Sunday, October 24, 2010

Post # 45 - A Regulatory Critique From a Smart Grid Proponent

This blog in the past has summarized many critiques by smart grid skeptics. In this post, we will discuss a detailed critique of both regulatory barriers and areas of opportunity for grid modernization by a smart grid proponent.

The Galvin Electricity Initiative is a non-profit organization founded by former Motorola CEO Robert W. Galvin to promote grid quality enhance through innovation on "microgrids" – modern, small-scale versions of the centralized electricity system (generally, low voltage distribution networks with distributed energy sources).

The Galvin organization is a smart grid proponent, believing that the smart grid promises to provide customers better and more timely information in order to influence more efficient behavior. At the same time, the organization is concerned that the country’s current regulatory structure, particularly at the state level, may create obstacles to the development of a fully effective smart grid. In that regard, this past week, the organization issued a new white paper, "Smart Grid Issues in State Law and Regulation," that examines electricity laws and regulations to identify both barriers and areas of opportunity for grid modernization.

The Galvin paper focuses on 11 states – California, Colorado, Connecticut, Florida, Illinois, Pennsylvania, Massachusetts, New Mexico, New York, Ohio and Texas – using the nation’s experience with state retail access initiatives as a lens through which the best regulatory practices can be viewed and, hopefully, pitfalls avoided. Looking back, the study concludes that many retail access states relied too heavily on the theoretical promise of free markets but often neglected to make that promise a reality. The states, according to the paper, need to do far more to educate customers and lower the barriers of entry to competitive suppliers.

More concretely, the paper puts forth the following recommendations for policymakers, regulators and other stakeholders:

  1. Customer price signals should reflect real-time costs at the time of actual energy use. Utility incentives should be neutralized between demand- and supply-side resource options by tying profits to energy services provided, not simply kWh sales.
  2. Smart grid investments before the meter should be recovered as fixed costs. The costs of meters and load-control equipment for customer-specific load control should be recovered on a variable basis, either as a variable cost or as part of an energy charge.
  3. The risks associated with the deployment of smart grid assets should be symmetrically allocated so that those best positioned to manage assets and with the most at stake financially have the greatest potential for gain or loss.
  4. All customer-specific data must belong to the customer for use as he/she determines. Aggregate system data should be considered public information.
  5. Smart meters should be installed on a universal basis in order to capture their optimal benefits.
  6. National standards are critical, and it is particularly important that meters and data systems are capable of bi-directional communication with customers and suppliers and can be transferred between suppliers.
  7. Customers must have a specifically enumerated set of rights, including (but not limited to) the right to: (1) confidentiality of personal information; (2) ownership of information; (3) choice of supplier and/or portfolio of supply options; (4) real-time price information; (5) appliance control; (6) install equipment to improve service quality; (7) net metering; (8) subscribe to aggregation of demand; (9) select meter and post-meter devices; (10) avoid asymmetric allocation of risk and reward; and (11) choose level of service quality.
  8. New smart grid products and programs must be evaluated to identify best and worst practices and cut losses for consumers when something has gone wrong.
  9. Utilities should receive appropriate incentives that link earnings to performance and ultimate value to customers, rather than to sales of kWh. These incentives will also induce utilities to innovate.

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