Just because you’ve won a multi-million-dollar federal smart grid stimulus grant doesn’t mean you might not run out of money later.

Two years after becoming the first recipient of a Department of Energy smart grid stimulus program grant ($20 million in this case), Southern California municipal utility Glendale Water and Power is facing a $9.5 million cutback that’s forcing it to ask for rate increases and offer $60 million in bonds to keep its smart grid plans on track.

The shortfall is the difference between the $10 million the utility expected to spend on smart grid this fiscal year, and the $450,000 approved for it by the Glendale city council, according to local news reports. The situation is already having a negative effect on the utility’s finances -- Fitch Ratings downgraded some of the utility’s water revenue bonds on Friday, saying that water utility was borrowing from the electric utility to pay for capital improvements.

To cover the shortfall, the utility announced this month that it’s seeking a whopping 14.7-percent electricity rate increase over four years, starting at 3 percent next year, a move that has angered city residents and brought smart meter opponents out in force. It’s also planning to issue about $60 million in bonds.

While officials didn’t make clear just which smart grid projects now on the drawing board would be held back, they told local reporters that the utility was facing the prospect of holding equipment in its warehouse without the funding to install it.

Glendale’s $70 million project has a lot of bells and whistles, including a municipal smart electric and water meters connected by Tropos Networks (recently acquired by ABB), in a network that covers smart power and water meters for its 120,000 customers, as well as mobile broadband services for police, fire, public works and other city employees.

It’s also spending quite a bit of money on the IT behind its smart grid, hiring UISOL, the software company bought by French grid giant Alstom, to help it with its grid IT architecture, data warehousing, enterprise service bus architecture and outage and distribution management system design. Utility officials told reporters that one project that would continue despite the cutbacks was a data warehousing project to manage billing for its smart meter network.

Glendale is also hosting a big deployment of Ice Energy’s thermal energy storage air conditioning units. On the home energy side, it’s working on a multitude of pilots involving in-home energy displays from local digital frame maker CEIVA and a home energy social networking pilot with Opower and Facebook.

The big question for the smart grid industry is whether or not other big smart grid stimulus grant winners may be facing similar difficulties meeting their shares of the bill. In Glendale’s case, it has sought an extension to its existing March 2013 deadline for completing the project according to its agreement with DOE. Perhaps bonds and rate increases, however unpopular, will get the machine rolling again.

At least Glendale and DOE aren’t in an adversarial relationship. The same can’t be said in Boulder, Colo., where the city’s newly declared municipal utility is fighting with Xcel Energy over who’s going to pay for the $16.6 million left on the tab of one of the less popular over-budget smart grid projects out there, Xcel’s $100 million-plus SmartGridCity.

Xcel’s fiber-connected, distribution grid-automated, renewable energy friendly upgrade to its Boulder network was launched in 2008 with great fanfare, and a cost that was supposed to mostly be borne by the long list of private partners involved. But costs ballooned, largely due to the decision to tunnel through rock to lay the fiber backbone, and private partners apparently balked at putting up so much money upfront.

In 2010, Xcel found itself asking Colorado regulators for permission to recoup $44.5 million in rate increases, but the Colorado Public Utilities Commission only gave it $27.9 million, telling it to re-apply for the rest with more documentation to prove its value to customers. In December, Xcel filed a request for the remaining $16.6 million.

Boulder city officials now say that Xcel hasn’t fulfilled its promise of giving city residents more control over their home power use, and thus shouldn’t be able to sock ratepayers for the cost of delivering an unfinished product. That’s a pretty dangerous precedent, to say a utility can’t get paid for the smart grid it has built unless it’s met some standard of customer engagement.

The CPUC’s standard, which calls for more clarity on just what kind of in-home devices and smart grid interconnections these smart meters can deliver, could provide some data to make a judgment on the issues.

Of course, this battle is just part of a long-term Boulder-Xcel war over the city’s decision to break away. In November, city voters by a 52-percent majority voted to form their own municipal utility, on the justification that Xcel wasn’t moving fast enough to integrate renewables onto the grid. But it’s going to take years to work out how Boulder and Xcel will divvy up the grid assets that Xcel now owns and operates.

In the meantime, the two are embroiled in disputes over whether Boulder residents should get Xcel incentives for solar installations, and other such positioning for the divorce proceedings to come. In other words, it’s a unique situation in the smart grid industry, which is no doubt a relief to every other utility out there.

Tags: abb, boulder, demand response, doe, efficiency, energy efficiency, energy storage, finance, glendale, ibm, ice energy, itron, landis+gyr, policy, renewable energy