Explosive Growth
On March 19, 2009, the Federal Energy Regulatory Commission (FERC) issued its Proposed Policy Statement and Action Plan setting forth its initial guidance and near-term priorities related to the development of a Smart Grid for the United States’ electric transmission system. The term “Smart Grid” refers to the application of digital technologies to the bulk transmission system that allows for real-time coordination of information between the users, owners and operators of that system. FERC expects that implementation of Smart Grid technologies will greatly increase system reliability and efficiency and at the same time lower the cost of electricity for consumers.

The Energy Independence and Security Act of 2007 (EISA) requires FERC to adopt standards and protocols necessary to facilitate the functionality and interoperability of Smart Grid technology in the interstate transmission of electric energy and in regional and wholesale electricity markets. Prior to doing so, FERC must allow for a sufficient consensus to be reached on these issues through a process coordinated by the National Institute of Standards and Technology (NIST).

NIST’s process will ultimately result in the submission of standards for adoption by FERC via a formal rulemaking. FERC notes, however, that a sense of urgency exists within industry and government for the development of these standards, and therefore FERC is providing its proposed policy statement to help inform the development process. FERC is allowing for the submission of public comments on its proposed policy statement on or before May 11, 2009. FERC will consider all filed comments prior to finalizing its recommendations.

FERC’s proposed policy statement and action plan contains two major components. First, FERC provides its initial guidance on certain key elements of the Smart Grid. Second, FERC introduces a rate recovery plan for jurisdictional utilities implementing Smart Grid technologies in the near term.

Key Elements of the Smart Grid
FERC’s proposed policy statement seeks to provide guidance on standards for four major elements of the Smart Grid:

• Cyber-security and reliability requirements
• Common information models for communications among all elements of the bulk power system (i.e., market operators, utilities, generation assets and demand-side resources)
• Implementation of equipment that provides system operators with a complete “wide-area” view of their systems to facilitate better monitoring and system optimization
• The coordination of the bulk power system with new and emerging technologies such as renewable resources, demand-side resources, energy storage and electric transportation

FERC notes that the development of inter-system communication, system security, wide-area situational awareness, demand response, electric storage and electric transportation should be prioritized and accelerated.

Rate Recovery Policy
In order to offer some rate certainty and to encourage jurisdictional utilities to implement Smart Grid technologies in the near term, FERC is also proposing an interim rate recovery policy that would enable public utilities to seek cost recovery for investment in Smart Grid technologies prior to the final implementation of Smart Grid standards.

To qualify for rate recovery, jurisdictional utilities would submit single-issue rate filings FERC and demonstrate that their proposed Smart Grid deployments would not inhibit compliance with FERC-approved reliability standards or endanger grid security; make a good faith effort to further the vision of a Smart Grid by stressing interoperability and the capacity for continued upgrading; and agree to share useful information gleaned from operation of Smart Grid programs, particularly pilot projects or demonstration programs, with the U.S. Department of Energy’s (DOE’s) Smart Grid Clearinghouse.

FERC will consider Smart Grid devices and equipment, including those used in a Smart Grid pilot program or demonstration project, to be “used and useful” for the purposes of rate-recovery if an applicant makes the applicable showings. The rate policy would also permit requests for accelerated depreciation and abandonment authority tied to Smart Grid deployments, with similar showings of mitigation required.

Details of the FERC’s Proposed Policy Statement and Action Plan and additional Smart Grid materials are available at
http://www.ferc.gov/industries/electric/indus-act/smart-grid.asp.

State, Federal Regulators Submit Criteria for DOE Smart Grid Stimulus Funding
On March 26, 2009, members of the “Smart Grid Collaborative” outlined a list of criteria for the DOE to consider when it begins providing grant and other funding for Smart Grid projects under the American Recovery and Reinvestment Act (ARRA) of 2009. The ARRA authorized $11 billion for electricity transmission and Smart Grid projects. The Collaborative is composed of state and federal regulators and is jointly sponsored by the National Association of Regulatory Utility Commissioners (NARUC) and FERC.

The funding criteria submitted by the Collaborative are divided into eight categories that focus on grant preconditions, project scope, technologies to be considered, rate design, regulatory issues, information requirements, protection of customer privacy and data, and mechanisms to monitor customer response. Pursuant to the suggested criteria, any application for grant funding must address how the project will provide for interoperability in the absence of approved standards, address cyber security issues, minimize the possibility of stranded costs, share information with the DOE Smart Grid Clearinghouse, and maintain the reliability of the grid and the integrity of communicated data.

In its transmittal letter to the DOE, the Collaborative stated that it believes these criteria, developed through consensus by a broad group of commissioners around the United States, many of whom will ultimately be responsible for approving Smart Grid projects within their jurisdictions, are important criteria to apply as the DOE considers which projects will receive funding.

About the Author
Gregory K. Lawrence is a partner in the Energy and Derivatives Markets Group of global law firm McDermott Will & Emery, and leads the firm’s Global Renewable Energy, Emissions and New (GREEN) Products Group. Mr. Lawrence focuses his practice on renewable power, emissions and energy efficiency project development, regulatory proceedings, compliance and investigations, negotiations, and governmental affairs relating to the wholesale and retail electricity and natural gas industries.