Demonstrating the Smart Grid


Pilot projects clarify the vision of an intelligent utility system.

Pilot projects clarify the vision of an intelligent utility system.

Fortnightly Magazine - June 2008

The smart grid might not be a done deal, but the U.S. electric utility industry seems to have reached a conclusion about it. In short, we have seen the future of the electric system, and it works—intelligently.

In just a few years, the idea of a smart grid has advanced from a pie-in-the-sky idea to an industry bandwagon. Across the country, utilities large and small are touting investments in transmission and distribution (T&D) automation, and calling them part of a smart-grid strategy.

Of course, this investment trend isn’t really new. For a couple of decades, utilities have gradually built more automation into their T&D systems. But the trend has evolved into something more. The smart grid has become a vision for the industry’s future—a vision that both executives and lawmakers have recognized as a politically neutral, forward-looking technology trend. As a result, it’s gaining momentum not just in terms of investment plans, but also in public-policy processes.

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Most notably, the Energy Policy Act of 2005 called for the development of smart-grid standards, and directed state regulators and utilities to consider, among other things, time-based rate schedules. Then, Title XIII of the Energy Independence and Security Act, signed into law last December, moved the ball further by authorizing up to $100 million per year for smart grid initiatives, and establishing matching federal funds for up to 20 percent of qualifying smart-grid investments.

Spurred in part by the U.S. Congress, there’s movement at the state level as well. Utility commissions across the country have been examining smart-grid-related filings, from basic cap-ex plans to innovative rate treatments for advanced metering programs. For example, in May 2008 state legislators in Ohio endorsed rate-base treatment for smart-grid investments, and supported electric utility revenue decoupling in the name of energy efficiency. In several states, decoupling allows utilities to recover not only the cost of implementing energy efficiency and peak demand reduction measures, but also the revenues they forfeit once the measures go into effect (see “Commission Watch table, Revenue Decoupling in the States ”).

For many smart grid proponents, these developments are great news, because they provide solid policy support for many of the central benefits of system automation. But for all this progress, the smart-grid vision still remains fuzzy for many executives and regulators. Every investor owned utility—not to mention every cooperative or public power company—faces a different operational and strategic situation, so the smart grid means something different for each utility.

Also, no application to date has provided a complete, working example of the smart grid in operation, and the technical, business and regulatory implications of the smart grid are unfolding too quickly for a single project to adequately demonstrate. Thus executives and regulators remain uncertain when they’re asked to invest in a smart-grid strategy. In short, the industry likes to think the future grid will work intelligently, but we’re