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This paper sets forth a novel intelligent residential air-conditioning (A/C) system controller that has smart grid functionality. The qualifier “intelligent” means the A/C system has advanced computational capabilities and uses an array of environmental and occupancy parameters in order to provide optimal intertemporal comfort/cost trade-offs for the resident, conditional on anticipated retail energy prices. The term “smart-grid functionality” means that retail energy prices can depend on wholesale energy prices. Simulation studies are used to demonstrate the capabilities of the proposed A/C system controller.