Federal Energy Regulatory Commission Chairman Jon Wellinghoff said Monday regulators and the automobile industry must integrate electric vehicles into the national power grid.

The call by the newly appointed FERC chairman is in line with President Barack Obama's plan to reduce greenhouse gas emissions and wean the country off of crude imports, and comes as the President announced two major initiatives that would increase vehicle fuel efficiency standards.

FERC has the power to implement rate structures that could encourage the growth of the hybrid industry.

"Consumers are going to understand from an economic standpoint that these automobiles make a lot of sense, so we have to integrate them into the grid," Wellinghoff said at a PJM Interconnection conference in Pennsylvania.

PJM is a regional transmission company that coordinates wholesale electricity flows across more than a dozen Northeastern states.

"You can see that if you're an automobile company, you'd better get on the bandwagon, because if you don't, you're going to be left out of the band because there is definitely going to be a move toward electrification worldwide," Wellinghoff said.

By using electric generation from coal, nuclear, renewable and natural gas sources, battery-power cars could dramatically cut demand for crude products.

Obama said Monday his administration would review a request by California to set its own emission standards that would force higher fuel efficiency standards, a decision being watched by more than a dozen other states that want to implement similar new standards.

The President also said he was considering increasing national fuel standards beyond what the previous administration had recently ruled.

"Any emission-related focus will encourage the market for plug-in vehicles, hybrids, and fuel efficient cars," said Arshad Mansoor, vice president of power delivery and utilization at the Electric Power Research Institute.

With cars often used only a small fraction of a 24-hour day, battery-operated vehicles could be paid for services to make the national grid more efficient, as part of an artificially intelligent transmission system, Mansoor said.

Batteries in plug-in vehicles could help in an essential part of managing a grid called balancing, the second-by-second matching of power supply with demand.

"You are using the battery as a shock absorber, two-way energy flows that are either dumping energy into or out of the system," Mansoor said by telephone from the conference.

"It is creating a market where there's a value to the electric utility industry and to the consumer," Mansoor said.

Wellinghoff said the FERC could create rate structures that could help to encourage the plug-in market, paying car owners for services such as balancing and helping to solve intermittancy challenges that arise with some renewable energies such as wind and solar. When the sun isn't shining and the wind blowing, a vast multitude of batteries in cars stored in sleeping owners' garages could help provide supply. Besides the long-term effects of reducing greenhouse gases and oil imports, the advantages of a cash-back hybrid include "saving owners money on the total energy bills, and it will cost less than a conventional car in three years or less of ownership," Wellinghoff said.

If gasoline prices return to $4 gallon, which many energy industry analysts predict will happen especially if the government fulfills its vow to put a premium on emitting greenhouse gases, then consumers who want to buy electric vehicles could help to finance their costs through a FERC cash-back policy.

"Incorporating that savings into financing could lower first costs for the car," the FERC chairman said.

New electric cars can cost double conventional combustion-driven vehicles, creating a barrier to demand and keeping production costs higher than if manufacturers were able to mass produce the new technology.

In an effort to jump-start the industry, federal lawmakers are considering $2,500 to $7,500 tax credits for consumers who want to buy an electric vehicle.

Mansoor said one of the first tests for the industry will be how well Chevrolet's electric Volt model sells. Chevrolet is a unit of General Motors Corp. (GM).

Although the Volt won't have the two-way-electricity flow technology that's necessary, Mansoor said, "If that (model) is successful, then the market evolving for balancing resources and a smart grid evolving to accommodate that communication... you're looking at a five- to 10-year time frame."

-By Ian Talley, Dow Jones Newswires; 202-862-9285; ian.talley@dowjones.com

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