Smart Grid Legal News - High Voltage Insight on Smart Grid Issues

Most people in the industry agree the electric infrastructure is outdated and requires extensive upgrades. It’s when you get to the “How?” and “Who pays for it?” that the war begins in many jurisdictions. And if you think that having a law that supports the upgrades and implementation of the smart grid settles the matter, think again. Last year, Illinois passed the Energy Infrastructure Modernization Act ("EIMA"), yet implementation has been anything but routine. In a show of force between regulators and law makers, electric utilities in Illinois found themselves holding the cost recovery bag. Last May the Illinois Commerce Commission (“ICC”) found that Ameren’s Smart Grid Plan failed the customer cost benefit test. The ICC also disallowed key costs in ComEd's first formula rate case under EIMA. According to ComEd, it will now face a reduction in funding of nearly $100 million per year in 2014 and beyond. These are dollars that cannot be recovered and subsequently reinvested into the system, jeopardizing the grid modernization programs and related customer benefits. ComEd has appealed the ruling in court, but that decision may take up to two years.

In a battle between regulators and law makers, on November 29, 2012 the Illinois Senate passed Senate Resolution 821 which states in part:

RESOLVED, BY THE SENATE OF THE NINETY-SEVENTH GENERAL ASSEMBLY OF THE STATE OF ILLINOIS, that we express serious concerns that the Illinois Commerce Commission Order, entered on May 29, 2012 in Commission Docket No. 11-0721, fails to reflect the statutory directives and the intent of the Illinois General Assembly by: (1) not allowing Commonwealth Edison Company to earn a return on what is commonly referred to as, identified in the FERC Form 1 as, and what the General Assembly referred to as a pension asset in subparagraph (D) of paragraph (4) of subsection (c) of Section 16-108.5; (2) assessing interest on those amounts to be credited or charged to customers as set forth in subsection (d) of Section 16-108.5 of the Public Utilities Act at an amount that is not based on the utility's weighted average cost of capital; and (3) determining rate base and capital structure using an average, rather than  the year-end amounts as reflected in FERC Form 1…

Not sure if the resolution swayed regulators, but in true Chicago-style politics, the ICC issued an order on December 5, that allows ComEd to proceed with its revised smart grid deployment plan in 2015 but makes it clear it is not happy about the delay:

Allowing the Revised Plan to go forward is accepting, at least for now, that meters will not be installed until 2015. This is regrettable, because the benefits to ratepayers are greatly reduced with the delayed deployment. But because of the impossibility of implementing the Original AMI Plan and the shortcomings of the proposed Revised Plan, the Commission is left with only bad options. - ICC Order page 32

One thing is clear, the battle in Illinois will continue. The order requires ComEd to describe in detail their efforts accelerate implementation when the company files its April 2013 AMI Plan Progress Report.

Dominion Virginia Power received SCC  approval to offer an electric vehicle recharging pilot program. The pilot is designed to test whether electric vehicle owners will choose to recharge their vehicles during off-peak hours – typically overnight – in exchange for lower electricity costs. Interested customers will be able to sign up for the pilot program beginning Oct. 3, 2011. Dominion will partner with car dealerships and charger installation vendors to build customer awareness.

The two experimental rate options as a part of the pilot are:

Electric Vehicle only – This option is for charging the electric vehicle only. The company estimates that it would cost about 43 cents on this rate to charge an electric vehicle overnight with enough electricity for a typical 40-mile commute. Customers electing the electric vehicle-only rate option will have a second meter installed to measure the energy use specific to recharging the vehicle.

Whole House – This option allows customers to take advantage of lower prices for many household activities. The pricing would change during the day to encourage the off-peak charging of electric vehicles and use of other household appliances, such as the dishwasher and clothes dryer. The company estimates that it would cost between 41 cents and 49 cents on this rate to charge an electric vehicle overnight with enough electricity for the daily commute.

Each rate option would be limited to 750 participants who would have to stay enrolled for at least one year. The pilot, expected to cost $825,000, will terminate Nov. 30, 2014. It looks like House Bill 2105 was passed right on time. This new law, effective July 1, 2011, will allow Dominion to annually recover the cost of the pilot program. However, the Commission's order does not allow the company to recover any lost revenue as a result of the pilot.

Virginia has been identified by industry experts as potentially one of the hottest markets for plug-in electric vehicles based on the state's relatively large number of first-generation hybrid vehicles. Dominion believes there could be 86,000 electric vehicles in the state – equal to 5 percent of all vehicle sales – by 2020. If charged on peak, these vehicles could lead to an increase in the amount of peak-demand electricity the company must supply that year by about 270 megawatts, which is the equivalent of powering 67,500 homes.

On February 8, 2011, George Jepsen, attorney general for the State of Connecticut submitted a brief requesting the Department of Public Utility Control reject CL&P's AMI deployment plan, citing the $500 million dollar ratepayer-funded plan would yield few benefits. Since CL&P customers already benefit from AMR meters, the AG does not believe the price tag is worth the near term deployment of AMI meters. In the event AMI deployment is approved, the AG requests the following limitations:

• Surgical deployment – provided only when requested by customers who are willing to pay for them
• Replacement deployment – as AMR meters die, replace them with AMI meters
• Prudence review – cost recovery via a base rate case and only after CL&P demonstrates the costs were prudent

It is unfortunate the AG does not see that a couple of the limits he is seeking to place on the program would erode and further minimize the benefits of AMI deployment. Operational savings are optimized when there is full deployment. CL&P submitted a cost-benefit analysis. Here are just some of the benefits:

• Peak load reduction of 125 megawatts annually. This is sizable enough to forgo running a small power plant. Numerous additional benefits stem from this fact alone. When you forgo a power plant, you eliminate all the expense, environmental impact, energy , etc. that goes along with running the plant
• Total energy reduction of 190 million kWh per year, saving enough energy to power 20,000 homes
• Carbon emission reduction of 100,000 per year, giving Connecticut air the positive equivalent of 13,000 less cars on the road
• Two percent reduction in storm outage duration

These benefits will be further optimized with full deployment, as that sets the stage for the best customer education and engagement process.

In an order that took many by surprise, the Colorado Public Utilities Commission slashed $14.8 million in cost recovery from the Public Service Company of Colorado’s (“PSC”) smart grid pilot. PSC is a subsidiary of the trailblazer Xcel Energy. This reduction is in spite of a settlement where parties agreed to, and ALJ G. Harris Adams recommended approval of, a recovery of $44.5 million for the much-heralded pilot project called “SmartGridCity” (SGC) in Boulder, Colorado.  

In its written decision issued last week, the Commission signaled its unease over the lack of a detailed, strategic plan for the use of SGC investment and whether the projected benefits would be actualized. However, the $14.8 million is not completely lost. PSC can recover the costs upon demonstrating “the credible promise of consumer and utility benefits” and “the ability of customers to make practical use of SGC on their side of the meter through in-home devices.” 

The SGC, which began in 2008 for 24,000 customers and includes plugs for electric vehicles, smart substations and feeder automation enabled by fiber-optic broadband internet, was projected to cost Colorado ratepayers $15.3 million. But the cost shot up to $27.9 million in early 2009, and by 2010 when the estimate nearly tripled to $44.5 million, public criticism mounted quickly and loudly.

Xcel and the Colorado Governor’s Energy Office note that SmartGridCity has already produced clear benefits, such as preventing outages, but many of those benefits have yet to be assigned dollar figures.

Triple cost-overruns would raise eyebrows in any business venture. But in grasping this cost-mismanagement episode, one should take into account the pioneering nature of this pilot project. Industry analysts note that a key goal of this pilot project is acquiring knowledge for future applications, not just guaranteed savings. 

“It’s going to be easier for other people to do cost-benefit analyses because of the data [PSC] gathered,” – Katherine Hamilton, GridWise Alliance

When you consider that the project began before smart grid initiatives became a national priority, I wonder whether Xcel should be given some slack for being a Smart Grid pioneer.

BGE took the political high road and decided to move forward with a modified version of its smart grid plan despite not receiving cost recovery via a surcharge tracker. In a news release the day it filed its modified proposal, BGE president and chief executive officer, Kenneth W. DeFontes expressed disappointment over the Commission’s June 21,2010 order but remained hopeful the revised plan would get approved; allowing the company to get on with the business of enhancing reliability, move toward meeting its EmPOWER Maryland goal to reduce energy consumption by 15 percent by 2015 and put to use the $200 million stimulus grant the company was in jeopardy of losing. 

Although the revised plan was approved and the Maryland PSC stressed its decision should not be viewed as a no confidence vote in smart grid technology, the Commission also remained unpersuaded from its original position on cost recovery.  The 51 page decision states:

...we will not authorize cost recovery for any approved 'smart grid' or AMI project through a surcharge." We reached that conclusion because the proposed AMI deployment "would represent a large, but classic investment in BGEs distribution infrastructure," precisely the kind of investment that BGE has recovered through traditional ratemaking for a century. We are not persuaded to deviate from these principles by BGEs arguments regarding the magnitude of the AMI investment or the possibility of negative reactions from credit rating agencies. Pg.32

When announcing its intent to proceed with smart grid implementation, BGE highlighted the Commission’s support of prudently incurred cost recovery rather than “unfair, post hoc nickling-and diming.”  This was no doubt a shout out to the victorious AARP and the OCP!