Approximately 150,000 plug-in electric vehicles (PEVs) are already on the road in the United States, according to various reports. These vehicles include relatively wallet-friendly PEV options like the all-electric Nissan Leaf and the Chevrolet Volt as well as a host of plug-in hybrid-electric vehicles like the Ford Fusion Energi and Toyota Prius PHV. But also speeding around is the all-electric Tesla S, a luxury PEV that is competing with (and in certain states like California, reportedly outselling) premium brands like Volvo and Porsche.

Sales of PEVs in 2013 appear to be up significantly from 2012, and 2012 sales were up significantly from 2011. Compelling incentives from various state governments are increasing sales. For example, California, Georgia, and Washington all provide financial incentives for PEV purchases. Similarly, California, Georgia, and New York all allow use of designated High Occupancy Vehicle (HOV) lanes by PEVs regardless of the number of occupants in the vehicle. No surprise that reports indicate that the leading regional markets for the sale of new PEVs are Atlanta, Los Angeles, New York, San Francisco, and Seattle.

While President Obama’s stated goal of putting one million PEVs on the road by 2015 may not happen, the integration of future PEVs with the electrical grid is an increasing priority for state regulators. The actions already taken by regulators in the PEV center of the United States—California—will likely provide a window into similar regulatory activity all across the country as demand for PEVs increases.

California Gets into Gear

The California Public Utilities Commission (CPUC) initiated a rulemaking in 2009 to prepare California investor-owned utility systems for customer adoption of PEVs, among other alternative-fueled vehicles. The rulemaking included three phases that will likely be replicated in regulatory proceedings in other states.

In the first phase, the CPUC determined that a charging service provider is not a regulated utility simply by virtue of its resale of electricity as a transportation fuel—a conclusion that the California Legislature then codified in statute in 2011.

In the second phase, the CPUC addressed a number of barriers associated with PEV deployment. Electric utilities were required to plan for where PEV charging would likely occur in their service territories. The CPUC also adopted electric rates and appropriate metering options for PEV charging that it believed would not be too burdensome. Perhaps most importantly, the CPUC determined that the costs of any upgrades necessary to accommodate basic residential PEV charging would be treated as a shared cost among all ratepayers rather than assigned to PEV owners.

In the third phase, the CPUC monitored and evaluated utility education and outreach activities with regard to PEVs.

In 2012, California Governor Jerry Brown issued an executive order setting targets to reduce the transportation sector’s greenhouse gas emissions to 80% below 1990 levels by 2050 and to get 1.5 million zero-emission vehicles (including PEVs) on the California roads by 2025. In an effort to help kick-start efforts to meet these goals, Brown and the CPUC announced a $120 million settlement with NRG Energy to resolve claims related to its portfolio of power plants in California. As part of that settlement, NRG agreed to provide $100 million to fund fast-charging stations and other PEV infrastructure at no cost to taxpayers and to encourage consumer adoption of PEVs.

The CPUC Accelerates Integration Activities

More than 20 light-duty PEV options are now available in California, and automakers are introducing new models, new financing options, and medium- and heavy-duty PEVs. Increased market penetration of PEVs means potentially both denser and more volatile energy usage across a utility’s distribution grid. More advanced charging station equipment allows vehicles to recharge batteries faster—but at higher voltage levels.

All of these advances mean that the CPUC, in its recently opened rulemaking to consider programs, tariffs, and policies for alternative-fueled vehicles and especially PEVs, has to be even more concerned with ensuring that adequate infrastructure is in place to meet increased electric demands on the grid.

At the same time, the CPUC will need to evaluate the possibility that PEV charging can be used to actually serve grid needs. Specifically, the CPUC will begin to determine if it can create policies and guidelines to help harness the usage characteristics of and technologies within PEVs to allow them to potentially serve as a grid asset. For example, PEVs may be able to reduce:

  • Operating costs for facility and vehicle owners
  • The utilities’ distribution maintenance requirements
  • Energy prices in the wholesale market

Furthermore, the CPUC will evaluate and craft policies that allow for the potential interplay of smart grid technologies and energy storage solutions with PEVs.

The rest of the country will pay close attention to the CPUC’s ability to successfully integrate PEVs onto the electric grid without stifling innovation. The lessons learned from the CPUC’s initial foray into these issues should help regulators across the country make the right decisions and policies that will allow for a robust and competitive PEV marketplace. ■

Vidhya Prabhakaran ([email protected]) is a senior associate in Davis Wright Tremaine’s energy practice group in the firm’s San Francisco, Calif. office.