billion for Smart Grid funding in the stimulus. It's certainly not enough to develop the grid fully. A lot of people are saying its good seed money. How will that money directly impact utilities?

Frederick Butler: Well, there seemed to be two pots of money. One is for demonstration projects. I think the total on Smart Grid might be closer to 4 1/2 billion. The other monies may be some other monies for energy conservation, etc. But one of the pots is for demonstration projects that's a grant program, and utilities will be applying for that. The other program is a 50 percent match for any kind of Smart Grid project. So it could be an up to 50 percent grant for deployment of meters, for deployment of sensors on the distribution system that makes it more digital and more upgraded, which is going to help with reliability, which is going to help avoid outages, make whatever outages happen of shorter duration. So everyone will benefit. There's going to be two-way communication once we get Smart Grid completely deployed that will allow for information to flow in both directions from the end-use premises to the companies and back again.

Monica Trauzzi: But how much more will be needed beyond what we see in the stimulus and do we risk getting to a point where we've initiated all these projects but we can't complete them because there's not enough funding?

Frederick Butler: Well, I think the very definition of stimulus is its seed money. It's to start something, to stimulate something as in stimulus. So this is clearly not enough, but I think it's going to get some things going at a time when we need to be having things go and things to get moving and jobs created and people back to work and materials purchased and services purchased. So we don't know how much it's totally going to cost. We haven't really done that kind of mathematics. We're just going steps at a time and making sure that ratepayers' interests are protected, that the rates are not unduly changed and increased because of this. But we're glad to see that some money is coming and that it will help get something started that wouldn't normally be happening right about now in this difficult financial time.

Monica Trauzzi: You just wrapped up your winter meetings. What were the major themes that came out of the meetings, any movement on the transmitting siting issue?

Frederick Butler: We did have some discussions on transmitting and siting. The major themes, I think, were the new administration, what they're approaches were, what things were going to be important to them, one of which is transmission planning and siting. Certainly Smart Grid was a major component of what we talked about. We just had a two day, which is actually continuing today, National Electric Delivery forum, which is, again, talking about some of these same issues. We had a very pleased to meet with Secretary Chu, Energy Secretary Chu, who came yesterday and spoke to the group, a huge group in that room of commissioners and regulators and company representatives and others. And then we had a closed-door meeting with him afterwards. On the issue of transmission, we understand that bills are going to be moving rather quickly, that they're going to be discussing perhaps an increase in the federal role for siting and then perhaps even addressing the very sticky issue of cost allocation between various regions of the country and who gets to pay for what and how much they get to pay. NARUC has begun a discussion re-examining our position and deciding whether we want to change our view as to how much the federal government is involved in this. That's not completed yet, but we're having a very healthy discussion on the role of the states versus the role of the federal government. We spoke to Secretary Chu about that yesterday in our meeting, our closed-door meeting, and then we're going to be involved in some other discussions. I'm coming back down here on Monday to talk at a meeting that Senator Reid has called to talk about transmission, which the secretary will be at and some others. We asked from the very beginning for a high-level discussion of this and I think we're getting what we asked for, which is very important. We realize that the federal government may have an interest in a larger responsibility here, but the role of the states must be preserved to the maximum extent possible. And certainly the states are in a better position to play on whether transmission should be built and how much of it should be built because there is a tension between transmission and other forms of dealing with the problem, like renewable energy and distributed generation local to load service.

Monica Trauzzi: Right, and relating to that, Senate Energy and Natural Resources Committee chairman Bingaman is pushing through the legislation for a renewable electricity standard. I mean are the utilities prepared to deal with a federal standard and how is that going to impact pricing?

Frederick Butler: Well, that's unclear. I think we need to be dealing with standards on some of these issues and renewable energy is one that certainly lends itself to that kind of an approach. Federal standards are never easy, but sometimes they're needed to bring everyone into some sort of level of conformity so that we don't have as huge a variation. Certainly on Smart Grid we're looking for some federal standards because the worst scenario would be to upgrade the grids with meters and sensors and communication systems that prove not to have the 20 year life that we think they do because the standards weren't properly implemented. And then to come back in four or five years and say to ratepayers, "Well, mistakes were made. We need to put in a whole new system rather than upgrade this component or that component. And now we've got to pay for a new system when we thought we were okay for 15 or 20 years."

Monica Trauzzi: OK, lots to think about.

Frederick Butler: Lots to think about.

Monica Trauzzi: We'll end it right there. Thanks for coming on the show.

Frederick Butler: Thank you.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

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