Utilities invest considerable staff time and financial resources in defining and explaining their smart grid programs through formal regulatory channels and compliance submittals. Many of the regulatory interactions by the utility represent reviews of its planned initiatives.
Some represent reviews of actual results achieved to date. Others represent investigations into new issues perceived by regulators or other stakeholders as risks or implementation challenges.
It is within this context that utilities should consider the opportunities afforded by regulatory filings and review cycles. These opportunities can be useful to advance critical thinking within the utility and with its stakeholders regarding over-arching smart grid objectives, principles, risk management guidelines and requirements.
Doing so will help the utility align these near-term requirements to its long-term planning and risk management criteria, and can also help improve regulatory outcomes to the extent that these criteria improve the objectivity and credibility of the reviews.
Regulatory review of smart grid initiatives
Significant investments in smart grid programs represent long-term commitments by electric distribution utilities to their customers, investors and regulators. While smart grid programs vary in their nature and scope, electric utilities will continue to face close regulatory scrutiny concerning these investments due to early stage approval requirements, demand response-driven tariff needs, ongoing compliance reviews, cost recovery pressures, and emerging regulatory requirements.
Smart grid oversight will continue to unfold in the following ways as smart grid investments and programs advance, mature, evolve and expand:
· At early stages in the approval process, regulatory bodies and municipal boards will exercise general oversight for the planned smart grid investment.
· Utilities will seek required approvals for new tariffs in support of smart grid investments and demand response initiatives.
· Utilities will seek approvals for cost recovery pilots or programs through rates or other ratemaking mechanisms. These approvals may need to be re-visited if program scope and experience drives cost variances and the need for new, unanticipated funding.
· Regulators will seek updates on the utility’s progress and will require verification to ensure compliance with their specific metrics and requirements – such as those associated with the NIST/FERC cybersecurity framework and NERC reliability standards – is being achieved.
· Utilities will address emerging requirements that heretofore remained outstanding, such as protocols and requirements for meter data exchange amongst utilities, consumers, energy retailers and regulators.
· Regulators will engage the utilities on health, security, and safety issues in response to public scrutiny, if and as they emerge.
· Utilities will promote and seek approvals for the review and implementation of next stages in their smart grid technology roadmaps.
Advancing strategic objectives
Electric distribution utilities can benefit from reinforcing, as part of regulatory plan filings, their over-arching (“strategic”) and long-term smart grid investment objectives, principles, and requirements. Utility regulatory filings will always be largely driven by the specific nature of the programs and technologies in question, the underlying legislative or regulatory mandates, and jurisdictional imperatives, precedents and policies.
However, when viewed as a public – and highly scrutinized – step in what is in essence a form of long-term, protracted dialogue with key stakeholders, the regulatory filing becomes a valuable opportunity for utility management to strategically advance smart grid investment.
The smart grid objectives, principles, risk management guidelines, and requirements are strategic considerations that define the utility’s primary tenets; which both constrain and shape near-term programs and projects. Explained well, they will help stakeholders understand better why the near-term investment priorities represent prudent steps in a long-term plan, why the selected vendors and technologies represent a synergistic fit, and why a particular schedule and rollout will provide compounding results.
A practical path forward
For strategic objectives, principles, guidelines and requirements to be meaningful, they need to be demonstrated as practical. A guiding principle aimed at not exposing customers to undue risk associated with smart grid investments is arguably prudent, but defined metrics for cost recovery specifically aligned with the principle is impactful.
A utility’s objective aimed at improving reliability through smart grid infrastructure investments may be vague and of little value, but an objective that offers specific priorities for action, aligned with reasonably anticipated NERC reliability distribution system requirements, helps establish context for prioritization decisions.
In some demonstrated circumstances, developing over-arching smart grid investment objectives, principles and requirements reflects advanced forethought and design, as well as the need for compliance.
In Illinois, dozens of electric utility smart grid stakeholders participated in a year-long Illinois Commerce Commission (ICC) sponsored collaborative work effort (pursuant to ICC Order, Docket No. 07-0566), the aim of which was to design and publish a framework for ICC smart grid investment considerations and policies.
Following this effort, the Illinois state government developed and adopted the Energy Infrastructure Modernization Act (EIMA, re: Public Act 97 0616, as modified by Public Act 97 0646). During 2012, Commonwealth Edison and Ameren both submitted plans to the ICC for their respective smart grid AMI investment programs pursuant to EIMA and attentive to EIMA requirements.
EIMA is detailed in its prescriptions about ensuring that the electric utility smart grid AMI investment plan is founded on solid principles. EIMA requires that the smart grid investment plan contain vision and strategy statements (with various criteria), explanations about how the utility evaluates and prioritizes technology choices to create customer value, a plan to “enhance and enable customer’s ability to take advantage of smart grid functions,” consistency with NIST interoperability goals, and measures to protect consumer privacy and data, among many other requirements.
Additionally, it includes general and encompassing definitions of smart grid functions and characteristics, many of which originate from the Federal Energy Independence Security Act of 2007 (EISA) and DOE guidance for smart grid programs. EIMA also calls on consistency of the electric utility smart grid AMI investment plan with certain principles established through the Illinois Statewide Smart Grid Collaborative (ISSGC) pertaining to cost-beneficial evaluation criteria.
The over-arching principles and requirements adopted within the ISSGC framework and the EIMA legislation (such as adopting the EISA 2007 smart grid functional characterization framework) represent years of collaborative design effort by Illinois electric utilities working closely with the ICC and other key stakeholders.
Through these efforts, objective evaluation standards have emerged by which the adequacy of the utility smart grid AMI investment plans can be evaluated, thus leading to improved regulatory outcomes for all concerned. It is likely that the framework embodied in EIMA and the ISSGC will continue to provide the long-term guideposts in Illinois and elsewhere to direct future smart grid regulatory evaluation.
As the experience in Illinois demonstrates, developing and advancing over-arching considerations for smart grid investments is hard work, introduces challenges, and takes active engagement with stakeholders over many months. To apply the same thinking elsewhere, utilities may want to consider the opportunities associated with planned regulatory filings and review cycles to advance critical thinking within the utility about its smart grid objectives, principles and requirements.
This undertaking will help the utility align its near-term program definition and delivery requirements to long-term planning criteria. Resulting enhancements in the clarity and credibility of the smart grid investment plan can also improve near-term and long-term regulatory outcomes, shortening review times and lessening the risk of appeals.
Author: Andrew Trump is a director and executive consultant in the utility practice at Black & Veatch. He has extensive experience in the areas of financial evaluation, regulatory strategy and plan development, and procurement support for utility smart grid and AMI investments. His background includes providing expert testimony on smart metering initiatives with Black & Veatch’s clients, and leading power plant development efforts with Duke Energy North America, a merchant energy company. Trump holds a BS in Physical Sciences from Harvard University and an MS in Public Policy from George Mason University. Reach him at TrumpAL@BV.com