Power Advisory Smart Grid Presentation

John Dalton

[email protected]

Tel: 978 369-2465

Joint CEA Customer Council & Corporate Partners Committee

Securing Regulatory Support for Smart Grid Investments

November 24, 2009

mailto:[email protected]

Case Study: BC AMI Investment Why Smart Grid investments warrant special

regulatory treatment Characteristics that distinguish Smart Grid

investment Regulatory policies and proposals

FERC: Smart Grid Policy Statement OEB: Discussion Paper on Regulatory

Treatment of Infrastructure Investment Conclusions

Presentation Outline

Power Advisory LLC 2009All Rights Reserved 2

FortisBC proposed installing 108,000 AMI-enabled meters Cost of $37 million 0.4% rate impact in 2010

Three primary benefits identified: Operational cost savings “Soft benefits”: improved customer service “Future benefits”: ability to implement DSM

BCUC rejected investment Viewed application as incomplete and premature

Case study demonstrates challenges associated with securing regulatory approvals for Smart Grid investment


Insufficient detail on: The long term vision for AMI

Application of remote disconnection Implications of TOU rates and load control

How and if gas & water meters incorporated Costs of various AMI components

The application viewed as premature because: BC Hydro’s smart meter regulations hadn’t been

defined No analysis of impacts of DSM measures No comprehensive plan in BC for AMI

Net result unable to determine that AMI is cost-effective

BCUC found AMI proposal incomplete and premature


Smart Grid investments more risky due to: Premature obsolescence of assets Changes in technical standards

Interoperability critical to achieving objectives Exposure to rapid change in the applied technology

Smart Grid investments may strand older assets Retail meters may have significant book value

In spite of these risks a desire for some to be “first movers” Policy makers seeking expected benefits

Smart Grid investments warrant special regulatory treatment


Smart Grid investments applications of IT Which evolves very quickly making equipment

obsolete sooner Expected lifetime of some smart grid assets much

shorter than that of other investments Smart Grid technology is still evolving

Investment may become prematurely obsolete if standards change or adjacent systems use other technology

Standards still under development NIST interoperability standards

Risk that technology doesn’t perform as claimed Effectiveness of programs that utilize technology

Technology risk


Smart grid allows better grid operation in real time by giving operators real-time information on grid status beyond their own jurisdiction Such information may have prevented the August

2003 blackout Better allowing operators to react to the sequence

of problems Most Canadian systems integrated with US as well as

Canada, these smart grids must be interoperable with US systems Standards for the US systems are being developed but

are not yet final

Interoperability


Some Smart Grid investments may require premature retirement of assets AMI investments require removing existing meters

that are not fully depreciated Their costs may no longer be recoverable once they

are no longer used and useful Special rate treatment required for unamortized

costs Other transmission assets, such as control systems,

may similarly be displaced by Smart Grid investment

Stranded Costs


FERC Smart Grid Policy Statement Smart Grid investments eligible for a special Interim

Rate Treatment if they meet certain conditions Promote development of Smart Grid Do not compromise existing grid Are flexible to minimize possibility that they will

be stranded by new technology or new standards Will exchange information with DOE Smart Grid

Clearinghouse

FERC recognizes need for special regulatory treatment


Special rate treatment allows Rate application to recover Smart Grid investment

without review of full rate base Recovery of stranded costs Can apply for other incentives FERC allows for

needed transmission investments

FERC recognizes need for special regulatory treatment


Green Energy and Green Economy Act targeted Smart Grid investments OEB opened a proceeding on Regulatory Treatment

of Infrastructure For smart grid and to incorporate renewables

Staff discussion paper issued asking for comments on 26 issues

Other provinces have not yet addressed smart grid issues British Columbia inquiry on transmission

infrastructure capacity and adequacy which does not fully address smart grid issues

In Canada, the OEB has gone furthest in consideration of regulatory treatment of Smart Grid


Accelerated capital cost recovery Asset life equal to contract life Recovery of Construction Work in Progress

Stranded cost treatment Recovery of cost of abandoned facilities

Incentive mechanisms ROE adder Project-specific capital structures

Measures are not incentives to reward good performance Intended to ensure implementation of transmission

and distribution investments that might not otherwise occur

The Ontario Energy Board staff discussion paper suggested some measures


FERC set the four conditions to be met During interim period, utilities must do their part to

minimize risks with Smart Grid investments OEB proposed to distinguish three kinds of investments:

Routine Non-routine incremental GEGEA-related

Routine investments would not qualify for incentives; others would be considered case by case

Not all investments would qualify


Smart Grid investments are different and warrant special regulatory treatment Utilities need assurance that they will be able to

recover costs of prudently incurred investments Special treatment clearly needed for interim period

until smart grid standards are final A minimum requirement could include

Abandoned facilities cost recovery if abandonment is beyond utility’s reasonable control

Accelerated cost recovery

Conclusions


I look forward to your questions

John Dalton

Power Advisory LLC

[email protected]

(978) 369-2465

www.poweradvisoryllc.com



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