The Federal Energy Regulatory Commission recently issued a Proposed Policy Statement and Action Plan to encourage the development and application of "Smart Grid" technologies to the nation's electric transmission system. In addition, FERC and state utility regulators jointly outlined Proposed Funding Criteria for the U.S. Department of Energy to consider when establishing procedures for applicants to receive funding for Smart Grid projects provided by the American Recovery and Reinvestment Act of 2009 (ARRA).

Smart Grid advancements refer to a host of digital technologies that could enable real-time coordination of information from both power plants and demand-side resources. Such communication would improve transmission system efficiency and provide consumers new tools to control electricity costs.  

Comments on the Proposed Policy Statement and Action Plan are due May 11, 2009.

Purposes of the Proposed Policy Statement

FERC proposes to prioritize the development of key interoperability standards for Smart Grid technologies, provide guidance to the electric industry regarding the need for full cybersecurity for Smart Grid projects, and provide an interim rate policy that will allow public utilities to recover Smart Grid deployment costs. The standards will facilitate communication over interfaces between utilities (including regional grid operators), between utilities and customers, and utilities and other systems (e.g., energy management systems).

To achieve these goals, the Proposed Policy Statement seeks comments on the following proposals: 

  • System Security – FERC proposes to require entities to ensure compliance with approved reliability standards during and after Smart Grid technology installations.  In addition, Smart Grid technologies must address specified considerations regarding the integrity and security of data and Smart Grid devices.

  • Communications – FERC proposes to encourage further development of standards by the National Institute of Standards and Technology (NIST) and the industry for a common semantic framework and software.

  • Priority Functionalities – FERC also seeks comment on four Smart Grid priorities:  wide-area situational awareness (i.e., awareness of interconnection-wide system conditions in near real time at the reliability coordinator level and above); demand response; electric storage; and electric transportation (e.g., electric automobiles withdrawing electricity for battery charging or injecting stored electricity onto the grid during peak demand hours). 

Proposed Interim Rate Policy

To encourage Smart Grid technologies, FERC also proposes an interim rate policy to allow public utilities to recover Smart Grid deployment costs from ratepayers. FERC proposes that public utilities seeking to obtain such cost recovery must demonstrate that:  (i) Smart Grid additions will not adversely affect system reliability and security; (ii) stranded investments are minimized through use of designs that permit upgrades; and (iii) information obtained from the Smart Grid technologies deployed will be shared with the U.S. Department of Energy (DOE) Smart Grid Clearinghouse, created pursuant to the American Recovery and Reinvestment Act of 2009 (ARRA). 

Formal FERC Rules Will Follow

FERC announced the Proposed Policy Statement to provide near-term policy guidance until it issues formal rules. The Energy Independence and Security Act of 2007 directs FERC, once NIST's work has led to a sufficient consensus on Smart Grid interoperability standards, to institute a rulemaking proceeding to adopt necessary standards and protocols to ensure smart-grid functionality and interoperability in interstate transmission.

Proposed Funding Criteria for Smart Grid Matching Grants and Demonstration Projects

FERC's Proposed Policy Statement complements the recent ARRA appropriation to DOE of $4.5 billion for a variety of transmission initiatives, including Smart Grid activities. DOE will use some of these funds to provide financial assistance for qualifying advanced grid technology investments and for Smart Grid demonstration projects. DOE must initiate a matching grant program within 60 days of ARRA's enactment. Under ARRA, as noted above, DOE will also create a Smart Grid Information Clearinghouse Web site to provide the public with technical, legislative, and other information on Smart Grid development and practices. 

FERC and the National Association of Regulatory Utility Commissioners (NARUC) recently issued joint Proposed Funding Criteria for DOE to consider when allocating the Smart Grid-related grant program funding. FERC and NARUC divided the criteria into eight categories:  preconditions for grants; overarching criteria; technologies; rate designs; regulatory issues; information/data requirements; protection of individual customer privacy and commercially sensitive data; and mechanisms to measure customer response. 

The Ballard Spahr Energy and Project Finance Group is ready to provide you with counsel in identifying opportunities, obtaining benefits, and compliance issues associated with Smart Grid projects. For more information, please contact Howard H. Shafferman (hhs@ballardspahr.com; 202.661.2205).

 


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