Competitive Smart Grid Pilots: A Means to Overcome Incentive and Informational Problems

INTRODUCTION ................................................................................ 360 I. RECENT HISTORY OF SMART GRID ................................... 363 II. CONSUMER-FACING COMPONENTS AND TWO KEY CHALLENGES ......................................................................... 365 A. Physical Components of Consumer-Facing Smart Grid .... 366 B. Demand side benefits enabled by AMI and HANs .............. 367 C. Mechanisms and price signals to enable demand-side benefits ................................................................................ 368 D. Consumer-Facing Smart Grid Contrasted with the Utility-Facing Grid ............................................................. 369 E. First Regulatory Challenge: Consumer Behavioral Change ................................................................................ 370 F. Regulatory Challenge: Nascent Technologies .................... 371 III. CONSUMER-FACING SMART GRID EXACERBATES INFORMATIONAL PROBLEMS ............................................ 372 A. State Regulation and Retail Competition ............................ 372 B. Misaligned Incentives, Informational Asymmetries, and Uncertainty ......................................................................... 373 C. Consumer Behavioral Change Exacerbates Informational Problems ...................................................... 375 D. Nascent Technologies Exacerbate Informational Problems ............................................................................. 376 E. Reduced Consumption versus Load Shifting ...................... 378 IV. STATE UTILITY COMMISSION RESPONSES ..................... 379 A. Traditional Utility Regulation Doctrines ............................ 380 B. Variation in State Regulator Willingness to Approve Smart Grid Cost Recovery .................................................. 382 C. Inadequacy of Current Regulatory Approaches ................. 384 V. ARGUMENTS AND COUNTERARGUMENTS FOR COMPETITION ........................................................................ 386