FERC OUTLINES, APPROVES SMART GRID

FERC Adopts Policy to Accelerate Development of Smart Grid
Mary O’Driscoll, July 16, 2009 (Federal Energy Regulatory Commission)

SUMMARY
The Smart Grid Policy Statement, from the Federal Energy Regulatory Commission, sets priorities for Smart Grid standards. It is a step toward a modern, more efficient and more reliable transmission system capable of new cost- and energy-saving functions.

State and federal regulators, the utility industry and utility customers agree - as they do on little else - that there is tremendous potential in a Smart Grid. A lack of standards and clear regulatory jurisdictions have prevented its implementation and deployment. FERC wants to change that and is proceeding methodically.

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The Smart Grid will apply digital technologies to the electricity transmission system, beginning with advanced meters and reaching to sophisticated electronic control systems. The Smart Grid will make possible 2-way communication between the power suppliers and the power consumers. Real-time coordination of information between power generators and the consumers on the demand side of the equation will make it possible to adjust use to fit supply and efficiency goals. The overall power system will become more efficient and the consumer will save.

New Energy sources of generation, new energy storage technologies and widespread battery electric vehicle (BEV) use will be integrated into the system.

FERC’s Policy Statement identifies goals and means to the goals. The proposed means will help promote the wider implementation of demand response technologies by bringing the newest cost saving capabilities to consumers while protecting the implementing utilities from financial harm for trying out new tools in the absence of established standards.

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The Policy Statement closely follows a proposed policy issued in March. It:
(1) ...defines the priorities that will need to be respected if there are to be Smart Grid standards for large-scale systems and individual devices that are to have interoperability and secure function.
(2) ...initiates planning for the integration into the transmission system of New Energy sources of generation, new technologies to allow for storage of New Energy-generated electricity and initiates planning to adapt the transmission system (the “grid”) for vehicle-to-grid (V2G) technology and the widespread use of BEVs.

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(3) ...defines FERC policy to allow the utilities that act early to adopt Smart Grid technologies to recover the costs they will incur.
(4) ...incorporates more than 70 sets of comments from interested groups that supported the proposed policy.
(5) ...and commits FERC to not interfering with states’ implementation of Smart Grid technologies and commits it to the jurisdictional boundaries between federal and state regulators established by the Federal Power Act on rates, terms and conditions of transmission and the sale of electricity.

The FERC Policy Statement becomes official 60 days after official publication.

The Policy Statement is an interim measure that will necessarily be altered by final interoperability and cybersecurity standards.

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COMMENTARY
The Policy Statement establishes priorities for the development of key interoperability standards, which are the foundation of the Smart Grid. Without interoperability, there is no guarantee that PC can talk to Mac, that USB plugs work in USB ports, that grid operators can work with grid-served consumers.

The Policy Statement also signals for utilities to go ahead with implementation because they can expect to recover their costs in regulated rates instead of being forced to carry the stranded costs of turning yesterday’s transmission into Smart Grid systems.

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The Policy Statement proposes interim rates for utilities that implement Smart Grid technologies early. To qualify, utilities must demonstrate that their Smart Grid proposals have 4 capabilities:

(1) The Smart Grid facilities being implemented must advance the concept.
(2) The Smart Grid facilities being implemented must not interfere with the overall system’s reliability and cyber-security.
(3) The Smart Grid facilities being implemented must minimize stranded costs and obsolescence.
And, most critically, (4) The impacts, successes and failures of the Smart Grid facilities being implemented must be shared with the Department of Energy (DOE) Smart Grid Clearinghouse. A responsive, interactive, and transparent implementation process will make it possible for state and federal regulators to incorporate the information gained from early projects into future decisions on proposed Smart Grid projects.

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The assumption is that the more information there is available, the more success there will be to build on, despite the Smart Grid’s many complexities and moving parts. The more success there is to build on, the more investment there will be in Smart Grid implementation.

The Policy Statement is designed to create a progressively more coordinated effort and commitment from federal agencies, state agencies and all other stakeholders, eliminating the jurisdictional disputes of the past and creating higher and higher levels of successful deployment.

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FERC wants responsive, interactive, and transparent implementation that does not compromise fair regulatory treatment to both consumers and utilities. Coordination between wholesale and retail markets and between federal and state regulators should protect both sides.

The Policy Statement encourages utilities to invest in Smart Grid technology by striking a balance between competing interests:

(1) Utilities and product developers are incentivized to develop and install Smart Grid technology even though interoperability and cybersecurity standards are not yet finalized. This will begin delivering the benefits of Smart Grid technology to consumers as soon as possible. Delay stymies innovation whereas growth creates economies of scale that bring costs down and drive further innovation.

(2) Consumers are protected from profligate spending by well-defined parameters for development of interoperability and cybersecurity standards.

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Full implementation will not be achieved until there are Smart Rates. The whole purpose of Smart Grid technologies is to make it possible for regulators and consumers to quantify demand and usage. Smart Rates will necessarily follow, rates that encourage electricity use and grid use that is efficient. Evenutally, regulators will customize rates and services to conform use to the larger, more desired purposes of meeting users’ needs with a higher quality of service at lower prices.

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QUOTES
- Jon Wellinghoff, Chair, FERC: “The Smart Grid Policy Statement that we vote on today will help to inform and accelerate the Smart Grid standards development process so that proposed standards will be submitted for Commission review and approval in an expeditious manner…When the Commission issued our Proposed Policy Statement on the Smart Grid in March of this year, I said that I expected that the increased efficiency, reliability and flexibility of a “smart” electric system will result in long-term savings for consumers…The Policy Statement adopts the priorities that we proposed in March. The Policy Statement also protects consumers while providing cost recovery assurances to early moving utilities that invest in Smart Grid technologies that meet specified criteria…”
- Suedeen G. Kelly, Commissioner, FERC: “The electrical grid faces daunting challenges that cannot be addressed by our existing technologies. While digital technologies have transformed other industries, we have only recently focused on the urgent need to modernize the grid by developing and implementing a range of new technologies. Today’s Policy Statement provides a roadmap to transforming the old grid into the grid of the future, better known as the Smart Grid.

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- Marc Spitzer, Commissioner, FERC: “…I think it appropriate that we encourage utilities to invest in Smart Grid technologies and to modernize their operations and the services they provide based on the new technologies. I also believe that there remains a critical role for the states and the industry in developing standards and then designing Smart Rate programs consistent with new technology. The Commission is not interested in usurping traditional state jurisdictional authority. Indeed, the Policy Statement does not alter Federal and state ratemaking jurisdiction…”
- Philip D. Moeller, Commissioner, FERC: “It’s our responsibility to help protect the security and reliability of the nation's electric grid by adopting effective cyber-security standards for the Smart Grid…If we do that right, consumers can look forward to exciting new products and services from a smarter, safer and more efficient grid.”