Post # 32 - Smart Grid Reliability Concerns

On important element of smart grid technology is its potential to help reduce greenhouse gas emission reductions through increasing efficiency and conservation, facilitating renewable energy integration, and enabling plug-in hybrid electric vehicles. But, as with other aspects of smart grid, things are not that simple. Just this week, the North American Reliability Council, or NERC -- the self-regulatory, non-government organization designated by the Federal Energy Regulatory Commission to establish and enforce mandatory electric reliability standards for the U.S. transmission grid -- reminds us that, beyond the debate over the potential economic costs, there also are reliability components to carbon reduction initiatives such as smart technologies.

NERC's Reliability Impacts of Climate Change Initiatives Report concludes that various climate change initiatives will require substantial changes to the bulk power system, including the addition of new or upgraded low carbon generation and transmission, expanded demand resources, and changes to the processes and approaches used in system planning operations. The Report states that, in the future, a variety of demands on existing infrastructure will be made to support transition from the bulk power system's current model to one that meets carbon emission reductions.

In that regard, the Report cautions that legislators and regulators need to consider the reliability impact of large scale transition away from fossil fuels. Further, the Report concludes that policymakers cannot count on large amounts of renewable energy, demand reduction from smart grid systems or new storage technologies before they prove they can be worked onto the grid without endangering the system's reliability.

The Report's basic findings:

• The timing of carbon reduction targets will require an unprecedented shift in North America's resource mix.
• Regional solutions will be needed to respond to climate change initiatives, driven by unique system characteristics and existing infrastructure.
• the addition of new resources will increase the need for transmission and energy storage and balancing resources.
• Carbon reduction from increasing demand-side management must be balanced against potential reliability impacts.
• Climate change efforts that increasingly depend on distribution system options and applications can, in aggregate, impact bulk power system reliability

The Report, or course, deals with the entire universe of carbon reduction initiatives and has a broader focus than smart grid. However, with particular respect to smart grid and smart technologies, NERC is concerned that unless carefully planned an operated, new communications channels can provide a vehicle for cyber attack through a variety of entrance and exit points. Among other things, the installation of smart meters can "amplify the number of points for potential cyber attacks." Overall, the physical assets that support the smart grid will require protection as dependence grows on their functionality. Planners must design the bulk power system "to ensure it will have the resources/technology to respond to cyber attacks and remain reliable." And this will increasingly be a task for local distribution planners as well as transmission planners.

It must be emphasized that the Report is not calling for retreat on carbon reduction or smart grid development. But the Report is a reminder that decisions aimed at greenhouse gases have reliability components, which must be addressed along with the socio-economic components.

Post # 31 -- Public Power Group Call for DOE-NARUC Collaborative on Smart Meter Privacy

Two related smart grid issues, growing increasingly important as smart meter rollouts move forward, are access to and ownership of individual consumer energy information contained in smart meters. See Post ## 3, 4, and 5. Given the overlap of federal and state jurisdiction of electric utilities (state regulation of local distribution, federal regulation of transmission), the question keeps recurring: just who should be write the rules.

This month, the American Public Power Association (APPA), representing more than 2,000 non-profit, publicly-owned electric utilities around the United States, called on the Department of Energy (DOE), which had solicited comments about current and future grid communications requirements, to create a privacy working group with the National Association of Regulatory Utility Commissioners (NARUC) to provide states with policy guidance.

NARUC, the association representing the state public service commissioners, already has a collaborative smart grid working group with the Federal Energy Regulatory Commission, the agency with core federal responsibility over wholesale electric markets and electric transmission -- and which has been specifically charged by Congress to develop standards and protocols necessary to insure interstate smart grid functionality.

The proposed new DOE/NARUC advisory group would act as an alternative to more overt government actions, such as legislation or rulemakings, to address smart grid consumer data access and consumer privacy issues. According to APPA's comments, “public power utilities typically rely on state law and legal precedents, local ordinances, and guidance from their governing bodies to set policy.” APPA argues that, for the most part, privacy and data access policies should be determined at the state and local level.

At the same time, APPA recognizes the need for federal guidance is such areas as “identifying areas of agreement and disagreement regarding privacy and data access issues.” APPA asserts that the proposed NARUC/DOE group would allow DOE to provide continued support to the states by “compiling examples of policy guidelines and sample privacy policies.”

It is unclear whether APPA had previously discussed this proposal with either NARUC or DOE staff. And such collaborative efforts, especially involving a group like NARUC (with essentially at least 50 constituencies), often get bogged down by all their moving parts. Moreover, considering that a fully developed smart grid will be an interstate grid at its core, APPA may be minimizing the federal government's role.

Still, APPA is the principal proponent of public power in the United States, and its comments further highlight the continuing importance of the privacy issues presented by smart meters.

Post # 30 - More Smart Meter Problems Down Under

As discussed in Post # 11, in response to concerns that low income residents would suffer economically, the Australian state of Victoria last Spring declared a moratorium on its ambitious four-year plan to install smart meters in all 2.5 million Victorian homes and small businesses – or, more precisely, a moratorium on employing those meters in conjunction with “time of use” or dynamic pricing.

As with many smart meter critics in the United States, consumer groups in Australia argue that dynamic pricing – under which customers pay higher rates during peak demand periods and lower rates during low demand periods – will disproportionately affect the unemployed, the poor, and the elderly, who may be less able to reorder their energy usage or purchase expensive smart appliances that could facilitate more use of off-peak power.

Beyond those general concerns, the state’s opposition Liberal Party now says that Freedom of Information documents show that state Premier John Brumby (Labor Party) misled Victoria’s Auditor-General, who last November recommended delaying the project so the government could check whether electricity distributors had technology required to meet service specifications "prior to the further installation" of meters.

The Brumby administration accepted the recommendation and said work was "already under way." But last October, before the Auditor-General's report was released, Jemena, the large Australian energy infrastructure corporation, apparently wrote the Brumby administration that it could not meet the technology standards required for smart grid installation. Jemena told the state government that "there are no technologies available in the world today that can meet the current performance levels."

Liberal Party spokesman Michael O'Brien now says that the Brumby administration “persisted with the rollout, in clear breach of the commitment given to the Auditor-General and the people of Victoria." But Emma Tyner, a spokeswoman for Victoria’s Energy Minister Peter Batchelor, said Victoria's guidelines for smart meters had been carefully set "to meet the national standards, which were developed in consultation with market bodies and industry."

This new disclosure, involving technological concerns (and government response) rather than pricing policy, doesn’t directly address the debate over the pros and cons of dynamic pricing. But it does show the potential for smart meters to propel themselves into the political arena in a highly visible (and contentious) manner as smart meters move from the drawing board to actual installation in voters’ homes. And, of course, not just in Australia.

For additional information on these latest “down under” developments, see here and here.

Post # 29 - BGE Redux?

Today, after initially expressing reservations about going forward, Baltimore Gas & Electric reapplied for Maryland Public Service Commission approval of its smart meter installation project.

Last month, the MPSC shook up the smart grid world by denying BGE's request to install smart meters for each of the company’s 1.2 million customers. See Post # 25. Estimated to cost $835 million, BGE had secured $200 million from the U.S. Department of Energy in a "stimulus" grant. For the balance, BGE looked to its retail customers, whom it estimated would receive $2.6 billion in energy saving benefits over the 15-year life of the project.

But the MPSC threw a monkey wrench into the works. As noted in Post #25, the commission was not ruling on the desirability of smart meters or the smart grid per se. Rather, the MPSC questioned whether BGE's ratepayers would actually see benefits from this project commensurate with the utility's proposal to recover approximately $635 million of smart meter installation costs through a consumer rate surcharge. In addition, the MPSC was concerned with BGE's proposal for a mandatory “Smart Energy Pricing” schedule for all residential customers that would vary electric rates during the peak months of June through September based on the time of day and time of week. The MPSC invited BGE to submit a new proposal.

With the $200 million grant from DOE set to expire at the end of this month -- DOE has indicated it would shift the grant to other uses if the BGE project appears stalled -- BGE submitted a new application on July 12, 2010. The new filing makes two major changes. First, BGE now proposes to recover only 25 percent of the project costs through the surcharge. For the remaining 75 percent, BGE will seek cost recovery through traditional rate recovery mechanisms -- effectively, litigating cost recovery on a continuing, incremental basis over the life of the project. In addition, time-of-use rates no longer would be mandatory -- customers instead would choose whether to go the dynamic pricing route. For more on BGE's new filing, see here, here, and here.

The question remains -- even with these concessions, will the MPSC conclude that BGE's customers will receive commensurate value? And, in the end, how will that value be determined?

Stay tuned.

Post # 28 - Smart Grid Speed Bump in Ohio: PUCO Says "Yes" But FirstEnergy Says "We Can't Afford"

In an interesting development, the Public Utilities Commission of Ohio last week approved implementation of a smart grid project by FirstEnergy Corporation. However, because the PUCO declined to act on the company’s request for associated retail rate increases, FirstEnergy’s Ohio initiative is now in limbo.

Coming on the heals of the Maryland Public Service Commission’s rejection of Baltimore Gas and Electric’s request for smart meter cost recovery (see Post # 25), this may be evidence of heightened regulatory sensitivity to shifting smart grid costs from utilities to their customers.

To return to FirstEnergy, on June 30, 2010 the PUCO approved the company’s Smart Grid Modernization Initiative – a three-year pilot program involving 44,000 customers in the service territory of the Cleveland Electric Illuminating Company (a FirstEnergy subsidiary). The program would credit participating customers for power they did not use during times of high demand for two weeks in the summer. The credits would be calculated at electric rates up to seven times higher than standard rates.

But there is a catch. The program also involves the purchase and installation of expensive and sophisticated smart meters, switching equipment, and communications devices. The total projected price of the pilot program is over $70 million, and while FirstEnergy won $36 million in project funding from the U.S. Department of Energy, the company sought to recover the remaining costs through retail rate mechanisms. However, while approving the project itself, the PUCO elected to hold off addressing cost recovery issues until some future time. In response – and almost before the ink was dry on the PUCO’s June 30^th order – FirstEnergy suspended the project (see here, here, and here).

In announcing the suspension, the company argued that the project “has potential benefits for our customers and would bring capital investments and jobs to our region.” Given “the widespread support we received for our federal stimulus application,” FirstEnergy also expressed surprise that the PUCO declined the company’s request for an associated rate increase. FirstEnergy said that “without [PUCO] approval of the matching funds, we are not in a position to move forward.”

But consumer groups had argued that further study was required to ensure that smart grid costs are allocated on the basis of kwh use – because, in the judgment of many consumer advocates, larger customers benefit most from a reliable distribution grid. Consumer groups also asserted that FirstEnergy should not receive lost revenues during this pilot program because FirstEnergy will not likely have any during the pilot program. They also argued that FirstEnergy should be required to credit its operational savings against the costs of the program before FirstEnergy collects any of the costs from customers (see, for example, the comments filed with the PUCO by Ohio’s Consumer Counsel).

As in Maryland after the BGE decision, it’s not clear what happens next – particularly since the PUCO (like the Maryland PSC) apparently remains supportive of the smart grid concept and the use of smart meters. Indeed, the PUCO may not have expected FirstEnergy to suspend its initiative in response to the June 30^th order. It will thus be interesting to see the PUCO’s response to AEP Ohio’s recent request for approval of smart meter-based dynamic pricing, see post # 26.

Certainly, the current PUCO/FirstEnergy stalemate is one more indication that the journey to smart grid nirvana is still very much at the starting point. As utilities move forward with actual smart grid implementation, regulators will ultimately have to address the key question: who pays?