What would the electrical grid look like if everyone could get paid to save energy? Jon Wellinghoff, chair of the Federal Energy Regulatory Commission, the U.S. agency that regulates electricity transmission, thinks that’s the future.

Last year, Wellinghoff’s agency issued a controversial ruling that in wholesale electricity markets, energy that customers don’t use (dubbed “negawatts”) should be worth as much as energy generated. That means utilities will soon have to pay big customers—and eventually consumers—who save power during peak periods.

The idea is to cut electricity demand instead of spinning more turbines. Pulling this off will require a smart grid in which customers and utilities communicate real-time information about prices and electricity use. Wellinghoff told TR business editor Jessica Leber why this could reduce our need for new coal or nuclear plants.

TR: How is the smart grid changing the electric utility business?

Wellinghoff: Utilities are going to have to change or die. Traditionally, their business model has been vertically integrated; they generate, distribute, and sell energy. Now, you’re seeing opportunities for utility customers—commercial building owners, the Walmarts and Safeways of the world—to fully participate in energy markets and go head to head with utilities. Ultimately, you’ll have companies helping homeowners install technologies to facilitate their participation. Because of this competition, utilities will have to determine how they are going to continue to make a profit.

A number of large utilities are starting to understand that. Still, there are wide swaths of the country where we don’t have these markets at all. Customers in those areas are going to have to demand them.

Does a negawatt have a tangible value?

It absolutely is tangible. We issued an order to say that a negawatt—or reducing a kilowatt of energy demand—is equal to ramping up a kilowatt of energy production. Someone who creates a negawatt should be paid for it. My mission personally has been to integrate negawatts into the wholesale energy market. If we can give the right market signals, entrepreneurs will develop ways to save energy in response to the grid’s needs.

Do you have energy apps on your phone?

I have an app on my iPhone, from a company called GreenNet, that allows me to monitor things like my air-conditioning, dishwasher, DVR, and sump pump. I use it all the time. I’m also about to have installed the capability to control them from my phone.

Will more people want to know what their sump pump is up to?

Most people aren’t going to be as much of an energy geek as I am. I readily admit that. Some of the most compelling and convenient apps you’re seeing now are Wi-Fi thermostats you can control from anywhere; you can buy them at Home Depot. Ultimately, to the extent that we can install these types of control devices, residential consumers will be able to volunteer their information to third-party aggregators who can help automatically manage their energy loads.

How far can reducing consumption get us to solving bigger energy problems?

It can get us a long way. Utility commissioners in Massachusetts recently told me they are looking at potentially zero energy-load growth, because they’re using smart meters and other devices and have very aggressive energy efficiency programs. I think we’re seeing a dramatic shift in the whole energy dynamic in the country. In the next five to 10 years, we’ll have the ability to manage our energy so that we need very few new traditional resources.