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The Impact of Government Regulations and Policies on Smart Grid Market Opportunities

The Impact of Government Regulations and Policies on Smart Grid Market Opportunities

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Published by NanoMarkets
Smart Grids represent a complete rethinking of the electricity grid technology and deployment for the needs of the 21st Century. They promise enhanced energy efficiency at a time when everyone expects energy prices to increase and they promise enhanced grid security at a time when the world remains concerned about terrorist attacks. Smart Grids also imply a modernization of the traditional grid to accommodate the unique energy generation patterns associated with alternative energy sources.

NanoMarkets believes that Smart Grids currently represents a major opportunity for a wide variety of businesses ranging from transmission equipment firms, through manufacturers of communications and metering equipment, down to firms that make advanced materials. However, like all major infrastructure projects, the new business revenues that are likely to flow from the deployment of Smart Grids will depend heavily on government policy. And governments in the U.S., Canada, Europe, China and Australia, among other nations and regions, are now following similar visions as a way of addressing energy independence, climate change and network survivability issues.

As a result, NanoMarkets believes that to fully exploit the opportunities that Smart Grids present, firms will have to have an in depth understanding of the commercial impact of government Smart Grid policies. Only through such an understanding will businesses be able to distinguish between hype and real revenue potential and be able to set realistic time frames and strategies for their Smart Grid businesses. Smart Grid firms will also have to think beyond legislation and regulation specifically aimed at Smart Grids; there will also be impacts on Smart Grid businesses stemming from more general approaches to energy policy, as we all as from communications and national defense policies.

Bearing all this in mind, the major goal of this report is to analyze and quantify the opportunities that are growing out of current policy-regulatory-legislative efforts related to the smart grid. The focus of the report is on activities in the U.S., but opportunities and activities in other major industrial countries will also be discussed. This report will be essential reading for product managers, strategic planners and marketing managers at electric transmission equipment companies, metering firms, communications equipment companies and power companies, as well as the many other kinds of firm that are becoming involved in the development of Smart Grids. In addition, we believe that the information contained in this report will be of vital interest to the policy, investment and legal communities.
Smart Grids represent a complete rethinking of the electricity grid technology and deployment for the needs of the 21st Century. They promise enhanced energy efficiency at a time when everyone expects energy prices to increase and they promise enhanced grid security at a time when the world remains concerned about terrorist attacks. Smart Grids also imply a modernization of the traditional grid to accommodate the unique energy generation patterns associated with alternative energy sources.

NanoMarkets believes that Smart Grids currently represents a major opportunity for a wide variety of businesses ranging from transmission equipment firms, through manufacturers of communications and metering equipment, down to firms that make advanced materials. However, like all major infrastructure projects, the new business revenues that are likely to flow from the deployment of Smart Grids will depend heavily on government policy. And governments in the U.S., Canada, Europe, China and Australia, among other nations and regions, are now following similar visions as a way of addressing energy independence, climate change and network survivability issues.

As a result, NanoMarkets believes that to fully exploit the opportunities that Smart Grids present, firms will have to have an in depth understanding of the commercial impact of government Smart Grid policies. Only through such an understanding will businesses be able to distinguish between hype and real revenue potential and be able to set realistic time frames and strategies for their Smart Grid businesses. Smart Grid firms will also have to think beyond legislation and regulation specifically aimed at Smart Grids; there will also be impacts on Smart Grid businesses stemming from more general approaches to energy policy, as we all as from communications and national defense policies.

Bearing all this in mind, the major goal of this report is to analyze and quantify the opportunities that are growing out of current policy-regulatory-legislative efforts related to the smart grid. The focus of the report is on activities in the U.S., but opportunities and activities in other major industrial countries will also be discussed. This report will be essential reading for product managers, strategic planners and marketing managers at electric transmission equipment companies, metering firms, communications equipment companies and power companies, as well as the many other kinds of firm that are becoming involved in the development of Smart Grids. In addition, we believe that the information contained in this report will be of vital interest to the policy, investment and legal communities.

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Sections

  • Executive Summary
  • E.1 Introduction: The Smart Grid’s Background
  • E.1.1 Functionalities and Components
  • E.1.2 Regulation and Markets
  • E.2 Smart-Grid Policies Evolving
  • E.2.1 The U.S
  • E.2.2 Outside the U.S
  • E.3 Markets for Utility Purchases of Smart Grid Equipment and Services
  • E.3.1 Smart Grids, Heavy and Lite
  • E.3.2 State-Level Markets
  • E.3.3 Beyond Smart Meters
  • E.3.5 Utility Markets Outside of the U.S
  • E.4 Non-Utility Purchases of Smart-Grid Equipment
  • E.4.1 Regulation and Uncertainty
  • E.5 Trends in Smart-Grid Regulation
  • E.5.1 Costs and Benefits
  • E.5.2 A Sample of Dockets
  • Chapter One: Introduction
  • 1.1.2 The Smart Grid: Benefits and Opportunities
  • 1.2 Objectives and Scope of this Report
  • 1.3 Plan of this Report
  • Chapter Two: Smart-Grid Policies Evolving
  • 2.2 Recent Federal Law and Regulation
  • 2.3 Smart Gridlock?
  • 2.4. State Activities
  • 2.4.1 California
  • 2.4.2 Texas
  • 2.4.3 Other States
  • Exhibit 2-1 Major U.S. Utilities with AMI Commitments, State Sequence
  • 2.4.4 Why Meters at All? Other Utilities in the U.S
  • 2.5 Outside the U.S
  • 2.5.1 European Union
  • 2.5.3 Asia/Australia
  • 2.5.4 Canada
  • 2.5.5 Brazil
  • Chapter Three: Utility Purchases of Smart-Grid Equipment and Services
  • 3.2 The Economics and Politics of the Smart Grid
  • 3.2.1 The Changing Character of Smart-Grid Regulatory Dockets
  • 3.3 Characterizing State-Level Markets
  • 3.3.1 Identifying Potentially Active Markets
  • Exhibit 3-1 State Conservation and Efficiency Programs
  • 3.4 Beyond Smart Meters
  • 3.4.1 Classifications
  • 3.4.2 Prioritization and Implementation
  • 3.5 What to Market, and to Whom
  • 3.5.1 The Underlying Uncertainties
  • 3.5.2 Substation and Distribution Automation
  • 3.5.3 Communications
  • 3.5.4 Phasors and Dynamic Rating
  • 3.5.5 Distributed Resources
  • Chapter Four: Non-Utility Purchases of Smart-Grid Equipment and Services
  • 4.3 Delays in Standards and the Diffusion of Products
  • 4.4 Where is Consumer Demand?
  • Chapter Five: Trends in Smart-Grid Regulation
  • 5.1.2 Plan of the Chapter
  • 5.2 Costs and Benefits
  • 5.2.1 General Findings
  • 5.2.2 Customer Response in Pilot Programs
  • 5.2.5 Seldom-Heard Arguments for AMI and the Smart Grid
  • 5.3.3 Cost Overruns and Consumer Reactions
  • 5.4 Summary and Conclusions

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Smart Grid Market Opportunities: The Impact of Government Policies and Regulation

January 2010

This report and its contents are protected by copyright and may not be reproduced or redistributed without the express written consent of NanoMarkets LC. The purchaser of this report agrees to adhere to the terms set forth in the usage terms included with the report. In the event of unauthorized usage of the report NanoMarkets reserves the right to pursue legal action against any and all parties involved.

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Entire contents copyright NanoMarkets, LC. The information contained in this report is based on the best information available to us, but accuracy and completeness cannot be guaranteed. NanoMarkets, LC and its author(s) shall not stand liable for possible errors of fact or judgment. The information in this report is for the exclusive use of representative purchasing companies and may be used only by personnel at the purchasing site per sales agreement terms. Reproduction in whole or in any part is prohibited, except with the express written permission of NanoMarkets, LC.

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Table of Contents
Executive Summary ............................................................................................................................1 E.1 Introduction: The Smart Grid’s Background ...............................................................................1 Page | i E.1.1 Functionalities and Components ................................................................................................. 2 E.1.2 Regulation and Markets ............................................................................................................... 2 E.2 Smart-Grid Policies Evolving ......................................................................................................3 E.2.1 The U.S. ........................................................................................................................................ 3 E.2.2 Outside the U.S. ........................................................................................................................... 4 E.3 Markets for Utility Purchases of Smart Grid Equipment and Services ..........................................5 E.3.1 Smart Grids, Heavy and Lite ......................................................................................................... 5 E.3.2 State-Level Markets ..................................................................................................................... 6 E.3.3 Beyond Smart Meters .................................................................................................................. 6 E.3.4 What to Market, and to Whom ................................................................................................... 7 E.3.5 Utility Markets Outside of the U.S. .............................................................................................. 7 E.4 Non-Utility Purchases of Smart-Grid Equipment ........................................................................8 E.4.1 Regulation and Uncertainty ......................................................................................................... 8 E.5 Trends in Smart-Grid Regulation................................................................................................8 E.5.1 Costs and Benefits ........................................................................................................................ 8 E.5.2 A Sample of Dockets .................................................................................................................... 9 E.6 Smart Grid, Regulation and the Internet .................................................................................. 10

Chapter One: Introduction ............................................................................................................... 12 1.1 Background to the Report ....................................................................................................... 12 1.1.1 The Smart Grid: Terminology and History ................................................................................ 12 1.1.2 The Smart Grid: Benefits and Opportunities............................................................................. 13 1.2 Objectives and Scope of this Report ........................................................................................ 15 1.3 Plan of this Report .................................................................................................................. 17

Chapter Two: Smart-Grid Policies Evolving ....................................................................................... 18 2.1 Introduction ........................................................................................................................... 18 2.2 Recent Federal Law and Regulation ......................................................................................... 18

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2.3 Smart Gridlock? ...................................................................................................................... 20 2.4. State Activities....................................................................................................................... 23 2.4.1 California .................................................................................................................................... 24 2.4.2 Texas .......................................................................................................................................... 26 2.4.3 Other States ............................................................................................................................... 27 Page | ii 2.4.4 Why Meters at All? Other Utilities in the U.S. ........................................................................... 30 2.5 Outside the U.S....................................................................................................................... 31 2.5.1 European Union ......................................................................................................................... 31 2.5.2 European National Policies ........................................................................................................ 33 2.5.3 Asia/Australia ............................................................................................................................. 34 2.5.4 Canada ....................................................................................................................................... 36 2.5.5 Brazil........................................................................................................................................... 36 2.6 Conclusions ............................................................................................................................ 37

Chapter Three: Utility Purchases of Smart-Grid Equipment and Services ........................................... 38 3.1 Introduction ........................................................................................................................... 38 3.2 The Economics and Politics of the Smart Grid .......................................................................... 39 3.2.1 The Changing Character of Smart-Grid Regulatory Dockets...................................................... 40 3.2.2 Standard Setting and the Option Value of Delay ....................................................................... 42 3.3 Characterizing State-Level Markets ......................................................................................... 43 3.3.1 Identifying Potentially Active Markets ....................................................................................... 45 3.4 Beyond Smart Meters ............................................................................................................. 49 3.4.1 Classifications ............................................................................................................................. 49 3.4.2 Prioritization and Implementation............................................................................................. 50 3.5 What to Market, and to Whom ............................................................................................... 52 3.5.1 The Underlying Uncertainties .................................................................................................... 52 3.5.2 Substation and Distribution Automation ................................................................................... 54 3.5.3 Communications ........................................................................................................................ 55 3.5.4 Phasors and Dynamic Rating ...................................................................................................... 56 3.5.5 Distributed Resources ................................................................................................................ 57 3.6 Summary ................................................................................................................................ 60

Chapter Four: Non-Utility Purchases of Smart-Grid Equipment and Services ...................................... 61 4.1 Introduction ........................................................................................................................... 61

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4.2 State Regulators and the Dimensions of Grid Reform ............................................................... 62 4.3 Delays in Standards and the Diffusion of Products ................................................................... 64 4.4 Where is Consumer Demand? ................................................................................................. 65 4.5 Conclusions ............................................................................................................................ 68 Page | iii Chapter Five: Trends in Smart-Grid Regulation ................................................................................. 69 5.1 Introduction ........................................................................................................................... 69 5.1.1 Background ................................................................................................................................ 69 5.1.2 Plan of the Chapter .................................................................................................................... 69 5.2 Costs and Benefits .................................................................................................................. 70 5.2.1 General Findings ........................................................................................................................ 70 5.2.2 Customer Response in Pilot Programs ....................................................................................... 72 5.2.3 Active Participation .................................................................................................................... 75 5.2.4 The Value of Waiting .................................................................................................................. 76 5.2.5 Seldom-Heard Arguments for AMI and the Smart Grid ............................................................. 77 5.3 A Sample of Dockets ............................................................................................................... 80 5.3.1 Proceedings with Little or No Cost-Benefit Analysis .................................................................. 80 5.3.2 Costs and Benefits in California ................................................................................................. 81 5.3.3 Cost Overruns and Consumer Reactions ................................................................................... 84 5.4 Summary and Conclusions ...................................................................................................... 86 Acronyms and Abbreviations Used in this Report .......................................................................... 88 About the Author ......................................................................................................................... 89

List of Exhibits
Exhibit 2-1 Major U.S. Utilities with AMI Commitments, State Sequence ....................................................................................29 Exhibit 3-1 State Conservation and Efficiency Programs ...............................................................................................................46 Exhibit 3-2 State Conservation and Efficiency Rankings ................................................................................................................48

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Executive Summary
E.1 Introduction: The Smart Grid’s Background

The concept of a “Smart Grid” is as much a marketing device as it is an accurate summary of Page | 1 what its advocates envision. In one conception, the Smart Grid represents the merger of the traditional electricity grid and an advanced communications/IT infrastructure. In another, control and monitoring of meters at customer premises is emphasized. In yet others, the focus is on grid infrastructure upgrades. Much depends on the audience being addressed and the purpose of the discussion. Smart Grid Analysis believes that in aggregate the Smart-Grid concept covers several of the following requirements and functionalities: real-time monitoring and diagnosis capabilities, automated responses to grid failures, plug-and-play interconnection of new generating facilities, integration of wind and solar generation into the grid, enhanced consumer energy management and demand/response models, enhanced security requirements, enhanced grid communications infrastructure, and equipment automation and remote control. These are overlapping requirements, but together they seem to account for what most insiders would say makes up the Smart Grid. In any large electrical system, the paired needs for reliability and efficient operation can only be met with modern technologies for both operation and communications. If the hallmark of the Smart Grid is interactivity between utilities and power users, then it has already arrived for an important subset of those users. Large customers in many jurisdictions already enjoy timevarying rates that reflect the costs of producing power, and some can elect to take service that their utilities can interrupt or otherwise condition when doing so is economic. Many large users now generate some of their own power and have arrangements for the utility to take parts of it that they do not want. Perhaps the overarching vision of the Smart Grid is as a venue where utilities carry on mutually beneficial relationships like these with all of their customers. Industrial customers are roughly one-third of the U.S. electrical load, and about the same percentages in most other developed countries. By contrast, the remaining two-thirds of residential and commercial users are served through technologies that have changed little over the decades. Those users, particularly residential, have daily load profiles that necessitate investment in generation needed only for system peaks. Those profiles in part reflect the lack of price signals for small users, who do not pay rates that vary with the cost of producing energy for them. The Smart Grid will bring new interactivity between these users and their utilities.
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Several benefits will result. The new grid’s technologies will improve the efficiency with which transmission and distribution operate, increase reliability, and facilitate the interconnection of larger amounts of intermittent resources. If accompanied by time-varying rates for small customers, their reduced peak use will eliminate the need for some investments in generation. The Smart Grid will become an adjunct of environmental policy, particularly if an increasing Page | 2 emphasis on carbon control materializes.
E.1.1 Functionalities and Components

The smartness of any grid depends on its technology, its scale and its reach. In its fullest versions, end-users of all types will interact with the utility, and possibly among themselves as they operate low-voltage microgrids and come to rely in part on self-generated power. Homes and small commercial premises will contain nodes that allow utilities to send them realtime information about prices and allow residents to make decisions about operating appliances (or allow the utility to decide for them) on the basis of those prices, as communicated by “smart meters.” In-home displays will summarize the relevant data, and home-area networks (HANs) will implement the decisions. Users will produce data about both their power consumption and the condition of their circuitry, which utilities will aggregate and first collect through local-area networks (LANs) that feed into wide-area networks (WANs) to be processed by a meter data management system (MDMS). These new hardware, software and communications technologies will allow the utility to process information that optimizes lowvoltage operations, possibly spot failures before they occur, and reroute power to minimize the burdens of outages.
E.1.2 Regulation and Markets

As much as technology, regulatory policy has been the central determinant of the institutions and markets that characterize all of electricity generation, transmission and distribution, whether utilities are largely corporate as in the U.S. or whether they are largely governmental, as in some European nations. Regulators determine both the rates utilities may charge and the allowable investments they may make to meet their future load-serving obligations. In the U.S., several federal agencies make policies regarding efficiency and technological standards, but the shapes of various regional Smart Grids will largely be set by the decisions of state regulatory agencies. Those decisions will authorize utilities to supply their customers with smart meters as parts of advanced metering infrastructure (AMI), and they will also authorize which of the various new communications and system-monitoring infrastructures utilities may invest in.

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The pervasiveness of regulation suggests we examine two broad markets. The first, discussed in Chapter Three, are ones in which utilities purchase equipment and services pursuant to regulatory orders.1 The second, discussed in Chapter Four, consists of markets in which other entities, primarily customers, purchase equipment related to their use of the Smart Grid. These purchases would include home network components, construction and software for them, and Page | 3 new appliances capable of communicating with the grid. As will be seen, in both the U.S. and Europe both of these markets are seriously constrained by a lack of standards that will not be remedied in the near future.
E.2 Smart-Grid Policies Evolving

In Chapter Two, we examine the legislative and regulatory initiatives that have brought the Smart Grid and its associated markets to their current levels of development. We begin with federal policies in the U.S. and then move on to other nations. In the U.S, a likely situation of gridlock appears to be emerging at the federal level. Recent energy legislation has produced a convoluted consensus-based standard-setting process that may slow the development of important markets. State governments and regulatory agencies have, by contrast, embarked on a heterogeneous assortment of programs that range from large-scale AMI rollouts to total inaction. Outside of the U.S., the European Union’s policy directives have only recently emerged into an actual standard-setting process, one that promises to be more difficult than America’s to negotiate because of the dissimilarities of the various national electric systems. Outside of the U.S. and EU, developments are scattered and heterogeneous.
E.2.1 The U.S.

The Smart Grid originated as a concept at the Electric Power Research Institute, an organization financed in large part by utilities to perform research for the industry. Other industry organizations, most notably the GridWise Alliance of equipment manufacturers and utilities, soon followed. Various provisions of the Energy Policy Act (EPAct) of 2005 and the Energy Independence and Security Act (EISA) of 2007 gave the Smart Grid a foothold at the U.S. Department of Energy (DOE). The latter law also contained language intended to encourage state regulators to initiate their own explorations of its possibilities. The American Reinvestment and Recovery Act of 2009 (ARRA) offered $4.5 billion in Smart-Grid grants, the

1

―Orders‖ in this context is not entirely accurate. In general, utilities in the U.S. present their proposals for rates or capital investments to regulators accompanied by justifications for them, and the regulators issue an order that, for example, the company subsequently charge the rates it requested. Seldom do regulators surprise utilities with orders that were determined without the active participation of the utilities.
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the European Parliament produced a directive stating that in energy policy its primary interest was the promotion of efficiency. however. State regulators have jurisdiction over utility rate setting to final (“retail”) consumers (excepting those of municipal and cooperative systems). most importantly intended to ensure the interoperability of user equipment and security of Smart-Grid platforms. Evaluation of Smart-Grid benefits is complicated by a two-pronged data deficit. this one embodies a balance of interests on a number of committees. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . Also unlike earlier standardssetting processes. Unlike Page | 4 earlier standard-setting processes that were dominated by equipment manufacturers. but state regulators in these and other states have shown themselves reluctant to enact them or to make them applicable to all users. Europe has yet to progress beyond Smart-Grid pilots. and over utility investments and expenses that will include most Smart-Grid hardware and software. In reality. the federal government’s National Institute of Standards and Technology (NIST) will bear final responsibility for producing them. Investments in these states. optimistic projections for smart metering are often based on utilities’ announcements of their intentions. It accordingly requested efficiency plans from member nations by 2008. rather than on actual projects that have been approved by regulators. but several Smart Grid Analysis | PO Box 3840 | Glen Allen. Second. E.www. In 2006. and the drafting of EU metering standards has begun only recently. There is general agreement that a Smart Grid is only worth investing in if users face timevarying rates. EISA also put in place a very complex standard setting process. many state regulators appear content to administer meter replacement programs while waiting to see what materializes in the few states that are committed to more extensive Smart-Grid investments. The likely benefits of Smart Grids are proving hard to quantify and their full costs hard to predict. remain concentrated in meters and utility-side communications. with the ultimate goal of forging an EU climate policy. Facing these uncertainties.2 Outside the U. First. Some countries are currently devoid of smart meters.com bulk of which were awarded later in the year to utilities for various aspects of their AMI programs.smartgridanalysis. both of whose regulated utilities are currently engaged in rollouts of smart meters to virtually all of their customers. The most important of the latter are California and Texas. the Federal Energy Regulatory Commission’s (FERC) utility-level data are difficult to compare because of definitional differences.2. At this early date it already appears that important standards will be delayed beyond their expected issuance dates.S. with the extensive participation of end-users to come only later.

Finally. The latter expect to make smaller investments in generation than in the past.smartgridanalysis.3 Markets for Utility Purchases of Smart Grid Equipment and Services E. Add the fact that the savings from smartness may turn out to be small. China’s oft-cited progress emphasizes measurement and control of high voltage flows. and cannot be reliably forecasted from the results of pilot programs. Time-varying rates for small users are almost nonexistent on the continent. are becoming increasingly contested as uncertainty about the need for a Smart Grid and the size of its benefits come under closer examination.www. Sweden and Finland have already completed near-universal meter upgrades. Smart Grid Lite (SGL) is less of a revolution than an extension of ongoing utility investment and communications programs.com others including Italy. China is eschewing the interactivity that many others view as the essence of the Smart Grid. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . not all of which are enabled for two-way communication. Elsewhere in Asia.1 Smart Grids. Page | 5 necessary both to improve low levels of reliability and to accommodate rapidly growing volumes of both conventionally generated energy and intermittently produced power from renewables. elsewhere in North America the Smart Grid’s only other important footholds are in Ontario and British Columbia. in Australia and Brazil all that exists are pilot programs. and need a way to maintain or expand the rate bases on which they can earn authorized returns. SGL consists of investments in goods and services that will improve a utility’s existing competency to serve at least cost and improve reliability. Every user (or nearly all) will be smart metered. A number of utilities are actively working on SGH. regardless of its potential contribution to the system and regardless of the likelihood that it will be actively engaged in managing its load through interfaces and hardware on its side of the meter. Smart Grid Heavy (SGH) is better described as a fully refurbished infrastructure. and the latter by 2012.3. in part due to the growing importance of demand management policies. Together they mean that rational utilities and regulators may prefer to wait until important uncertainties are resolved as Smart Grid Analysis | PO Box 3840 | Glen Allen. Regulatory dockets. Under this vision of least-cost planning. In Asia. The former is expected to be fully smart metered by the end of 2010. extended to the customers’ premises. only those customers who are reasonably certain to engage in demand response or act as reserves will get advanced meters. Heavy and Lite We introduce two generic versions of Smart-Grid investments that a utility might make. E. some acting under regulatory or legislative compulsion and others under pressure from investors or markets. as detailed in Chapter Five.

). etc.3. will be important determinants of both the existence and scale of Smart-Grid investments. and security and interoperability standards for user-side monitoring. We already know that important mistakes have been made in early AMI rollouts.com the results of pioneering Smart-Grid programs accumulate. Beyond devices that directly improve reliability (e. a fully functioning Smart Grid must incorporate technologies to induce price-based demand response (including loads acting as reserves).3. We tabulate data on aspects of those policies.g. E. (4) spending on efficiency programs as a percentage of utility revenue in the state. and decision support tools. distributed generation and microgrid operation. these include timevarying rates for small customers.3 Beyond Smart Meters After meters.www. (3) the amount of renewable generating capacity (megawatts) in the state. including interfaces. provisions that allow user load reductions to be treated as reserves.smartgridanalysis. there are five broad classes of Smart Grid-related investments that utilities might make: communications systems and equipment. measurement and sensing equipment. and (5) the current penetration of smart meters in it.2 State-Level Markets Page | 6 State regulatory policies. Smart Grid Analysis | PO Box 3840 | Glen Allen. We then construct and rank indices of these characteristics in order to identify those states that are likely to be most hospitable to Smart-Grid investments but currently have only small amounts of Smart-Grid activity. rules for pricing and integration of distributed resources. If so. we can examine which states will more likely be hospitable to the Smart Grid by looking at their past choices in electricity policy. (2) the state’s existing level of efficiency in energy use. reliability. controls (including monitoring and diagnostics). Some of these are add-ons that are compatible with a wide range of communications systems. The possibilities for a utility to go beyond smart meters to these other investments will depend on how several important gaps in regulatory policy are filled. E. distribution automation. including: (1) the existence of a renewable portfolio standard (RPS) that mandates certain amounts of energy be used by utilities. control and communication equipment. wide-area phasor management systems and dynamic line rating) and improved communications. and it is becoming clear that SGH will be an investment whose size and complexity will be like those of nuclear power more than a generation ago. as filtered through politics. system components (devices that improve power quality. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . In particular. Which of these will become growth markets will depend on development of technologies such as interfaces through which appliances can communicate with the grid and cheaper methods of storing power.

com E. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . Elsewhere in the world. technological uncertainty and delays in standards-setting. for example substation automation.smartgridanalysis. Smart Grid Analysis | PO Box 3840 | Glen Allen.3. thanks to the EU’s slowness in setting standards and the possibility that meters which it currently allows in some nations will turn out to be the wrong choices as its systems become more unified. Utilities might better seek to influence regulators by proposing rate designs and interconnection requirements that allow them to capture benefits from the new power sources while constraining their owners’ abilities to become active competitors. even more fluid and uncertain.3. Anyone wishing to sell Smart-Grid equipment and services to American utilities will be operating in markets that are simultaneously constrained by regulatory uncertainty.5 Utility Markets Outside of the U. Distributed generation and microgrids pose more complex strategic choices for utilities building up their Smart Grids.S. The European situation is. Capabilities of both continue to improve. even in jurisdictions that still await regulatory decisions on AMI. There is an inherent conflict between hesitancy to jump into AMI and the EU’s directive that 80 percent of its population be smart metered by 2020. At the same time. Most of them will have few if any good reasons to invest in facilities and equipment that improve the competitive abilities of small customers.www. Markets Page | 7 such as these will be open for purchases by utilities.g. some components and technologies that are commercially feasible (sometimes even without smart meters) and currently have accepted international standards. The question of how (and which) markets will develop beyond smart meters in Europe is complicated by the differing priorities of national governments and the still unknown outcomes of pilot programs that are only beginning. if anything. E. however. Other utility-side markets such as distribution automation will remain largely undeveloped absent communications and data management standards that have yet to be written. There are. the only markets that currently matter are those associated with pilots. and to Whom All of the above uncertainties about technology and policy mean that utilities’ best investment choices beyond smart meters are anything but clear. Some communications standards may arise by default as a result of large utilities’ technology choices (e. broadband over power lines and WiMax) for supporting their smart meters. Smart Grid Lite is compatible with many possible utility choices about investment in phasors and phasor monitoring units. and in any Smart Grid that finally emerges they will facilitate efficient operations and dynamic line rating.4 What to Market.

www.smartgridanalysis. the goals envisioned for a Smart Grid will go unattained. Absent either the technology or the rate design. but there is also little reason to be confident about any figure that lies between them. and the rewards given for participating may skew the results in favor of the Smart Grid. The likelihood that a wave of blackouts or a crisis in fuel prices will speed up the adoption of standards and predispose utilities and their customers toward the Smart Grid appears quite low. Available surveys of regulators show surprisingly high percentages disfavoring time-varying rates for some or all small users. while giving them equipment that they can use to consume power more efficiently by choosing to operate appliances in accordance with the cost of power at the time.5 Trends in Smart-Grid Regulation E.com E. Optimistic predictions about consumer acceptance based on analogies between the Smart Grid and the Internet appear quite implausible. Perhaps the most important uncertainty associated with these markets is that of customer acceptance of the new technologies and rates. In addition.4. are undeveloped at best and nonexistent at worst. The selection process for participants in pilot programs virtually ensures that they will not be random samples of power users. All of the forces producing delays and Page | 8 uncertainty in Smart-Grid markets with utility purchasers are also present in markets for user equipment. Where AMI is a possibility. regulators are sometimes reluctant to initiate the time-varying rates without which most purchases of userside equipment will deliver few benefits.1 Regulation and Uncertainty Any markets today for sales of Smart Grid-related equipment to non-utilities. but the selectivity and reward structures of existing pilot programs make it impossible to predict responses with any precision.. virtually nothing is known about whether any initial consumer enthusiasm will persist into the Smart Grid Analysis | PO Box 3840 | Glen Allen.4 Non-Utility Purchases of Smart-Grid Equipment E.e. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . Not all state regulators are enthusiastic about utility purchases that include SGL hardware on the company’s side of the meter. E.5. Estimating likely changes in the peak requires a forecast of how many customers will choose to actively manage their loads when they have the ability to do so.1 Costs and Benefits It is now conventional wisdom that if AMI is to be cost-effective it must simultaneously force at least some users into time-varying rates. power users. Utilities proposing AMI and intervenors in their proceedings often arrive at implausibly large and small rewards for participation in the programs. i.

used differing estimates of participation and response rates. that they will produce quantum improvements in reliability. Some of the cost-benefit calculations were based on assumptions about future regulation and legislation that turned out to be untrue almost immediately after regulators approved of the programs. In still others. In some cases. programs are being rescaled. Uncertainties about the quantitative responses of consumers have altered some programs. There is a growing recognition that the important information includes data on the risk that meters or other hardware will be either obsolete or out of compliance with standards that have yet to be announced. Perhaps most importantly. they have been compelled by law to install the meters.5. where the state’s three large utilities were each to construct and justify their own smart metering plans. the delivery of meters is being restricted or prioritized to subsets of consumers thought most likely to respond to price changes. Second. utilities seeking to initiate AMI have been parties to settlement agreements that have allowed all of the parties to bypass some of the complexities of a regulatory docket. and included different and sometimes unquantifiable items among the benefits of their programs. the individual utilities chose different technologies (one was a mistake). the three dockets are testimony to the importance of political considerations and their primacy over economics in Smart Grid proceedings. that they will noticeably affect emissions levels. First. In their cost-benefit calculations. Several of the initial policy arguments for Smart Grids are seldom being made at regulatory agencies by either utilities or intervenors. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .www. In some cases. and that they will facilitate the future integration of renewable power sources.2 A Sample of Dockets A number of utilities have begun their AMI deployments without complex regulatory proceedings. full AMI rollouts are being replaced with pilots that may provide information about whether a larger program is warranted at all. E. Smart Grid Analysis | PO Box 3840 | Glen Allen. there are delays in initiating them while regulators and utilities attempt to glean Page | 9 information from those programs that are already in operation. including those of carbon.smartgridanalysis. These include the possibility that Smart-Grid programs will be engines for job creation. Perhaps the most complex set of dockets thus encountered has occurred in California. In others.com future once the novelty wears off and consumers see how small the expected drop in their monthly bills is likely to be. and in others the rollout has been a relatively minor component of a general rate case.

Logically. there is much talk about the Smart Grid being a distributed network. But first a regulatory battle will have to be fought that hasn’t even begun and may take years to resolve if telecom is a good guide. Once the PC brought ubiquitous data communications. one way will Smart Grid Analysis | PO Box 3840 | Glen Allen. One area where this battle may begin is in the development of standards. Essentially. Regulation and the Internet The growing interest in the Smart Grid by both the commercial and policy sector has led to inevitable comparisons between the Smart Grid and the Internet. an inherently distributed network. primarily because the telecommunications business came to be focused on the Internet. This is exactly what happened in the telecom business and it would be no surprise to see it also happen in Smart Grids eventually. Meanwhile. if the power companies are to continue having strong control over grid functionality. To fully explore the reality behind these assertions lies well beyond the scope of this report. the winner in all this was distribution. Depending on which country one was talking about. This arrangement worked quite well as long as there was no new technology—and the responsiveness that such new technologies demand—to deal with. In the U. the telecommunications industry had been dominated by large powerful and centralized service companies for almost 100 years. the arrival of the Smart Grid is quite reminiscent of what happened in the telecommunications market beginning in the 1970s. But the reality is that electricity companies are quite open about their belief that they must continue to exercise strong central control over the grid.6 Smart Grid. A third possibility is that they cede power to a slew of new firms. All this changed with the arrival of the PC in the late 1970s. leading to calls for deregulation and open competition within the next few years. At that time. we note that government agency involvement in standards setting and interoperability is likely to slow the markets’ development. these service companies were either government agencies or heavily government controlled through regulation or legislation..com E. although it is worth noting Page | 10 that many of these comparisons are at best rather superficial.www. This fact has important implications. the power industry is likely to stake its claim in a number of ways. We think that there are some valid comparisons to be made with the Smart Grid. with the telephone companies insisting that strong centralized control was the way to go and end users and the computer industry favoring much more distributed architectures. this battle became more intense. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .S. At its present (early) stage of evolution. they will either have to exploit the distributed features that it could provide or these features will simply not be provided.smartgridanalysis. That said. The data communications industry was already complaining about the lack of responsiveness of the telephone companies.

com certainly be that it is too dangerous to leave electricity to amateurs in both a literal and figurative sense.smartgridanalysis. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .www. Page | 11 Smart Grid Analysis | PO Box 3840 | Glen Allen.

more general approaches to energy Smart Grid Analysis | PO Box 3840 | Glen Allen. China and Australia. current terminology is not entirely appropriate in that electrical systems have long incorporated both smart and not-so-smart technologies. They also promise enhanced energy efficiency at a time when everyone expects energy prices to increase. the new business revenues that are likely to flow from the deployment of Smart Grids will depend heavily on government policy. as well as enhanced grid security at a time when the world remains concerned about terrorist attacks.smartgridanalysis. However. climate change and network survivability issues. Contemporary electronics and telecommunications already bear key responsibilities for the reliable and economical operation of regional grids. Smart Grid Analysis believes that Smart Grids currently represent a major opportunity for a wide variety of businesses ranging from transmission equipment firms. Canada. Smart Grid Analysis believes that to fully exploit the opportunities that Smart Grids present.S. are now following similar visions as a way of addressing energy independence.com Chapter One: Introduction 1..www. and growing markets expand the geographic range of utilities’ power supply options. firms will need to have an in-depth understanding of the commercial impact of government Smart-Grid policies. Europe. down to firms that make advanced materials. through manufacturers of communications and metering equipment. And governments in the U. the current conception of Smart Grids presents a complete rethinking of the electricity grid technology and deployment for the needs of the 21 st century. like all major infrastructure projects. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . Nonetheless. and other developed nations are currently proposing and implementing numerous policy initiatives intended to bring forth a “Smart Grid” for their electrical systems. However. non-utility generators have proliferated. And. In fact.1 Background to the Report 1.S.1. Smart-Grid firms will also have to think beyond legislation and regulation specifically aimed at Smart Grids. among other nations and regions. Only through such an understanding will businesses be able to distinguish between hype and real revenue potential and be able to set realistic time frames and strategies for their Smart-Grid businesses. As such.1 The Smart Grid: Terminology and History Page | 12 The U. their roles have steadily expanded as loads have grown. Smart Grids imply a modernization of the traditional grid to accommodate the unique energy generation patterns associated with alternative energy sources.

however. Bearing all this in mind. although opportunities and activities in other major industrial countries are also discussed. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . Communication and control technologies have made some of them partners with utilities in maintaining reliability. Relationships between utilities and their largest customers already provide a preview of the functionality of the Smart Grids to come.S. and it would be a business opportunity even without the prominence of the Smart Grid.com policy. The Smart Grid will open up new markets for many suppliers of equipment and services.2 The Smart Grid: Benefits and Opportunities The sophisticated technologies of grid operation have already affected the relationship between utilities and large industrial power consumers. Their metering technologies are ancient and their abilities to monitor power costs and use patterns are nonexistent. which require utilities to invest in capacity they seldom operate to maintain reliability. 1. Those consumers increasingly face rates that reflect the contemporaneous costs of power production. This in itself represents a long-term business opportunity as energy gets more expensive. New means to communicate and control power will put utilities and their customers into responsive and mutually beneficial relationships that can reduce the costs of electrical services and aid in the implementation of broader social and environmental policies. if we treat the grid’s future less as a revolution and more as a massive extension of existing trends. the focus of which is on the activities in the U.1. This is the key motivation for this report.. and even if they could track their consumption they would gain no reward for cutting it under the flat rates that apply to most of them.www. Smart Grid Analysis | PO Box 3840 | Glen Allen. There is no easy way to quantify the extent to which existing large customers and their utilities already reap benefits like those of a Smart Grid.S. whether by interruptible rates or by new abilities to bid demand reductions into regional energy markets. and some are both consumers and producers of cogenerated power. We can achieve a better understanding of these opportunities. (and comparable fractions elsewhere) is sold to residential and smaller commercial users whose relationships with their utilities have hardly changed in a century. as we all as communications and national defense policies will also impact these businesses. Smart Grid Analysis believes that an analysis of the opportunities growing out of current policy-regulatory-legislative efforts related to the Smart Grid is of Page | 13 particular importance. What we can quantify is that nearly two-thirds of all power in the U. Many of their load profiles display contemporaneous peaks.smartgridanalysis.

however.www. how much must be invested. engineer. They will gain the ability to integrate larger volumes of intermittent renewables into their systems while maintaining reliability. Events and politics alone. yet another business opportunity flowing from the Smart Grid. these are benefits that could easily lead to new business opportunities at every level of the value chain. New rate designs will encourage large numbers of them to cut their costs by better managing their demands. the sustainable business opportunities that flow from the Smart Grid will be determined by the objective issues listed above and others similar to them. and possibly. whether the technologies will work. What little we know about the answers to these questions has largely been gleaned from an extremely small and nonrandom sample of pilot programs. whether the impact will be worth the cost. customers who take advantage of the technologies will benefit from lower bills under time-varying rates. Page | 14 Utilities will be able to defer new generation and transmission deployment while delivering power that may be more reliable than ever thanks to the Smart Grid’s data collection capabilities. the numbers and identities of potential purchasers are much more uncertain. power users. investors. some smaller customers will at times be suppliers to the grid of renewable solar power produced on their premises. whether utilities are competent to oversee their complexity (in light of the nuclear experience). For many of the basics. however. Again. potentially viable suppliers already number in the dozens. it is sometimes difficult to sort out the real business opportunities from the hype.smartgridanalysis. perhaps irresistibly.com But with the Smart Grid. regulators. The extension of smartness to lower voltages and multitudes of smaller customers has brought a drive to conceptualize. If the costs of the hardware and software are manageable. the Smart Grid (some believe and emphasize) offers hope for substantial reductions in carbon emissions. some of the conventional business issues may hardly matter in light of the underlying politics of electricity and the environment. Overall. On top of these benefits. By contrast. which is driving Smart-Grid markets (and funding) at the present time. Like industrial users. For now. Ultimately. But all of the usual business uncertainties are there too. whether customers will accept the change. will bring little unless the technology materializes and becomes commercially feasible. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . the Smart Grid literature mostly reads like utopian literature of the past. the Smart Grid is a seemingly agreeable and potentially rational solution that is at least somewhat consistent with the interests of utilities. and economically manufacture numerous components that are integral to the grid. They will depend on political and regulatory decisions that will Smart Grid Analysis | PO Box 3840 | Glen Allen. environmentalists. and if they do. so the level of uncertainty is much higher than it might otherwise be. A confluence of events is driving it forward.

1. but almost any utility purchase must be justifiable both as a business decision and as one that a regulatory agency will accept as prudent. the entity that distributes power to final consumers is sole owner of meters.www. the singular industrial organization of electricity suggests a breakdown by type of purchaser. In California. but in other countries they are owned by customers and in still others by specialized metering companies. Denmark. While it might seem more natural to classify markets by what is traded in them. Depending on regulatory constraints and corporate strategies. Some Smart-Grid equipment. marketing to utilities may be a winner-take-all process with a single large prize.smartgridanalysis. to American systems of vertically integrated territorial monopolies (Japan). to centralized transmission operators with local distribution companies (U. is under mixes of uniformity and default rules. In the U. states. And one country. most importantly meters in about half of U. states Page | 15 like Texas and California. they consist of investor-owned utilities.. It is for distinctions like these that the unregulated/regulated customer classification is most helpful.S. most broadly regulated (or governmental) entities versus unregulated ones. but it can also differ little from marketing to individual smaller users.S. Other nations range from near-total centralization in quasi-governmental institutions (France). imposes no regulation at all on ownership. A utility may choose sole sourcing for some Smart-Grid component or choose to diversify suppliers. small customers get utility-owned standardized meters. It has already triggered mass rollouts of equipment to low-voltage users in nations like Italy and U. Smart Grid Analysis | PO Box 3840 | Glen Allen. That momentum has hardly been slowed by the current recession. The first type consists of owners and operators of the “natural monopoly” portions of the industry.S. In most EU countries.com unfold over the relatively near future. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . for example. Who owns the meters (or is allowed to own them) is in fact a policy choice that varies greatly.2 Objectives and Scope of this Report The goal of this report is to examine how laws. which are mostly regulated corporations or governments. municipally operated utilities and non-profit cooperatives. regulations and policy initiatives are creating opportunities in markets for Smart-Grid hardware and services and how best to capitalize on these opportunities. (and analogous institutions outside of it) are rapidly accumulating momentum.S.K. Larger customers get the option of either utility-owned meters or self-ownership of meters supplied by competitive producers. near because both state regulators and federal energy legislation in the U.).

The fineness with which outages can be detected and the corresponding possibilities for “self-healing” by the grid. for both utilities and customers. Such choices about these features of the grid will affect the amounts and types of investments that will be necessary.com There are—not surprisingly—disagreements over exactly which functionalities a Smart Grid should have. Devices and software on the user’s side of the meter that can display current and historical data (including time-varying power prices). The choices are further complicated by uncertainty about how technologies and their costs will evolve. The options a utility will have to directly control a user’s appliances and the user’s rights to override the utility’s choice.smartgridanalysis.www. the basic layout of metering and communications will usually vary little with these choices. The arrangements under which customers with generation resources can sell surplus output to the utility.g. we need only examine a relatively limited number of products and services: Smart meters that collect consumption data for a location and make it available (ideally in real time) to both the utility and the customer. and these will be evident in the design choices of the utilities that operate them. The fineness with which the quality of power reaching a user can be reported and corrected if necessary. aggregate or itemized for individual appliances). and the possibilities for lower-voltage localized microgrids. the user can make Smart Grid Analysis | PO Box 3840 | Glen Allen. The degree of detail the utility obtains about a user’s consumption (e. With the data. For a business analysis of the opportunities stemming from the Smart Grid. Among the most import choices are: The granularity of price data users will receive and consumption data utilities will receive. Nonetheless. and uncertainties about the value that various grid functions create relative to their Page | 16 costs. but filtered through politics. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . These design choices will be in part a matter of economics. The degree to which Smart Grids are intended to be adjuncts to the existing power generation environment or to create balances in a new environment in which alternative energy sources play a major role.

Chapter Two summarizes major policy developments in the relevant nations. market managers and end-users.www. Chapter Four is analogously organized for sales to non-utility entities.g. It will produce and send relevant outputs to almost all affected parties—the grid operator. the state of competition. 1. Because a given regulation or law may affect both regulated and unregulated customers. whose relative importance differs among jurisdictions. economics and technology. Chapter Five summarizes some of what has been learned from state regulatory dockets during their relatively brief existence. A local area network (LAN) on the utility’s side of the meter that can process a locality’s consumption data into forms useful to the utility and monitor the operating conditions of the local.com consumption choices (e. and projections of future sales.smartgridanalysis. The LAN and the next two items are components of what is coming to be called an Advanced Metering Infrastructure (AMI). thermostat settings and times of appliance operation) that may be contingent on prices. Smart Grid Analysis | PO Box 3840 | Glen Allen. particularly as they will be affected by these policy developments. this chapter also includes analyses of market sizes. Application of the data will largely depend on the ability of the user’s own network (usually called a home area network or HAN) to communicate with appliances. A utility’s data processing system that is constantly in (nearly) real-time communication with the meters thanks to the LANs and WANs. Where possible. Chapter Three discusses current and future markets for sales to utilities. inclusive of U. Wide area networks (WAN) that aggregate data from a region’s LANs for input into the utility’s data processing system.3 Plan of this Report Page | 17 The market for Smart-Grid components and services is being shaped by politics. low-voltage distribution network.S state-level policies where appropriate. generation owners. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .

including the European Union. These will be followed by discussions of Smart-Grid policies in other major industrial nations. individual European nations. with an eye toward quantifying the likely future growth of those opportunities. and then at the state level.com Chapter Two: Smart-Grid Policies Evolving 2. an increasingly important matter as the digital economy expanded. As early as September 2003.2 Recent Federal Law and Regulation The first movement toward a Smart Grid was less a response to government than an act of entrepreneurship on the part of an accretion of interested parties. one of EPRI’s subsidiaries petitioned Smart Grid Analysis | PO Box 3840 | Glen Allen. In all cases. At the macro extreme.S. In 2003. such as communications with users that would allow them to better monitor power use and respond to price signals by controlling the user’s equipment. GridWise remains the most important lobbying and public relations organization associated with the Smart Grid. come into play. and Canada. At the outset. and the Asia-Pacific area. two subsidiaries of EPRI took the initiative to hire General Electric and other contractors to design an “open architecture” for advanced monitoring and communication of the grid. At the micro extreme. it is important to note that important elements of future growth are not the direct outcomes of governmental or regulatory policies.S.” however. Where appropriate. the GridWise Alliance was formed among utilities and equipment and software suppliers to perform additional research (in conjunction with government laboratories) in the area.smartgridanalysis. this chapter will also discuss the market impact of the more important of these activities. despite the absence of legislation or regulations that compel them to do so. This chapter will first examine the evolution of U. our goal is to identify those policies that are producing or will produce the most important market opportunities for producers of grid-related hardware and services. they sought to forestall or limit the damage from interruptions such as occurred in the summer of 2003 in the Northeastern U. Page | 18 electronics and communications.1 Introduction Efficient and reliable utility operations have long required the use of modern computers.S. At the same time. A number of U. Only later would other attributes that we now associate with the Smart Grid. Smart-Grid policies at the federal level. utilities have already taken initiatives to obtain regulatory approval of their own plans to invest in the Smart Grid. only became a mainstream term after the Electric Power Research Institute (EPRI) joined with the Galvin Electricity Initiative to research advanced electrical and communications technologies. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . investments in the new technologies would reduce the costs of day-to-day utility operations and help to ensure power quality.www. “Smart Grid. 2.

demand. a topic on which it 3 did not solicit a contractor until February of 2009. with the federal government paying up to 50 percent of the cost of qualifying investments. including one that is dominated by nonprofit utilities. an increase of 3. FERC also sought to remove barriers to demand response in the wholesale markets that are its legal jurisdiction. however. 2 Of particular importance to them and members of the Demand Response and Advanced Metering (DRAM) Coalition was the inclusion of tax provisions in that year’s energy law that would encourage advanced metering by end users. Without time-varying rates and advanced metering. 2003. such as wholesale market protocols that will allow demand response to be bid into these markets symmetrically with supply. Uncertainty about those standards may prove a major barrier to quick deployment of the Smart Grid. including censuses of advanced metering.www. Over the 2008–2012 time period. Section 1306 authorized 20-percent reimbursement of qualifying Smart-Grid investments. or 6 percent of U. The Energy Independence and Security Act of 2007 (EISA) gave the Smart Grid a place at DOE. facilitate movement to advanced technologies. through its dual emphases on demand response and mandated efficiency.S. These are to be done in at least five control areas. including development of compliant appliances and other equipment. 3 The Act required biennial reports from the Federal Energy Regulatory Commission (FERC) on the state of demand response.400 MW since 2006. There would also be Regional Demonstration Projects intended to demonstrate potential benefits. The Energy Policy Act of 2005 further increased the federal interest in Smart-Grid matters. to be funded as necessary. expenses for coordination by Regional Transmission 2 Page | 19 Platt‘s Commodity News. That law also required that FERC investigate Smart Grid interoperability standards.com Congress for $1 billion of research support and demonstration funding over five years. the reality of demand response will remain far from its potential.7 percent of all meters. purchase of monitoring and metering devices and enabling software. Current Chairman Jon Wellinghoff stated that demand response “is clearly the ‘killer application’ for the Smart Grid. utility customers (including commercial and industrial users) were participating in demand-response programs. The total under such programs was approximately 41.S.000 MW. integrate new gear into existing networks and develop measurement techniques. and about 8 percent of U. $100 million in funding is authorized each year. 3.smartgridanalysis. advanced meters accounted for 4. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . Smart Grid Analysis | PO Box 3840 | Glen Allen.” As of 2008. Section 1304 of the law specified research programs to develop advanced meters and other network equipment. Sept. with an advisory committee and a task force of employees to coordinate policies.

e. Smart Grid Analysis | PO Box 3840 | Glen Allen. but the bill contains $4. however. Senate Energy and Natural Resources Committee. Its issuance. at electricity. and further adds to EISA’s support of more basic efforts.3 Smart Gridlock? The list of legal and regulatory institutions that will condition the Smart Grid’s growth is already long. Sept.smartgridanalysis. and the already-specified structure of their relationships may have important consequences for the emergence of markets in grid-related technologies and services.5 NIST has often adopted NEMA standards. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .gov/public_affairs/releases/smartgrid_interoperability. 2009 [Subsequently cited as March 3 Hearings]. Winners of the Smart Grid grants were named in October 2009.5 billion in grants for rollouts of Smart-Grid hardware and meters. but NEMA has typically produced workable standards in the span of under a year. technology and modeling. March 3.pdf 5 NEMA has over fifty advisory groups and is responsible for 240 standards approved by the American National Standards Institute.www. as will be discussed below. including $100 million for demonstration projects and $200 million for advanced research.nist.com Operators. 2. Section 1305 of the Act required that the National Institute of Science and Technology develop standards for interoperability of Smart-Grid technologies. EISA first required all state regulators to consider rate-basing Smart-Grid investments (i. sometimes 4 NIST Framework and Roadmap for Smart Grid Interoperability Standards Release 1.0 (Draft).4 NIST’s initial report specifies its priorities. Historically.S. 2009 http://www. standards for most new electrical technologies have been produced by members of the National Electric Manufacturers Association (NEMA). is no indication that usable standards will be forthcoming soon. Utilities are also to divulge the proportions of their power that come from various sources. making them eligible for regulated rates of return) and consider Page | 20 allowing the recovery of assets rendered uneconomic by those investments. Testimony of NEMA representative Evan Gaddis before the U. To further facilitate diffusion. Finally. Its standards often reflect other inputs and comments from regulatory agencies. which could be useful in identifying important Smart-Grid markets. The Obama administration’s first major legislation was the American Reinvestment and Recovery Act of 2009 (ARRA or Stimulus Bill). ARRA increases the matching percentage of 20 percent from EISA to 50 percent. Some other transmissionrelated provisions may apply to the Smart Grid.. It directed approximately $43 billion of spending. All states are to grant retail users access to information on prices if they desire it. and expenses on integration for distributed generation and plug-in hybrid electric vehicles (PHEV). Their projects will be described in more detail below. as well as approximately $20 billion in tax breaks. with prices to be updated at least daily.

and NIST.” EISA requires NIST to solicit input from a range of organizations. but as of this writing NIST has produced little more than a list of its priorities.oe. these organizations are also governed by consensus rather than structured choice procedures. The Task Force itself is under the Office of Electricity Delivery and Energy Reliability (OE). a trade association of interested utilities and producers of Smart-Grid equipment and software. coordination and integration of the diverse activities of DOE's Office of Electricity Delivery and Energy Reliability and elsewhere in the Federal Government related to Smart Grid technologies.energy. as well as the Environmental Protection Agency. originally created to perform research in fossil-fuel technologies but now also has its own “Modern Grid Strategy” that does not entirely match OE’s. The law gave NIST the task of guiding and coordinating the interoperability standards. EISA section 1303 requires that the Department of Energy establish a Smart Grid Task Force. all represented on the Task Force. Department of Agriculture. Beyond NIST.”6 By itself. both academics and professionals.gov/eventcalendar/files/20050608125055-grid-2030. This structure may itself Page | 21 prove to be a major deterrent to Smart-Grid investments. known as Grid 2030.ferc.com with modifications. and services. In forming their views on regulation. an independent organization certified by FERC as responsible for most important reliability issues. turned this relationship around. and Department of Defense. Its eighteen members come from DOE. And. Section 1305(a) of EISA gives NIST “primary responsibility to coordinate the development of a framework that includes protocols and model standards for information management to achieve interoperability of Smart Grid devices and systems. which has its own vision.www. NEMA. The 2007 EISA. the Institute of Electrical and Electronics Engineers. however.pdf 7 Smart Grid Analysis | PO Box 3840 | Glen Allen. both in itself and because of federalstate regulatory conflicts. and the North American Electrical Reliability Corporation.7 Also represented on the Task Force is DOE’s National Energy Technology Laboratory (NETL). Two representatives from DOE’s Office of Electric Reliability and Renewable Energy. The Institute’s situation is further complicated by a structure of responsibilities and relationships within the federal government that has emerged with what appears to have been little thought. Department of Homeland Security. practices. this group is an invitation to gridlock. which has no Smart-Grid 6 http://www. FERC. DOE itself contains three departments with their own Smart-Grid interests.smartgridanalysis.htm http://www. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . including: the GridWise Architectural Council. whose mission is “to ensure awareness.gov/smartgrid_taskforce.

distributed generation. controllable load.smartgridanalysis.8 According to then-FERC Commissioner Suedeen Kelly. however. Coalfired plants will be harder to build and those that exist may be subject to retrofits for both criteria pollutants and sequestration. will raise retail rates. To further complicate the picture. NIST will construct interoperability (including cyber-security) standards. enhanced power device monitoring and direct system state sensors. Utilities. particularly because it gives a second bite of the apple to interests that did not get what they wanted from NIST. and regional and wholesale electricity markets. FERC could also authorize more attractive rates of return for utilities that invest in them. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 9 . This is further complicated by the role that EISA gives FERC. Arguments that “improved efficiency pays for itself” may be a tough sell for regulators. which may become federal rather than being in 28 states as they currently are. Congressional testimony. or possibly that they be required to use particular technologies. whose areas are still being listed and prioritized.”9 Such encouragements could be given as orders that utilities account for these possibilities. we must next examine what is happening in the individual states.” The time budget and complexity of such a proceeding will likely be enormous. it must “institute a rulemaking proceeding to adopt such standards and protocols as may be necessary to insure Smart-Grid functionality and interoperability in interstate transmission of electric power. Smart Grid Analysis | PO Box 3840 | Glen Allen. Because the real action is.www. March 3. round out the list. 8 Section 1223 of the Energy Policy Act of 2005. After duly accounting for all of these influences. who have their own complex set of interests to cater to.com programs of its own but represents numerous interests with potentially different views on renewables integration. at the state level. 2009. will in general be empowered to make most Smart-Grid investments if they receive the approval of state regulators. There are numerous reasons to expect retail power prices to rise in the near future. To the extent that they are classified as jurisdictional. After FERC Page | 22 determines that NIST has produced “sufficient consensus” on the standards. Renewables requirements. and expressly includes technologies such as energy storage devices. if anywhere. the commission is to “encourage the deployment of advanced transmission technologies. and so will any capand-trade program or carbon tax that comes into existence. so far we’ve only discussed the role of federal regulators.

Indirectly. are advancing their Smart-Grid visions quite quickly.www. utility-supplied power to their customers. State Activities Approximately 75 percent of all electricity delivered to final users is either generated or purchased by regulated. operating practices and investments under localized control. Neither regulators nor utilities nor economists have a good understanding of how to measure the Smart Grid’s payoff and the Smart Grid Analysis | PO Box 3840 | Glen Allen. and even in prosperous times are often reluctant to make large exploratory investments. Utilities must Page | 23 be able to recover their prudently incurred costs. utilities may propose Smart-Grid investments to regulators as a way of fulfilling their obligations to offer economical service for the long-term at the lowest possible cost. Few states have changed their laws to mandate any Smart-Grid activities other than studies and pilot programs. Whether that equipment includes Smart-Grid facilities is the question being asked by many regulatory agencies today. It can be imposed from above. Many of these utilities are very small entities that operate only as resellers of full-requirements (covers all costs except distribution charges by the utility or any new regulatory or governmentally driven charges).com 2. The remaining 25 percent of electricity deliveries come from municipally owned systems (15 percent) and non-profit rural cooperatives (10 percent). all are required to set rates at which utilities must sell power to final customers in their territories. Those funds must be invested in equipment that will allow the utility to carry out its obligations to serve all customers at the lowest cost. Utilities that must supply power with high reliability are inherently conservative.4. or in some cases by activist regulators who institute Smart-Grid rulemakings on their own. with their rates. the ability of utilities to administer projects on this scale was challenged in the past by nuclear plants. Additionally.smartgridanalysis. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . Roughly the same can be said about many of the state regulators who must approve recovery of the costs of such investments. Both of these utility types are generally exempt from state regulation. such as the municipal system in Austin. for example. In electricity. Some of these utilities. including a rate of return on their capital (rate base) sufficient to attract necessary funds from investors. they may benefit from investments on the utility side of the smart meter. and have certain generic features. There are a number of possible reasons for the seeming slowness. Public utility regulators exist in every state and the District of Columbia. investor-owned utilities. a lesson they and regulators will probably remember as complex Smart Grid investments are considered. Alternatively. Smart-Grid activity can be initiated in one of two basic ways. as a state law that directs regulators to initiate programs that require utilities to invest in Smart Grids. Texas.

7 billion per year. The actual record of consumption reductions is spottier than the press releases 10 Various parties attempting to ―sell‖ the Smart Grid have commissioned studies claiming that outages produce hundreds of billions in losses. either from the standpoint of shareholders or the more general public interest.com degree of risk inherent in it. the marginal value of increased reliability. At least one expert. 2. 11 At an 8 percent discount rate this amounts to $6.smartgridanalysis. for example. Aug. As noted in the last section. figures that are hardly credible when the research methods are examined.11 The uncertainty about the savings and the technology’s efficacy understandably engenders reluctance to spend in large volumes until more evidence accumulates in one direction or the other. 12 Quoted in Bruce Radford. promises that a Smart Grid will reduce peaks also have a precarious cost-benefit balance. however.1 California California’s government has long taken pride in the state’s commitment to efficiency and conservation.S. they will probably fare better with state regulators if they can claim their purchases were consistent with federal standards.10 The great majority of distribution-level outages reflect uncontrollable phenomena like lightning strikes and pole knockdowns rather Page | 24 than systemic failings of even local networks. 2009. 1. estimates that some may take as long as ten years. A payoff in increased reliability runs up against the problem that there are great disagreements about the size of the reliability problem.‖ Public Utilities Fortnightly.4. If utilities are at risk of imprudence. ―The Smart Enough Grid. and the types of outages to be prevented. Reducing peaks reduces actual energy consumption by little. Likewise.www. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . Every state’s utilities and regulators would feel more secure if they could see precedents in other states. determined when their state-certified investments prove too costly or ineffective. a five percent reduction in the nation’s peak*s+ would allow deferral of investments that might or might not save the nation a net present value of $66 billion on its electric bills over the next 20 years. even if only to learn what not to do. sales of potato chips. there are also substantial questions about what interoperability and security standards will emerge. are already committed to such substantial degrees that their experiences bear recounting. but does time-shift it. Smart Grid Analysis | PO Box 3840 | Glen Allen.12 The consequences of prematurely investing in technologies that ultimately prove noncompliant are unclear today. A few states. or about 2 percent of the nation‘s total retail power bill. The figure roughly equals annual U. According to Ahmed Faruqui of the Brattle Group. having seen the complex process that will produce them. 28.

which would otherwise raise per capita figures.4 billion on 9. while the nation‘s has increased significantly. with its largest initial order going to Landis & Gyr. a wireless two-way communication network.) to make these decisions. In 2007. (3) renewable generators. and (5) conventional power plants. Absent extraordinary conditions. and the protocols for service initiations and terminations are still at issue. Unfortunately. and hardware and software to implement meter data management (MDM) systems.www. Staff Report by the California Energy Commission.smartgridanalysis. the state’s utilities are to meet their power needs by sequentially invoking (1) energy efficiency. in January 2004 the California Public Utilities Commission (CPUC) ordered the state’s three large corporate utilities to develop business cases for Advanced Metering Infrastructures (AMI). 14 ―Implementing California‘s Loading Order for Electricity Resources. it will greatly facilitate consumer actions to implement the first two.‖ July 2005. Accordingly. CEC-400-2005-043. An infrastructure would subsume smart meters. PG&E diversified its purchases. Southern California Edison contracted with Itron for approximately 13 The state‘s most-touted statistic is that its per capita power consumption has not risen since the 1980s. but a Smart Grid is consistent with the major thrust of state policy. 13 The legislature has memorialized that policy in an “Energy Action Plan” that specifies a “loading order” for generation. AMI’s abilities to reduce utility operating costs and expose users to time-varying rates did not suffice to pass a cost-benefit test and their applications were rejected. a figure that ultimately rose by $500 million when the company discovered that upgrades were required. Utilities would gain abilities to regulate voltages to end-users. a programmable controllable thermostat (PCT) would allow the utility to shut down users’ air conditioning when the system was stressed. and a utility could turn service on and off without having to manually disconnect a customer. Consumer groups succeeded in removing the thermostat requirement. (2) demand response. (4) distributed generation. Decomposition of the data allows us to determine two primary factors that have caused the constancy in consumption: The departure of the great bulk of large industrial loads. The balance of costs and benefits became favorable after utilities filed new plans that allowed them to control user interfaces more directly. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . the state’s utilities actively worked with suppliers to design and engineer meters that best meet their needs.S. who fit more residents into the typical dwelling unit.14 If a Smart Grid Page | 25 fulfills its promise. the CPUC approved the utilities’ plans to begin setting up their AMI systems.com might indicate. Being the first (at least in the U. and utilities’ policies to integrate the third and fourth into their systems. Smart Grid Analysis | PO Box 3840 | Glen Allen. and the coming of illegal immigrants.3 million meters (approximately one-third of them for gas). Pacific Gas & Electric would spend approximately $1.

was providing its customers with programmable communicating thermostats of the type that were disallowed in California. on condition that they not give or receive cross-subsidies to the companies’ electricity businesses. The development came about not because of Smart-Grid initiatives. for residential customers prior to January 1. At least one source states that Current Group. 3. CenterPoint had installed 45. with or without bill protection. 17 A 15 The introductory three months of PowerMeter are free.aspx?prid=1218. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . inclusive of orders for a data management system (from eMeter) and integration services (from IBM). the two largest utilities in Texas. 2020.15 As of this writing.smartgridanalysis.com 5 million meters. Mar. As of October 2009. Oct. 2009.000 Itron smart meters and intended to complete the installation of 2. are well along in their programs to install smart meters for all of their retail customers. in November 2005 the Public Utility Commission of Texas (PUCT) approved the utilities’ BPL programs. with an expectation that by 2012 it would have installed 3 million.4 million by the end of 2014.com/newsroom/newsreleases/electricity/56d4e020771d2210VgnVCM1000 0026a10d0aRCRD/ Smart Grid Analysis | PO Box 3840 | Glen Allen. many of which are scattered over rural areas with few other alternatives.centerpointenergy. 7.4. San Diego Gas & Electric is installing meters from Itron and is partnering with Google to introduce customers to that company’s PowerMeter technology. Aug. 17 CenterPoint press release. The commission also cannot impose mandatory real-time pricing for them without bill protection prior to January 1. part of its “Smart Connect” program for which CPUC approved $1. 2008.‖ Mobile Radio Technology. Having received permission from the legislature. 1. Oncor had installed over 300.6 billion. http://www.www. a small BPL provider in the Dallas area. there have been no decisions by regulators or utilities setting standards for customer-owned (HAN) equipment and protocols for two-way communications between users and utilities. This is hardly cause for concern or optimism. Current sold its equipment and operations to Oncor in May 2008.) The state enacted a law known as Senate Bill (SB) 695 in October 2009 that prohibits the CPUC from instituting any mandatory form of time-varying pricing. 2009: http://www.com/news/newsrel/detail.2 Texas Page | 26 CenterPoint (Houston) and Oncor (Dallas).oncor. (All industrial customers have no choice but to take service under various time-varying rate arrangements.000 Landis & Gyr smart meters. See ―Knowledge Is Power. 16 Oncor press release. 2013. 2. Customers who do not want it may use a utility-owned display panel that does not carry price information.16 As of August 2009. since most California residential customers will not face time-varying rates as a matter of law. but because the utilities wished to provide Broadband over Power Lines (BPL) services to their customers. covering virtually its entire service territory.

Texas is in a unique situation among the states because the utilities mentioned above are specialists in distribution and do not generate power.3 percent in Arkansas.7 million meters (4. Id at 5. 8.4 million. By contrast. between relatively small BlueBonnet Cooperative and Control4. AEP Texas.2 percent in California and down to zero in states as large as Maryland. 2008 at 7 and 12.0 percent in Texas.9 percent in Pennsylvania. There are no important restrictions on their abilities to compete with pricing and service packages. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . 2. announced a commitment to install smart meters for its 700. Smart Meter Costs and Benefits. with very minor exceptions all of the smaller customers of California’s three large utilities have no choice but to take service from them at regulated rates.0 percent in Florida.000 customers beginning in 2010. 11. presentation to Pennsylvania PUC. net metering capability. Numerous competitive marketers are available to all types of customers (over 50 percent of residential users have also shifted suppliers). AMI-enabled percentages from these reports varied from highs of 23. FERC’s 2008 survey of all types of power providers in connection with its demand-response report found 6. outage monitoring.com third utility. Dec.www. FERC’s definition of an advanced meter is one that records customer use at least hourly and transmits a reading at least daily to a collection point. 2009.18 Other surveys report quite different data. 19 20 eMeter Strategic Consulting. 13.smartgridanalysis. has yet to install any equipment.3 Other States Once we go beyond a handful of states.20 With the meters the state’s AMI will include 18 FERC. voltage monitoring. thanks to definitional differences. No pricing regulations have yet been made for competitive marketers whose customers wish to trade information with their utilities. but no competitive supplier is known to be currently offering them. but the state’s new law (and most other definitions of smart meter) has a large number of other specifications including 15-minute intervals.8 percent in Idaho.19 Some existing meters in Pennsylvania qualify under this definition. 8. July 16. Fixed-price and market-price contracts of various lengths are available. The service packages can include HANs for those customers who already have smart meters. Smart Grid Analysis | PO Box 3840 | Glen Allen. through 1. remote programmability and others. The state has had full retail competition Page | 27 in effect since 2005. data on smart metering and nearly all other state-level aspects of a Smart Grid become surprisingly hard to verify. 2008 Assessment of Demand Response and Advanced Metering. The only known HAN transaction in the state.4.7 percent) actually operating under AMI in a total of 144.

with a ―5 million meter goal in 2015.aep.21 Many other utilities state that they intend to institute AMI on a large scale after pilots are Page | 28 completed. whose estimate of “planned and proposed deployments” of smart meters will total 58. units of PEPCO Holdings in the Washington area (1.us/electric/Act_129_info. but Pacific Power (which serves rural areas) does not intend to install them and has not sought approval.000meter pilot project with a “5 million meter goal in 2015. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .smartgridanalysis. Duke Energy has only received regulatory approval in one of the states it serves.‖ See AEP 2009 Corporate Sustainability Report at 57.23 The list is restricted to utilities likely to have 400. These intentions are sometimes based on assumptions that a pilot will be successful and that regulators will subsequently approve full deployment and cost recovery.3 million if all on its list are fully achieved. There are.‖ http://www. while others under regulatory orders.000-meter pilot project.2 million).com/issueBriefs/Smart%20Meter%20Rollouts_0909_web.7 million meters in its other territories. and those that have already initiated a full build-out. Utilities on the Institute’s list that have yet to gain (or sometimes even seek) regulatory approval include Baltimore Gas & Electric (2 million meters).”24 Duke 21 http://www.pdf The remainder is from utility web sites and news releases.electric-efficiency. 24 See AEP 2009 Corporate Sustainability Report at 57. Baltimore Gas & Electric. and Commonwealth Edison (Chicago). Portland General Electric is well into smart metering its entire territory. Connecticut Light & Power (1. but is listed as building 1. and American Electric Power (5 million). but its entire installation thus far consists of a 10.www.9 million). In Oregon. http://www. pending regulatory support. as we will see. September 2009. ―Utility-Scale Smart Meter Deployments. with an expectation that most of the approximately six million meters for AMI will be deployed by 2018.state. pending regulatory support.000 or more meters in place within the next five years. The table produces a very different picture than that of optimists like the Edison Electric Institute’s Institute for Electric Efficiency.pa. AEP’s entire investment thus far consists of a 10. Smart Grid Analysis | PO Box 3840 | Glen Allen. Detroit Edison. Plans & Proposals. Connecticut Light & Power.pdf There is also no reason to expect that regulatory approval will apply throughout a state.puc.22 Exhibit 2-1 lists utilities known as of today that are committed to metering under legal or regulatory orders. Pennsylvania’s utilities are to submit plans and implement pilots through 2012. American Electric Power gets an estimate of 5 million meters. some will be initiated by the utility. reasons to expect that regulators will not be as welcoming of Smart-Grid projects in the future as they have been in the past. 23 Some of this information is taken from Institute for Electric Efficiency.aspx 22 Utilities for which this is true include those of PEPCO Holdings in the Washington area. Detroit Edison (4 million).com/citizenship/crreport/docs/CS_Report_2009_web.com communication and data management systems.

000 450.000 2. but the Institute data says it will be installing 1. '09 Expected Completion Alabama Power Arizona Public Service Salt River Project Pacific Gas & Electric* Sacramento Municipal San Diego Gas & Electric Southern California Edison Florida Power & Light Georgia Power Ameren (Illinois companies) Duke Energy Portland General Electric Pennsylvania (all utilities) City of Austin CenterPoint Oncor Wisconsin Power & Light AL AZ AZ CA CA CA CA FL GA IL OH OR PA TX TX TX WI 1. and many are devoted as much to research as to actual investment in the grid itself. ―President Awards $200 Million Sought by Stearns for Smart Grid Project.000 850. Oct. 27.000 1.000 217.000 1.2 million 620.000 0 2013 2012 2012 2012 2011 2011 2012 2014 2013 2012 2014 2010 N/A 2011 2012 2011 2012 *Combined figure for electric and gas meters Awards of federal stimulus funds announced in October 2009 for $3. The consortium succeeded in obtaining the grant. and claims that they have already produced savings despite the lack of any other Smart Grid infrastructure. Utilities with AMI Commitments. Florida Power & Light has fully deployed smart meters throughout the 2/3 of the state that it serves. several equipment suppliers.1 million 700.7 million in its remaining territories. such as the $200-million grant to Florida Power & http://www. Page | 29 Exhibit 2-1 Major U.com Energy has received regulatory approval only in Ohio.48 million 410.000 930.000 750. presumably including customer-side displays that would be deployed in Miami but not in the remainder of FP&L‘s territory. and FP&L formed an alliance to apply for $200 million in federal funds to pay for more advanced equipment.aep.smartgridanalysis. 2007) Last year the city of Miami.1 million 0 0 200.000 100.S. (Platts EU Energy. There is also no reason to expect that state policies are homogeneous. Some. but the amounts are for the most part small in comparison to the task. July 27.www.000 300. but Pacific Power (which serves rural areas) has no plans to install them.000 4.16 million 1.000 650.5 million 2.4 billion in Smart Gridrelated projects may get them built for some fortunate recipients. Smart Grid Analysis | PO Box 3840 | Glen Allen.2 million 500.4 million 500.3M 4.000 350.000 375.2 million 880. State Sequence Name State Total Meters Installed Dec. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . 2009.000 5.pdf 25 As a perhaps extreme example of heterogeneity within a state.000 140.000 350.com/citizenship/crreport/docs/CS_Report_2009_web.1M 3.‖ States News Service.25 Oregon’s Portland General Electric is well into smart metering its entire territory.000 6.4M 5.

power deliveries are by municipal and cooperative utilities.4 Why Meters at All? Other Utilities in the U.com Light. NV Energy (Nevada). The most favorable prognoses for smart meters still see high costs relative to benefits for the near future.4. favor large investments by utilities on which they will be able to earn their regulated returns. They are also an investment that can be made while the nation waits to see what will come out of the complex standards-setting process for communications and upstream hardware. both the regulators and the regulated prefer to avoid embarrassments that would occur if the meters were deployed and largely idle or not contributing to reductions in system cost. you know consumer stuff is the last thing. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . Further. Energy Secretary Henry Chu stated his department‘s view of the priority that should go to nerve centers and communications technologies. Duke Energy. Sept. 28. appear to do little more than replace funds that would otherwise have been invested in the same ways. 2009. 2. Beyond that. The incentives of the American state regulatory systems. Potomac Electric Power. such as the $200 million to Baltimore Gas & Electric.www.‖ Smart Grid Analysis | PO Box 3840 | Glen Allen. In the words of a 26 Baltimore Sun. Southern Company (which will allocate them among its operating Page | 30 companies). these are intended to duplicate the property and franchise tax payments that would otherwise be made by for-profit utilities. ―Those standards have to be developed first. Nearly all municipal systems make substantial payments (usually set as a percentage of gross revenues) to their cities’ general funds. The political and fiscal importance of municipal utilities in many cities gives their governments incentives to exercise strong oversight over utilities’ investments. 2009.S. Municipal rates are generally set by city governments (and co-ops by vote of the members) on a cost basis similar to those of investor-owned utilities. The commercial. however.26 Other utilities receiving grants of over $100 million included Sacramento (CA) Municipal Utility District. 27 In Congressional testimony March 17. which are essentially unregulated by state government. since a mass rollout is a large investment that can serve as a foundation for varying degrees of end-user involvement in power consumption decisions.27 As described earlier. Others. Progress Energy.S.smartgridanalysis. Meters are an ideal investment. previously described. may lower costs by enough that state regulators choose to approve projects that might otherwise have been doubtful. an unjustified requirement that residents and small businesses invest in their own networks to control use on their side of the meter can have political consequences for local government unless the value of those investments is obvious to the public. In some ways. 25 percent of U. Consolidated Edison (New York) and Oklahoma Gas & Electric.

eu/LexUriServ/LexUriServ. and certain other improvements such as fiber-optic networks that improve the utility’s abilities to collect and analyze data in near-real time. Wariness Circle Each Other in Smart Grid Push.1 European Union The European Union began to formulate Smart-Grid policy in 2005.S. non-utility resources than Americans. Important parts of Smart-Grid technology can improve efficiency and reliability while not Page | 31 requiring smart meters or user-side investments.eu/documents/New-ERA-for-Electricity-in-Europe. 2005 Rev. These include automatic outage detection.29 Note that the Europeans appear more interested in the integration of small. 2.U.smartgridanalysis. the European Parliament’s 2006 Energy Services Directive memorialized efficiency as the overarching goal of energy policy.31 It ordered 28 Utility Week. TP-EN-AC-04.www. “we answer to a higher power. there is every reason to expect that it will improve as better meters come on line. Electricity Networks of the Future. whose utilities appear more concerned with possible competitive threats that those resources might pose. Directive 2006/32/EC. 29 ―Utilities Sometimes in Middle as Enthusiasm. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . 12 http://www. http://eur-lex.. Austin and Sacramento have long been known as concerned with efficiency and demand management.europa. The intent was to transform the existing grids into networks that allowed interactivity with customers and to remove obstacles to the large-scale deployment and integration of distributed and renewable generation. New Era for Electricity in Europe. April 5. 2008. we have already seen major utilities such as Oncor and Pacific Gas & Electric that began their programs by installing inferior smart-meter technologies and have had problems with their state regulators recovering the costs of their mistakes.smartgrids. While “interoperability” remains a reasonable goal.eu/documents/outiline_concept_and_tentative_structure_en.smartgrids.com vice president of the American Public Power Association.do?uri=OJ:L:2006:114:0064:0064:EN:PDF 31 Smart Grid Analysis | PO Box 3840 | Glen Allen. Nov. In addition.pdf European Parliament. 1. 3.” 28 On the other hand. http://www.5. These promise relatively quick payoffs. and in no way foreclose the utility from later initiating active customerside involvement if doing so appears warranted.‖ Electric E. voltage maintenance.pdf 30 See European Commission.30 Following on the platform design initiative. with its efforts to develop a common technology platform for communications and power coordination that would extend across national boundaries. 2. Outline and Tentative Structure of the Technology Program. 2006.5 Outside the U.

2.brattle. May 2009.smartgridanalysis. 10 34 Ahmad Faruqui. the European Parliament set a “20/20/20” climate policy.www.S.com/_documents/uploadlibrary/upload805. et al. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .” which will select 25–30 cities in which to test Smart-Grid technologies as well as organizations that will facilitate integration of renewables. They were to devote attention to metering and billing.33 The same questions about benefits that the U. They include a Spanish consortium of Iberdrola (wind generation) and meter producers. Oct. the Commission of the European Communities policy statement on information and Page | 32 communications technologies stressed a need to set functional specifications that require certain minimal two-way communications properties on smart meters. is asking may also apply to Europe. while several groups compete to formulate standards for both metering and interoperability. The EU’s 2004 Measuring Services Directive specifies uniformity for meters. Sec. 4. In December 2008. The expectation is that the cities will act as laboratories for technologies and institutions. 2009. with particular interest in monitoring consumption patterns.pdf Smart Grid Analysis | PO Box 3840 | Glen Allen. while the 2006 Directive’s goals of 80 percent household smart meter penetration by 2020 and 100 percent by 2022 remain. France’s EDF and a group in the Netherlands. The EC recognizes that Smart-Grid technologies that affect consumer behavior will be necessary. but its 32 Communication from the Commission to the Council. to reduce overall emissions by 20 percent and increase renewables by the same figure. 2009. On March 12.1 33 Capgemini Consulting.34 Metering aside. The grid is only one of many means of reaching a “sustainability” goal.S. Brattle Group Discussion Paper. with a 2020 goal that 50 percent of the EU’s transmission will be similarly smart. the European Commission is expected to soon release a “Strategic Energy Technology Plan. the European Parliament.32 As of today. The political complications of standardization will have important consequences for the development of Europe’s Smart Grid. both by 2020.com members to formulate National Energy Efficiency Action Plans by 2008. Unlocking the €53 Billion Savings from Smart Meters in the EU. The two nations with the largest rollouts (effectively 100 percent) are Italy and Sweden. http://www. From Policy to Implementation: The Status of Europe‘s Smart Metering Market . which will subsequently spread to wider areas. intended to utilize efficiency and renewables to achieve a 40 percent reduction in greenhouse gases. The payoff from universal installation of smart meters and implementation of time-varying rates will bring savings to the EU of the same magnitude relative to load as they calculated for the U. but the functionality is currently confined to remote meter reading. binding standards have yet to be formulated. the European Economic and Social Committee and the Committee of the Regions—A European strategic energy technology plan (SET-plan)—‗Towards a low carbon future‘ Commission Document 52007DC0723.

Utilities in Denmark and Norway are installing smart meters as matters of individual choice. 1.) Countries committed to a nationwide rollout or that have completed it include: Finland. (Denmark’s current plans cover 33 percent of all installations. Communication of data between meters and processing points has not been standardized. all numbers in this paragraph were constructed from data in Capgemini Consulting. Mar. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . and a few have no programs at all.eu/energy/technology/set_plan/doc/2009_comm_investing_development_low_carbon_te chnologies_roadmap. are under way in Austria (88.europa.5. Waiting for standards has left Europe in a similar position to America. Czech Republic (5.com documents thus far pay considerably more attention to supply-side operations and transmission technologies. http://ec. all only for meters. which has left its Page | 33 governments and utilities in positions similar to the U. Aug. save in simple applications like automated meter reading.500). Several nations are rolling out smart meters in volume. Mar.smartgridanalysis.‖ Power Engineering 38 39 International. 4. http://www.asp?id=14197 James Strapp and Matthew Zafuto. Hungary (1.2 European National Policies The EU’s efforts toward standardization have yet to produce standards. 35 2.000 meters). pilot programs. various pages. 2009. currently has 20 percent installed. ―Engaging the Customer in Pricing. Commission Staff Working Document SEC(2009) 1295.000)39. France (90. 12.000)37.net/news/news_story. which expects to fully cover its system with 33 million smart meters. Germany (116.S. with few utilities operating on time-based rates and a general lack of customer interactivity. 35 Commission of the European Communities. and the United Kingdom (40.000).www. 41. 10. which expects to smart meter 80 percent of residential loads by 2013. Smart Grid Analysis | PO Box 3840 | Glen Allen.edie. others have pilot programs on varying scales. but without specifying a target date. France.000)38. 37 ―Putting Household Appliances on a Low-Carbon Diet.000). 2008. 36 In the EU.‖ Wall Street Journal Europe.pdf 36 Unless otherwise specified. 2009. Ireland (25.

Oct. will replace all existing ones by 2018 (its utility.5. however. Domestic Metering Innovation – Next Steps. so the contribution to efficiency of metering choice probably will be quite limited until time-varying prices are available. http://smartgridwatch. Endesa. whose utilities have replaced all old meters with automatically readable ones and is in the start of an initial rollout of approximately 1 million meters capable of twoway communication to replace some of these. only exist for a few large users. The United Kingdom. http://smartgridwatch. expected to be approximately 5 percent of the housing stock annually. whose law went into effect January 1. 2010 and specifies that all newly constructed or renovated houses must have smart meters. which is under a law that stipulates 20 million new meters with minimum functionalities.41 Sweden. intends to begin installations early in 2010). Ofgen.40 Italy. Department of Trade and Industry. Dec. 2009.com Germany. which has announced a requirement for the installation of smart meters for all customers by 2020.42 Ofgem. and competitive collection of meter data. 2. Meeting the Energy Challenge. its electricity regulator.www.3 Asia/Australia China: China’s improvements to its electrical system are sometimes referred to as Smart Grid developments. 2009. but are for the most part installations of monitoring and security common on 40 Smart Grid Watch. 2007.com/2009/12/15/whats-germanfor-smart-meter/ 41 Smart Grid Watch.smartgridanalysis. 2009. which intends to begin a mass rollout of smart meters that will replace all 7. 15. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .com/2009/10/07/smart-metereurope-spain-jumping-ahead/ 42 U. 1. October 7. whose utilities as of 2006 had fully replaced 27 million meters with communicating solid-state smart meters and would have 95 percent of consumers smart-metered by Page | 34 2011.K.5 million on its systems by 2017.wordpress. Nearly all households face fixed rates.wordpress. Spain.44 Ofgem believes that benefits of the Smart Grid are more likely to materialize if users have the choice of how to link to the system. Time-varying prices. 44 Smart Grid Analysis | PO Box 3840 | Glen Allen. 43 Electricity regulator Ofgem has enabled competitive provision of meters through regional distributors. Netherlands. has also announced plans for four “Smart Grid cities” at a planned budget of €550 million. 43 Renewable Energy. 2006.

although the State Grid Corporation of China is expected to outline its Smart Grid Plans in early 2010.‖ China Business Newswire.) There have been. The Australian. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . which most importantly entails development and construction of new high. The important exception is the installation of phasor measurement units (PMUs) on larger generators and substations that are also being installed in the Smart-Grid projects of other nations. The first jurisdiction was the state of Victoria. 31. with integration services to be provided by IBM.and ultra-high voltage transmission lines. however. (The reasons for the seeming slowness are unclear. whose regulatory agency mandated a rollout of 3. households will be unable to buy any home-level connections to the smart meters until they become capable of transmitting price data. The equipment. the national government mandated a nationwide rollout that would leave half of Australians with smart meters by 2017. few moves toward further grid improvements. 2009.000 distribution sensors to facilitate automation. Mar. 45 ―SGCC May Set Smart Grid Development Standard.grid pilot consists of an as yet unbuilt A$100-million ($92-million) commitment by its national government to fund a Smart-Grid demonstration project in the Perth area. and is unlikely to have one soon in light of Parliament's rejection of a cap-and-trade policy and the likely changeover of political parties that will ensue.48 The country’s only important smart.smartgridanalysis. 46 ―Smart Grid Projects to Pilot in Western China. New South Wales followed. which is not expected to happen for approximately two years. 2009.com other grids.2 Million Energy Australia Monitoring Contract. 48 Smart Meters Not to Be as Smart as Planned.‖ Dec. 2.46 Unlike wealthier nations. There are currently no programs or plans to mandate customer-side monitoring and load controls. with an expected 2012 date for total coverage. Energy Australia (the country's largest distributor) has begun to install 12. 2008.5 million meters. A smart meter policy. Australia: Australia currently has no central Smart-Grid policy. 2009. it is known that the first Smart-Grid pilot projects will be in cities in western China. China’s current task is to integrate its electrical system. Nov. 9. Smart Grid Analysis | PO Box 3840 | Glen Allen.47 In particular.www. Xinhua Chinese Economic Information Service. The Age. particularly in light of China’s plans to add large amounts of intermittent renewables to its relatively undeveloped grid in the near future. In 2008.45 For now. IBM Wins $3. is virtually all being Page | 35 produced locally. improving operating reliability is probably a more valuable activity. however. 47 Those improvements that constitute Smart Grid Lite have been undertaken by choices of distributors rather than by orders from regulators. now expected to be complete by 2013. Oct. 4. including phasors and substation automation devices. has been put in place.

however. are making plans for Smart-Grid installations that are a bit large to be called pilots. Japan’s government and utilities have been slow to move on the Smart Grid. ―Japan Power Industry Preparing to Introduce Smart Grid.000-meter pilot (following several smaller municipal ones) to test user-side equipment.com Elsewhere in Asia. 51 ―Japanese Election Could Augur New Renewables. 7. Despite its role as a manufacturer of advanced electrical technologies.53 2. British Columbia’s 2008 legislation requires that all customers receive them by 2012. The installations are to be complete in 2010. 2009. Sept. 2009. Ontario is currently working with a 25. Ampla and Light S.5.49 One of those projects will take place in a yet-to-be-identified town in the southwestern U. Aug.‖ Renewable Energy Report.A.3million meters be replaced by smart units. two provinces have enacted legislation mandating the rollout of smart meters.S. 52 Similarly situated.‖ Business Times Singapore. a regulated utility that serves 60 percent of the province’s load. specified that all of the province’s 1. 53 ―EMA's Smart Meter Trials on Track to Meet Target.5. FortisAlberta. Demonstration projects on the feasibility of integrating solar power are scheduled to begin in 2010.4 Canada Currently. and doesn’t intend to have a national Smart Grid until 2030. in light of Japan’s modest Page | 36 stated goal of only 10 percent renewable energy by 2020. 1. 2009.‖ Daily Yomiuri.50 A Smart Grid seems hardly urgent. 28. 2009.www. technologically advanced South Korea is only in the process of making plans for a 3. 52 ―South Korea. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . began a program in 2008 to install smart meters for all of its 370.5 Brazil Currently.S. passed largely in response to problems of hydropower and transmission inadequacy and a reluctance to expand nuclear capacity. July 6.smartgridanalysis. Ontario’s 2006 law.51 Perhaps surprisingly. Smart Grid Analysis | PO Box 3840 | Glen Allen.000 customers. The most 49 Organization of Asia-Pacific News Agencies. Carbon Policies. but we are uncertain about what it intends to do once the meters are in place. Brazil’s two largest utilities. 2.‖ July 21. 50 ―Solar Power Smart Grid Project Set. Seek Smart Grid Partnership.‖ Organization of Asia Pacific News Agencies.000-meter pilot project in connection with new regulations that will allow all retail customers a choice of supplier. developments are minor. (subsidiaries of Spain’s Endesa). Singapore recently announced a 1. June 15.000-meter pilot project. 2008. U.

S. 2009. than in Page | 37 reality.54 2. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . however.000 customers with advanced metering and displays. the scope of Smart-Grid investments will depend heavily on political developments. the Smart Grid looms considerably larger there.S.U. Second. July 16. the delays reflect delays in the formation of standards and related policies. the investments worth making will be highly uncertain while standards are developed over the next five or more years. PR Newswire. Smart Grid Analysis | PO Box 3840 | Glen Allen. but the only area in which there is reasonable certainty about design standards is metering.com recent plan is to serve 200.smartgridanalysis. and those are moving away from a simple acceptance of the claims of SmartGrid advocates. at least in the U. In important ways. even if the volume of Smart-Grid investments becomes predictable. are leading policymakers to question claims about its efficacy that were once taken at face value. Nowhere in the world is there an installation of Smart-Grid hardware and software that plays its expected role in utility system operations and whose performance could be evaluated relative to impartial metrics. First.. 54 Brazil Chooses Landis+Gyr as Country's First Approved Smart Meter Systems Provider. Cost-benefit studies of AMI. What experiments have taken place have entailed nonrandom selections of customers who have been amply rewarded for participation and need make no investments of their own.www. and the E. have regulatory incentives to invest heavily in new capital. but it appears that no physical investments have yet been made. There are two consequences.6 Conclusions Judged by its presence in the media. Utilities. particularly in the U.

efficiency and advanced load shaping technologies.000 meters [a small percentage of its 3. and be ready to integrate equipment and software on the user’s side of the meter as it becomes available or required. intends to put a comprehensive set of assets in place that will allow full communication with all customers. 2009.” Progress Energy and Duke operate under different market visions. One example of this strategy is that taken by Progress Energy. deploying smart meters for 1.www.com.”55 The second.1 Introduction Page | 38 A utility’s plan for its Smart-Grid rollout will incorporate investment decisions that have all the usual determinants.smartgridanalysis.1 million total customers] across its multi-state service area. Duke Energy’s funds will be used for “Comprehensive grid modernization for [its] Midwest [Ohio-Indiana] electric system … [including] installing open.4 million customers. In what follows. financial constraints. These investments will depend on the utility’s strategic plans and their level of acceptable risk. The first. Progress Energy probably intends to justify its investments to regulators as consistent with its ongoing Integrated Resource Planning (IRP) that will provide the least-cost mix of resources by evaluating both supply-side production and demand-side load reductions. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . and supporting the development of plug-in electric vehicles. two-way communications networks. automating advanced distribution applications. the company plans to use some of the funds granted by the DOE to “build a Smart Grid virtual power plant through conservation. 10. will be characterized by upstream investments that are intended to improve reliability and facilitate demand response by those customers (primarily commercial and industrial) who are better positioned to benefit from demandaltering interactions with their utility’s load shape. and expectations about the regulatory treatment of the assets. we will distinguish two broad strategies that have turned up in utility applications for funding of Smart-Grid related programs and assets under the 2009 American Recovery and Reinvestment Act. Nov. Smart Grid Analysis | PO Box 3840 | Glen Allen. interoperable. which we will call Smart Grid Heavy (SGH). while the smaller and less sensitive customers will have more basic metering changes.‖ SmartGridNews. which we will call Smart Grid Lite (SGL).com Chapter Three: Utility Purchases of Smart-Grid Equipment and Services 3. Those customers will be under time-varying rates. developing dynamic pricing options. including installation of 160. Smart Grid Lite is better viewed as 55 ―Stimulus Afterthoughts.

smartgridanalysis.”56 Duke’s vision of Smart Grid Heavy will engender a new relationship with all of its customers regardless of size. Our job in market analysis is to determine where market and regulatory conditions are more likely to result in policies that will put Smart Grid Lite and its smaller component markets in place. and how initial enthusiasm by utilities and regulators is being replaced with increasing skepticism as research findings accumulate and regulatory politics changes. the company has proposed that it owns the passive solar collectors that are attached to residential premises. This requires an examination of the recent regulatory treatment of Smart-Grid investments and its likely evolution in different environments. and to make some predictions about the associated time dimensions. most outages are localized and unpreventable (e. facilitate generation investments by small users and “self-heal.2 The Economics and Politics of the Smart Grid As briefly discussed in Chapter Two. SGL is an attempt to improve bulk power provision and operating issues at transmission-level voltages. The complete grid will almost certainly require user-side investments. whether made by them or the utility. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .g. to be paid for by users. Supporters have commissioned studies purporting to show billions in costs to the economy from outages and 56 In at least one of Duke‘s statements. the Smart Grid was touted as a way to reduce outages. identify and correct variances in Page | 39 power quality. or at least lower the likelihood of catastrophic ones. With these and some additional data we will be able to distinguish the potential and likely levels of spending on various Smart-Grid components and services. if they are to benefit from time-varying rates that will be instituted as part of the change. we will be able to better delineate and distinguish the jurisdictions in which to expect policies that encourage liberal spending on Smart Grids and those in which to expect less.com an evolutionary increase in types of investment that are already being made.www. With this information in hand. The higher investment expenditures will go for meters with greater functionality than are needed for SGL. We begin with a quick recap of the grid’s intellectual and marketing history. Particularly after the 2003 Northeast blackout. and hardware that allows detection and resolution of low-voltage problems. and where we can expect Smart Grid Heavy to prevail. In reality. and most utilities that operate under its vision have few plans for their low-voltage facilities that will reduce outage frequencies. more sophisticated communications that can transmit price data and operating commands to users. the Smart-Grid concept largely originated in the politics of the industry rather than as a rational response to a perceived need. 3. lightning strikes). Smart Grid Analysis | PO Box 3840 | Glen Allen. and there are few discernible trends in their frequency. they will leave the company’s relationship with the preponderance of its customers little changed. Once in place.

but the figures are questionable and users who value them can often make investments to solve their own problems. The residential customers in virtually all pilot programs thus far have been demographically and economically atypical volunteers responding to utility solicitations as opposed to draftees. They have chosen two basic ways to make their argument. and have enjoyed an upside that includes cash rewards for participation (and direct payments for load reductions).2. a capital-intensive Smart Grid comes along just at the time when utilities need to put large investments in place on which to earn their authorized returns. that see possibilities for greater efficiency if consumers can better control their use in response to price signals. a trade association for investor-owned utilities noted that ―A shrinking business model doesn't attract investors‖ Greenwire 3/18/09. Even under these highly contrived arrangements.1 The Changing Character of Smart-Grid Regulatory Dockets The utilities’ challenge is to convince state regulators to approve these investments as costeffective. 57 3. spokesman for the Edison Electric Institute. They have joined with some utilities to form pressure groups such as the GridWise Alliance. The coalition for the Smart Grid has three major member classes. These have joined with environmental and antigrowth Page | 40 organizations. Smart Grid Analysis | PO Box 3840 | Glen Allen. and sometimes gifts in the form of energy-efficient appliances. Favorable consumer response and acceptance of the programs then are presented as arguments for the value of Smart-Grid investments. and associated software.com power quality problems. They have typically faced no downside because bills have been capped at regulated rates. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . or possibly have it controlled for them by the utility.www.smartgridanalysis. both of which are being subjected to closer scrutiny than in the early days of the Smart Grid. The first consists of producers of metering and communications equipment. The first has been to show favorable results of pilot programs in which utilities or other researchers supply volunteers with home area network (HAN) hardware and software that allow them to take advantage of timevarying rates to save by changing their consumption patterns. Since the inherited rate base of generation and transmission on which utilities can earn authorized returns is growing more slowly. The interest of utilities has its roots in regulation. the subjects have generally shaved their peaks by only small percentages and have time-shifted their use rather than cutting the volumes of power 57 Ed Legge. Present-day economics and politics render it likely (but not certain) that utilities will be investing smaller amounts in new generation and transmission over the upcoming decades and more on efficiency and conservation-related services.

July 9.smartgridanalysis. Even with such rates. even among utilities. a decline in regulatory receptiveness would lead to less optimistic conclusions about the actual size of the markets than simple assumptions of universal adoption have previously suggested.www. for example.58 These figures also do not account for the customer-side expenses in home-area networks. pilot programs have shown responsiveness to time-varying rates. which has been estimated at $2. 2009. Consumer advocacy groups have started questioning regulatory agencies about whether all customers really need Smart-Grid hardware.59 Some of them also question time-varying rates on equity grounds. even by the calculations of utility consultants who have testified on the matter at commissions. For Smart-Grid markets. which could turn the benefit-cost balance positive. that meters with more advanced abilities to communicate cannot on their own pass cost-benefit tests. as California’s legislation described in the previous chapter makes clear. Smart Grid Analysis | PO Box 3840 | Glen Allen. and the value of their time in setting up and operating their systems. There is now general agreement.S.com they consume. Synapse Energy Economics. with a present value of $28 billion over the next 20 years. This is at most about five percent of total generation investment. The first variant in this argument comes as attempts to show that AMI-type Page | 41 programs produce positive net present value benefits in lower costs of service. noting that in general about half of customers will be better off and half worse off by such rates that recover the utility’s revenue requirement. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . However. Whatever their faults. The second argument taken by utilities to justify Smart-Grid investments is that they will produce savings. ―The Power of Five Percent‖ (2009). To become a worthwhile investment. That value largely takes the form of reduced requirements for investment in peak generation. Testimony before the New Jersey Board of Public Utilities on behalf of the State Department of Public Advocate. most importantly for automated meter reading and remotely controllable initiation and termination of service. smart meters must operate under time-varying rates and be accompanied by hardware that allow users’ appliances to respond to those rates. Since the Smart Grid only time-shifts consumption it does not do away with any need for base-load plants. the projected value of Smart-Grid investments has proven to be elusively small. See Brattle Group. 58 This is discounted at 8 percent. however. at least by the self-selected users who take part in them. 59 See. appliances that carry premium prices for compatibility. and it may be politically impossible (as occurred in California) to use them for direct utility control of customer appliances. The latter fact means that the Smart Grid by itself is of little value for reducing carbon or other emissions. there are substantial questions about the political acceptability of such rates.4 billion per year for investor-owned utilities in the U.

3. communications and security standards. The CPUC has authorized PG&E to charge customers for the mistake. They are for the most part proven and secure technologies whose purchase can easily be rationalized on reliability grounds. In California. It is also becoming generally acknowledged that the sheer complexity of the grid itself. its communication infrastructure. the legislation underlying the Smart Grid put the development of important interoperability standards in the hands of the National Institute of Standards and Technology. but the Public Utility Commission of Texas appears more reluctant to do so.com That decline also will change utility strategies regarding the requested composition of their investments. there is a remarkably large volume of new standards that must be put in place. as noted in Chapter Two.2 Standard Setting and the Option Value of Delay Page | 42 Issues in technology development and standards setting leave utilities with another set of problems. Lastly. Both NIST and the Department of Energy have agreed on a broad timetable that will give higher priorities to development of upstream design. The uncertainties about technological development and the shifting array of tasks being demanded of the Smart Grid have already produced episodes that probably suggest to utilities that slower progress (and less rapidly developing markets) may be desirable.2. discovered mismatches between its communications commitments and its meter designs.smartgridanalysis. There too.75 million meters it had already installed after it became clear that their functionality was insufficient to meet performance requirements set by the California Public Utilities Commission. First. and its resources and procedures do not appear commensurate with the size of its task and the need for expeditious formulation of the standards. Specifically. Second. the details of the standards will influence the risks of the coming large-scale changes in a critically important part of the economic infrastructure. while customer-side equipment will have the lowest priority. the development of engineering and security standards will probably be a much slower process than optimists had originally expected. Third. The investment requirements are not yet as great. NIST has had little experience in such politically and technically complex activities. at least some of which would prefer delay to compromise. a distributor in the Dallas area. it will be easier to obtain approval of the sorts of upstream investments that constitute Smart Grid Lite. Texas saw a similar example as Oncor. and its computational and data collection requirements are an order of magnitude above any that utilities have previously encountered. In particular. Pacific Gas & Electric was forced to replace 4.www. utilities eschewed Smart Grid Analysis | PO Box 3840 | Glen Allen. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . development of the standards is a battlefield for opposed industry interests. but there are concerns that the construction and operating difficulties could mirror those of nuclear power in the 1980s.

however.S. and will continue to be a minority even if all programs currently under regulatory consideration are approved. they have some uses in automated reading and simple communication that could partially justify the immediate expense and make them acceptable for inclusion in rate base. This. 3. most importantly for AMI. In this section. however. we will also be able to make some predictions of the types of equipment that the utilities in question will be purchasing alongside the meters.www. Our conclusion is that Smart-Grid investments in the U. some regulators denied them recovery of major costs on grounds that the utilities had acted imprudently. the best strategy is probably to wait until some other utility succeeds with a Smart-Grid program of reasonable scale. The meters have one more attribute that the regulatory system makes desirable to utilities: even if the Smart Grid falls out of political favor there will be pressure to make investments in it that help all parties to avoid the embarrassment of underused meters. and the risk of a change in regulatory attitudes all suggest that utilities should move more slowly than Smart-Grid advocates and equipment vendors would desire. whose designs are already well-evolved into what will probably be their long-term form. In many ways. will remain fairly robust. given their own preferences for heavy capital investment.smartgridanalysis. The states currently making them are a distinct minority. but its details will vary among the states depending on the underlying regulatory climate. For many utilities. The market for meters. will probably not proceed as rapidly and as comprehensively as enthusiasts claim they will. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . uncertainty about technology. Delays in setting standards. Beyond the massiveness of the investment. while being able to collect revenue to amortize the meters themselves. Exhibit 2-1 in Chapter Two summarizes current expenditures on AMI by utilities. In return. potential engineering and operating Page | 43 problems. There is considerable variation in state policies toward renewable energy and efficiency and utility expenditures on them. assume that those states with the larger Smart Grid Analysis | PO Box 3840 | Glen Allen. Our next job will be to evaluate the likely development of these individual markets in more detail. leaves the question of what utilities should be buying today. As a working hypothesis. the most reasonable choice is smart meters. In the process.3 Characterizing State-Level Markets Smart-Grid investments are only a part of the many efficiency-oriented expenditures that utilities are making with regulatory approval.com turnkey contracts for construction and instead took over projects that they were ill-equipped to manage and engineer. Utilities retain the option of waiting for related standards and technologies to evolve. we consider how one might identify those states most likely to be the sites of future Smart-Grid investments.

Accordingly. but to utilize them will require larger-scale communications than those between utilities and for example the small numbers of large customers who are on time-varying or interruptible rates. There are some straightforward connections between other efficiency investments and the Smart Grid. The state’s overall 2008 electric efficiency score calculated by the American Council for an Energy Efficient Economy. a comparison of non-Smart-Grid programs and expenditures can help identify those states and utilities whose Smart-Grid programs are most likely to expand. This is both a measure of public preferences and a measure of the potential value that additional Smart Grid Analysis | PO Box 3840 | Glen Allen. A third is that efficiency-oriented states are to varying degrees encouraging small-scale self-generation by end-users and lower-voltage “micro-grids” to facilitate transfers of power among them and sales of excess production to the utility. 4. those states whose utilities are engaged most intensively in existing renewable.www. The activities are: 1. Spending on efficiency programs as a percentage of utility revenues.com amounts of such expenditures are more likely to institute Smart Grid-related investments. The existence or nonexistence of a renewable portfolio standard (RPS). removal of disincentives for conservation and efficiency (e. levels of energy efficiency targets. More importantly. Megawatts of renewable capacity in place in the state. 2. including calculated power savings from existing regulatory programs. This is both a measure of environmental preferences and the size of the eventual opportunity of integrating renewables into the grid that smartness will facilitate.smartgridanalysis. By most accounts. residential users are the best remaining untapped source of demand shifting. One prime rationale for the Smart Grid has long been that it will be necessary if any more than Page | 44 a small percentage of intermittent renewables are to be integrated into regional networks.. This is an index of several variables. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . Exhibit 3-1 provides a list of states and several measures of their renewable/efficiency activities. These complex transactions will require information transfers and interactions between users and the utility that can only take place if grids are greatly smartened.g. A second is that load management programs and innovative rates that will result in shifted peaks require that a wider set of users be interacting with the utility. utility revenue decoupling that does not penalize utilities for successful conservation programs). conservation and efficiency-promoting activities will probably also be those that are investing more heavily in Smart Grids. 3.

the various measures of efficiency are positively correlated. At least 70 percent of top-ranked California’s ratepayers are in the process of having smart meters installed. The figures.1 Identifying Potentially Active Markets Page | 45 To make initial sense of Exhibit 3-1. these expenditures are often for infrastructure that can be operated more effectively. We have ranked the states on each of these three characteristics (which are otherwise incommensurate) and then calculated their averages. we first calculate ranks of the states (and the District of Columbia) on the three variables that summarize the underlying regulatory and business climate for investment in efficiency—the percentage of power generated by renewables. and the percentage of utility revenues spent on efficiency.3. Smart Grid Analysis | PO Box 3840 | Glen Allen. The good news about markets for smart meters. Sorting through this analysis produces some expected results (Vermont and California have high values) and some unexpected ones (states in the Old South. On the other side. The existence of an RPS. the state’s efficiency score. but some of its utilities have installed meters whose specifications are not in conformance with criteria that are quite likely to appear in a federal standard when one is finally produced. a state with a high percentage of generation from renewables is relatively likely to also have high spending on efficiency and a high ACEEE efficiency index. The data contain some interesting patterns. 5.6 percent while that for the bottom 25 is 4. Further. efficiency laggard Pennsylvania has the highest percentage of AMI capability reported by FERC. but only seven of the bottom 24 do.3 percent. of course.www. often stereotyped as hostile to conservation and efficiency.smartgridanalysis.4 percent. states near the top of Exhibit 3-2 appear more likely to contain consumers and officials who will be attracted by the efficiencies of a Smart Grid and who may be able to benefit in the longer term by a Smart Grid’s ability to better integrate intermittent renewable sources. Of the 27 most highly ranked states 23 have an RPS. taken by itself. is that the states with more favorable climates for efficiency and renewables have made investments in AMI that are often below the national average. 2008 data on total meters 6. AMI-capable meters in each state 3. are distributed relatively randomly through the rankings). The average for the top 26 states on efficiency is only 2. must be qualified in light of more recent events. the smarter the grid available.com smartness can supplement. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . is a fairly strong predictor of a state’s overall efficiency ranking. The national average for AMIcapable meter penetration is 3. In short. and possibly other Smart-Grid components as well. as are approximately 60 percent of those in Texas and roughly half of those in Oregon.

which makes looking at their renewable situations in isolation misleading as to the operating problems that intermittency might cause.5 0 2. Smart Grid Analysis | PO Box 3840 | Glen Allen.5 4 3.031 . at least as an aid to integration of renewables.007 .com The relationship does not hold everywhere.5 1.7 1.025 .33 46.2 0. Instead of coal-fired and nuclear plants.00 39.5 11 17 4.001 . whose national organization came out early as a strong supporter of smart meters.33 20.67 11.033 .33 37.4 0.00 8.121 .33 33.0 38.048 0 0 0.60 High AMI percentages in otherwise low-ranked Arkansas.4 2 0 0 0.001 .044 . Oklahoma and the Dakotas reflect the importance of cooperatives.5 1 18. Some states and their utilities are parts of control areas that cover a wider geography.006 0 .4 0 0. There are Page | 46 numerous other qualifications to be made before one can safely categorize a state with a high efficiency ranking and a low AMI penetration as a promising market.00 8.026 .063 . strong winds in that area. and the most operationally problematic one.2 0.5 13 2 4.2 0 0.1 1. who are located in territories that are served by Southern Company’s operating units.005 .5 8.smartgridanalysis.023 .67 32.4 0 2775 315 2810 1488 14596 2246 1601 438 809 9591 4538 405 770 5702 3115 1715 1427 2161 2186 140 <1 97 168 171 40 6 0 1 765 343 6 106 112 62 46 61 105 44 36.67 23. Another factor is the importance of gas-fired generation.005 .67 49.33 30.5 11.67 12.33 35.33 30.5 0 .0 6. Low-ranked Georgia and Alabama will soon see AMI-capable meters being given to the bulk of their customers.024 .058 . The low renewable percentages in the Southeast are at least in part reflections of the absence of steady.5 4 1. utilities generally rely on gas-burning plants to instantaneously equate load with production and to be on standby if a large generator or transmission line goes out. States with more gas resources may then place lower values on AMI. Exhibit 3-1 State Conservation and Efficiency Programs State RPS ACEEE Score Renewable MWh/Total Efficiency as % of Revenue '08 Meters (000) '08 AMI Meters (000) Avg Rank AL AK AZ AR CA CO CT DE DC FL GA HA ID IL IN IA KS KY LA 60 N N Y N Y Y Y Y Y Y N Y N Y N Y N N N 0 0 6.078 .www.33 Wind is becoming the most important renewable. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .00 2.

7 0 0 0. FERC.33 36. Energy Information Administration.67 49.1 0 1.050 .010 .33 11.5 6.5 4.8 1.030 .9 0.5 17 2.5 0 1. 7.004 .6 0 1.1 1.5 0.1 0.00 5.4 0 1.67 5.039 .00 32.7 0.00 27.00 41.67 38.2 0 2.67 40.67 15.039 .011 . Meters and AMI Meters.com Exhibit 3-1 State Conservation and Efficiency Programs ME MD MA MI MN MS MO MT NE NV NH NJ NM NY NC ND OH OK OR PA RI SC SD TN TX UT VT VA WA WV WI WY Y Y Y Y Y N N N N Y Y Y Y Y Y N Y N Y Y Y N N N Y N Y Y Y N Y N 8. Efficiency Expenses as Percentage of Utility Revenue: American Council for an Energy-Efficient Economy. State Historical Tables for 2007.009 .S.5 0.00 8.018 1 0.022 .67 Sources: RPS.025 .8 3.5 5. 2008 Assessment of Demand Response and Advanced Metering.www.5 5 14 4.33 33.5 14 0 11 1 .00 12.028 . Table II-3.002 .024 .67 8.2 0.030 .33 19.33 Page | 47 34.078 .2 1.smartgridanalysis.020 .3 1.017 .036 .5 9.4 0.022 .5 11 10. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .9 0.005 .6 0.67 33.33 27.2 0.5 2 5.33 24.021 .67 29.018 .33 20.00 34.4 0 2.042 .33 32.281 .5 14 3 13 2.67 36.00 7.5 19 1. Database of State Incentives for Renewable Energy.5 1 5 1.33 24.2 0 780 1939 3078 5312 2542 1454 3098 549 971 1292 764 3901 905 7811 4771 375 5544 1875 1890 6036 480 2373 475 3161 10871 1057 375 3966 2987 1184 3040 318 <1 <1 4 74 37 <1 204 9 9 11 <1 10 21 13 143 33 28 162 40 1443 <1 115 41 60 868 <1 21 6 69 <1 118 12 11.080 .023 .5 16. The 2008 Energy Efficiency Scorecard.00 14.003 .020 .33 22.040 . Renewable and Total Power Production: U.041 .1 0.67 20.5 9.021 . Smart Grid Analysis | PO Box 3840 | Glen Allen.67 44.1 0.

000 20.667 24.021 0.003 0.667 27.015 Page | 48 0.333 32.000 0.000 19.000 0.049 0.000 36.004 0.030 0.000 23.333 6.080 0.005 0.667 33.com Exhibit 3-2 State Conservation and Efficiency Rankings State RPS Avg Rank AMI Meters / Total Meters CA MN VT CT OR IA MA WA NH HA ME ID NY NV RI WI CO TX NJ NM FL MT SD UT VA MD AZ KS LA KY SC NC AR OK TN OH MI GA ND AL MS IN Y Y Y Y Y Y Y Y Y Y Y N Y Y Y Y Y Y Y Y Y N N N Y Y Y N N N N Y N N N Y Y N N N N N 2.080 0.043 0.667 12.667 32.050 0.000 33.000 0.012 0.001 0.667 36.019 0.086 0.333 22.smartgridanalysis.667 11.667 37.333 34.018 0.333 8.000 0.000 32.015 0.667 36.035 0.000 20.023 0.020 0.020 Smart Grid Analysis | PO Box 3840 | Glen Allen.667 8.333 24.333 5.667 34.www.023 0.138 0.000 33.039 0.009 0.333 14.667 31.000 12.000 0.000 0. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .333 30.027 0.333 5.000 27.000 20.048 0.076 0.667 30.000 7.000 29.086 0.333 11.113 0.002 0.333 8.333 15.056 0.014 0.016 0.002 0.088 0.000 0.667 35.667 11.

667 39.4 Beyond Smart Meters 3.000 0.S. A Compendium of Smart Grid Technologies. 2. high capacity and bidirectional capabilities in a secure open architecture.038 0.g.001 0. for visualization) that improve operator abilities to make efficient decisions quickly. Controls: Monitoring and diagnostic equipment and software to improve operating efficiency and quality of situational responses. (Smart meters also fall under this heading.1 Classifications Y Y Y N N N Y N N 38.333 40. Measurement and Sensing: Monitoring equipment and software to evaluate real-time grid operations and improve security.www.333 38. Smart Grid Analysis | PO Box 3840 | Glen Allen.4.smartgridanalysis. July 2009. density and reliability. Communications: Technologies that offer high speed.000 41.000 0. there are a variety of ways to classify the goods and services that utilities attempting to smarten their grids might invest in.009 0.333 0.667 44. Components: New equipment and materials to improve power quality.020 Page | 49 0.066 0. 61 These are considered below.333 49. National Energy Technology Laboratory.000 After basic meters and associated infrastructure.com Exhibit 3-2 State Conservation and Efficiency Rankings State RPS Avg Rank AMI Meters / Total Meters DE PA IL NE WY MO DC AK WV Sources: Same as for Exhibit 3-1 3.239 0. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . Variations of these technologies will be necessary to achieve what are generally agreed upon as the six basic functionalities of a Heavy Smart Grid:62 61 These are adapted from the discussion in U.) Interfaces and Decision Support: Tools and software (e.667 49.333 46.

20. Information Technology Hardware and Software Enhancements: Service Oriented Page | 50 Architecture that allows data exchange among Smart Grid functions and with existing customer and managerial information systems. and Energy Policy Initiatives Center. phasors). and more rudimentary communications systems are likely to suffice. Distribution Automation: Low voltage data collection and smart switch operations to improve reliability and power quality.com AMI (Advanced Metering Infrastructure): Includes smart meters. adds Wide Area Management Systems (e. October 2006. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . West Virginia Smart Grid Implementation Plan. integrated communications platform open to attachments and applications. AMI will support user-side demand response. Distributed Resources: Allow integration of small power plants to supply both power and VARs.S. for example because new generation investments can be deferred. reduce losses. With time-varying rates. Also offers geographic aggregation of responses and loads acting as reserves.S. Revision 1 (Aug. facilitate microgrids for exchanges of power among customers. Smart Grid Analysis | PO Box 3840 | Glen Allen. National Energy Technology Laboratory. Requires high-bandwidth. 89-94. 62 This list is a distillation of more detailed ones that appear in U. University of San Diego Law School.smartgridanalysis. 2009). dynamic line ratings and improved management of grid.4. 3. Attention must also be concentrated on the complementary problem—how to design rates for customers who do not actively participate but do benefit from the actions of those that do participate. and enable two-way flows from distributed resources.2 Prioritization and Implementation Utilities’ concentration on smart meter and related AMI investments is rational in light of policy and technology “gaps. Transmission Management: Integrates communications and IT with transmission operation. 18-19.g. user-side equipment and software will be rare. and meter data management system that returns readings to utility.www. secure. San Diego Smart Grid Study Final Report. remote connect/ disconnect/test capabilities.” The policy gaps that render the future uncertain in the U. include: Regulatory and legislative treatment of time-varying rates for small consumers: If they are not enacted. Demand Response: Software and systems to communicate information on prices and system conditions to consumers or to operate consumer equipment directly. detect and mitigate outages.

Some important technology gaps are less about the existence of certain equipment or software than they are about the scalability of existing technologies and the costs of large-scale deployment. Smart Grid Analysis | PO Box 3840 | Glen Allen. security and interoperability of small user monitoring and control equipment. These include: Large scale. D-VARS to provide voltage support. Nevertheless. We know from pilot programs that it is possible to design and build appliances (or attachments) that allow them to communicate with the grid and to be controlled by it. with concomitant abilities to dynamically alter line ratings as operating conditions change. Questions about how grid operators will judge whether reductions in user loads qualify Page | 51 as resources. two-way communication systems that will carry the unprecedented data requirements of the Smart Grid. New technologies for wide-area system monitoring including phasor arrays and other sensors.smartgridanalysis. NIST has given its lowest priority to the setting of standards in this area.www. there also remain important components that have yet to be developed. It will include control equipment that provides fast switching and greater reliability. distributed resources and microgrids (both engineering standards and pricing). including new transfer switches. An assortment of reliability-related hardware that has thus far only been used on small scales. and how they will be priced.com Regulatory treatment (both state and federal) of small. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . and condensers that can provide reactive reserves. Ways in which operators can analyze system data quickly and accurately. including the possibility of interuser low-voltage power transfers. but questions about the feasibility of mass production and cost of retrofitting existing stocks remain. As previously noted. series impedance devices. particularly software (and possibly faster hardware) needed for real-time visualization of operating conditions and capable of quickly microscoping to particular locations on the system. both between users and the utility and within the utility itself. A lack of standards for adequacy. some even to proof-of-concept.

however. however. Experience with longer-distance backhaul technologies such as Ethernet over Fiber. interactive consumer portals are still rudimentary and were largely engineered in connection with grid experiments. In fuller visions of the Smart Grid. Storage devices that have high capacity.5. The sheer number and diversity of technologies to be perfected and policies to be formulated has one virtue for us: it stringently delimits the list of investments that utilities may make over the near future. Smart Grid Analysis | PO Box 3840 | Glen Allen. will not change some basics. or nothing at all. Absent major social changes and changes in energy prices it appears that demand limitation has a secure enough foothold that it will remain an important part of the electricity industry. In order to see and understand its contents we need next to look at the likely time sequence of Smart-Grid deployment. they are quite possibly the only ones of consequence. taxation. Page | 52 Flexible.63 Smart-Grid investments are not simply their best regulated alternatives.5 What to Market. At least in the current political environment.smartgridanalysis. Until standards for interoperability are enacted. including interfaces with home system controls such as ZigBee. left with uncertainties 63 The exact nature of future environmental policies.www. We are. is by no means clear. agent-based computing that uses artificial intelligence to aid dispatchers in visualization and operating decisions remains largely at the experimental level.com Important aspects of Broadband over Power Line and related technologies. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . That list. important aspects of their designs will remain uncertain. and variable power outputs have been the subject of extensive research but are thus far largely experimental. particularly toward carbon. on the other hand.1 The Underlying Uncertainties The Smart Grid is of great tactical importance for regulated utilities as their roles change from producers of electricity to producers of “services” that can include both delivered power and programs that allow customers to lower their demands for power. utilities can expect to build fewer generating units on which to earn regulated returns. is far from empty. Whether carbon policy turns out to be cap-and-trade. is already quite extensive. and to Whom 3. 3. Debate continues about which devices will be optimal—simple mechanical ones like flywheels or compressed air storage or electrical/electronic ones like batteries and advanced capacitors. quick availability.

In some cases. NIST has managed to put only one standard in place. utilities attempting to convince regulators of the value of smart meters are facing a growing number of intervenors who may be able to cogently refute their cases for installing them. utilities have had to modify adverse cost-benefit analyses by adding value for different functionalities. for example. the company essentially claimed new uses for them. In Texas.64 Southern California Edison’s initial filing at the California Public Utilities Commission turned out adverse. With strong political pressure (and corporate interests) in justifying the meters. Portland General Electric serves the densely populated area in and around that city. The case for simple updates with automatic meter reading (AMR) is generally an easy one to make.www. there are some utilities that are simply uninterested in installing the meters. The case for more generalized smartness. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . and the question of disallowances is now before regulators. Begin with meters. Oregon. Important aspects of their design and performance are set to be determined by NIST in the government’s complex rulemaking described in Chapter Two. perhaps because they have not been able to produce cost-benefit analyses that indicate they should. Standards for smart meters are currently in somewhat of a flux. Since being given the task. at least some utilities will find that it is worthwhile to defer investments in them. After installing several thousand meters. The Commission turned down its staff’s suggestion for disallowances and allowed full cost recovery. but a different commission might not have. Utilities can bear substantial risks simply in the installation of those meters. a relatively simple one for meter upgrades. As noted in Chapter Two. Portland General is well into the process of distributing smart meters to 64 In an alternative strategy. Oncor discovered that thousands of meters it had already installed lacked necessary functionalities defined by the Public Utility Commission of Texas but kept installing them for some time afterward. presentvalued over 24 years. As installations grow. but these rules look quite distant. Smart Grid Analysis | PO Box 3840 | Glen Allen.smartgridanalysis. With such uncertainty. and a unit of PacifiCorp serves much of the rural remainder. Finally. even simple forms Page | 53 such as two-way communication. the standards that eventually govern smart meters may well be set by the attributes of meters that utilities have already installed. California’s Pacific Gas & Electric found that they did not have certain capabilities that the company originally believed they would have. Adding the claim that the meters could control smart thermostats and thereby allow deferral of new generation investments changed the original net of benefits and costs from negative $952 million to positive $9 million. Alabama Power successfully argued before regulators for smart meters with a claim that the costs of reading meters were about to rise rapidly. is turning out to be somewhat harder. is dominated by two regulated utilities.com about both the design standards for important products and the regulatory treatment of investments in them.

They also generally do not have the size or 65 A tutorial on its technical content exists at http://www. Siemens and GE.br/arquivos/eventos_setor/iec61850_tutoria. making investments in both communications and components on its side of the meter. Neither U.ceb5. Other legislatures could follow California’s to force the deferral of mandatory time-varying rates for all customers or to insist that the rates be designed to ensure bill protection. The first of these is substation automation. A utility with smart meters in place can move in two possible directions. the utility might also instead choose Smart Grid Lite. First.) Because of these uncertainties. Since it appears well-established that efficient use of the consumer-side infrastructure will only be forthcoming if time-varying rates materialize.smartgridanalysis.www. both utilities and consumers operate under one other uncertainty. for which the International Electrochemical Commission’s (IEC) existing standard has been generally adopted by utilities.2 Substation and Distribution Automation The underlying politics of NIST suggests that standards for interoperability will likely be some time in coming. There are.cepel. with no indication that it will come up for redesign or renegotiation in the current NIST proceedings. it can proceed to implement Smart Grid Heavy.com all of its customers. nor international standards exist for distribution automation.5. but very few small users have chosen to enroll. SCADAs provide relatively slow information on transmission and generation conditions because they communicate using multiple address radio systems. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . (California does offer all consumers an option of time-varying rates. 3. Smart Grid investments that are under established standards. but PacifiCorp has yet to apply for regulatory permission to do so in its territory. installing those software and components that enhance the efficiency and reliability of operations on its side of the meter and waiting to see how the politics and economics unfold before actively promoting user-side activities. while also attempting to facilitate more active management of consumption on the user’s side.pdf Smart Grid Analysis | PO Box 3840 | Glen Allen. however. A utility that has chosen not to install smart meters may also be able to justify variants of Smart Grid Lite on its side of more conventional meters.S. Major producers include ABB. These facts all suggest that it will be best to analyze markets for two broad types of utilities: those that have chosen to invest in smart meters and those that have for some reason chosen Page | 54 not to do so.65 The basic equipment for the process consists of a communications gateway integrated with a (probably pre-existing) SCADA (System Control and Data Acquisition) or EMS (Energy Management System).

These problems are compounded by the possible business interests of some utilities in expanding into the retailing of broadband service. 2006. and manipulate switches and relays to protect reliability and power quality at the feeder level. BPL’s operational problems have long made it questionable. The only major utility with any substantial plans for BPL is Texas’ Oncor. Small pilot projects with BPL did not demonstrate any important advantage in operations or costs over either wireless or fiber networks (in fact BPL is generally less reliable).66 3. Such systems will be expansible to reach large numbers of individual meters with the help of other last mile technologies (quite possibly still 3G) that will aggregate consumer data and send them to points from which they can be backhauled. Performance-based rates have been demonstrated to induce greater utility investments in distribution automation.smartgridanalysis. utilities face the problem that the types of systems they are most likely to acquire carry dual threats—they may become obsolete and require costly replacement or updating. utilities are left with wireless to provide backhauls of data to and from central processing systems.‖ Energy Biz. which will aggregate and transmit data to and from 2. Almost by default. and important technologies have yet to be fully tested in the context of utility operations over a wide area. Telvent and Open Systems International.3 Communications Both Smart Grid Lite and Smart Grid Heavy require stronger and quicker communications systems than many that exist today. Page | 55 since they are often adjusted downward for the sorts of outages and power quality breakdowns that distribution automation safeguards against. Utilities interested in expanding their communications systems started the 21 st century with an interest in Broadband over Power Lines (BPL) technology. which would in effect serve as an open standard.com capabilities to send or log substantial amounts of data on lower voltage operations. Smart Grid Analysis | PO Box 3840 | Glen Allen. The company’s apparent expectation is that it will be able to supply broadband on regulated terms to rural customers who are currently not served or underserved. Jan. 66 See ―Transmission and Distribution Guide and Sourcebook. The most likely candidate is emerging as 4G WiMax technologies that will replace CDMA and GSM over more substantial distances. maintain reactive power. however. These include radio interference and the fact that the only lines currently capable of carrying it are low voltage. and it intends to reach only 10 percent of its customers using it. Major producers include Itron.5.-Feb. Here. Distribution automation makes it possible to detect faults.www. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . The first large WiMax commitment was recently announced by CenterPoint Energy in Houston.4 million meters.

they are for the most part monitoring instruments intended for daily operations and ex post event analyses where necessary.jpg and http://www. Department of Energy. and major utilities) at http://www.and three-dimensional plots of system conditions that can be input to dispatch algorithms or used by operators for manual adjustments. Within the Western Electricity Coordinating Council there are currently 51 PMUs (34 under the California ISO) and 344 phasors (226 in California). two trends are dominating the phasor market. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .html. Smart Grid Analysis | PO Box 3840 | Glen Allen. Its most obvious drawback is the current $30 cost of chipsets for it. brought there by reliability initiatives and related regulations that followed the 2003 Northeast blackout. with none in the Chicago. They are strikingly absent from the Midwest. U. Despite some transmission difficulties in this area associated with heavy wind deployment. The deployment of phasors and PMUs is accelerating. most importantly the control area of the California Independent System Operator and areas to the east of it in the desert southwest. currently the non-interconnected Electricity Reliability Council of Texas (ERCOT) has only three PMUs. The Eastern Interconnection is more thinly populated with them. as well as facilitating system separation in disturbance situations.com/prtdms/rtdms_caiso.naspi. a cooperative effort of the North American Electric Reliability Council. Its most important attraction is that it is an open platform that will allow other applications to go on top of it.smartgridanalysis.org/images/naspi_map_20090922. with near saturation in some locations. Beyond five years. capabilities of phasors and PMUs are being improved.www.5. which are expected to fall as experience in production and Page | 56 engineering accumulates. Enriched graphic interfaces (more advanced ones are in development) then allow two.4 Phasors and Dynamic Rating Important parts of Smart Grid Lite are already partially in place. with the possibility that they can 67 See the map of the North American Synchro Phasor Initiative (NASPI.S. Phasor monitoring units (PMUs) with GPS capabilities can then integrate the data from the array. 67 At the same time.phasor-rtdms. First. 3. In their current form. Detroit or Minneapolis areas. Phasor data can then be interacted with SCADA for additional details. but appears to be one that will not become obsolete for some time. save for areas around New York City and the belt of coal-fired generation through Appalachia. The expectations are that within three to five years they will be capable of producing insights into congestion management and of providing dynamic benchmarking. they will be developed such that they will be of value in constructing real-time adaptive protection.com WiMax in its current state remains a costly technology. The most important of these are phasor arrays that can simultaneously measure voltage and current at various points on a grid.

naspi. The ability to re-evaluate ampacity in real time is also expected to lower the costs of integrating substantial amounts of intermittent renewables.pdf Smart Grid Analysis | PO Box 3840 | Glen Allen. Roadmap for Capability Evolution.com also be vehicles for implementing real-time controls. 69 See Ron Stelmak. and act appropriately upon receiving indications of a problem. it is important to think clearly about a utility’s relation to distributed resources on its low-voltage system. but none to our knowledge has asked about the potential for the grid to foster retail competition. when if ever. each capable of increasing the operational value of the other. Chattanooga.5.naspi. Dynamic rating technologies will both improve the reliability of everyday operations and serve to some degree as a substitute for direct investment in new lines and upgrades of existing ones. Devices to remotely measure these last two are under development. including protection of specific generation and substation assets.www. Dynamic Line Ratings. as well as on measurements of the line’s physical characteristics.org/meetings/workgroup/2009_october/presentations/stelmak_valley_emerging_apps_ 20091008.69 3.org/vision. Oct. 2009. where non68 See NASPI. In effect. these are complements to phasors. but the phasors and Smart-Grid telecommunications will greatly improve their abilities to measure system conditions. The allowable rating of a transmission line depends on the configuration of generators and loads in a system.stm. most importantly the temperature of its conductor and its compression. http://www. Since the events at issue occur too quickly for human reaction. should a utility want to encourage their proliferation over its network? Discussions about the Smart Grid have long been dominated by descriptions of the technology and statements about its promise for operational improvement. A few discussions have brought up the potential virtues of the Smart Grid in improving the efficiency of wholesale markets. 2009 at http://www. All utility operations already require some degree of wide-area monitoring. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .5 Distributed Resources Before continuing. One type of retail competition survives in several states. Presentation at NASPI Meeting. and if they are deployed in a Smart Grid its telecommunications will have the speed and capacity to process them in detail. these capabilities will have to be built into software and hardware that are triggered to operate relays Page | 57 and related equipment during pre-specified system states.68 The second trend is toward an evolution of phasor arrays into wide-area monitoring systems (WAMS) that will coordinate smaller area phasor arrays and allow more operational controls. Oct. Most importantly. 7-8. Any utility’s plans must also be compliant with regulatory desires for enhanced demand management and the encouragement of renewable resources. evaluate them.smartgridanalysis. as defined by the phasors and other monitoring equipment.

The customer does not acquire title to the power or any other rights to it. whether their actions stem from initiative or compulsion. will need to develop strategies that allow them to maximize the grid’s addition to rate base while at the same time putting barriers in the way of new competitive generators on its low-voltage system. How a utility might rationalize owning other. Utilities that are committing themselves to smarter grids.com utility distributors arrange their own wholesale power supplies and compete directly to serve the utility’s retail customers. One of the most important attributes of a Smart Grid from a utility’s standpoint is that the grid hardware can compensate for unbuilt generation in its rate base. The risks of direct retail competition. While it is currently in eclipse in most areas. for the right to install solar photovoltaic panels on 25-year leases (the expected lifespan of the hardware). H. Duke fully controls the power the installation generates and will be allowed to recover regulated returns on its costs. A residence or business with passive solar collection. Duke Energy North Carolina recently introduced a program to pay owners of qualifying structures. may be small relative to the risk to utilities posed by customer choices that many Smart-Grid supporters expect it to foster.g. but the better the ability of Smart-Grid technologies to control power movements on the former. at least in jurisdictions that do not have it. At least one utility has taken a proactive stance in this area. some other small renewable. forms of generation on customer premises (e. particularly houses. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 Page | 58 . The transactions could take place at market prices. The House-passed version of this year’s energy/climate bill. or a microturbine will be consuming kilowatt-hours that its utility does not supply. A common vision of the Smart Grid shows it as greatly increasing the role of generation owned by small customers. requires that state regulators buy excess generation from small customers willing to pay the metering cost. fuel cells) remains to be worked out. The continuous cheapening of intelligent electronic devices (IEDs) will facilitate exchanges among them that transfer the power among them along low-voltage lines. absent exceptional imprudence. Its owners and bondholders have broad legal rights to a fair return on their investments. The question for the utility is not one of survival but one of size. possibly less benign.smartgridanalysis. the Smart Grid could bring about a rebirth as it allowed competing suppliers to offer a wider variety of packages containing both electricity and demand-related services.www. or quite possibly regulators may attempt to encourage the formation of such microgrids by subsidizing their construction and operation. Smart Grid Analysis | PO Box 3840 | Glen Allen. the greater the threat to utility-owned generation. 2454. Microgrids may be containable in low-voltage subsets of larger grids.R. and eases other barriers with provisions that local jurisdictions or homeowners associations will not be able to stand in the way of residents who wish to revamp their houses with solar collectors.

Nominally not operated for profit. when under orders to make grid investments. investing in Smart Grid Lite is probably a sound tactic to deter and delay the proliferation of microgenerators and microgrids.” which makes the company whole in the event that successful demand management policies leave it unable to meet its revenue requirement. control and monitoring systems at the heart of Smart Grid Lite might ultimately have to accommodate extensive user-end generation.smartgridanalysis. but the cost-benefit calculations may well justify investing in them while retail monopoly prevails and prior to the existence of any markets for home-generated power. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . Important downstream technologies are still at or earlier than the proof-of-concept stage. Regulatory commissions can also help foster markets for renewables (but not their power) if they follow North Carolina’s lead in allowing utility ownership of solar photovoltaics and other generation. the great majority of municipal systems pay mandated percentages of their gross revenues to city governments that are often important determinants of the public programs those governments can undertake. Management’s task will be to discover how to maintain a larger mass of generation and transmission assets. For the near term. Smart meters alone have insufficient functionality. in order to support a claim of inability to coordinate with low-voltage grids and generators. in a world of microgrids and small customer generation the utility’s rate base will be smaller and its growth prospects will appear poorer to investors. Moving to Smart Grid Heavy with its array of user-side hardware and communications is another proposition entirely. The automation. The experiences of other utilities facing threats from competitive generators and retail suppliers tell us that regulation and politics are probably the best venues in which to reduce threats to rate base that are posed by the micro sectors. transmission and Smart-Grid Page | 59 equipment on which the utility can earn returns. utilities in states with sympathetic regulators may be able to obtain advantageous rate designs that will reflect the costs of maintaining reliability in the face of intermittency. Smart Grid Analysis | PO Box 3840 | Glen Allen. 70 Note that most of this reasoning can apply to both corporate and municipal utilities.com Utility managements cannot solve the problem by instituting “revenue decoupling.70 Revenue decoupling or none. and their long-term cost prospects and upward scalability are both uncertain. both generally expansible with ease. there is no obvious way that the utility can limit the size of its monitoring or communication investments. Because most of the small renewables are intermittent. but allowing home-area networks that can control appliances to proliferate is the first step on a slippery slope that might ultimately facilitate those networks’ controlling small generators and making transactions in the power they produce. It needs to maximize the value of generation. while competition at the micro level will be suppressed.www. On the other hand.

Those for such components of Smart Grid Heavy as microgenerators and microcircuit controllers will probably develop eventually. There are nevertheless promising markets for some important components such as substation automation (for which standards already exist) and distribution automation. technologies for such important grid elements as storage are developing only slowly. Problems caused by that pace of development in the U. and time-varying rate designs that would allow such benefits face political barriers that early supporters also probably underestimated. but utilities will resist liberalizing those markets absent favorable legal treatment or rate designs. Smart Grid Analysis | PO Box 3840 | Glen Allen. but the absence of Smart-Grid communications and operating technologies will not allow them to become entrepreneurial.S. User-side generation and controls have long been potential elements of competition that a Smart Grid could open up. By themselves smart meters do not always pass cost-benefit tests. are compounded by what will surely be a long and highly politicized process of developing standards for those elements.6 Summary Page | 60 In all likelihood.smartgridanalysis. many of which are better described as subsets of much larger markets in which those technologies are already sold.com Individuals who wish to install their own generation can still attach themselves to low-voltage networks as suppliers (largely an uneconomic proposition at today’s equipment and power prices). 3. Even if Smart Grid were not part of the language. those who originally conceived of the Smart Grid underestimated the potential problems of even implementing its first step—the distribution of smart meters. Despite large volumes of research. There are also markets for communication technologies. investments in larger and faster communication systems with more nodes would often be smart investments for utilities interested in maintaining reliability and power quality.www. but both utilities and suppliers of equipment for them have good reason to strategize before pushing for policies that will open them. The markets that matter on the utility side are almost entirely for Smart Grid Lite. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .

it is doing so in the face of important uncertainties whose likely effects have yet to be acknowledged by most Smart-Grid advocates. it appears unlikely that any important force will emerge to counteract them.smartgridanalysis. and stresses on the transmission system remain manageable.com Chapter Four: Non-Utility Purchases of Smart-Grid Equipment and Services 4. The Smart Grid will also affect commercial and industrial customers. 3. Moreover. however. These uncertainties have different roots and will produce different effects. Absent a crisis. To the extent it is actually evolving. In most regions the objective supply-demand situation is little changed. In most states. Uncertainty about customer willingness to pay and motivation to utilize user-side hardware and software. 71 Our discussion here is almost entirely about purchases by residential users. Such a scenario. Uncertainties about delays in standards setting and the growth process of adoptions. There are no fuel price changes on the horizon that would drastically increase rates. 2. the politics of regulation would probably mitigate the effects of any crisis by restructuring rates to minimize adverse effects on small users. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .S. three basic sources of uncertainty will affect the markets for sales of Smart Grid hardware and software to non-utilities:71 1. and even if introduced. although inadequate capacity can inhibit trades that lower the cost of delivered power. The most likely such force would stem from widespread and massive shortages whose consequences were higher bills and greatly degraded reliability. is unlikely.www. and at the time of writing this report. Smart Grid Analysis | PO Box 3840 | Glen Allen. and then attempt to draw some conclusions from these discussions. particularly on a nationwide basis. appears unlikely to institute cap-and-trade or carbon tax programs. Utility attempts to make ―business cases‖ at regulatory agencies for smart meters and consumer involvement invariably concentrate on residential consumption.1 Introduction Page | 61 The current market for non-utility sales of Smart-Grid equipment and services is almost nonexistent. the associated dislocations would only turn up after the passage of years. We discuss each of these in a section below. but regulatory policies in most states are already implementing or anticipating greater reliance on time-varying rates and various forms of demand management for them. Regulatory uncertainty about the benefits of grid investments and redesigned rates. the U. where most experts agree that there are substantial efficiencies still to be realized.

Texas. (Full rollouts. Regulatory enthusiasm for Smart Grid Heavy is by no means general.72 One likely implication is that absent federal requirements a substantial number of consumers will remain in jurisdictions that do not have AMI. Without some sort of time-varying rates (not necessarily a full real-time design). 3-4. Others. Asked about justifications for AMI. Note the apparent implication that a substantial fraction of jurisdictions rolling out AMI have not yet concluded that there is a valid business case for it. Regulators are also showing some resistance to non-uniform pricing.smartgridanalysis. many utilities are petitioning for approval of AMI and related investments on their side of the meter. however. include such major jurisdictions as California. a large and heterogeneous collection of interest groups. and Canada. see Smart-Grid hardware as a convergence between their interests in larger rate bases and regulatory interests in greater efficiency. Only 38 percent of regulators reported that they had regulations in place requiring AMI deployment. regulatory commissions must accommodate. Some commissions are evaluating the utilities’ business cases for such investments (often to be accompanied by rate redesigns). or at least for Smart Grid Heavy. An unknown fraction of these had only ordered pilot programs. Of the Capgemini study respondents. And. at least some utilities will probably be unable to make their business cases for a Smart Grid. Oregon’s PacifiCorp) have shown little interest in petitioning for approval of various Smart-Grid investments. while eight percent concluded the opposite. Most state commissions are also empowered to undertake their own research and to utilize their own experts to better determine policies that are consonant with their visions of the public interest. In early 2009. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . however. some utilities (e.www. Pennsylvania and Ontario. 71 percent of regulatory agencies claimed to be either studying the issue or awaiting a utility’s filing. despite a general recognition that without it many of the benefits of Smart-Grid user involvement will not be forthcoming. and others have initiated their own investigations. Accordingly. or at least acknowledge the wishes of.g. As previously Page | 62 noted. Key Findings and Analysis‖ (2009).com 4.2 State Regulators and the Dimensions of Grid Reform By their nature. ―The Latest Regulatory Views on Smart Grid and Renewable Energy.) Seven percent of the agencies stated that they had allowed deployment while having no AMI-specific regulations in place. 52 percent were against 72 Capgemini. Perhaps surprisingly the same holds true for important elements of Smart Grid Lite. Smart Grid Analysis | PO Box 3840 | Glen Allen.S. consulting firm Capgemini performed a survey of regulatory agencies in the U. 17 percent had already concluded that it was justified. and as a consequence they will not be participants in any market for homebased hardware and software.

or if cost overruns occurred. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . the regulators‘ pro and con percentages on grid automation and selfhealing were approximately the same as for HANs. the remainder being undecided. Regulators are far from unanimous in endorsing them. Absent timevarying rates. A utility’s cost of AMI. The coalition favoring Smart Grids apparently has fewer enthusiastic members than initial publicity might lead one to suspect. home interfaces.www. The remainder favored more limited deployments or schemes giving customers choices among rate designs.com real-time pricing for all customer classes. The politics are different in some important ways. and utility-side hardware taken as a whole could easily approach or exceed the cost of a nuclear power plant. As earlier noted. and only 9 percent supported it.smartgridanalysis. 74 Id at 4. No utility is currently known to have requested rate basing of construction work in progress (CWIP) or allowance for funds used during construction (AFUDC) for its Smart Grid. In the case of the Smart Grid. California’s legislature recently barred the state’s Public Utilities Commission from instituting Page | 63 mandatory time-varying rates of any kind for residential customers in the near future. but regulators who imposed retrospective disallowances on utilities building nuclear power plants might equally well do so some time after their new grids become operational. and may eventually make some of them less enthusiastic about Smart-Grid investments. 73 Whatever the feelings of regulators. and put mandatory real-time pricing at least a decade away. legislative preferences may trump them. even with bill protection. as happened frequently with nuclear units. although some activities like automated meter reading can start quickly. the deployment of Smart-Grid assets will also entail substantial time lags before their full benefits begin to be realized. Given the complexity of Smart Grids and our lack of experience with them. Perhaps surprisingly. both delays in standards-setting and changing technologies could leave utilities with stranded costs for investments that have become technically outmoded or that were acceptable when put in place but no longer satisfy standards. few would be surprised if their claimed benefits failed to materialize. Smart Grid Analysis | PO Box 3840 | Glen Allen. while 11 to 13 percent favored them. any case for HANs with electronically controllable appliances becomes very weak.74 Issues of risk further complicate the picture for utilities. and their differences may be more than philosophical—some territories and utilities might be well- 73 Id at 3. but it turns out that regulators on balance disapprove of the networks—62 percent of Capgemini’s respondents said that they did not support HANs. As with nuclear plants.

com suited to realize the benefits of Smart Grids. will be that one or more de facto standards will emerge as the weight of investments grows.smartgridanalysis. July 8. user-side policies will be in the hands of fifty regulatory commissions. Utilities Diverge on Federal Smart Grid Funds. At least some households that get HAN-enabled smart meters will be unwilling to wait for final determination of standards. In the U.. 76 New Mexico's utilities and regulators have disagreed on these issues. with an added federal overlay. 77 Barring competitive metering and reading such as is emerging in the United Kingdom. or at least those associated with Smart Grid Lite. however. The likely consequence for the U. Utilities.S.‖ Electric Power Daily. and state regulators will probably have reason to go along with them to facilitate their new investments in appliances and communications. 1. utilities will remain the actual owners of all meters.76 Finally. Legislation has authorized numerous participants in the process. there will be communications upgrades and investments in advanced integration and meter data management systems that will be underemployed in the absence of user-side investments. They are an important part of the equation for the EU and for certain countries (Germany. Even if several standards come to coexist. process of setting standards.75 No one has yet characterized the underlying characteristics that might suffice for a useful distinction between the two. In addition. At least some utilities have questions. and that the money would be better spent developing and upgrading lines to carry renewable power. have presented a case to them that even with 50 percent matching federal funds the project is not cost-effective. Smart Grid Analysis | PO Box 3840 | Glen Allen. chips to activate HANs can easily be manufactured into meters.3 Delays in Standards and the Diffusion of Products We have previously discussed the likely delays in the U. it will be in the interests of meter manufacturers to ensure compatibility with as wide a range of 75 Another unresolved set of questions is the extent to which integration of intermittent renewable (wind and solar) generators will provide additional rationale for Smart Grid investments. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .S. and placed it under NIST. 2009.77 On the utility side. the likelihood of consumer acceptance to a degree that allows delivery on Smart-Grid promises remains Page | 64 unknown. Europe is only beginning to grope with the standards problem. but are costly to retrofit.S. which may be an inappropriate lead agency. and others not. ―New Mexico. and the volume of investments at stake may make utilities more risk averse than if that volume were lower. 4. which will be made more difficult by disharmonies between national and EU policies and possibly lengthier due to the many governments involved.www. Some of them will surely begin authorizing HANs after rate payers get new meters and displays. Regulators supported initiatives to begin a Smart Grid program. as we note below. Denmark) that already have substantial bases of renewable generation capacity.

the standards-setting problem might solve itself for home users. The costs and benefits borne by members of these samples are quite unlike those that are likely to prevail in non-experimental situations.79 Regulators (at least those favoring extensive user participation) have one more reason to allow HAN-related standards to emerge with the experience of users. Only if large numbers of home users make investments in controllers and smart appliances will their production costs fall as manufacturing experience accumulates and designs are tweaked. while continuing to pose problems Page | 65 for utility operations that are not yet under final standards.org/Products/CertifiedProducts/CertifiedProductsOverview/tabid/463/Default.80 The next section examines possible answers.www. and the volume of diffusion that will be necessary to induce significant movement down producers’ learning curves. perhaps the greatest are about the level of customer acceptance. 81 At this juncture. Regulators may be willing to live with unfinalized standards if these effects are important.78 If equipment that is compliant with ZigBee or similar protocols proliferates. Perhaps the most likely such standard is ZigBee. the evidence for customer response has been almost entirely derived from samples that have been selected in ways that almost ensure favorable responsiveness. some regulators may choose to drastically limit the entire experiment.aspx 79 We do not address the question of how. 78 See partial lists at http://www.smartgridanalysis. But even if prices fall. Unfortunately. Only if enough customers choose to actively control their consumption in accordance with changing prices (assuming they have time-varying rates) will the grid create sufficient savings to justify it as an investment. whose consortium already has certified a large number of home network and related products as compatible.com them as is commercially feasible. there is great political reluctance to give utilities rights to control user consumption patterns in order to compel achievement of the savings. Smart Grid Analysis | PO Box 3840 | Glen Allen. What ultimately happens to costs depends on two unknown factors: the speed at which production innovations will proliferate to bring down costs. and with it the sizes of consumer-related markets. 4. The analogy is the QWERTY typewriter keyboard.4 Where is Consumer Demand? Of the Smart Grid’s many uncertainties. governments could prevent an inefficient standard from arising. the open question is whether consumers will wish to purchase in-home equipment in the volumes that Smart Grid enthusiasts expect and deem necessary. claimed by some to be a poor choice that the market froze into almost by accident.zigbee.81 If early adopters fail to demonstrate the hoped-for efficiency gains. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . 80 In some cases like large appliances industry practices are arising that will uniformly build HAN interfaces into all of their products. if at all.

3. however. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .3. Oklahoma.‖ PNNL-17167 (2007). re-engineering the customers themselves. Instead of running well-designed experiments they are choosing to fall back on an equally untested (and possibly untestable) rationale: consumers will have to change if the project is to deliver its hoped-for results. Over 60 percent of participants in the Pacific Northwest National Laboratory’s Olympia Peninsula Project got superefficient $800 dryers fitted with communicating hardware. Even here. Simply stated. Supporters of Smart Grid Heavy have acknowledged this lack of evidence.com Most user samples are of necessity non-random. and were allowed to keep them after the experiment. and retention of any billed amounts they might save. They are in Boulder. At the bottom of the press release the company notes that all of the subjects were its employees. which will also not happen when the Smart Grid goes universal.www. reported savings of up to 20 percent. Additionally.S. Smart Grid Analysis | PO Box 3840 | Glen Allen. It is difficult to make any optimistic inferences on the basis of experiments like those described above (others in the U. the sponsoring utilities (Xcel Energy and Oklahoma Gas & Electric) are looking for particular types of volunteers (e. Because the home-level equipment of interest is generally not available on markets at reasonable prices. small cities that contain large universities.000. By responding assiduously to prices they will enjoy lower bills. every known Smart-Grid trial has given additional rewards to its subjects—for enrolling. Colorado and Norman.smartgridanalysis. excluding renters) to participate in programs using full complements of home-level equipment. PNNL was unable to find 200 homes that satisfied its exacting (and largely arbitrary) standards. but if they fail to do so their bills will Page | 66 not rise. The most typical way around the problem is to give experimental subjects a one-sided benefit. utilities must re-engineer the customer’s perception of the utility relationship— in effect. and was forced to settle for 112. such as General Electric’s in Louisville. ―Pacific Northwest Test Bed Grid-Wise Demonstration Projects.g. and Europe also contain similarly non-random samples).82 The users in the Smart-Grid tests are also hardly random. Non-discriminatory regulation makes it impossible to randomly select utility consumers and force them to bear risks that their bills will rise unless they behave in certain ways such as responding strongly to time-varying prices. The two largest current city-level programs are also hardly representative. completing the trial. Other experiments. and sometimes monthly payments independent of use. the subjects get it as a gift. In a county of 68. Kentucky. The Smart-Grid value proposition cannot be 82 Pacific Northwest National Laboratory.

One expert on marketing Smart-Grid equipment goes so far as to suggest that “fear *of blackouts. climate change.‖ UtiliPoint Daily Issue Alert. Sept. import dependence. ―Sizzling Smart Grid Sales. by contrast. Modern methods of marketing research could almost certainly be applied.” meaning the time interval after which an energy-use display on the counter loses battery power or becomes a part of clutter that will spend the rest of its life in a drawer. and they will soon use it like they do the Internet.com. Give people a connection to the Smart Grid. 20.smartgridanalysis. Instead. Patti Harper-Slaboszewicz.”85 If consumers do not find the Smart Grid a desirable addition to their lives. much of its promise will be gone. utilities and equipment manufacturers tout the encouraging results of experiments whose details they leave unmentioned.com achieved by the utility alone. The Internet arose as an omnidirectional network that people could connect to for whatever reasons they desired. Smart Grid Analysis | PO Box 3840 | Glen Allen. so customers must participate in these new programs and technology solutions to realize and share the benefits with the utility. 14. The market will then expand. Sept. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 85 . even within the constraints of regulation. and so will much of the hoped-for sales of equipment to them.84 Selling smartness to a wider audience is recognized as a large and looming problem. Utilities and equipment manufacturers are hoping regulators will solve their problems by simply forcing it on ratepayers who will have no choice but to pay for it.+ is often a good motivator. Perhaps the most questionable are analogies between the Smart Grid and the Internet.‖ Public Utilities ―Will Consumers Plug into Home Energy Displays?‖ CNET News. 84 Michael Henry Price and Jim Thomson. ―Realizing the Benefits of Smart Meters. and it became more valuable the more other users were present. etc. is a one-trick pony. At the far end. but it is hard to really call it a market if buyers are without choices. 2009. 2009.83 Others are beginning to show concerns about the attention spans of consumers who are not actively rewarded for using their control equipment intensively. we see odd metaphors in lieu of actual research on market size and the types of services users desire. 83 Fortnightly. 2009. 53.www. neither utilities nor regulators appear particularly interested in its likely acceptance. The Smart Grid. At least one group of energy Page | 67 management device makers has coined the term “mean time to kitchen drawer. What is most remarkable is that given the expected size of investments in the grid. Nov. goes the reasoning. 1.

Well-designed research would be of great value to all sides. there are massive uncertainties about public acceptance. Even environmental and public interest intervenors. existing experiments tell us very little about what actual patterns of adoption might look like.www. but for reasons that are hard to explain that research is not taking place. There are three basic questions about how events will unfold. as the customer side of the Smart Grid appears to be doing. Smart Grid Analysis | PO Box 3840 | Glen Allen. normally sympathetic to conservation. without which the customer side of the grid will be largely nonfunctional. At the same time. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . whose initial enthusiasm may be waning. it may not be surprising to see that many regulators lack the enthusiasm of the utilities and equipment makers who are its strongest supporters. The first is the general level of regulatory acceptance. there are questions about the speed with which any markets will emerge. This appears to be a less important barrier. simply because de facto standards are already arising and regulators will probably prefer their emergence if unproductive delay is the alternative. Because of their design and the samples they used.smartgridanalysis.5 Conclusions It is hard to project a future of any kind for a market that in no real sense exists today. given the delays in formulating standards. Since the Page | 68 economic case for the Smart Grid is surprisingly weak. are posing important questions to regulators. Finally. It is even harder if the size and scope of that market will be determined in large part by politics.com 4.

important because of the rapid pace of developments in metering technology and uncertainties about future national policy. The next section of this chapter summarizes what are becoming generally agreed-upon qualitative findings about costs and benefits.S. we examined how Smart Grids were emerging at the federal level. The Federal Energy Regulatory Commission is responsible for setting broad national policies. largely through the passage and implementation of legislation. this chapter’s discussions are restricted to that country. we consider some Smart Grid Analysis | PO Box 3840 | Glen Allen. is it possible to extrapolate from the behavior of subjects in the pilot programs to the behavior of consumers as a whole? After this discussion of the issues that have dominated regulatory proceedings. with a few supplementary notes about Canada. but in the case of the Smart Grid there are important questions about both that have seldom been seen in past regulatory proceedings. There have been only a handful of fully contested proceedings in which opposing legal and economic arguments have been distilled into regulatory decisions. 5. This chapter summarizes some of what has been learned from state regulatory dockets during their relatively brief existence.1. an issue with two dimensions. First.1 Background Page | 69 In Chapter Two. and the substantial uncertainty that continues to surround them. than elsewhere. how responsive to prices and other information are the self-selected participants in the pilot programs seen thus far? Second.1 Introduction 5. in these proceedings and others we can see lines of economic and quantitative argument that will be important determinants of future state policies. Obsolescence and option value are beginning to shape the designs of meter rollouts. but individual utilities must gain the approval of state regulators for their Smart-Grid proposals. We go on to examine what is known about consumer responsiveness. Nevertheless. Because public utility regulation is an almost uniquely American institution and the Smart Grid has moved further forward in the U.www. but we will also see that those fields can easily become secondary to politics. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .smartgridanalysis.com Chapter Five: Trends in Smart-Grid Regulation 5.2 Plan of the Chapter Cost-benefit remains the primary regulatory standard for any investment by a utility. In the process we also encounter new regulatory issues of obsolescence and the option value of waiting to invest. Much of what we examine in this chapter is about economics and engineering. as has happened in California.1. as regards both timing and identification of which customers will (and will not) get the new technologies.

as was required by the Energy Independence and Security Act (EISA) of 2007. load management by customers. In part. If utilities are to see their peak demands shrink. each intended to show the consequences of both customer price responsiveness and direct load control (DLC) of customers’ appliances by utilities. with meters that relay data to the utility but facilitate minimal. 5. Under “business as usual. FERC retained Brattle to write its National Estimate of Demand Response Potential. a topic that we next attend to. however. Smart Grid Lite consists of hardware and software on the utility’s side of the meter that facilitate more reliable operation and power quality. we go on to examine proceedings in which regulatory bodies have approved Smart-Grid investments on different scales. preferably ones that facilitate price responsiveness. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .) In some cases.2 Costs and Benefits 5.7 percent per year between 2009 and 2019. The most commonly relied-upon studies of load behavior are those by economists at the Brattle Group and their associates. We close with a discussion of a few post-installation experiences. utility Smart Grid Analysis | PO Box 3840 | Glen Allen. but under the most stringent set of measures (universal Smart Grid.com arguments initially made to justify governmental activism for the Smart Grid.smartgridanalysis. (We have yet to Page | 70 see a state commission outrightly reject a utility’s Smart-Grid plans in full.2. and in others utilities have taken the initiative in proposing AMI and other innovations to regulators. state law requires utilities to invest. That study examined several scenarios built around different technological and policy circumstances. if any.1 General Findings As defined in Chapter Three. but that have since been abandoned by both utilities and intervenors. There is surprisingly general agreement that the benefit-cost balance for Smart Grid Lite is often insufficient to justify planned investments in it. The California Public Utilities Commission’s three proceedings (for each of its three large corporate electric systems) exhibit both important similarities and important differences that can help us better appreciate the possible future range of outcomes that might occur in other states. the California outcomes also reflect the peculiarities of the state’s politics.” the national peak would increase by 1. Having seen some of the underlying principles. A number of studies made for utilities have found that smart technologies will only produce positive net benefits if they are interfaced with information transfers and user-side controls. they must motivate customers to participate actively by imposing the reward structures that are implicit in time-varying rate designs.www.

5. http://www. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .88 As will be noted below.89 There have also been studies on Smart Grids that use command-and-control methods rather than prices. June 2009.gov/legal/staff-reports/06-09-demand-response. 88 89 Many Smart-Grid studies aggregate small users of two types—residences and small businesses currently charged uniform rates per kilowatt-hour—and impose time-varying rates on both.5 billion is barely measurable. its researchers have generally found that if metering is accompanied by energy rates that are based on the short-run marginal cost of generation. For the U. 7-8.brattle. The new rates induce users as a group (but not necessarily all individual users) to cut their peak consumption by large enough amounts to make a difference.com controllable user equipment. 2009.pdf Brattle Group.com/_documents/UploadLibrary/Upload574. there will be a savings of approximately $2.000 MW of peak demand for the nation’s 200 largest utilities. the benefits come in two basic forms: Annually.www. the figures derived in these studies depend critically on what is known or assumed about consumer price responsiveness. the text generally treats them symmetrically.87 As a fraction of $100 billion annual utility investments.2 billion. A National Assessment of Demand Response Potential. and time-varying rates). Page | 71 Using the results of prior studies. This study found net benefits to individual utilities ranging from negative to $3. Smart Grid Analysis | PO Box 3840 | Glen Allen. Executive Summary at xii. Brattle similarly concluded that smart metering accompanied by dynamic rates will produce annual savings on investments otherwise required to meet peak growth of between €1. with avoided costs of over $120 billion and savings net of Smart Grid costs of $48 billion. $2. 86 FERC. May 2007. http://www.smartgridanalysis. Despite the fact that their responsiveness may differ. Jackson Associates has estimated that a national Smart Grid with only direct load controls at its disposal could shave 115. the balance turns in favor of a Smart Grid. and a reduction of $600 million in operating costs.ferc.7 billion. In a comparable study performed for the European Union. the peak could be kept at 2009 levels through 2019. and savings in operating cost between €118 and €589 million.5 billion per year that would have been invested to build capacity that only operates around annual system peaks. Brattle concluded that a mass installation of smart meters unaided by timevarying rates would not pass benefit-cost tests in the industry’s current economic situation. The Power of Five Percent. 86 In several studies.0 and €4.S. Oct.pdf 87 Brattle Group. Unlocking the €53 Billion Savings from Smart Meters in the EU.

households) are not simply volunteers but instead are subsets of a larger set of volunteers.”91 5. Generally. the experimental subjects (i. 2009. As an example.cpuc. 23.www. as well as the substantial (in most parts of the country) percentage of homeowners (often lower income) who do not own the requisite appliances.smartgridanalysis.pdf 92 In a general experiment.ca. rewards that will probably not be available if the same policies become universal. and if this experimental equipment malfunctions additional visits may be necessary.S.92 90 Jackson Associates. Proposed Decision 07-12-009 (Dec. In the CPUC’s supplementary smart meter decision for Pacific Gas & Electric (PG&E). generally including air conditioning and laundry equipment. 2008).gov/word_pdf/AGENDA_DECISION/98213. Such a requirement eliminates most renters from the sample. 32. In a typical experiment.000 Utility Customers at 200 of the Largest U. From this base. many of whom will probably have lower average incomes than the recipients. the utility requires access to their properties at mutually agreeable times in order to install the user-side smart technologies. the administrative law judge agreed with advocates for small consumers that “the record in this proceeding is insufficient for determining the cost effectiveness of PG&E’s Page | 72 SmartMeter program on a total basis. Specifically. Utilities.2 Customer Response in Pilot Programs Projections of consumer reactions to Smart-Grid enablement and time-varying rates have thus far relied on fragmentary data from samples that appear to be biased toward a finding of favorable responsiveness. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .‖ June 24. http://www.com and that one in ten utilities would have a negative balance.pdf 91 CPUC. Smart Grid Analysis | PO Box 3840 | Glen Allen. membership in the volunteer population may be conditional on the rewards being offered for participation. only a small fraction of the area’s customer base expresses interest in participation.e.2. ―Are Smart Grids a Smart Investment? Hourly Load Analysis of 800.maisy. especially when comparing PG&E with SDG&E [San Diego Gas & Electric] and SCE [Southern California Edison]. http://docs. we note below that the $300 thermostats PG&E supplies to certain of its volunteer customers will largely be paid for by non-volunteers. 90 Actual regulators must sort through varying utility and intervenor claims that are intrinsically hard to verify in the current state of knowledge. Otherwise qualified volunteers may also be required to show a willingness to accept certain other intrusions into their lives. some will surely lose.com/BrochureSGReport. the researchers generally reject a large number for reasons connected with experimental design. Second. Some subjects are rejected because they do not own enough of the appliances whose use is of interest to the researchers.

nsf/5bd5ea1c0166554a85256d490075c301/dc7cf4cf7f9af22d85257448006a27a8/$FIL E/Ottawa_Wise_to_Smart_Meter_Technology_Sep07.smartgridanalysis. Grid-Friendly Appliance Project. Structured somewhat similarly to PNNL’s but with smaller rewards. it is not possible to judge the duration of customer attachment and whether active response to price changes will become habitual.S. the discussion of the Chatham-Kent experiment at http://www.94 93 All data are from two sources: PNNL. the U. PNNL17079. for example. population). some in this population overlapping with those in the other.com In the most-cited study to date. Each subject household got $150 for enrolling (for a year). Part II.marketwire. Everyone in the appliance project and 50 households in the price-tracking project got a free Energy Star dryer (sold at Sears for approximately $800) that they could keep. PNNL scoured a county of 67. It is not clear whether experience over a single year is sufficient for more general inferences. Seeking subjects for the first of these studies. and got the use of approximately $1.gridwise. 86 percent of heads of households had college degrees (compared with 54 percent for the U. saved about $10 per month on its light bill. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . and the other put utility-operated remote controllers (for which users could determine critical prices) Page | 73 for dryers and water heaters in 150. an association of equipment manufacturers and utilities. In its sample.www.gov/docs/op_project_final_report_pnnl17167. Part I. One of the projects put price-tracking equipment and user controls with time-varying prices in 112 homes.html and the Ottawa experiment at http://www.). government’s Pacific Northwest National Laboratory (PNNL) operated two projects in rural Washington state. The lack of volunteer interest was particularly odd in light of the rewards. Olympic Peninsula Project.S.com/press-release/Tantalus-Systems-Corp-611969.edaon.pnl.300 of equipment supplied by the utility for the duration of the experiment.gridwise.pdf 94 See. and zero percent of adults were high school dropouts (compared with 25 percent for the U. various pages. Pacific Northwest GridWise Testbed Demonstration Projects. PNNL-17167 (Oct.800 for dwellings that met its requirements and managed to enlist only 112 out of a hoped-for 200 houses. the results showed lower participation and bill savings than the PNNL studies. funded in part by the GridWise Alliance. 2007).gov/docs/gfa_project_final_report_pnnl17079.ca/eda/edaweb. In short-lived experiments. http://www. Ethnic minorities were effectively missing from the experiment.pdf Smart Grid Analysis | PO Box 3840 | Glen Allen. 2007).pdf http://www.93 The other major body of completed experiments comes from Ontario. (Oct.pnl.S.

and Oklahoma Gas & Electric.com/environment/EnergyEfficiency/Pages/Smart%20Grid. Cost per home will be approximately $4.96 All home installations in both cities will get digital displays.com/the- Boulder's survey contains 23 questions.aspx 99 Boulder also appears to have been singled out for special treatment by Xcel because of threats that the city would not renew its franchise with the utility and would instead begin proceedings to municipalize the system. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .oge.com/media/pdf/SmartGridCityDesignPlan. survey participants will be self-selected. The two most noteworthy are Xcel Energy’s “Smart Grid City” project in Boulder.000 of the city’s 45.‖ http://smartgridcity.zoomerang.com Elsewhere.97 Norman’s HAN group will include only 3. Colorado and Oklahoma Gas & Electric’s “Positive Energy” project in Norman. April 9. At the outset.html 97 http://www.com/Survey/WEB228ZX4LFLNY 98 http://www.‖ Boulder Daily Camera. Oklahoma. to be collected from all customers in the company’s territory. Each is the home of a university whose student body and workforce make up a disproportionate fraction of its population. 99 No explanations have been forthcoming as to why regulators would approve projects such as these that are unlikely to produce unbiased findings on consumer acceptance and responsiveness to SmartGrid technology and pricing innovations. ―Xcel Looking for Meter Volunteers.pdf http://www.www.xcelenergy. 95 Xcel Energy. 29. and http://www.com/environment/EnergyEfficiency/Pages/Smart%20Grid.95 The Boulder project will spend $100 million to equip half of the city’s homes with smart meters and Page | 74 equipment that will also enable broadband over power line (BPL) communications. will not pay for their equipment.‖ n.98 In both cases.d. Smart Grid Analysis | PO Box 3840 | Glen Allen. ―Positive Energy Smart Grid. The Norman project will include most business and all residential customers.‖ Boulder Daily Camera. news/722-ogae-announces-Smart-Grid-partners.000 meters.smartmeters. 2009.400. also to be chosen non-randomly.. however. it is clear that neither city contains a reasonably random sample of electricity users. 2009. utilities known to have strong interest in Smart-Grid investments have sought and obtained regulatory approval for larger-scale pilot projects in relatively small cities. ―Boulder's Leaders Consider Driving Harder Bargain with Xcel. and will probably enjoy bill protection. but in both cases the utility will only supply complete HANs and two-way communications to certain customers chosen on the basis of their responses to a survey. 2009.aspx 96 ―OG&E Announces Smart Grid Partners. ―Smart Grid City Design Plan.oge.‖ December 12. Mar.smartgridanalysis.

100 The Brattle Group’s figure for air conditioning DLC is four times higher than another New Jersey estimate (submitted to regulators by the same utility) that was based on existing DLC users.3 Active Participation As of today. there are no available direct estimates of the percentage of residential customers who will actively manage their loads. the company assumed that by 2014 approximately 50 percent of the company’s residential customers would be responsive to dynamic pricing.smartgridanalysis. New Jersey Board of Public Utilities Docket Nos. EO08050326 and EO07110881. (The membership and parameters of experimental programs are also conditioned by public utility law’s frequent requirements that customers cannot be treated differently for reasons other than their load characteristics.) The customer response percentages that utilities have thus far suggested to regulatory commissions have contained unavoidably arbitrary elements. Nov. Brattle states the figures on adoption were reflective of California's 2005 Statewide Pricing Pilot experiment. 2007.g. since it is generally acknowledged that the most important financial gains from controllable peak use are those associated with air conditioning. Appendix D. the Brattle Group’s study for Atlantic City Electric is in some ways today’s gold standard for such research. and regulatory assurance on bill protection.www. but that study also used self-selected subjects. 101 Ibid.com 5. payments for participation. Even if 100 Petition of Atlantic City Electric Company. 19. For example. 60 percent (30 percent of total customers) of which consists of residential users who the utility forecasted would choose to be under direct load controls for their air conditioning. air conditioner ownership) Page | 75 suggest that their benefits from participation would exceed the average. but its figures are heavily dependent on assumptions that are hard to verify.101 It is unclear why non-air conditioning owners would choose to participate at all. One final measurement problem remains. In effect.2. Appendix C. The remainder was assumed to elect dynamic pricing despite the fact that they did not utilize DLC for air conditioning. and whose demographics (e. Those benefits are further increased by the grant of free equipment. Smart Grid Analysis | PO Box 3840 | Glen Allen. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . The organizers of existing pilot programs have invariably chosen to utilize only volunteer households. whose very interest in the programs shows that they are likely to participate actively.

VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .smartgridanalysis. Some of the pilot consumers were given “orbs” that glowed red at times of high rates and green at low rates. One industry observer argues that the lack of responsiveness stems from a psychological disconnect between response to the orb and identifiable savings.nj.‖ Intelligent Utility.103 The program has thus far produced two results of interest. this procedure was approved by the California Public Utilities Commission for San Diego Gas & Electric’s program. have not been met.state. Comments Regarding Integrated Resource Plan for Connecticut Energy Advisory Board. Dec.4 The Value of Waiting Uncertainties about individual customer responses and known differences in the responses of Page | 76 different customer types have led to questions in regulatory proceedings about the value of universal smart metering. 11. but few of them responded to the signals.com/Downloads/SynapseReport. 15-16.com/article/09/12/pavlovs-glowing-orb Smart Grid Analysis | PO Box 3840 | Glen Allen. Feb. First. Expectations of additional responsiveness to time-varying prices.www. In 2007. 2009. July 8.synapse-energy. Why insist that all households get the meters if a smaller fraction of them are responsible for the preponderance of the Smart Grid’s effects on load? Or.104 102 Synapse Energy Economics. utilities’ initial plans for a full-scale rollout of AMI have been tempered by regulatory doubts. 10-12. ―Pavlov's Glowing Orb.2. 2008. if there is a legal requirement that all of them ultimately be smart-metered. Dec. prepared for New Jersey Department of Public Advocate.2008-02.AARP. and not surprisingly.2 million customers.com people start as active users of their HANs.‖ Connecticut Post. as in other pilots the volunteer subjects cut their peaks and overall consumption with programmable thermostats and “smart switch” programs to control equipment remotely. will they continue to operate them or quit when the novelty wears off? 102 5. 2008.Comments-Regarding-CTIRP.pdf 104 ―CL&P Finds It Can't Train Customers. Connecticut Light & Power proposed $255 million in smart meters for its 1.intelligentutility. 2009. http://www. The state’s attorney general intervened and ultimately CL&P settled for a $13-million pilot program with 3. why not at least give the first installations to those customers likely to save the most? As noted in the next section.pdf 103 Synapse Energy Economics. http://www. however. 7. http://www.us/publicadvocate/utility/docs/AMI_White_Paper-_final. which would allow it to test hypotheses put forth by other intervenors about the greater cost-effectiveness of mandating efficiency measures.000 volunteers.08-004. Elsewhere. Advanced Metering Infrastructure—Implications for Residential Customers in New Jersey.

the OPUC approved its request for a quick start to deployment.us/edockets/edocs. 5. Dec. Others are too vague or appear irrelevant to current conceptions of the grid. since the meters to be installed had communication abilities that would prevent them from becoming obsolete under almost any plausible national standard.puc.asp?FileType=HAR&FileName=ue189har161151. because NIST has yet to announce its interoperability standards there is a chance that equipment installed in the near future will not meet them. the arguments being used by utilities. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .or. http://apps.106 Although Portland General had no clinching argument for immediate installation. The other sides of such arguments are also seldom presented there by anti-Smart Grid interests trying to further their cases. the utility responded Page | 77 to such arguments with a claim that the details of a standard did not matter. Nov. Portland General itself had encountered this problem in the past. Testimony in Support of the AMI Stipulation. Macroeconomics: Like almost any other energy innovation. which argued that some delays and prioritizing by the OPUC were warranted on the basis of experiences of other states (see below) with meters whose capabilities were only found inconsistent with regulatory standards after a large number had been installed. the Citizens’ Utility Board.com Other state regulators have entertained testimonies favoring postponement of large-scale AMI on grounds that the technology is progressing rapidly and we can reasonably expect prices to fall. equipment makers and governments to “sell” the public on Smart Grids are seldom used at regulatory commissions.g. Oregon Public Utility Commission Docket UI 189.puc. climate change).www. 2-7 and 13-15. 2007.105 Portland General was opposed by a group claiming to represent small consumers. an important set of political interests puts forth arguments that justify the Smart Grid by the jobs that it will “create.or.2.us/efdocs/HTB/ue189htb124829.pdf Smart Grid Analysis | PO Box 3840 | Glen Allen.smartgridanalysis. In addition. 19-21. In Portland General Electric’s AMI application at the Oregon Public Utility Commission (OPUC). Oregon Public Utility Commission Docket UI 189.pdf 106 Response Testimony of Citizens' Utility Board of Oregon.state.5 Seldom-Heard Arguments for AMI and the Smart Grid Perhaps oddly. 21.state.” While 105 Portland General Electric Company. where protests brought forth a law prohibiting imposition of such rates. 2007. The Oregon proceedings brought up the further risk that quick and wide AMI deployment accompanied by mandatory time-of-use rates might bring complaints to regulators similar to those that had occurred in Washington State. 21. http://edocs. Some of them turn out to be beyond the jurisdiction of state commissions or impossible for those commissions to affect (e.

2009. until recently federal and state regulators typically offered utilities lower returns on transmission 107 There are no known figures for the ―job-creating‖ capability of the Smart Grid. Utilities have little reason to expand transmission capacity to facilitate additional activity by competitors. and only in odd theoretical situations (which are not present today) will such expenditures produce sustained increases in aggregate employment. One set of figures for the latter appears in Max Wei. then-Secretary of Energy Bill Richardson remarked that the U. with Robert Pollin et al. leaving existing lines strained in the face of demand growth. Center for American Progress. It is that the nation’s utilities are under-investing in transmission capacity. Page | 78 Even if such spending could affect the economy’s long-term employment rate.C. which has happened for several reasons. ―Putting Renewables and Energy Efficiency to Work: How Many Jobs Can the Clean Energy Industry Generate in the U. Green Jobs: Fact or Fiction. First. Green Recovery: A Program to Create Good Jobs and Start Building a Low-Carbon Economy. Sept.108 To a first approximation it does not matter whether funds spent on the grid come from electric bills or from disbursement of tax revenues.” a statement many believed was in reference to inferior technology for operating it. U. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . the logic is hardly clear to economists. Reliability: During the 2003 Northeast blackout. Smart Grid Analysis | PO Box 3840 | Glen Allen..com often heard. Most outages are minor and localized. America’s real transmission problem is not one that can be substantially mitigated by installing smarter technologies. is “a major superpower with a third world electrical grid. In reality.. in terms of grid innovations Europe generally lags the U. As noted in Chapter Three.S.smartgridanalysis..S. Institute for Energy Research. Washington D. but there are numerous ones for renewables. Second. operating technologies are generally as advanced as those of any other developed nation. et al.‖ Energy Policy 38 (2010).C.S. Jan. there are no obvious reasons why the existence of such an effect requires that the funds be allocated to Smart-Grid hardware.www. over the past 20 years utilities have had to contend with a growing presence of non-utility power producers who compete with them in wholesale power markets. There has been no distinct trend in U. Third.. outages.107 Funds spent on the grid are funds that will not be spent on other types of capital goods (or possibly consumption goods). caused by wind or lightning that are beyond operator control regardless of technology. 2008.S. 919-931. 108 Compare Robert Michaels and Robert Murphy. increased pressure by local intervenors have greatly increased the difficulties in obtaining rights-of-way and regulatory approval of construction. Washington D. although there have been increased declarations of situations in which transmission loading relief (TLR) procedures are called for.S.

http://sites.www.smartgridanalysis. Smart-Grid investments will improve operational oversight of regional transmission grids and allow automation of some operations that can increase Page | 79 reliability when intermittent renewables such as wind turbines abruptly change their power outputs. Since the units on the margin at peaks are generally gas-fired. a stronger and larger grid is in many ways a substitute for or superior to a smart one.pdf Smart Grid Analysis | PO Box 3840 | Glen Allen. the Brattle Group estimated that critical peak pricing would reduce demand by 3 percent during those periods. 109 The Brattle Group. for example if it allows coordination between loads and production in ways that allow more power to be generated by lower-emission facilities. however.com investments than on alternative uses of their funds.com/madri/pdfs/BrattleGroupReport. What stands in the way of power to fulfill these requirements is not Smart-Grid hardware. One does not need a Smart Grid to allow loads to function as reserves by being able to increase or decrease on short notice. In a study performed for the Pennsylvania–New Jersey–Maryland (PJM) Interconnection. and in order to meet the state's greenhouse gas standards it is generally agreed that they will require 33 percent renewable power by 2020. however. but conventional wires and substations that are not being built in the state’s precarious regulatory climate. which are in effect for one percent of the year.03 percent. For reliability. California’s three large utilities are far behind in reaching their legislated requirement of 20 percent renewable energy by 2010. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . smartness is far from a perfect substitute for capacity. Renewable energy: To an extent. Quantifying Demand Response Benefits in PJM. appear to come in the form of shifting times of use rather than shrinking amounts used. 2007. since larger amounts of intermittent power will continue to necessitate larger (but not proportionately larger) amounts of fossil-fuel (usually gas) operating and ready reserve capacity. this is a reduction in power output and emissions of 0. the effect on carbon emissions would be considerably less than from a comparable curtailment of baseloaded coal-burning units. Looking at generation. 29.energetics. Emissions: There are minor possibilities for cutting emissions with a Smart Grid. as is proven by the experience of Loads Acting as Reserves (LAAR) in places like Texas. Jan. The actual effects of Smart-Grid peak shaving under time-varying rates. 109 Even if we assume no time-shifting of loads. 30.

the Alabama Public Service Commission’s approval of Alabama Power’s request for a residential smart-meter program did not make public the cost of the program. state law required installation of smart meters. 2008. 29. the basic 110 See Public Utility Commission of Texas. Oncor Electric Delivery Company.smartgridanalysis. Nov.pickocc. Aug. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .‖ Ohio Consumers‘ Counsel Press Release.113 In Ontario. which the Office of the Ohio Consumers’ Counsel refused to sign. The only intervenors of note were municipal governments whose cities were served by the companies and were concerned with cost allocations to them.com/news/stories/0508/520221. Smart Grid Analysis | PO Box 3840 | Glen Allen. June 23. and the associated Page | 80 regulatory dockets have been largely devoted to examining the reasonableness of utilities’ cost claims. 19.abc3340. New York Public Service Commission Case 09-E-0310. ABC 33/40 News.3 A Sample of Dockets 5. Duke Energy’s Ohio smart metering program was approved by a complex compromise agreement.112 The New York Public Service Commission is currently entangled in controversy as to whether AMI installations are a sufficiently important expense for the state’s utilities to warrant dockets of their own rather than being folded into the companies’ rate cases. The smallest of these utilities would be spending over $100 million on the equipment. 35718. and often reflect the idiosyncrasies of their states.com 5.php?date=11192009 113 See Comments of Multiple Intervenors. http://www. 2009.111 Its Southern Company operating counterpart Georgia Power included a smart meter program as a virtually uncontested component of its 2007 general rate case. The scopes of the dockets meant that there were no openings for intervenors who intended to provide their own cost-benefit calculations or to make the case that alternative methods of load management were superior to the meters.html 112 ―Duke Consumers to Be Asked to Pay for Smart Grid Without Assurance of Useful Benefits. which has concerned industrial users who fear being forced to cross-subsidize residential users. on grounds that it provided no assurances as to the existence and timing of possible benefits to small consumers from the Smart Grid and dynamic pricing. In Texas. 2008.www.110 In other states. 2009.3.1 Proceedings with Little or No Cost-Benefit Analysis Smart-Grid regulatory dockets are quite heterogeneous.org/news/2009/pressrelease. Multiple Intervenors is an association of 50 of the largest power users in the state. Order in Docket No. 111 ―Alabama Power to Install New ‗Smart Meters‘ for Customers. http://www. May 15. on grounds that such data were of competitive importance to the company.

July 20. Southern California Edison: About the same size as PG&E. Pacific Gas & Electric: The northern California utility constructed its case by choosing not to roll out new meters. for both full and partial deployments to their customers.gov/word_pdf/FINAL_DECISION/58362. 2006.116 PG&E claimed that the meters and pricing would allow it to cover 90 percent of its costs by operational savings such as electronic meter reading and the remaining 10 percent by demand response. 116 California Public Utilities Commission (CPUC).com regulatory proceeding that mandated smart metering contained few if any useful cost-benefit calculations. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .ny. March 21.pdf Smart Grid Analysis | PO Box 3840 | Glen Allen. and instead attaching rather simple communications modules to its existing residential ones.pdf 115 Our exhibit in Chapter 2 that lists major Smart Grid adopters includes California's Sacramento Municipal Utility District.us/public/Common/ViewDoc.115 In 2004. Instead of requesting universal CPP. which offered a bill saving of about 10 percent to those customers who reduced their consumption by 25 percent during hours. it stated that AMI deployment similar to PG&E’s would in fact give the http://documents. Decision 06-07-027. The proceeding was responsive to new legal requirements rather than one that was initiated by a utility. that commission ordered the companies to develop business cases for smart meters. which sets its own policies and is unregulated by the CPUC.114 5. It came up with a net positive benefit-cost figure. SCE chose a very different strategy.3.smartgridanalysis.com/RegulatoryAffairs/Documents/Archives/EB-2005-0528/decision_210306.hydroone. which would be declared in advance. In its initial filing.2 Costs and Benefits in California The advanced metering filings of the three large California utilities and the resulting decisions Page | 81 by the California Public Utilities Commission constitute the most extensive existing body of regulatory arguments and evidence on the Smart Grid. 2006. the company’s computations assumed that 15 percent of its small customers would accept the plan.ca.cpuc. http://www. Decision with Reasons 210306. The three came up with strikingly different strategies and estimates of benefits and costs.state. http://docs. Final Decision Authorizing Pacific Gas & Electric Company to Deploy Advanced Metering Infrastructure. 31. but only conditional on “critical peak” pricing (CPP) that stipulated a maximum number (75 in this case) of critical peak hours per year at which high rates would be in effect.www.dps.aspx?DocRefId={F7F585DC-2CE9-4698B623-B4B64173BCCC} 114 Ontario Energy Board.

The exact reasons for the large difference are not made clear in the decisions. 2007. July 31.”119 Intervenors and officials were quick to respond to these figures.pdf 120 Case Study. and what ensued would become the most complete quantitative record to date in an AMI proceeding.05-03-026.07-07-026. but left the difference between benefits and costs within $1 million of its former value. July 31. A later decision and recalculation changed these figures.120 The group also argued that important figures estimated by SCE such as demand response were quite uncertain.smartgridanalysis. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . 2.04 percent of the total.com/pdf/SGNCaseStudySCE.smartgridnews. CPUC Docket A. with present value costs of $1.com company a negative present value net cash flow of $951 million over the upcoming 30 years.117 Instead the company was granted a delay period during which it would partner with manufacturers and engineers to develop a meter with more sophisticated two-way communication capabilities.118 Getting to the positive balance required that the company assume capitalized future cost savings of $298 million from the new meters’ capability to remotely initiate and terminate service. 121 Comments of The Utility Reform Network on the Proposed Decision of Administrative Law Judge Hecht in Application 07-07-026. 119 ―Designing the Future: A Smart Grid Newsletter http://www.98 billion over the 24 years. Why anyone would assume that increased metering accuracy would raise revenue was unclear at best. The CPUC’s Division of Ratepayer Advocates (DRA). 0. the most important of which was extra revenue from increased metering accuracy. Its claims of success in this venture succeeded in changing the algebraic sign of its cash flow from negative to positive. and such uncertainty should lead the CPUC to reconsider the application in light of the remarkably small gap between the company’s estimates of costs and benefits. and $315 million more in benefits resulting from demand changes that would come about from mandatory installation of utility-controllable thermostats in new air conditioning installations. 2007.121 There were additional uncertainties associated with a relatively novel technology that had never before been deployed on such a scale.www. 118 Reply Brief of Southern California Edison Company. Smart Grid Analysis | PO Box 3840 | Glen Allen. Long-established small consumer advocacy group The Utility Reform Network (TURN) argued that in reality SCE had never even measured some of its claimed benefits. 2006. a commission 117 CPUC. 1 – 3. Decision A. There were also $39 million in benefits from enhanced energy theft detection.90 billion Page | 82 and benefits of $1.‖ Nov. $256 million from increased meter accuracy. 4. and $70 million in “previously unidentified benefits.

Residential and small commercial consumers would continue to have the option of time-varying rates (which were required for larger users).” Other such benefits claimed by SCE included “improvements in consumer experience” and a modest value for reduced carbon emissions.2 billion. Almost all of SDG&E’s benefit figures were reduced as a result of objections by the DRA and local consumer group UCAN (Utility Customers’ Action Network). as amended in a settlement.) After the CPUC’s decision was filed. California is putting in place a cap-and-trade program for carbon. in particular what they viewed as an unfavorable allocation of risk between the company and its customers. SDG&E had acceptably 122 Reply Brief of Southern California Edison Company. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . however.123 The Commission also rejected TURN’s arguments that its consumer protection duties should compel it to reject a $2-billion project whose benefits were only an uncertain $9 million over its costs. CPUC Docket A. Regarding the “societal benefits” (an official California term) of increased meter accuracy. Any wider application of time-varying rates would also have to wait. The company’s response was a claim that the estimates were conservative.90 billion project would return only $9 million in benefits over 24 years. Smart Grid Analysis | PO Box 3840 | Glen Allen. took similar positions.07-07-026. 2. the CPUC was on record with a policy from other AMI cases that the benefits were “real. San Diego Gas & Electric: The CPUC’s decision on San Diego Gas & Electric’s plan approved a settlement agreement reflecting intervenor arguments that differed from those in the other utilities’ cases. did note that unlike the other utilities. 2 and 8.www. 2007. July 31. which were dedicated to prioritizing conservation and efficiency over renewable generation.122 The CPUC approved the basics of SCE’s plan. The Commission. but the proceeding was not reopened. 123 Reply Brief of Southern California Edison. and that in any case it was “blatantly false” for TURN and DRA to claim that the $1. The Programmable Communicating Thermostats (PCTs) that were at the heart of the company’s demand reduction figures were withdrawn by the California Energy Commission following their media exposure to great public hostility. and renewables over conventional generation. even if not quantified. since the company had shown that the benefits were in Page | 83 reality $1. Smart meters and demand response were integral components of the state’s official resource plans.smartgridanalysis. in 2009 the legislature voted to require delays of several years (depending on the rate design) before the CPUC could impose mandatory time-varying rates on small consumers. important parts of SCE’s projections fell apart. (SCE’s 2008 operating revenue was $11.com staff whose sole responsibility is to represent small consumers.98 billion.

PG&E estimated their cost at 124 CPUC Decision D. It Page | 84 further noted that the expenditures on smart-meter deployment had an important opportunity cost—other investments that could also have shaved the company’s peak would be forgone. Oncor’s initial wave of installations included some meters that in fact did not meet corporate and regulatory specifications. In its 2006 application to install smart meters (for both electricity and gas). In consequence. but ultimately allowed it to charge $8 million more per year for the replacements. the utility was to move most quickly on those with the largest overall demands. almost any imaginable rationale for it will suffice to obtain regulatory approval.smartgridanalysis. Dallas Morning News. 2007). The Public Utility Commission of Texas (PUCT) cut the company’s original request for recovery of the added cost. Decision D. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . The question of interest for the immediate future is whether or not this history will repeat itself in other major states where AMI is on the policy menu. but the uncertainty will carry little weight for such a political program.www.com quantified most of the “societal” benefits that had had been left uncomputed for the other two utilities. the Commission required the utility to prioritize its rollout. regulators in other states may wish to examine the aftermath of decisions approving advanced metering deployment. and therefore had to be replaced. The one certainty is that intervenors in many of them will be better able to present the alternatives as regulators weigh the costs and benefits.07-04-043. 12 and 76-78. The exact numbers are uncertain. unlike its actions in the other dockets. 125 126 ―PUC to let Oncor Boost Rates. 5. 14. 2009. and those whose peak demands most heavily reflected air conditioning.3 Cost Overruns and Consumer Reactions Given the precariousness of cost-benefit estimates like those for California (and the absence of any explicit calculation in Texas). Smart Grid Analysis | PO Box 3840 | Glen Allen. On the basis of information about characteristics of those customers most likely to cut their peaks and time-shift their consumption that had been derived from earlier experiments. 125 This recounting of the three California dockets appears to contain an important lesson: if the politics favor AMI. given California’s experience with cost-benefit data.3. In Texas. the commission expressed concern with some of the company’s technology choices and mandated that certain options for future modification remain open.124 Of particular interest. with Portion to Cover Initial Smart Meters.07-04-043 (April 12.126 A similar problem in technical standards for meters also arose in California. Aug. 11 and 74.

An important part of the Smart Grid’s peak-shaving benefits will probably require direct load control by the utility. leaving them unable to perform certain functions. and some have yet to institute time-varying rates to which residents might respond.127 Thus far there are only very limited data on the actual behavior of households that have become Smart-Grid enabled.p df Smart Grid Analysis | PO Box 3840 | Glen Allen. http://www.74 billion. but this may also reflect the time required for customers to learn and adapt to new technology. 129 Although they are not strictly comparable. the company informed the CPUC that it had apparently made an engineering mistake. The Commission appeared unconcerned that this additional cost would change the company’s initially stated net of benefits and costs from positive to negative. 128 Southern California Edison only installed its first meters in September 2009 and has no active HAN program. which will require installation of additional 127 ―California Regulators OK $467M PG&E Plan to Upgrade Meters.000 of them were using the service. In March 2009. 2008. 12. 128 Actual participation of those customers has been low. See Josh Bode. but only 12. since only PG&E has thus far given smart meters to a large percentage of its customers.com $1. but it is not yet known how many of those going online were in a position to monitor those rates and adjust their consumption.com/artman/uploads/1/How_well_do_pricing_pilots_predict_actual_impacts. Most state regulators that have approved smart-meter rollouts have not yet authorized installation of home consumption displays. It is hard to draw inferences from California data. The meters it had previously installed did not have communication functionalities comparable to those of the state’s other utilities. PG&E had installed 557. Sullivan & Co. 129 California utilities must offer time-varying rates as an option to residential customers. 2009. Mar. ―How Well Do Pricing Pilot Impacts Predict Actual Program Impacts.000 meters capable of sending customers online data on their energy consumption.smartgridnews.000 new meters (gas and electric) in place by year-end 2009. The CPUC authorized an additional $467 million Page | 85 billable to customers for purchase and installation of the upgraded meters.www. offer time-varying rates to residential customers. such as directly control appliances.smartgridanalysis. San Diego's much smaller system saw 200. with the power meters relatively inexpensive due to their restricted functionality. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . As of April 2009. even as an option. It does. In Texas. Oncor and CenterPoint are proceeding with system-wide AMI installations but do not intend to enable user-side communications and devices for at least another year. and in the absence of HANs today’s degree of enablement is substantially lower than it will be in a mature system with more customer-side investments. however.‖ Freeman. one might compare these performances with the favorable results of critical peak pricing that PG&E found in an earlier experiment.‖ Dow-Jones News Service.

000 customers on discounted rates that allowed the company to cycle air conditioners at peaks. and to promises by legislators to give rate relief to customers thus affected.000 by mid-2011. The pilots use self-selected 130 ―California Retail Power Pricing Eludes Residential Sector. Comparisons were difficult because the CPUC had approved two major rate increases over the intervening year.133 5. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . July 15. 13. Stockton Record. even if consumers are made aware of what they are paying at the time. Inducing sufficient consumer response requires timevarying rates that may produce adverse political reactions. as of April 2009. 2009. 131 The company has also claimed that its old meters systematically understated actual power use. Also. PG&E has argued that its meters are accurate and offered free tests to customers. The actual degree of customer response is very difficult to estimate.smartgridanalysis. Doing so.‖ NGI's Power Market Today. In September 2009. will require supplying each customer with a special $300 thermostat whose costs will be spread over the rates of all of the company’s customers. 132 ―Some Claim New Meters Driving up PG&E Rates. 133 PG&E also claims that home displays will make it easier for customers to control their expenses because they will now learn how close they are to entering a higher tier. however.132 The rate designs embody an attempt to reduce consumption by setting five tiers whose prices per kilowatt-hour increase with the level of use. California has also shown that customers who have no choice about smart meters may have difficulty accepting them. PG&E had 124.www. Smart Grid Analysis | PO Box 3840 | Glen Allen. It hopes to raise that figure to 400. The story of policies affecting the Smart Grid begins with what has become conventional wisdom: the Smart Grid’s measured ability to reduce peaks and with them the need for seldom-used generation capacity is not by itself sufficient to make AMI a worthwhile investment.4 Summary and Conclusions Page | 86 The Smart Grid is a fundamentally novel initiative whose consequences are unfolding at a number of state regulatory commissions.com user-side hardware. PG&E began receiving customer complaints that new meters in the San Joaquin Valley (where extensive use of air conditioning is the norm) might be malfunctioning because their new bills were in some cases twice those of the corresponding months in 2008. Sept. most importantly because pilot studies have produced results that are probably quite biased.130 This has given rise to lawsuits whose court dates are still some ways in the future. 2009. but has not explained why it tolerated such errors for years.131 It has also told its customers that problems being blamed on the meters were really complaints about new rate levels and rate designs that arrived concurrently with the meters.

com subjects who are in no way random samples of users. Instead of arguing over whether a Smart Grid will serve broader public purposes such as emissions control or the Page | 87 fostering of intermittent renewable generation. utilities and regulators have generally chosen the alternative path of a more straightforward comparison of operational costs and benefits. however. Smart Grid Analysis | PO Box 3840 | Glen Allen. the benefit-cost analysis has been minimal. At least in California.smartgridanalysis. and the studies’ often encouraging results also probably reflect rewards that the subjects receive for their participation. the state’s environmental politics has trumped advice to proceed with a more measured deployment. however. Uncertainties about customer response and the potential obsolescence of metering hardware have made many utilities and regulators hesitant to approve quick AMI rollouts. The history of California’s AMI dockets is one in which utilities. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . regulatory experts and intervenors have shown the consequences of unstandardized cost-benefit methods and idiosyncratic data.www. Unsurprisingly. sometimes for legal reasons and sometimes for political ones. the numbers produced by all sides in these dockets are monuments to uncertainty that will not be resolved until we gain experience with actual smartmeter deployments in which users can actively control their consumption under time-varying rates. In many states.

VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 .www.) Demand Response and Advanced Metering Energy Independence and Security Act Electric Power Research Institute European Union Federal Energy Regulatory Commission Home Area Network Intelligent Electronic Device Integrated Resource Planning Local Area Network Meter Data Management System National Electric Manufacturers Association National Energy Technology Laboratory National Institute of Standards and Technology Plug-In Hybrid Electric Vehicles Renewable Portfolio Standard Smart Grid Heavy Smart Grid Lite Wide Area Network Page | 88 Smart Grid Analysis | PO Box 3840 | Glen Allen.S.com Acronyms and Abbreviations Used in this Report AMI ARRA CPP CPUC DLC DOE DRAM EISA EPRI EU FERC HAN IED IRP LAN MDMS NEMA NETL NIST PHEV RPS SGH SGL WAN Advanced Metering Infrastructure American Reinvestment and Recovery Act Critical Peak Pricing California Public Utilities Commission Direct Load Control Department of Energy (U.smartgridanalysis.

The Illinois Commerce Commission. Michaels holds an A. and legal publications. He is co-editor of Contemporary Economic Policy. His publications include numerous peer-reviewed articles in economics journals.S. including Public Utilities Fortnightly. Views expressed in this paper are not necessarily those of his affiliations or clients. an Associate Analyst at Smart Grid Analysis. as well as articles in industry publications. House of Representatives and state legislatures. Michaels. a leading periodical in energy risk management. Dr. PBS. from the University of Chicago and a PhD from the University of California. Wall Street Journal. both in Economics. and has been quoted in (among others) the New York Times. His textbook in Managerial Economics. is a professor of Economics and Daniel P. the Vermont Public Service Board. as well as appearing on broadcast media including ABC.com About the Author Robert J.” a biweekly column on regulatory policies and markets in Energy Metro Desk. NBC. He has also testified before committees of the U. Mississippi Public Service Commission and other agencies. He also writes “Power Moves. VA 23058 | TEL: 804-360-2967 | FAX: 804-270-7017 . including Energy Law Journal and Antitrust Bulletin. Fox. Transactions and Strategies. Electric Light and Power. a peer-reviewed journal of Western Economic Association International. Fullerton. He is Adjunct Scholar at the Cato Institute and Senior Advisor to the Institute for Energy Research. will be published in early 2010 by Cengage Learning. the California Public Utilities and Page | 89 Energy Commissions. He has presented testimony on behalf of clients before the Federal Energy Regulatory Commission. and Los Angeles Times.www. Smart Grid Analysis | PO Box 3840 | Glen Allen. Hann Research Fellow in Law and Economics at the Mihaylo College of Business and Economics at California State University.smartgridanalysis. and The Electricity Journal. Los Angeles. Michaels frequently appears at industry conferences.B. and NPR.

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