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Efficient Regulation, Efficient Grid

Intelligent infrastructure requires an intelligent policy framework.

Fortnightly Magazine - August 2009

The current view of the smart grid is as an extension and extrapolation of the existing distribution and transmission networks, bolstered with technologies such as advanced metering infrastructure (AMI) giving visibility and control from buss bar to end-use devices coupling communications and computing into a new web of intelligent infrastructure.

While much of the discussion has been about building out this new grid on today’s business model, financing, managing and controlling it will necessitate a new framework—one that may be as dramatic in how it changes the industry as wrought by the technologies themselves. The answer lies in the creation of what might be termed the new grid efficiency framework (GEF). This framework will require a new understanding between utilities and their regulators that will allow the industry to advance its goals of reduced carbon emissions, improved system operations and efficiency, all while maintaining the highest reliability standards.

Too much has been made of use cases and business cases as the industry makes the most dramatic set of changes it’s made in the past 50 years. Whether it’s the inclusion of renewables and plug-in hybrid vehicles to AMI systems, which place options in the hands of consumers, or visualization and management of the system and its state by control areas, it won’t be business as usual for public power, investor-owned utilities, rural electric cooperatives or federal systems. Current regulatory perceptions will have to change as the value chain is fundamentally altered.

Trying to justify and value the smart-grid cost using today’s recovery mechanisms is tantamount to valuing the personal computer as a time-saving typewriter and calculator or analyzing the cellular telephone market simply as a replacement for land-line telephony. No use case could have accounted for the ancillary and significant value created by expanded computing through the web or communications such as text messaging (not to mention digital photography) through the cell-phone network.

Recognizing that utilities are motivated to add capital projects to their systems, regulators have found themselves in the role of heavily scrutinizing the reasonableness of large investments to keep costs in check. Their reviews not only compare the proposed capital project to reasonable alternatives, but also consider the technological risk associated with the investment. There are many examples in regulatory proceedings where commissions have disallowed all, or a portion, of investments because the technology was considered experimental, it didn’t perform up to standards, or was perceived to be “gold plated” compared to reasonable alternatives. This regulatory environment doesn’t foster bold ventures into new uncharted territory, nor does it embrace long-term positive qualitative and quantitative benefits that might not impact ratepayers for years to come.

Therefore, it’s critical that a new regulatory perspective evolve to support and stimulate the massive investments being made in intelligent infrastructure in a way that supports, and does not undermine, financial incentives for the

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