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Federal-State Partnership

Transforming DR and smart-grid policies into reality.

Fortnightly Magazine - January 2010

the matching portion of the commitment, in order to increase the chances of utility applicants in their states. 10

In September 2009, DOE moved to further support state and utility implementation of DR and smart-grid initiatives by committing to provide additional stimulus funds to hire and train new workers needed to upgrade the electric grid: $100 million was allocated for training programs for utility workers and $44 million for hiring and training state employees to help achieve the energy efficiency, renewable energy, and low-carbon policy objectives of the smart grid.

Ironically, some entrepreneurs developing smart-grid technologies complain that the rush to apply for stimulus funds has diverted the attention of state governmental entities and utilities from smart grid-related projects already under development, and has delayed securing investments and completion of projects. One smart-grid Web site recently reported that smart-meter manufacturers experienced sales declines in the second quarter of 2009. 11 However, the delay soon will be over if DOE releases the bulk of its available funds by early 2010. More important, the absolute amount of federal funding and its impact on state and utility spending is enlarging the new marketplace for smart grid-focused technical innovation, and likely will have a significant multiplier effect that will improve the economic opportunity for entrepreneurs, investors, technology innovators and service providers. Large companies and small companies, startups and existing companies are getting into position to develop what will be a renewed electricity industry.

The Wall Street Journal reported that U.S. utilities plan to spend $10.75 billion on smart grid-related computer hardware, software, and services this year alone—an amount equal to the entire smart-grid stimulus package. The multiplier effect of smart-grid investments is illustrated by PG&E’s solicitation to Cisco Systems and IBM to design displays and manage data for providing just 75,000 of its 570,000 business customers with digital information to manage their energy use. 12 This followed shortly after announcements by Cisco and IBM of partnerships with more than a dozen vendors to provide hardware and software products. 13 IBM previously announced the availability of $2 billion to finance IT initiatives targeted by the ARRA—the smart grid, health information, and broadband access. 14

Federal Policy Strategy

While the billions of dollars of smart-grid support undoubtedly stimulate near-term economic activity, perhaps most important to the likelihood of long-term success of this enterprise is that Congress has adopted, and federal agencies are implementing, a strategy of working with the states that’s based on forward-looking policies that the states themselves increasingly are endorsing ( e.g., renewable portfolio standards, carbon allowance trading, and peak demand reduction).

This strategy just might work. It’s straightforward, relying on the states to voluntarily implement rate and recovery policies that will stimulate price-responsive demand or other variations of DR. At the same time, it provides the states, utilities, and DR and smart-grid innovators and service providers with an Internet-like platform on which to seamlessly operate, as well as programmatic tools and at least some of the money needed to create appropriate regulatory mechanisms and build necessary infrastructure. The best evidence that the states are