Smart Grid Policy, 37098-37119 [E9-17624]
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Federal Register / Vol. 74, No. 142 / Monday, July 27, 2009 / Rules and Regulations
DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
18 CFR Chapter I
[Docket No. PL09–4–000]
Smart Grid Policy
Issued July 16, 2009.
AGENCY: Federal Energy Regulatory
Commission.
ACTION: Policy statement.
SUMMARY: This Policy Statement
provides guidance regarding the
development of a smart grid for the
nation’s electric transmission system,
focusing on the development of key
standards to achieve interoperability
and functionality of smart grid systems
and devices. In response to the need for
urgent action on potential challenges to
the bulk-power system, in this Policy
Statement the Commission provides
additional guidance on standards to
help to realize a smart grid. The
Commission also adopts an Interim Rate
Policy for the period until
interoperability standards are adopted
by the Commission, which will
encourage investment in smart grid
systems.
DATES: Effective Date: The Interim Rate
Policy will become effective September
25, 2009.
FOR FURTHER INFORMATION CONTACT:
David Andrejcak, Office of Electric
Reliability, 888 First Street, NE.,
Washington, DC 20426, (202) 502–
6721, david.andrejcak@ferc.gov.
Elizabeth H. Arnold, Office of General
Counsel, 888 First Street, NE.,
Washington, DC 20426, (202) 502–
8818, elizabeth.arnold@ferc.gov.
Ray Palmer, Office of Energy Policy and
Innovation, 888 First Street, NE.,
Washington, DC 20426, (202) 502–
6569, ray.palmer@ferc.gov.
Dennis Reardon, Office of Energy
Market Regulation, 888 First Street,
NE., Washington, DC 20426, (202)
502–6719, dennis.reardon@ferc.gov.
SUPPLEMENTARY INFORMATION:
Table of Contents
Paragraph
Nos.
I. Background ............................................................................................................................................................................................
II. Discussion ............................................................................................................................................................................................
A. Jurisdictional Concerns ................................................................................................................................................................
B. Development of Key Standards ...................................................................................................................................................
1. System Security .....................................................................................................................................................................
2. Communication and Coordination Across Inter-System Interfaces ....................................................................................
3. Wide-Area Situational Awareness ........................................................................................................................................
4. Demand Response ..................................................................................................................................................................
5. Electric Storage ......................................................................................................................................................................
6. Electric Vehicles ....................................................................................................................................................................
7. Additional Priorities Suggested by Commenters .................................................................................................................
C. Interim Rate Policy .......................................................................................................................................................................
1. Scope and Duration ...............................................................................................................................................................
2. Additional Showings .............................................................................................................................................................
3. Incentives Under the Interim Rate Policy ............................................................................................................................
a. Single Issue Ratemaking .................................................................................................................................................
b. Recovery of Stranded Costs for Legacy Systems ..........................................................................................................
c. Additional Incentive Rate Treatments ...........................................................................................................................
4. Potential Interplay With Department of Energy Funding Grants .......................................................................................
III. Document Availability .......................................................................................................................................................................
IV. Information Collection Statement ......................................................................................................................................................
V. Effective Date and Congressional Notification ...................................................................................................................................
Appendix A List of Commenters and Short Names.
Before Commissioners: Jon Wellinghoff,
Chairman; Suedeen G. Kelly, Marc
Spitzer, and Philip D. Moeller.
Policy Statement
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Issued July 16, 2009.
1. On March 19, 2009, the
Commission issued a Proposed Policy
Statement and Action Plan to guide the
development of key standards for smart
grid devices and systems.1 Many
companies in the electricity industry are
designing and deploying such devices
and systems with the objective of
achieving greater interoperability and
functionality of the nation’s electric
transmission grid. In the Proposed
Policy Statement, the Commission also
put forth the notion of an interim rate
policy to guide rate recovery while
interoperability standards are adopted
(Interim Rate Policy). Comments were
invited on all aspects of the Proposed
Policy Statement. On May 19, 2009, the
Commission issued a notice requesting
supplemental comments on one
additional feature of the Interim Rate
Policy.2
This Policy Statement generally
adopts the proposals enumerated in the
Proposed Policy Statement and provides
additional guidance for standards that
will help realize a smart grid.
I. Background
2. As the Commission explained in
the Proposed Policy Statement, the
Commission’s jurisdiction over the
transmission system derives from
provisions of the Federal Power Act
(FPA) relating to the transmission of
electric energy in interstate commerce
by public utilities, and to the reliable
operation of the bulk-power system.3 An
additional responsibility was assigned
by the Energy Independence and
Security Act of 2007 (EISA) 4 directing
the Commission to initiate a rulemaking
proceeding to adopt standards and
protocols related to smart grid
functionality and interoperability.5
3. EISA lays out the policy of the
United States with regard to
modernization of the nation’s electricity
transmission and distribution system in
order to maintain a reliable and secure
electricity infrastructure that can meet
future demand growth and achieve a
3 16
U.S.C. 824, 824o (2006).
L. 110–140, 121 Stat. 1492 (2007).
5 EISA section 1305(d), to be codified at 15 U.S.C.
17385(d).
4 Pub.
1 Smart Grid Policy, 126 FERC ¶ 61,253 (2009)
(Proposed Policy Statement).
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2 Smart Grid Policy, 127 FERC ¶ 61,139 (2009)
(Notice Requesting Supplemental Comments).
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number of goals characterizing a smart
grid.6 EISA also directs the National
Institute of Standards and Technology
(the Institute) to coordinate the
development of a framework to achieve
interoperability of smart grid devices
and systems, including protocols and
model standards for information
management.7 The Commission
explained in the Proposed Policy
Statement that, in order to achieve the
smart grid characteristics and functions
described in EISA, interoperability of
smart grid equipment will be essential.8
4. Once the Commission is satisfied
that the Institute’s work has led to
‘‘sufficient consensus’’ on
interoperability standards, EISA directs
the Commission to ‘‘institute a
rulemaking proceeding to adopt such
standards and protocols as may be
necessary to insure smart-grid
functionality and interoperability in
interstate transmission of electric
power, and regional and wholesale
electricity markets.’’ 9 In the Proposed
Policy Statement, the Commission
described some of the Institute’s efforts
to date, as well as its projected work, to
develop a framework for interoperability
standards, and sought comment on the
most effective and efficient ways for the
Commission and the Institute to interact
in the ongoing standards development
processes.
5. In the Proposed Policy Statement,
the Commission identified several
potential challenges to the reliable
operation of the Commissionjurisdictional bulk-power system and
the smart grid functions and
characteristics that could help address
those challenges. The major challenges
identified include: Existing
cybersecurity issues 10; issues associated
with changes to the nation’s generation
mix,11 including an increasing reliance
on variable renewable generation
resources;12 and issues that could arise
with increased and more variable
electricity loads associated with
transportation technology.13 In addition
to these challenges, we incorporated the
Institute’s assessment that there is an
overarching need for standardization of
communication and coordination across
inter-system interfaces.14
6. In response to the need for urgent
action on these potential challenges to
the bulk-power system, the Commission
identified and asked for comments on
several areas it proposed as deserving
high priority in the smart grid
interoperability standards development
process, including two cross-cutting
issues (cybersecurity and physical
security to protect equipment that can
provide access to smart grid operations,
and a common information framework),
and four key grid functionalities (widearea situational awareness, demand
response, electric storage, and electric
transportation). The Commission also
proposed the Interim Rate Policy to
encourage investment in smart grid
technologies intended to address
potential challenges to the bulk-power
system through the advancement of
efficiency, security, reliability, and
interoperability. The Interim Rate Policy
provides that smart grid investments
that demonstrate system security and
compliance with Commission-approved
Reliability Standards,15 the ability to be
upgraded, and other specified criteria
will be eligible for timely rate recovery
and other rate treatments.
7. The May 19 Notice Requesting
Supplemental Comments sought
6 EISA section 1301, to be codified at 15 U.S.C.
17381. Among these goals and characteristics are
deployment or realization of: Digital information
and technology to improve reliability, security and
efficiency; cybersecurity; distributed resources and
generation; demand response; ‘‘smart’’ technologies
for optimal grid operations and distribution
automation; ‘‘smart’’ appliances; electricity storage;
consumer information and control; and
communication and interoperability standards.
7 EISA section 1305(a), to be codified at 15 U.S.C.
17385(a). In this Policy Statement, we refer to the
Institute’s process as both the coordination and the
development of standards. The Institute’s primary
function with regard to smart grid is to be a
coordinator for the variety of smart grid standards
development initiatives.
8 Interoperability is described as exchanging
meaningful information between two or more
systems and achieving an agreed expectation for the
response to the information exchange while
maintaining reliability, accuracy, and security. See
GridWise Architecture Council, Interoperability
Path Forward Whitepaper, https://
www.gridwiseac.org/pdfs/
interoperability_path_whitepaper_v1_0.pdf.
9 EISA section 1305(d).
10 Proposed Policy Statement, 126 FERC ¶ 61,253
at P 13.
11 On May 13, 2009, the Commission announced
that it had commissioned the Lawrence Berkeley
National Laboratory to use frequency response to
help assess the potential for the reliable integration
of wind and other renewable energy resources into
the bulk-power system. The frequency study has
three main objectives: (1) Determining if frequency
response is an appropriate metric to assess the
reliability effects of integrating renewables, (2)
using the resulting metric to assess the reliability
impact of various levels of renewables on the grid,
and (3) identifying what further work and studies
are necessary to quantify and mitigate any negative
effects on reliability associated with the integration
of renewables.
12 Proposed Policy Statement, 126 FERC ¶ 61,253
at P 17–20.
13 Id. P 21–22.
14 National Institute of Standards and
Technology, Smart Grid Issues Summary (2009),
https://collaborate.nist.gov/twiki-sggrid/pub/
SmartGrid/TnD/Draft_NIST_Smart_Grid_Issues_
Summary_10March2009.pdf, at 1 and 4–5.
15 Adopted under FPA section 215, 16 U.S.C.
824o.
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additional input regarding potential
actions that the Commission could take
to insure that public utilities may
qualify for awards under certain
Department of Energy funding programs
related to jurisdictional facilities. On the
same day of the issuance of our
Proposed Policy Statement, the
Department of Energy announced $2.4
billion for electric vehicle
demonstration and deployment
projects.16 On April 18, the Department
of Energy announced another $615
million for targeted demonstrations
programs; one of three targets is ‘‘utilityscale energy storage demonstrations.’’ 17
8. The Commission notes from its
review of a recent report that the
Institute is now using the Proposed
Policy Statement to coordinate
development of interoperability
standards.18
II. Discussion
9. Approximately 70 sets of comments
were submitted from a broad array of
interested parties.19 In general,
commenters support the Proposed
Policy Statement, including the
establishment of key priorities 20
16 See March 19, 2009 Department of Energy news
release, President Obama Announces $2.4 Billion
for Electric Vehicles, https://apps1.eere.energy.gov/
news/daily.cfm/hp_news_id=159. In this Policy
Statement, ‘‘electric vehicle’’ refers to a vehicle that
requires periodic re-charging of its propulsion
battery from the electric grid; such a vehicle may
or may not also be a ‘‘hybrid,’’ additionally capable
of re-charging with a fuel-driven generator or by
other mechanical means.
17 See April 16, 2009 Department of Energy news
release, Vice President Biden Outlines Funding for
Smart Grid Initiatives, https://www.energy.gov/
news2009/7282.htm.
18 Don Von Dollen, Report to NIST on the Smart
Grid Interoperability Standards Roadmap, Electric
Power Research Institute (June 17, 2009) (Roadmap
Report). See also Press Release, Electric Power
Research Institute (June 17, 2009). For example,
Chapter four reports on the collaborative work of
the Institute, the contractor, and its subcontractors,
and attendees at two conferences to develop use
cases, interfaces, and requirements for the
Commission’s four key grid functionalities
identified in the Proposed Policy Statement: Widearea situational awareness, demand response,
electric storage, and electric transportation. Two
additional priority functionalities have also been
identified that relate to those proposed by the
Commission: AMI systems that relate to the need
for metering standards are identified in the demand
response discussion of the Roadmap Report and
distribution grid management (related to distributed
energy storage) is identified in both the electric
storage and electric transportation discussions. In
addition, Chapter five of the report is devoted to the
cross-cutting issue of cybersecurity identified by the
Commission. Chapter six addresses the
Commission’s second cross-cutting issue of a
prioritized need for common semantic models and
other standardized communication elements.
19 An alphabetical listing of all commenters and
abbreviations for each is found at the end of this
document at Appendix A.
20 An area considered to be a ‘‘key priority’’ is
proposed as the first level of work to be
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identified therein, and the need for
focused leadership over the process
going forward. There is a greater
diversity of comments on the Interim
Rate Policy. Sixteen supplemental
comments were submitted, exhibiting a
split of opinion regarding whether to
offer special procedures for rate
recovery filings for utilities seeking
funding through certain Department of
Energy programs.
10. In this Policy Statement, the
Commission adopts the key priorities
for standards development that were
identified in the Proposed Policy
Statement. The Commission also adopts
the Interim Rate Policy, as discussed
below, and finds that there is no need
for special procedures associated with
rate recovery filings for projects that are
also receiving Department of Energy
grant funding.
11. A number of entities also
comment on the standards development
process and the Commission’s
interactions with the Institute and other
bodies interested in the development of
interoperability standards. The
Commission will address these topics
separately.
A. Jurisdictional Concerns
12. In the Proposed Policy Statement,
the Commission noted that its interest
and authority in the area of smart grid
derive from its authority over the rates,
terms and conditions of transmission
and wholesale sales in interstate
commerce and its responsibility for
Reliability Standards for the bulk-power
system, as well as from EISA.21
Specifically, the Commission has
jurisdiction over the transmission of
electric energy in interstate commerce
by public utilities pursuant to FPA
section 201, and over the reliable
operation of the bulk-power system in
most of the nation under FPA section
215.22 Section 1305(d) of EISA directs
the Commission to initiate rulemaking
proceedings to adopt such standards
and protocols as may be necessary to
insure smart grid functionality and
interoperability in interstate
transmission of electric power, and in
regional and wholesale electricity
markets.23
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Comments
13. Many commenters note a tension
that the Proposed Policy Statement
raises between Federal jurisdiction and
accomplished in the interoperability standardssetting process. Proposed Policy Statement, 126
FERC ¶ 61,253 at P 27.
21 Id. P 1.
22 16 U.S.C. 824, 824o.
23 EISA section 1305(d), to be codified at 15
U.S.C. 17385(d).
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State jurisdiction and urge the
Commission to clarify jurisdictional
boundaries. Questions center on both
standards adoption and applicability
and whether deployed technology will
be subject to State or Federal rate
authority.
14. A number of commenters
maintain that EISA does not alter the
fundamental parameters of the
Commission’s authority.24 State
commissions, other State authorities,
and several utilities remark that the
Commission should not encroach on
traditional State jurisdiction.25 The
Michigan Commission maintains that
implementing smart grid functionality
and interoperability at the distribution
level or in retail sales should be left to
the states. Several entities are concerned
by statements in the Proposed Policy
Statement that, to those parties, indicate
that the Commission may be extending
its jurisdictional scope. In particular,
commenters take issue with the
suggestions that the potential reliability
impacts of electric vehicles may afford
the Commission some authority over
distribution facilities, and certain
devices related to the distribution
system are eligible for cost recovery in
wholesale rates because of some
tangential impact on bulk-power
operations due to interoperability
issues.26
15. The Ohio Commission comments
that, since interoperability standards
encompass areas that are outside of the
Commission’s jurisdiction, the
Commission should support the
development of model standards
through the Institute’s process, resolving
any impasses through the NARUC/FERC
Smart Grid Collaborative, and that the
Commission and states should adopt
model standards to be applied within
areas subject to their respective
jurisdictions. In addition, states should
be responsible for ensuring compliance
with Commission-imposed guidelines
and standards.27
16. The Ohio Commission and North
Carolina Agencies note that not all
states will want the same smart grid
functionality deployed in the same
manner, and comment that standards
should accommodate different rate
structures and policies. In contrast,
24 See, e.g., Michigan Commission Comments at
6–7, Maryland Counsel Comments at 7–8, Ohio
Commission Comments at 4, and Ohio Partners
Comments at 2–3.
25 See, e.g., California Commission Comments at
6, Ohio Commission Comments at 5–7,
Massachusetts Attorney General Comments at 4–5,
and SDG&E Comments at 22–23.
26 Michigan Commission Comments at 8 and
Maryland Counsel Comments at 5.
27 Ohio Commission Comments at 5–7.
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NEMA and CURRENT appreciate
national standardization, noting that the
lack of a consistent national standard for
interconnection has inhibited the
development of distributed generation.
NEMA and CURRENT urge the
Commission to pursue nationwide
standardization and encourage State
commissions to develop policies akin to
those in the Proposed Policy Statement.
The Kansas Commission asks whether
the Commission is suggesting that the
Federal government should implement
guidelines governing the procedures for
charging electric vehicles at night as one
method for storing electricity.28
17. Various commenters request
clarification or guidance in certain
areas, notably (1) whether the
Commission intends to implement
mandatory protocols ‘‘in areas that are
traditionally under State jurisdiction,
such as the distribution network and
behind-the-meter installations,’’ 29 (2)
how the Commission intends to
determine which portions of a smart
grid are part of the bulk-power system
and those which are part of the
distribution system,30 (3) whether the
Commission has the authority to specify
physical layer standards 31 while
preserving State ratemaking authority,32
and (4) whether the Commission has the
authority to mandate a nationwide
meter communications protocol.33
18. Many commenters ask the
Commission to clarify the boundaries
between Federal and State jurisdiction
for rate recovery purposes. NARUC
suggests that the approach should be to
examine the location of the deployed
technology. If such a technology resides
on a Commission-jurisdictional line,
then it should be regulated by this
Commission. If it resides on a line
regulated by states, then it should be
subject to State oversight.34 EEI
highlights the need for this clarification,
noting that specific smart grid
equipment might be installed on either
or both transmission and distribution
facilities.35 Indianapolis P&L asserts
that the Commission should apply the
seven factor test, set forth in Order No.
28 Kansas
Commission Comments at 5–6.
Commission Comments at 6–7.
30 Id. at 11.
31 NEMA makes several references to physical
connections and standards in its comments,
including interconnection for distributed
generation, and applications for intelligent
customer energy management equipment. It is not
clear in NEMA’s comments whether this reference
also applies to meters.
32 NEMA Comments at 6.
33 Id. at 7.
34 NARUC Comments at 16, Maryland Counsel
Comments at 5, and Springfield Comments at 10–
11.
35 EEI Comments at 14–15.
29 California
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888,36 to delineate between Federal and
State activities.37
19. NARUC is also concerned that the
Commission’s policies not allow double
cost recovery, or allow Commissionjurisdictional entities to ‘‘bootstrap cost
recovery for projects implemented
within State jurisdiction.’’ 38 The
California Commission asserts that the
Commission should acknowledge that
State commissions are in the best
position to address concerns as they
pertain to retail customers and
ratepayers.39
20. On the other hand, Ohio
Commission states that cost recovery for
the initial deployment of a demand
response program should be at the State
level. However, if such programs require
later upgrading or replacement in order
to meet model demand response
standards approved by this
Commission, then Ohio Commission
argues that the associated costs should
be recovered on a socialized, national
level in Commission-jurisdictional
rates.40
21. Finally, a number of entities
encourage the Commission to work
together with the states, and in
particular with the NARUC/FERC Smart
Grid Collaborative, to sort out
jurisdictional boundaries. Maryland
Counsel and Ohio Partners comment
that ongoing dialogues should include
consumer advocacy organizations.
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Commission Determination
22. The Commission agrees with those
commenters who state that EISA does
not alter the FPA’s jurisdictional
boundaries between Federal and State
regulation over the rates, terms, and
conditions of transmission service and
sales of electricity. EISA does not
modify any of the provisions of the FPA.
Nevertheless, EISA does give the
Commission new responsibilities for the
adoption of standards needed to insure
smart grid functionality and
interoperability. The legislation
specifically directs the Commission to
institute rulemaking proceedings to
adopt standards necessary to insure
36 Promoting Wholesale Competition Through
Open Access Non-Discriminatory Transmission
Services by Public Utilities; Recovery of Stranded
Costs by Public Utilities and Transmitting Utilities,
Order No. 888, FERC Stats. & Regs. ¶ 31,036, at
31,771 and 31,981 (1996), order on reh’g, Order No.
888–A, FERC Stats. & Regs. ¶ 31,048, order on reh’g,
Order No. 888–B, 81 FERC ¶ 61,248 (1997), order
on reh’g, Order No. 888–C, 82 FERC ¶ 61,046
(1998), aff’d in relevant part sub nom. Transmission
Access Policy Study Group v. FERC, 225 F.3d 667
(D.C. Cir. 2000), aff’d sub nom. New York v. FERC,
535 U.S. 1 (2002).
37 Indianapolis P&L Comments at 5–6.
38 NARUC Comments at 13.
39 California Commission Comments at 4, 12.
40 Ohio Commission Comments at 1, 10.
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‘‘functionality and interoperability in
interstate transmission of electric
power, and regional and wholesale
electricity markets.’’ 41 The Commission
understands this mandate to mean that
the Commission has the authority to
adopt a standard that will be applicable
to all electric power facilities and
devices with smart grid features,
including those at the local distribution
level and those used directly by retail
customers so long as the standard is
necessary for the purpose just stated.42
We reach this conclusion because
Congress does not exclude from the
scope of EISA 1305(d) facilities used in
local distribution, or otherwise limit
Commission authority to approve
standards. Further, other provisions in
EISA indicate that the smart grid
interoperability framework is intended
to include all elements of the grid,
including communications with the
ultimate consumer.43 EISA does not
identify any segment of the
interoperability framework that is not
within the scope of standards to be
promulgated. Accordingly, the
Commission finds that EISA grants the
Commission the authority to adopt
smart grid standards—such as meter
communications protocols or
standards—that affect all facilities,
including those that relate to
distribution facilities and devices
deployed at the distribution level, if the
Commission finds that such standards
are necessary for smart grid
functionality and interoperability in
interstate transmission of electric
power, and in regional and wholesale
electricity markets.
23. EISA, however, does not make any
standards mandatory and does not give
the Commission authority to make or
enforce any such standards. Under
current law, the Commission’s
authority, if any, to make smart grid
standards mandatory must derive from
the FPA. Similarly, its authority to
allow rate recovery of smart grid costs
must derive from the FPA. The
authority to adopt standards under EISA
does not change the scope of the
Commission’s ratemaking or reliability
jurisdiction, as many commenters note.
section 1301 and section 1305(d).
example, two-way communications are a
distinguishing characteristic of smart grid devices
on both the transmission and distribution systems.
This two-way communications capability is
essential to the smart grid vision of interoperability,
allowing the transmission and distribution systems
to communicate with each other. They also affect
the security and functionality of each other.
43 See, e.g., EISA section 1301 and section 1305(a)
(stating that the framework should ‘‘enable all
electric resources, including demand-side
resources, to contribute to an efficient, reliable
electricity network’’) and section 1305(b).
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24. In order to determine whether
particular facilities are subject to State
or Federal jurisdiction for purposes of
rate recovery, interested parties should
refer to Commission precedent for
guidance.44 The Commission will
evaluate particular facilities and
projects on a case-by-case basis. In
response to commenters’ concerns, we
recognize that it would be inappropriate
for a utility to recover the same costs for
a smart grid project twice, through
State-approved retail rates and again in
a proceeding before this Commission.
25. As the EISA mandate to adopt
interoperability standards does not
afford the Commission new economic
regulatory authority over local
distribution facilities themselves,45 and
does not provide any authority or
directive to mandate standards, the
Commission does not interpret EISA to
allow it to direct states to implement
any particular retail customer policies
or programs. To the extent the
Commission does adopt smart grid
standards related to facilities outside the
Commission’s jurisdiction under the
FPA, we agree with the Ohio
Commission that states can insure
compliance with any standards they
deem applicable to their jurisdictions.
26. In response to the question posed
by the Kansas Commission regarding
whether the Federal government should
have guidelines governing the
procedures for charging electric vehicles
at night as one method for storing
electricity, the Commission does not
intend to issue policy guidelines for
storing electric power by charging
electric vehicles during off-peak load
periods. Nevertheless, if the Institute’s
process results in a smart grid
interoperability standard related to
storing electric power by charging
electric vehicles, the Commission would
consider adoption of such a standard
pursuant to EISA section 1305(d).
27. The Commission recognizes that
states have an interest in the
44 See, e.g., Detroit Edison Co., 95 FERC ¶ 61,415
(2001), order on reh’g, 96 FERC ¶ 61,309 (2001).
‘‘[T]o the extent that any facilities, regardless of
their original nominal classification, in fact, prove
to be used by public utilities to provide
transmission service in interstate commerce in
order to deliver power and energy to wholesale
purchasers, such facilities are subject to this
Commission’s jurisdiction and review.’’ Id., 95
FERC ¶ 61,415, at 62,535. Accord, Northeast
Utilities Service Co., 107 FERC ¶ 61,246, at P 22
(2004).
45 Similarly, the Commission’s previous actions
approving proposed North American Electric
Reliability Corporation (NERC) reliability standards
applicable to distribution providers and load
serving entities to maintain the reliability and
integrity of the bulk-power system did not, in and
of themselves, confer Commission rate jurisdiction
over those entities’ local distribution facilities.
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functionalities of smart grid
technologies, as suggested by North
Carolina Agencies and the Ohio
Commission, and we encourage states to
actively participate in the ongoing
discussions being organized and
facilitated by the Institute to insure that
their perspectives are represented. We
do not believe that Commission
adoption of national standards for smart
grid technologies should interfere with
a State’s ability to adopt whatever
advanced metering or demand response
program it chooses. Nor will
Commission adoption of national
standards affect the existing statutory
framework for wholesale and retail
pricing. Interoperability standards
should be designed flexibly enough to
support alternative programs and
pricing policies being considered by a
particular State. Indeed, national
standards adopted by the Commission
should enhance, not limit, the policy
choices available to each State.
28. We believe that it is appropriate
for the Commission to have a role in
determining key priorities in the
interoperability standards development
process. The Commission’s leadership
in this arena will help to expedite the
development of functionalities that are
important to Federal energy policy (e.g.,
wide-area situational awareness to
improve the reliability of the
transmission grid) as well as to support
programs that have emerged in many
states (e.g., integrating renewable
generation to permit utilities to meet
State-mandated renewable portfolio
requirements). We see great benefit from
collaborating closely with states
regarding flexibility in smart grid
standards and adapting to new
technologies, and we expect to work
with the states to pursue these topics
through the NARUC/FERC Smart Grid
Collaborative.
B. Development of Key Standards
29. The purpose of this Policy
Statement, among other things, is to
prioritize the development of key
interoperability standards to provide a
foundation for the development of many
other standards. The Proposed Policy
Statement identified and requested
comment on several key priorities the
Commission believed were necessary to
address existing and emerging
challenges to the operation of the bulkpower system. These challenges
included existing cybersecurity issues,
large-scale changes in generation mix
and capabilities, and large potential new
load from electric vehicles. The
proposed key priorities for standards
development included two cross-cutting
issues, system security and inter-system
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communication, and four key grid
functionalities: (1) Wide-area situational
awareness, (2) demand response, (3)
electric storage, and (4) electric
transportation.46 Each of these topics is
discussed in detail in the following
sections. The Commission urges the
Institute and interested parties to
continue to focus their efforts on these
key priorities first in order to achieve
interoperability in a timely manner.
1. System Security
30. As explained below, the
Commission adopts its Proposed Policy
Statement position that cybersecurity is
essential to the operation of the smart
grid and that the development of
cybersecurity standards is a key priority.
Cybersecurity and physical security are
ongoing concerns for both the
Commission and the electricity industry
and have received heightened attention
as part of the creation of recent
mandatory and enforceable Federal
standards. We believe that
implementation of smart grid
technology, which is designed to
improve communication, coordination,
and interoperability, will require added
attention to cybersecurity standards.
31. To date, eight mandatory
cybersecurity and physical critical
infrastructure protection Reliability
Standards (CIPS) have been approved by
the Commission pursuant to section 215
of the FPA. The fact that a smart grid
would permit two-way communication
between the traditionally regulated
components of the electric system and
a large number of smart grid devices
expected to be located beyond the
conventional boundaries of regulated
entities suggests that cybersecurity
standards require special attention.
32. The Commission sought comment
regarding whether cybersecurity should
be considered a cross-cutting issue
affecting interoperability that must be
included in smart grid standards.47 The
Commission also proposed harmonizing
cybersecurity and Reliability Standards
as a precondition to the adoption of
smart grid standards. The Commission
further proposed to advise the Institute
to undertake the necessary steps to
assure that each standard and protocol
that is developed as part of the
Institute’s interoperability framework is
consistent with the overarching
cybersecurity and reliability mandates
of the EISA as well as existing
Reliability Standards approved by the
46 Proposed Policy Statement, 126 FERC ¶ 61,253
at P 28.
47 Id. P 12.
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Commission pursuant to section 215 of
the FPA.
Comments
33. Many commenters support system
security as a priority.48 For instance,
APPA states that security-related
concerns should be given the highest
priority and that they should be
harmonized with the NERC CIPS
standards to avoid conflicts during the
large-scale deployment of smart grid
installations, while ITC Companies
assert that cybersecurity is of paramount
importance for the development of a
smart grid.49 ELCON recommends that
the Commission use a ‘‘measured
approach to smart grid deployment’’ so
that relevant agencies and standards
development organizations have time to
overcome cybersecurity related
technical issues.50
34. Some entities are concerned about
whether there will be sufficient
coordination among the Institute and
other relevant Federal and State
agencies, and whether there will be a
broader application of Federal
Reliability Standards on distribution
facilities.51 While several entities state
that an open connectivity protocol
should be developed through the
Institute’s standards coordination
process to insure interoperability of
cyber-secure smart grid components,
some also support its development
through a Commission-approved
Reliability Standard. Other entities
assert that secure protocols already exist
and are available for adoption.52
35. On the matter of coordination
with the Institute, EEI points out that
cybersecurity should be addressed early
on in the development and
manufacturing process and that smart
grid products should undergo thorough
interoperability and cybersecurity
testing and certification at all levels
prior to installation and use by
independent firms that have been
accredited by the Institute.53 NERC
agrees that cybersecurity for smart grid
technologies should be a top priority
and advocates close coordination with
the Institute to avoid jurisdictional
overlaps. NERC recommends adoption
of Commission policies to encourage the
Institute to use its role, as the smart grid
48 NARUC Comments at 14, EEI Comments at 6,
11, NERC Comments at 10, and ITC Comments at
6.
49 APPA Comments at 12 and ITC Companies
Comments at 5–6.
50 ELCON Comments at 2.
51 Michigan Commission Comments at 5–6,
GridWise Alliance Comments at 9–10, and National
Grid Comments at 4.
52 ITC Companies Comments at 5–6 and PSEG
Comments at 6–8.
53 EEI Comments at 7.
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standards proponent and coordinator, to
build cybersecurity protections into
standards that affect the full span of
smart grid systems and devices, such as
the distribution system, utilities’
business systems, customer appliances,
and information technology systems,
with an eye towards aggregated impacts
on the bulk-power system.54
36. The Michigan Commission
counsels that the Commission should
avoid being overly prescriptive in its
standards until the Institute’s process is
complete and should undertake a
‘‘bottom up’’ collaborative process that
includes the States, standards
development organizations and other
private actors to identify, up front, the
reliability and security considerations
that smart grid technologies must
address while respecting the traditional
statutory distinctions between state and
Federal jurisdiction over electricity.55
NERC warns that the possible aggregate
effects of smart grid devices that reach
into the distribution system can have
substantial impact on the security of the
bulk-power system.56
37. With respect to sufficient
specificity in the Proposed Policy
Statement, CPower asserts that the
Commission’s objective should be to bar
only significant gaps in cybersecurity.57
ELCON suggests that more consistency
and standardization are required with
respect to authentication standards,
physical protection standards, and the
impact to the bulk-power system.
GWAC argues that the Proposed Policy
Statement should be expanded to
address system architectures, define the
classes of security requirements, and
include risk management aspects, such
as costs and potential consequences,
instead of directing policy towards lowlevel details.58 B–D Research contends
that the definition of cybersecurity must
be expanded to include matters such as
(1) non-disruptive events, (2)
unauthorized access to, or modification
of, a critical system, (3) information
leakage, and (4) system compromise.59
E.ON offers that existing cybersecurity
standards should not serve as
constraints on the adoption of improved
and potentially more secure
technologies.60
38. The Ohio Commission requests
that the Commission clarify its
neutrality towards specific
configurations and/or technology and
54 NERC
Comments at 11–12.
Commission Comments at 5–6.
56 Id. at 11–12, 15.
57 CPower Comments at 3.
58 GWAC Comments at 13–15, 29–31.
59 B–D Research Comments at 1–4.
60 E.ON Comments at 4–6.
55 Michigan
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that the common information model
should not be too formulaic and thereby
provide easy opportunities to defeat the
cybersecurity standards.61 The
California Commission suggests that
standards should protect the grid from
inadvertent and direct cyber attacks
while approved technologies should
have the ability to: (1) Withstand direct
cyber attacks, (2) maintain resiliency in
times of extreme stress and congestion,
and (3) automatically (or intelligently)
respond to adverse system conditions as
they occur.62
39. On the matter of Commissionapproved Reliability Standards,
Southern contends that the Commission
should confirm that smart grid
installations do not automatically create
mandatory Reliability Standard
compliance obligations and that they do
not automatically constitute critical
cyber assets. In its view, smart grid
technologies and applications should be
considered critical cyber assets only
when they would be designated as such
under the requirements of Commissionapproved CIPS Reliability Standard
CIP–002.63 NRECA suggests that a
number of NERC Reliability Standards
may need to be developed or revised
concurrently with the implementation
of smart grid technology.
Commission Determination
40. The Commission adopts its
proposed policy position that the
development of cybersecurity standards
is a key priority in protecting the
electricity grid. The possibility that an
adversary could access any of
potentially millions of smart grid
devices and use this access to disrupt
the proper functioning of the bulkpower system creates new challenges for
the operation of the nation’s electricity
grid. These challenges are a natural
consequence of the extensive
communications network comprising
the smart grid. Because cybersecurity
becomes a concern whenever one
system communicates with another, it is
important to focus from the outset on
cybersecurity as an essential feature of
the design of interoperability standards.
There is strong support for this focus
from the commenters.
41. Accordingly, consistent with our
cybersecurity mandates under EISA, the
Commission will require a
demonstration of sufficient
cybersecurity protections in proposed
smart grid standards to be considered in
a rulemaking proceeding under EISA,
including, where appropriate, a
61 Ohio
Commission Comments at 11–12.
Commission Comments at 7.
63 Southern Comments at 8–9.
62 California
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proposed smart grid standard applicable
to local distribution-related components
of smart grid. Specifically, there must be
a demonstration that a proposed smart
grid standard: (1) Directly incorporates
cybersecurity protection provisions, or
(2) incorporates cybersecurity protection
provisions from other smart grid
standards or electric Reliability
Standards that are submitted to the
Commission concurrently, are already
pending before the Commission, or have
previously been adopted or approved by
the Commission under EISA or section
215 of the FPA, respectively, provide
cybersecurity protection for the electric
power system for the proposed
standard.
42. The Commission does not intend
to preempt the development and
implementation of an interoperability
smart grid framework with the
prioritization of cybersecurity and
physical security. On the contrary, given
our reliability and security oversight
mandates under EISA and FPA section
215, we are attempting to promote and
accelerate development and
implementation of cybersecurity
elements that are foundational to the
smart grid, and which will also promote
maintenance of the integrity and
reliability of the underlying bulk-power
system. Clearly, interoperability
standards must support, and not conflict
with, critical efforts to improve the
cybersecurity of electric power systems.
43. As noted, many of the commenters
request collaboration between the
Institute and NERC on the development
of smart grid standards. The
Commission agrees with this approach
and encourages NERC, as the Electric
Reliability Organization certified by the
Commission pursuant to FPA section
215, along with the states and other
Federal agencies, to collaborate with the
Institute in developing its
interoperability framework. We expect
that NERC will monitor the
compatibility of the smart grid
standards with the Commissionapproved CIPS standards and help
identify any gaps or inconsistencies that
are left unaddressed. To the extent
necessary, the Commission would direct
NERC to submit to the Commission a
new or modified Reliability Standard as
necessary or appropriate to carry out the
Commission’s responsibilities under
section 215 of the FPA as they relate to
the development of smart grid
standards.
44. On the matter of Commission
jurisdiction over standards, the
Commission notes, as discussed above,
that the cybersecurity characteristic of
the smart grid is statutorily specified
under EISA. In EISA, Congress
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envisions a smart grid with
cybersecurity as a foundational element
of its system and provided for
cybersecurity throughout the statute.64
Thus the Commission agrees with
commenters such as NERC and CAISO
that the reliability of the bulk-power
system hinges on insuring the
cybersecurity of all interconnections,
including distribution system
interconnections, to the extent allowed
by EISA.
45. With respect to comments
regarding the level of specificity in the
cybersecurity requirements, constraints
on improvements, and system resiliency
and responsiveness to attacks, the
Commission agrees that these concerns
warrant the attention of the Institute,
NERC, and others who are working on
proposed smart grid cybersecurity
issues. The Commission appreciates that
the Roadmap Report highlights several
relevant cybersecurity requirements,
including those required in the
Commission-approved CIPS
standards.65 The Commission takes no
position here regarding specific
technologies and technical
configurations that are appropriate for
particular smart grid standards. Finally,
we agree that deploying smart grid
technologies does not, in and of itself,
result in the need for compliance with
Reliability Standards. Compliance with
Reliability Standards is determined
through other processes under FPA 215,
such as the NERC compliance
registration process and the specific
requirements of Commission-approved
Reliability Standards.
2. Communication and Coordination
Across Inter-System Interfaces
46. The Proposed Policy Statement
suggested making the development of
standards for inter-system interfaces a
key priority. It described the issue as
follows:
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The second cross-cutting issue is the need
for a common semantic framework (i.e.,
agreement as to meaning) and software
models for enabling effective communication
and coordination across inter-system
interfaces. An interface is a point where two
systems need to exchange data with each
other; effective communication and
coordination occurs when each of the
systems understands and can respond to the
data provided by the other system, even if the
internal workings of each system are quite
different.66
47. The Commission stated that IEC
Standards 61970 and 61968 (together,
Common Information Model), along
64 See
EISA section 1301(2).
Roadmap Report at 7.
66 Proposed Policy Statement, 126 FERC ¶ 61,253
at P 32.
65 See
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with IEC 61850 (Communications
Networks and Systems in Substations),
could provide a basis for addressing this
issue.67 We clarified that we were not
proposing any Commission requirement
that these standards be developed
further, but were identifying them for
comment on whether these standards
should be considered as important
elements in efforts to realize significant
early benefits of the smart grid.68
Comments
48. Many commenters agree on the
need for effective communication and
coordination across inter-system
interfaces,69 as well as using the
Common Information Model standards
as a starting place. Starting with
Common Information Model standards
was mentioned positively by GWAC,
National Grid, NRG, Kansas
Commission, Midwest ISO, and CAISO.
However, some commenters caution
that the premature implementation of
standards for common information
models for inter-system interfaces might
result in valuable existing information
systems being deemed inconsistent,
requiring unnecessary replacement.
They suggest a gradual phasing in of
new technologies as other systems are
retired.70 NERC, on the other hand,
contends that development of intersystem interfaces is one method
whereby new and legacy control
systems can be enabled to communicate
with each other, which should extend
the life of such legacy systems.71
49. Silver Spring Networks suggests
that the Commission also include
networking as a priority in smart grid
standards development.72 Silver Spring
Networks and AT&T also strongly
support the use of Internet Protocol as
a networking standard.73
50. Regional transmission
organizations that submitted comments
support the Commission’s proposals
and offer some suggestions. CAISO
suggests that communication across
inter-system interfaces would be
essential for ‘‘deep-area situational
awareness’’ and for demand response.74
NYISO suggests that regional
67 Id.
P 33.
Comments at 16, Kansas Commission
Comments at 3, Duke Comments at 8, NEMA
Comments at 5, Midwest ISO Comments at 3,
CAISO Comments at 7, ISO–NE Comments at 2,
NRECA Comments at 17, NRG Comments at 7,
National Grid Comments at 2, GridWise Alliance
Comments at 1, and NERC Comments at 12.
70 Kansas Commission Comments at 3 and SDG&E
Comments at 19–20.
71 NERC Comments at 12.
72 Silver Spring Networks Comments at 1.
73 Id. at 3; AT&T Comments at 3.
74 CAISO Comments at 7.
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69 GWAC
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transmission organizations (RTOs) and
independent system operators (ISOs)
should take a prominent role in the
development of inter-system interface
definitions and data communication
protocols.75
Commission Determination
51. The Commission adopts the
proposed policy position that the
development of standards for
communicating and coordinating across
inter-system interfaces is a key priority
cross-cutting issue. We agree with
GWAC that the smart grid is essentially
a ‘‘system of systems’’ and that
standardized communications across
the interfaces of these systems is a
critical enabler of smart grid
functionality and interoperability. The
Commission recognizes that
development of a common semantic
framework and software models for
enabling effective communication and
coordination across the inter-system
interfaces is critical to supporting
virtually all of the smart grid goals, such
as system self-healing, integration of
diversified resources, and improved
system efficiency and reliability. We
note that the Institute’s interoperability
standards development process has
already paid a substantial amount of
attention to this topic. The Institute’s
preliminary list of sixteen standards 76
identified for the smart grid framework
includes IEC 61968/61970 and IEC
61850, which had been suggested by the
Commission as part of a starting point
for communication across interfaces.77
The Roadmap Report document
indicates that much of the ongoing work
in the Institute’s process will center on
developing common semantic and
information models.78
52. The Commission agrees with the
Kansas Commission that the standards
development process to enable
communications and coordination
across inter-system interfaces should
not cause premature dismantling of
utility and RTO systems that currently
function well. Older software systems
should be able to continue in service
during a transition period by using
translators or bridges of reasonable cost
that enable the outputs of such systems
to be understood by newer higher
functionality systems.
53. We agree with NYISO’s suggestion
that RTOs and ISOs should take a
prominent role in defining system
75 NYISO
Comments at 5.
Initial List of Smart Grid Interoperability
Standards, Request for Comments, 74 FR 27288
(June 9, 2009).
77 See Proposed Policy Statement, 126 FERC ¶
61,253 at P 33.
78 Roadmap Report at 90.
76 See
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interfaces, and we encourage ISOs,
RTOs and all other FERC-jurisdictional
utilities to engage in the Institute’s
standards development process.
54. With regard to networking
standards and the potential use of
Internet Protocol, the Commission will
consider the findings of the Institute’s
standards development process in our
rulemaking process.
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3. Wide-Area Situational Awareness
55. In the Proposed Policy Statement,
the Commission placed emphasis on
wide-area situational awareness as
another key priority for the smart grid.
Wide-area situational awareness is the
visual display of interconnection-wide
system conditions in near real time at
the reliability coordinator level and
above. The implementation of wide-area
situational awareness could help
mitigate the effect of reliability events
by giving reliability entities an
improved and manageable high-level
view of system conditions and
parameters.
56. Furthermore, the Commission
identified increased deployment of
advanced sensors like Phasor
Measurement Units as a tool to give
bulk-power system operators access to
large volumes of high-quality
information about the actual state of the
electric system. This functionality could
help a smart grid address transmission
congestion and system optimization.
The Commission acknowledged that
this technology would present its own
set of challenges in the form of
information processing and
management and suggested that the
Institute should strive to identify the
necessary advanced software and
systems that would be most useful to
system operators in addressing
transmission congestion and
reliability.79 The Commission
recognized the efforts undertaken by the
North American SynchroPhasor
Initiative and encouraged RTOs to take
a leadership role in coordinating such
work with the member transmission
owners.80
Comments
57. Commenters generally support the
proposition that wide-area situational
awareness should be a key priority in
the development of Smart Grid
interoperability standards. Many
commenters agree with the Proposed
Policy Statement that advanced sensors
like Phasor Measurement Units will give
bulk-power system operators access to
large volumes of high-quality
79 Proposed
80 Id.
Policy Statement at P 36.
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information about the system.81
Furthermore, commenters agree with
the Commission that accessing that level
of information will require the
development of advanced software and
systems. Various commenters note that
further investigation regarding
additional features for Phasor
Measurement Units is required.
Furthermore, using high quality
information about the actual state of the
system to possibly switch from the
current static transmission line rating
system to a dynamic transmission line
rating system would require more
research.82 NERC, for example, notes
that although there might be additional
uses for Phasor Measurement Units,
their primary use should be to improve
and protect the reliability of the bulkpower system.
58. Commenters agree with the
Commission that coordination between
RTOs and the North American
SynchroPhasor Initiative will play a key
role in the development of
synchrophasor initiatives.83
Furthermore, commenters agree that the
Institute should identify the core
requirements for advanced software and
systems that will gather large volumes
of data and present it in a useful manner
to operators. However, NERC states that
such efforts have been underway for
several years under the guidance of the
Department of Energy’s visualization
and controls research and development
program with contributions from TVA,
Bonneville Power Administration, and
CAISO.84 NERC believes that since these
entities are already engaged on these
issues, they, and not the Institute,
should be in charge of designing and
implementing the core requirements for
software and hardware systems.
59. AWEA notes that hardware and
software tools that will serve to integrate
wind should be considered vital smart
grid technology. For example, AWEA
states that devices that will contribute to
consolidating balancing authorities,
tools for faster-interval/dispatch
scheduling, and tools to better forecast
wind energy should be considered smart
grid technology.85
60. Duke seeks clarification on the
Proposed Policy Statement’s definition
of wide-area situational awareness as
81 See, e.g., Kansas Commission Comments at 4–
5, Gridwise Alliance Comments at 11, and Duke
Comments at 11.
82 See, e.g., Kansas Commission Comments at 4–
5, Gridwise Alliance Comments at 11, Open Secure
Systems Comments at 4, NERC Comments at 17,
and American Transmission Comments at 8.
83 See, e.g., CAISO Comments at 9–10, Gridwise
Alliance Comments at 11, and Midwest ISO
Comments at 4.
84 NERC Comments at 18.
85 AWEA Comments at 7–11.
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‘‘the visual display of interconnectionwide system conditions in near real
time at the reliability coordinator level
and above.’’ 86 Duke believes that widearea situational awareness should be the
responsibility of all NERC-defined
functional reliability entities, such as
balancing authorities, transmission
operators, and so forth, and not just
limited to the reliability coordinator
level and above. Furthermore, Duke
states that ‘‘if the result of the
Commission’s term ‘reliability
coordinator and above’ is that Duke
Energy would be required to provide to
other parties information or data that is
not Duke Energy specific (i.e.,
information that pertains to other
regional entities), this is of concern, and
would require new information-sharing
and disclosure protocols.’’ 87
Commission Determination
61. The Commission adopts its
proposed policy position that wide-area
situational awareness should be a key
priority for the standards development
process. Wide-area situational
awareness is imperative for enhancing
reliability of the bulk-power system
because it allows for greater knowledge
of the current state of available
resources, load requirements, and
transmission capabilities. Increased
situational awareness could allow for
additional system automation and
quicker reaction times to various
reliability events. Given this concern
about the need for increased situational
awareness, and in response to Duke’s
request for clarification that the
Commission’s description of wide-area
situational awareness in the Proposed
Policy Statement was not intended to
limit such responsibility to reliability
coordinators only, we clarify that this
was not our intent.
62. Regarding the development of
wide-area situational awareness
standards, the Commission agrees with
NERC that it would be reasonable for
the Institute to consider work done by
the Department of Energy and others as
the Institute develops standards.
4. Demand Response
63. In the Proposed Policy Statement,
the Commission stated that smart gridenabled demand response is a key
priority for standards development
because of its potential to help address
several bulk-power system challenges
including reliably integrating
unprecedented amounts of variable
generation resources into the electric
grid. The Commission stated that the
86 Duke
87 Id.
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further development of key standards
should enhance interoperability and
communications between system
operators, demand response resources,
and the systems that support them.88
64. The Commission proposed the
development of a series of demand
response use cases 89 employing readily
available tools in order to achieve an
appropriate level of standardization.
The Commission encouraged a
particular focus on use cases for the key
demand response activities of
dispatchable demand response load
reductions to address loss or
unavailability of variable resources, and
the potential for dispatchable demand
response to increase power
consumption during over-generation
situations.
65. The Commission noted that
considerable work has been done to
develop demand response standards
(e.g., Open Automated Demand
Response) and further encouraged a
focus on additional standardization of
the interfaces between systems on the
customer premises and utility systems,
including addressing data
confidentiality issues.
66. The Commission encouraged the
Institute and industry to work together
on further standards development,
starting with the Institute’s suggestion of
the harmonization of IEC standard
61850 and several meter standards,
namely ANSI C12.19 and C12.22.
Finally, the Commission requested
comment from states and other parties
on the optimal approach to develop
standards in the area of customer
meters, and stated that the Commission
will pursue direct communications with
the states on this topic.
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Comments
67. Most comments recognize the
importance of demand response for
helping to address the types of
challenges listed in the Proposed Policy
Statement.90 NARUC supports working
with the Commission to further develop
and expand demand response
programs.91 That said, NARUC and
others stress the need to remember that
88 See Proposed Policy Statement, 126 FERC
¶ 61,253 at P 37–39.
89 As noted in the Proposed Policy Statement, the
use case approach is a concept from the software
and systems engineering communities whereby a
developer, usually in concert with the end user,
attempts to identify all of the functional
requirements of a system. Each use case essentially
describes how a user will interact with a system of
other actors and objects to achieve a specific goal.
The use case will identify the interfaces between
different elements and the information being
exchanged.
90 See, e.g., NYISO Comments at 10, ISO–NE
Comments at 4, and ELCON Comments at 4–5.
91 NARUC Comments at 8.
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demand response, and the metering and
retail pricing reforms that might be
needed to fully realize demand
response’s potential, require retail
customer involvement and are thus
firmly State-jurisdictional matters.92
68. NARUC also emphasizes that
demand response programs can and
have operated without smart grid
capabilities.93 On the other hand, there
were several comments stressing the
importance to demand response of
national standardization of certain
supporting technologies, like
communication between customer
equipment and utility systems and
national metering standards.94 These
commenters state that the development
of metering standards at a national level
would be helpful to increase the use of
the smart grid by demand response
resources and avoid implementing
multiple, proprietary, non-compatible
metering standards across the country
that raise the cost of doing business in
different markets.
69. Another key issue for commenters
involves the need to develop
measurement and verification standards
for demand response. The demand
response aggregation industry believes
that standards will open up new
markets for demand response (e.g.,
capacity or ancillary services markets)
and will leverage and enable demand
response integration to address variable
generation needs.95 In addition,
American Transmission states that
specific, concrete requirements will be
key to ensuring that committed demand
response is available when needed
allowing utilities to reliably include
demand response capabilities in their
transmission planning.96
70. Several commenters focus on the
Proposed Policy Statement’s discussion
of dispatchable demand response,
though their comments tend to reflect
different viewpoints.97 GWAC seems to
interpret this discussion as imposing
demand response on some group of
customers that might be given no option
but to respond to dispatch signals from
system operators regardless of whether
they are able to or want to participate.98
92 See, e.g., NARUC Comments at 6–8, Ohio
Commission Comments at 7, Kansas Commission
Comments at 5, and Wal-Mart Comments at 5.
93 NARUC Comments at 8.
94 See, e.g., NEM and Intelligent Energy
Comments at 8 and Wal-Mart Comments at 3–4.
95 See, e.g., Comverge Comments at 1–2 and
DRSG Coalition Comments at 7–8.
96 American Transmission Comments at 6.
97 As discussed in the Proposed Policy Statement,
‘‘dispatchable’’ demand response allows
participants to adjust their demand at the direction
of a system operator. Proposed Policy Statement,
126 FERC ¶ 61,253 at P 20.
98 GWAC Comments at 4.
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GWAC prefers voluntary response to
dynamic pricing signals. In contrast,
some commenters support a focus on
voluntary dispatchable demand
response programs.99 Black Hills
Corporation expresses concern with the
additional investment required for
‘‘time sensitive’’ rates for retail
customers since ratepayers are already
paying higher rates due to recovery
mechanisms for efficiency, renewable
portfolio, and carbon reduction
standards in various states.100
71. Those commenters who speak to
the issue seem to support the focus on
developing demand response use cases
as a first step toward interoperability
standards.101 In a similar vein, some
stress the need to identify and support
valuable opportunities for the use of
demand response; for example, to
provide ancillary services.
72. There are also comments stressing
the importance to demand response of
providing appropriate access to
information gathered from advanced
meters.102 However, NARUC also
touches upon this topic in discussing
data confidentiality and other such
issues. It emphasizes that these issues
are firmly within the jurisdiction of
State commissions and that a
rulemaking targeting standards
connected to the customer premises will
exceed the Commission’s
jurisdiction.103
73. Wal-Mart argues that any
environmental attributes (e.g., carbon
reduction allowances) associated with
demand response equipment should be
retained by the customer in order to
foster customer participation and
purchase of such equipment.104
Commission Determination
74. The Commission adopts its
proposed policy position that the
development of standards for demand
response is a key priority. We agree with
ELCON that smart grid technologies
have considerable potential to promote
demand response, which can reduce
wholesale prices and wholesale price
volatility and reduce potential generator
market power. We also agree with NERC
that smart grid capability can enhance
the application of demand response to
accommodate the integration of variable
generation. As NYISO also points out,
demand response resources play an
99 See, e.g., Kansas Commission Comments at 4–
5 and Black Hills Corp. Comments at 3.
100 Black Hills Corp. Comments at 3.
101 See, e.g., NYISO Comments at 10, Alcoa
Comments at 5–6, and CAISO Comments at 12.
102 NEMA and Intelligent Energy Comments at 2,
4.
103 NARUC Comments at 9.
104 Wal-Mart at 5.
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important role in maintaining system
security, especially in constrained areas.
Moreover, demand response can be
particularly helpful in situations when
production from variable generating
resources has fallen. We note that the
Institute has identified demand
response as a key priority focus in its
interoperability standards development
process.
75. In order to achieve appropriate
demand response standards, the
Commission also adopts its proposed
policy position that emphasis should be
put on further development of use cases
and scenarios for demand response,
particularly with regard to dispatchable
demand response and various forms of
dynamic pricing. We agree with
comments by Alcoa and Wal-Mart
recommending that the dispatchable
demand response interoperability
standards effort should support the full
range of customer types from large
industrial customers through
commercial and smaller residential
customers. Furthermore, we expect that
a standard for a dispatchable demand
response program would support either
a mandatory or voluntary program, as
determined by the utility or retail
regulator. With regard to dynamic
pricing, the Commission agrees with
GWAC that it is important to develop
standards that support dynamic pricing,
which offers an efficient means and
incentive for large numbers of smaller
customers to take appropriate demand
response actions. We clarify that it is
not our intention to require the use of
dynamic pricing in retail rates. It is,
important, however, for utilities and
states that choose this option to develop
standard pricing terminology and
methods for communicating pricing
information.105
76. The Commission notes that the
early stages of the Institute’s
interoperability standards development
process included investigation of
standards for advanced metering
systems. The Commission suggested in
the Proposed Policy Statement that the
development of national interoperability
standards for meters may be
appropriate.106 Such standards could
also lead to more communications
among systems as well as facilitate the
transfer of a successful program to other
systems. National interoperability
standards for meters should enable the
use of direct load control, dynamic
pricing, current tariff pricing or other
105 The Jurisdictional Concerns section of this
Policy Statement contains a more extensive
discussion of the boundaries between Federal and
State jurisdiction.
106 See Proposed Policy Statement, 126 FERC
¶ 61,253 at P 39.
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program options that are approved by
retail regulators. We stress, however,
that the development of national
interoperability standards for meters
does not create an obligation for states
or utilities to use them or to offer any
specific type of demand response
program. The Commission continues to
recognize that State and local regulators
have jurisdiction over retail rates and
cost recovery. Recovery of retail
jurisdictional costs will continue to be
determined by State and local
regulators. The Commission will
continue to pursue direct
communications with the states and
other parties on the optimal approach to
develop interoperability standards in
the area of customer meters. It is with
these understandings that we encourage
the Institute and its industry
collaborators to continue investigating
potential national interoperability
standards for meters.
77. Several commenters state the
importance of developing measurement
and verification standards for demand
response. We agree. However, the
Commission need not further address
this topic because participants in
several forums are doing so, including
the North American Energy Standards
Board and in compliance filings before
the Commission resulting from Order
No. 719.107 Finally, the Commission
finds that Wal-Mart’s request that any
environmental attributes (e.g., carbon
reduction allowances) associated with
demand response equipment should be
retained by the customer is outside the
scope of this Policy Statement.
5. Electric Storage
78. In the Proposed Policy Statement,
the Commission stated that if electricity
storage technologies could be more
widely deployed, they would present an
important means of addressing some of
the difficult issues facing the electric
industry, including helping to address
large-scale changes in generation mix.
The Commission noted that, to date, the
most significant bulk-electricity storage
technology has been pumped storage
hydroelectric technology but that new
types of storage technologies are under
development and in some cases are
being deployed, and could also
potentially provide substantial value to
the electric grid.108 The Commission
107 Wholesale Competition in Regions with
Organized Electric Markets, Order No. 719, 73 FR
61,400 (Oct. 28, 2008), FERC Stats. & Regs. ¶ 31,281
(2008).
108 For the purposes of this Policy Statement,
electric storage refers to the storage of different
forms of energy that may be beneficial to the bulkpower system. For example, while pumped
hydroelectric storage refers to the potential energy
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37107
proposed that, while continued research
and development appeared necessary
before any widespread deployment of
such newer technologies can take place,
it is appropriate to encourage the
identification and standardization of all
possible electricity storage use cases at
an early stage. While the suggested
prioritization of storage use cases was
the Commission’s only proposal in this
area, the Commission then went on to
highlight certain existing standards that
may be relevant to further work on
storage-related interoperability
standards.109
Comments
79. GridWise Alliance describes the
many benefits energy storage may
provide to the nation’s grid, such as grid
optimization for bulk-power production;
balancing in systems with variable
renewable energy sources; facilitation of
integration of electric vehicles; deferring
investments in transmission and
distribution infrastructure to meet peak
loads; and providing ancillary services
to grid/market operators.110 Many
commenters agree that standards for
electric storage should be a priority.
APPA agrees that standardization of use
cases, protocols and communications
regarding new types of electricity
storage should be undertaken early to
avoid a proliferation of competing and
incompatible deployments of storage
system technologies.111 National Grid
and Public Interest Organizations state
that electric storage will enable system
integration of greater amounts of
renewable energy as well as improve
overall system efficiency.112 NERC
recommends that the Commission adopt
standards and protocols on electric
storage, and states that NERC plans to
work collaboratively with the
Commission and the Institute on electric
storage issues that could have an impact
on bulk-power system reliability.113
80. Some commenters express
reservations about establishing storage
standards at this time. NYISO
recommends that the Commission allow
more time to develop experience with
stored in a reservoir of water, it is the conversion
of that energy to electricity by a water turbine
generator that makes it useful. Similarly, a flywheel
stores kinetic energy to spin a generator, and
batteries convert chemical energy directly into
electricity. Moreover, there are useful applications
for stored energy (for example, thermal energy) that
is not converted into electricity, but can substitute
for electrical power by providing an end use.
109 Proposed Policy Statement, 126 FERC
¶61,253 at P 40.
110 GridWise Alliance Comments at 11.
111 APPA Comments at 14.
112 National Grid Comments at 5, and Public
Interest Organizations Comments at 3.
113 NERC Comments at 20–21.
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integrating these devices and that
standardization of uses should await
actual operating experience with these
devices.114 CAISO indicates that tariffs
and not detailed standards would best
shape storage development and
integration.115 Xcel voices a concern
that early standardization of storage
could stifle innovation.116 CPower
questions the Commission’s ability to
properly delineate yet un-developed
storage use cases.117
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Commission Determination
81. The Commission agrees with the
comments of GridWise Alliance and
others that electricity storage can serve
as a potentially valuable resource
providing a variety of services to the
bulk-power system. We adopt our
proposed policy position that electric
storage is a key functionality of the
smart grid, and standards related to
storage should be treated as a key
priority by the Institute and industry in
the interoperability standards
development process, subject to certain
reservations. However, the Commission
appreciates the concerns of commenters
such as NYISO that have expressed
reservations about the premature
establishment of electric storage
standards. Indeed, it was just such
concern that led us, in the Proposed
Policy Statement, to suggest
prioritization of the development of
storage use cases at that time. However,
it is important to note that the Institute’s
interoperability standards development
process has already assembled a limited
number of storage use cases and
identified a few standards that could be
a starting point for development of
interoperability standards for storage.
Thus, we encourage the Institute and
industry to continue this effort for
interoperability standards for storage.
82. The Commission continues to
believe that storage use case
development is an important step on the
path to developing relevant
interoperability standards, and thus on
the path to enabling the wider
deployment of storage. However, any
initial identification of storage use cases
would not be exhaustive; if new use
cases are identified in the future, they
can be added to the initially identified
set of use cases for storage at that time.
Initial identification of use cases should
not impede future storage innovations.
Comments at 11.
115 CAISO Comments at 13–14.
116 Xcel Comments at 5–6.
117 CPower Comments at 5.
19:15 Jul 24, 2009
Comments
86. National Grid points out the
benefits of electric transportation as
being a significant part of the solution
to electric storage, shaping demand, and
providing ancillary services to maintain
reliability and operational efficiency of
the electric delivery system.119 NYISO
agrees with the Commission’s proposed
approach toward addressing the greater
penetration of electric vehicles and
developing a common set of operating
rules, market rules, and communication
standards.120 AWEA agrees with the
Commission that electric vehicles can
improve the flexibility of the grid and
provide electricity storage solutions that
help to address the potential for overgeneration in off-peak periods.121
Comverge agrees that electric vehicles
deserve particular attention with respect
118 Proposed Policy Statement, 126 FERC ¶ 61,253
at P 42.
119 National Grid Comments at 5.
120 NYISO Comments at 11.
121 AWEA Comments at 10.
114 NYISO
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6. Electric Vehicles
83. The Commission also identified
the integration of electric transportation
as a key priority of smart grid
functionality. The Commission stated
that, to the extent that new electric
transportation options become more
widely adopted in the near future,
maintaining the reliable operation of the
bulk-power system will require some
level of control over when and how
electric vehicles draw electricity off of
the electric system.
84. The Commission explained its
hope that smart grid interoperability
standards would ultimately
accommodate a wide array of advanced
options for electric vehicle interaction
with the grid, including full vehicle-togrid capabilities. However, as a first
step, the Commission decided only to
request that appropriate standards be
made a high priority so that distribution
utilities will be able to encourage
customers to charge their vehicles
during off-peak load periods.118
85. The Commission also noted that,
for the potential provision of ancillary
services to the grid by electric vehicles,
electrical interconnection issues must
be dealt with along with potential
expansion of communications ability
and urged the Society of Automotive
Engineers and the automobile industry
to plan upgradable data
communications systems between
electric vehicles and the power system.
Finally, the Proposed Policy Statement
urged the Institute to include electric
vehicles in its distributed energy
resource standards development.
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to interoperability, smart charging,
enhanced information processing, and
high-speed communications and
control.122 NERC points out that the
reliability of the bulk-power system
could be impacted by high levels of the
penetration of electric vehicles,
changing the complexity of managing
demand and energy dramatically.123
87. On the other hand, some
commenters assert that either electric
transportation technology itself or the
standards for its integration should not
be priority items. The most common
reason stated is that widespread
adoption of electric vehicles is seen as
occurring too far into the future and that
prioritization should be given to more
immediately beneficial
functionalities.124 The early stage of
electric vehicle development is also
cited by CAISO and NRECA as a reason
that it would be premature to develop
standards for them.125 While NRECA
indicates that standards development
should be put off until more research
and analysis is done, CAISO indicates
that standards should only address
basic, structural, competitive and
architectural issues. CAISO views
electric vehicles as another resource to
be shaped by tariff incentives rather
than technology standards.
88. Kansas Commission questions
which mandates related to vehicle
charging and real time metering the
Commission intends to implement.
Kansas Commission also asks the
Commission to clarify what it believes
is the extent of its jurisdiction.126
Maryland Counsel similarly expresses
jurisdictional concerns when it asserts
that, unless related to wholesale and
transmission functions, electric vehicles
will fall into the State’s jurisdiction over
distribution (and so costs related to
them should not be recoverable in
Commission-regulated rates).127
89. Allegheny Companies indicate
that electric vehicles should be viewed
like all pieces of equipment with
demand response responsibility and
that while electric transportation
standard development should not be a
priority, the grid must have flexible
standards and protocols to support
electric vehicles.128 Ohio Partners view
modifications to the grid to support
electric vehicles as a subsidy for electric
122 Comverge
Comments at 3.
Comments at 20–21.
124 See, e.g., Illinois Commission Comments at 3–
4, Maryland Counsel Comments at 3–4, and
Springfield Comments at 6.
125 CAISO Comments at 13–14 and NRECA
Comments at 19.
126 Kansas Commission Comments at 6.
127 Maryland Counsel Comments at 4.
128 Allegheny Companies Comments at 4.
123 NERC
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car makers to the harm of existing fuel
retailers and at a cost to customers.129
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Commission Determination
90. The Commission adopts the
proposed policy position that electric
transportation is a key functionality of
the smart grid, and standards relating to
electric transportation should be treated
as a key priority by the Institute and
industry in the process of developing
interoperability standards. We agree
with NERC that the reliability of the
bulk-power system could be affected by
the high levels of penetration by electric
vehicles. However, the ability of
distribution utilities to facilitate offpeak charging may be able to mitigate
such reliability concerns. Discussions at
the Institute’s recent conferences
indicate that certain metropolitan areas
are likely to experience high
penetrations of electric vehicles more
quickly than others. NYISO suggests
that environmental concerns could lead
to relatively high levels of electric
vehicle penetration in New York by
2020.
91. For these reasons, although the
market will likely play the principal
role in determining whether and when
electric vehicle load will become
significant for utility systems, we urge
the early development of technical
requirements that can permit
distribution utilities to facilitate electric
vehicle charging during off-peak load
periods. Such technical capability
should provide the State commissions
with an additional tool to deal with any
electric vehicle-related load growth that
they may see in the future.
Interoperability standards that support
such a choice by states permitting the
electric vehicle to, for example, receive
and respond appropriately to peak
pricing signals could greatly improve
the success of such an effort. However,
if another State commission sees no
need for such price signals in its area,
the mere existence of interoperability
standards would in no way require the
State to adopt such a pricing policy.
Accordingly, we see no jurisdictional
issues with this recommendation for
prioritization.
7. Additional Priorities Suggested by
Commenters
92. In addition to the key priorities
listed in the Proposed Policy Statement,
several commenters suggest additional
priorities for interoperability standards:
Modernization of the communications
and control technologies in the grid;
standards for existing resources (legacy)
equipment and cost effective integration
129 Ohio
Partners Comments at 9.
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of legacy equipment; interfaces between
utilities (with interfaces between
utilities and customers and other
systems to be developed along with
State and other regulatory bodies); and
limitations on access to and use of
individual customer power usage
information. The Valley Group states
that, because standards for enabling
technologies (rather than
communications standards) will provide
the grid with immediate and tangible
benefits, these should also be a priority.
AWEA lists several more general
matters that it suggests must be
addressed before broad-based
deployment of smart grid technologies
can fully utilize their potential to better
accommodate renewable power. These
include investment in an extra-high
voltage backbone system, faster interval
dispatch and scheduling, expanded area
control error diversity, integration of
wind energy forecasts, and dynamic line
rating.
Commission Determination
93. The Commission will not make
any additional standards a priority for
development at this time. Some of the
proposed additional priorities are
already included in this Policy
Statement. For example, support for the
modernization of the communications
and control technologies on the grid
underlies this entire effort, and the use
of legacy equipment as utilities migrate
to a smart grid is addressed in the
Interim Rate Policy. Similarly, to the
extent that standards for enabling
technology are needed to permit the
development of useful smart grid
capabilities like wide-area situational
awareness standards, then such
standards would be encompassed by our
broader recommendation to make widearea situational awareness standards a
key priority.
94. Limitations on access to, and use
of, individual customer power usage
information may be addressed by retail
regulators and, in any event, are beyond
the scope of this Policy Statement.
Finally, although the topics suggested
by AWEA are important, they do not
relate to the development of
interoperability standards and,
therefore, are more appropriate to
address outside of this proceeding.
C. Interim Rate Policy
95. In the Proposed Policy Statement,
the Commission stated that certain
upcoming challenges to the operation of
the bulk-power system justified enacting
policies to encourage the near-term
deployment of smart grid systems
capable of helping to address those
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37109
challenges.130 Accordingly, the
Commission proposed certain rate
policies meant to encourage such nearterm deployment while appropriately
protecting customers from stranded
costs and the electric system from
potential cybersecurity threats.
Consistent with FPA section 205, which
requires that all rates for the
transmission or sale of electric energy
subject to the Commission’s jurisdiction
be just and reasonable,131 the
Commission proposed to consider smart
grid devices and equipment—including
those used in a smart grid pilot program
or demonstration project—to be ‘‘used
and useful’’ 132 for purposes of cost
recovery if the applicant makes certain
showings.133
1. Scope and Duration
96. In the Proposed Policy Statement,
the Commission stated that, once
interoperability standards are adopted,
it will consider making compliance with
those standards a mandatory condition
for rate recovery of jurisdictional smart
grid costs. For the period until
interoperability standards are adopted,
the Commission proposed the Interim
Rate Policy to accept rate filings
submitted under FPA section 205 by
public utilities to recover the costs of
smart grid deployments involving
jurisdictional facilities, provided those
filings make certain showings set out by
the Commission in this Policy
Statement. The Commission restated
this proposal in terms of finding smart
grid investments to be ‘‘used and
useful’’ for purposes of rate recovery if
an applicant makes these showings.
Comments
97. Several commenters support the
Interim Rate Policy.134 These
commenters state that an interim rate
policy is necessary for the deployment
of smart grid resources. National Grid
states that the Commission properly
recognizes that utilities will only be
willing to deploy smart grid equipment
if they are able to recover the associated
costs in regulated rates.135 PSEG
130 Proposed Policy Statement, 126 FERC ¶
61,253 at P 45.
131 16 U.S.C. 824d.
132 The general rate-making principle is that
expenditures for an item may be included in a
public utility’s rate base only when the item is
‘‘used and useful’’ in providing service. See NEPCO
Municipal Rate Committee v. FERC, 668 F.2d 1327,
1333 (D.C. Cir. 1981).
133 Proposed Policy Statement at P 45.
134 Gridwise Alliance Comments at 12, PSEG
Companies Comments at 4–5, 8, National Grid
Comments at 5–7, Duke Comments at 11–12,
Comverge Comments at 5–6, and FirstEnergy
Comments at 10.
135 National Grid Comments at 5.
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believes that implementing the Interim
Rate Policy is a critical component in
advancing the ultimate smart grid
evolution.136
98. Allegheny Companies assert that
utilities with stated transmission rates
may fail to recover their full cost of
service as the deployment of smart grid
technologies may reduce the amount of
electricity they sell, and argue that rates
should be revised to decouple revenues
from electricity sold.137 Meanwhile,
several commenters expect or seek
clarification that smart grid costs can be
recovered in formula rates including
existing formula rates, and that existing
rate formulae do not require
modification in order to accommodate
such smart grid costs.138
99. NARUC states that efficiency gains
and other related benefits of smart grid
deployments should be factored into
rate-setting before passing all costs
through to consumers.139 NARUC also
comments that any government funding
under the Department of Energy smart
grid grant programs should be factored
into cost recovery. AARP urges caution
regarding expedited consideration of
such rate filings before final adoption of
interoperability standards.140
100. Wal-Mart proposes that the
Commission include a deadline for
either terminating or at least revisiting
the Interim Rate Policy.141
Alternatively, Wal-Mart argues for a
deadline by which utilities who have
made use of the Interim Rate Policy
must file a full rate case. Wal-Mart also
supports the concept of some type of
sharing of risk with shareholders.
101. Alcoa asserts that the Proposed
Policy Statement is silent about cost
allocation issues associated with smart
grid costs and argues that the
Commission should specify that smart
grid costs will be allocated in
accordance with long-standing cost
causation principles.142 In particular,
Alcoa argues that consideration of cost
causation and allocation based on
proportional benefits should be
specified so that, for example, stable
high load-factor loads would not be
over-burdened by the allocation of costs
for smart grid equipment deployed
primarily to support variable loads and
resources.143 Meanwhile, GridSolar
states that existing cost allocation
136 PSEG
Comments at 4.
Comments at 8.
138 American Transmission Comments at 6–7, EEI
Comments at 14, and National Grid Comments at
6.
139 NARUC Comments at 12.
140 AARP Comments at 4, 13–15.
141 Wal-Mart Comments at 6–7.
142 Alcoa Comments at 6–7.
143 Id. at 7.
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schemes within RTOs may unduly favor
the development of transmission over
competing distributed energy projects
by allocating costs regionally while a
competing distributed energy project
might only qualify for local cost
allocation.144 GridSolar urges the
Commission to require that, where
distributed energy projects
incorporating smart grid technologies
and practices have been approved by a
State regulatory commission in lieu of
transmission reliability upgrades, these
distributed energy projects receive the
same cost allocation treatment as
transmission reliability upgrades.
102. Several entities comment on
broad market design issues. CPower, in
an appendix to its filing, includes a
letter to the Commission dated February
24, 2009 that includes various rate
proposals.145 The letter includes
proposals for how demand response
should participate in various RTO
markets. Academic Commenters believe
that the Proposed Policy Statement does
not go far enough because it fails to
provide guidance on the revised market
structures that they believe would be
needed to realize the benefits of a smart
grid.146 BP makes similar comments,
focusing primarily on the possibility of
moving away, at least partially, from the
current model of centrally dispatched
large-scale generation with passive load
to a more decentralized decision-making
process more like other commodities
markets.147 CAISO indicates that a
wholesale energy and transmission
market that allows a more refined and
granular understanding of what is
happening on the grid would take better
advantage of smart grid capabilities.148
NEMA points out that some smart grid
technologies, like Phasor Measurement
Units and associated software, could
have benefits beyond those identified in
the Proposed Policy Statement.149
Commission Determination
103. The Commission will adopt an
Interim Rate Policy allowing the
recovery of jurisdictional smart grid
costs if certain showings are made, as
discussed in the next section. Through
this Interim Rate Policy, the
Commission will provide for assurance
of recovery of future smart grid costs. To
Comments at 6–8.
states that this letter was originally
submitted in connection with the Commission’s
demand response stakeholder process. It is not
entirely clear what stakeholder process is
referenced but it appears to have been an informal
submission.
146 Academic Commenters Comments at 1–13.
147 BP Comments at 3–6.
148 CAISO Comments at 3–4.
149 NEMA Comments at 7–8.
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145 CPower
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receive this assurance, a public utility
must file either a petition for declaratory
order or an FPA section 205 filing
demonstrating that it has made the
relevant showings described below.
This Interim Rate Policy will be
effective until relevant interoperability
standards have been adopted through
Commission rulemakings, as provided
for under EISA section 1305(d).150
There are certain potentially imminent
challenges to the operation of the
nation’s bulk-power system as described
earlier, and the key smart grid-related
capabilities identified in this Policy
Statement can help address these
concerns. Utility equipment that
performs Commission-jurisdictional
activities could be affected by many of
these smart grid-related investments.
Accordingly, we find that the adoption
of the Interim Rate Policy is appropriate.
104. Several commenters argue that
having an Interim Rate Policy for smart
grid investments is premature, citing
unresolved technical issues, such as
interoperability standards. However,
waiting for all technical issues to be
resolved before beginning investment in
smart grid deployment would frustrate
the development of those very
standards. Smart grid resources
deployed with appropriate protections
in the interim period could increase our
body of knowledge and ultimately assist
the standards development process. In
this case, the Commission proposed
several protections, in the form of
additional showings, to be discussed in
the next section.
105. Several commenters seek to
modify rate treatments other than those
targeted by the Commission in the
Proposed Policy Statement. Allegheny
Companies seek a decoupling of
electricity sales from revenues to
encourage utilities to develop these
technologies even though they may lead
to lower electricity revenues. The
Commission finds that Allegheny
Companies’ proposal is beyond the
scope of this Policy Statement.
106. Alcoa’s arguments regarding cost
allocation are outside the scope of this
Policy Statement. We have not proposed
any modification to currently-effective
cost allocation policies for Commissionjurisdictional transmission rates. For
similar reasons, we decline to address
GridSolar’s request to modify cost
allocation methods within RTOs, Valley
Group’s real-time ratings incentive
proposal, and the comments on broad
market design.
150 Thus, utilities that want to receive the benefit
of this Interim Rate Policy must submit their filings
seeking such treatment prior to the issuance of a
final rule adopting relevant standards.
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107. Smart grid costs may be
recovered through formula rates if the
formula rate already authorizes cost
recovery of a particular type of
investment. In this case, the public
utility may recover that cost as it would
any other recoverable cost. However, in
the event the public utility desires the
assurance of cost recovery provided
under the Interim Rate Policy, it must
submit an FPA section 205 filing or a
request for a declaratory order justifying
such rate treatment by making the
demonstrations required herein.151 In
the absence of a Commission order
approving such a proposal, a smart gridrelated cost automatically incorporated
into a formula rate could be subject to
future review and challenge.
108. Finally, with regard to WalMart’s proposal for a stated deadline for
terminating or revisiting the Interim
Rate Policy, the Interim Rate Policy is
structured to allow applicants to file
with the Commission for rate treatment
under the Interim Rate Policy until the
Commission adopts relevant
interoperability standards. This is
necessary because standards will likely
be filed for certain functions before
others and setting an arbitrary deadline
may result in rate treatment for some
standards and not others. Moreover, our
regulations, which are based on the
requirements of the FPA, provide
customers with the ability to file
complaints if they believe that an
existing rate has become unjust or
unreasonable. Because this Interim Rate
Policy provides protections in addition
to such existing protections, nothing
more is needed here.
2. Additional Showings
109. In the Interim Rate Policy, the
Commission proposed to require
applicants seeking the recovery of costs
associated with smart grid investments
made during the period in which
interoperability standards are being
developed to make several showings,
beyond the normal filing requirements,
before being considered ‘‘used and
useful’’ and therefore eligible to recover
such costs. First, the Commission
proposed that an applicant must
demonstrate that the reliability and
security of the bulk-power system will
not be adversely affected by the
deployment of smart grid facilities at
issue. Second, the Commission
proposed that the filing be required to
show that the applicant has minimized
the possibility of stranded costs for
151 The Commission will allow a public utility to
file to amend a formula rate to recover such costs
and to seek rate assurance under this Interim Rate
Policy without reopening other elements of the
formula rate.
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smart grid equipment, in light of the fact
that such filings will predate adoption
of interoperability standards through
Commission rulemakings. Finally,
because it would be important for early
smart grid deployments, particularly
pilot and demonstration projects, to
provide feedback useful to the
interoperability standards development
process, the Commission proposed to
direct the applicant to share certain
information with the Department of
Energy Smart Grid Clearinghouse,
provided for in the American Recovery
and Reinvestment Act (ARRA).152
Comments
110. Midwest ISO Transmission
Owners fully support the Commission’s
proposals regarding the used and useful
determination for smart grid costs.153
Ice Energy supports the proposed
eligibility requirements and discusses
how its own thermal-storage air
conditioning technology meets those
requirements and could aid utility
compliance with those requirements as
well.154 Public Interest Organizations
support the criteria already included in
the Interim Rate Policy, and also
propose two additional criteria: First, a
requirement that the smart grid cost in
question be vetted through a regional
planning process and that such
planning process demonstrates the
value of such investments for meeting
reliability, security, dispatchable
demand response, or renewable energy
integration needs, and second, a
requirement to perform a cost/benefit
analysis.155 Ohio Counsel states that it
fully supports the comments made by
Public Interest Organizations but would
add further emphasis to the need for a
comprehensive plan based upon
appropriate criteria to insure prudence
in project scope, implementation, and
cost recovery. It views this as necessary
to insure that the cost/benefit analysis of
the deployment will be favorable and
that the guidelines for cost recovery are
prudent and net of operation and asset
management benefits.156
111. NRECA states that smart grid
deployments should not exceed ‘‘the
pace of value’’ with new elements
entering the system only as they are able
to demonstrate value.157 Ohio Partners
and Maryland Counsel similarly argue
that the benefits to customers must be
shown before cost recovery is
152 American Recovery and Reinvestment Act,
Pub. L. 111–5, section 405(3)(2009).
153 Midwest ISO Transmission Owners Comments
at 7.
154 Ice Energy Comments at 19–20.
155 Public Interest Organizations Comments at 4.
156 Ohio Counsel Comments at 1–3.
157 NRECA Comments at 13–14.
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granted.158 Likewise if any Interim Rate
Policy is finalized, ELCON believes that
it must incorporate a cost/benefit
requirement.159
112. Several commenters 160 also
support the addition of a costeffectiveness requirement. In this
regard, North Carolina Agencies stress
the need for coordination with the
affected State commissions, and WalMart points to item number six in the
document ‘‘Proposed Funding Criteria
for the ARRA Smart Grid Matching
Grant Program’’ recently proposed by
the NARUC/FERC Smart Grid
Collaborative to the Department of
Energy, which proposes a variety of
information requirements that could be
used to help determine costeffectiveness. Springfield argues that
utilities should be required to
demonstrate that they are following best
utility practices, and should be required
to demonstrate the incremental benefit
of smart grid deployment as if such best
practices were in place.161
113. Illinois Commission argues that
the Commission’s proposed
requirements seem to assume that smart
grid proposals are economically
justified by their very nature.162 Illinois
Commission points out that under the
Department of Energy’s grant criteria, a
smart grid project could be denied grant
funding if it fails to adhere to the
Institute-published standards, but under
the Interim Rate Policy the same project
could receive rate recovery and, in
particular, guaranteed recovery of
abandonment costs. Illinois Commission
seeks clarification that this would not be
automatically permitted. Instead,
Illinois Commission argues that during
the period between when the Institute
publishes standards and the
Commission adopts them through
rulemaking, any affected smart grid rate
recovery applicants should have the
burden to establish that such project
remains used and useful.163 Illinois
Commission and AWEA also urge the
Commission to limit application of the
Interim Rate Policy to only those smart
grid projects that further the
Commission’s goals associated with the
two cross-cutting issues and priority
functionalities identified in the
158 Ohio Partners and Maryland Counsel
Comments at 5–6.
159 ELCON Comments at 10.
160 CPower Comments at 2, Alcoa Comments at 9,
PSEG Companies Comments at 2, North Carolina
Agencies Comments at 3, and Wal-Mart Comments
at 6.
161 Springfield Comments at 10.
162 Illinois Commission Comments at 4.
163 Id. at 6. Maryland Counsel Comments at 5, n.4.
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Proposed Policy Statement.164 Finally,
Illinois Commission also argues that the
Commission should maintain a
traditional cost-causation, beneficiarypays cost allocation methodology and,
in particular, prohibit broad
socialization of such costs within
RTOs.165
114. Michigan Commission argues
that the Interim Rate Policy should be
applied carefully and conservatively to
avoid inefficient spending on
equipment that does not promote real
progress toward true smart grid
functionality. Michigan Commission is
particularly concerned about permitting
cost recovery for smart grid
deployments that cannot be upgraded to
final interoperability standards.
Accordingly, it argues that if the
Commission proceeds with an Interim
Rate Policy, it should clarify that its
eligibility criteria will be strictly
applied and only available to
investments that create significant new
smart grid functionality or serve as the
basis for upgrading or expanding such
functionality in the future.166
115. Indianapolis P&L also supports
the proposed criteria but requests that
the Commission apply these criteria
with some degree of flexibility given
that national smart grid development is
a work-in-progress. Specifically,
Indianapolis P&L suggests that the need
to demonstrate good faith adherence to
the smart grid vision articulated in EISA
may be complicated by the early stage
of the interoperability process generally.
In this regard, Indianapolis P&L suggests
that any evaluation of applicant good
faith decisions take into account the
state of affairs at the time any decisions
were made.167 Regarding the
requirement to share information with
the Department of Energy Smart Grid
Clearinghouse, Indianapolis P&L
respectfully requests that confidential
and commercially-sensitive information
not be demanded or that appropriate
protections be permitted to apply.168
116. FirstEnergy urges the
Commission not to require applicants to
make showings that would be
unreasonable, overly burdensome, or
inflexible such that any proposed cost
recovery would discourage investment.
It does not, however, specify whether
any of the Commission’s proposed
eligibility criteria would fall into this
category.169 DRSG Coalition, on the
164 Illinois Commission Comments at 6–7 and
AWEA Comments at 11–12.
165 Illinois Commission Comments at 7.
166 Michigan Commission Comments at 10–12.
167 Indianapolis P&L Comments at 4.
168 Id. at 4–5.
169 First Energy Comments at 10.
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other hand, seems to argue that some of
the Commission’s proposed security
criteria for cost recovery may be overly
burdensome.170
117. SDG&E proposes that, where an
application for rate recovery or
incentives involves the utility’s share of
the cost of a project receiving partial
Department of Energy funding, the
Commission could deem the utility’s
share of the investment per se prudent
as used and useful plant so that rate
recovery of such costs would be deemed
per se just and reasonable. If this
proposal is not adopted outright, then
SDG&E argues that the Commission
should at least apply a rebuttable
presumption that such costs are per se
prudent and their rate recovery would
be per se just and reasonable.
118. AARP argues that the
Commission’s proposed eligibility
criteria are equivalent to ‘‘near
automatic rate recovery’’ for new
investments labeled ‘‘smart grid.’’ 171
AARP does not believe that the
Commission’s statutory responsibility to
insure just and reasonable rates can be
fulfilled with such criteria. First, it
asserts that the Commission has failed
to identify the specific investments,
devices, or other systems that would or
could be subject to the proposed Interim
Rate Policy. It also asserts that the
Commission should require applicants
to affirmatively demonstrate benefits,
such as enhanced reliability, as a
condition for rate recovery. It also seems
to argue that rate recovery should not be
granted unless the applicant can
demonstrate that the smart grid
equipment in question can be
upgraded.172 Finally, AARP proposes
that the Commission require applicants
to demonstrate that their investments
have been reviewed and approved by
State regulators when those investments
are intimately related to, and
coordinated with, investments that are
subject to State regulatory authorities.173
119. APPA has two concerns in this
area.174 First, it is concerned that only
smart grid costs associated with
wholesale rates and transmission
functions be recovered through filings
under this proposal. It argues that the
cost of smart grid installations that
support retail service should be
recovered in retail rates. Second, APPA
opposes the Commission’s proposal to
Coalition Comments at 9–10.
Comments at 10.
172 The Proposed Policy Statement encourages
upgradeability but stops short of requiring it
because it may not always be technically or
economically feasible. Proposed Policy Statement,
126 FERC ¶ 61,253 at P 49.
173 AARP Comments at 10–12.
174 APPA Comments at 16–17, 19.
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171 AARP
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consider smart grid devices and
equipment to be used and useful for cost
recovery purposes if the applicant meets
the criteria set out in the Proposed
Policy Statement. APPA believes that
such treatment shifts the burden of
proof from the applicant to customers
opposing such a finding. Third, APPA
believes that applicants for smart gridrelated rate recovery or incentives
should be required to show that their
suppliers have attested to the integrity
of the components used in the smart
grid installation in question.
120. Kansas Commission concurs
with the need to provide certainty and
guidance regarding cost recovery issues
but expresses concerns regarding the
three criteria proposed by the
Commission. Specifically, it prefers that
more traditional demonstrations of the
used and useful requirement be
preserved and also supports a cost/
benefit requirement.175 Massachusetts
Attorney General believes that no smart
grid costs should be eligible for rate
recovery until after the Institute
provides guidance on which
technologies are most cost effective and
where device deployment will be most
valuable.176 Massachusetts Attorney
General also recommends that the
Commission require applicants to
demonstrate that they maximized all
opportunities to secure Federal funding
to offset the costs associated with smart
grid deployment.
121. Citizens Coalition opposes the
proposal to find smart grid equipment
used and useful if three conditions are
met on the basis that such changes are
‘‘simply dishonest manipulation of
traditional utility principles.’’ 177 It also
expresses concern with the proposal to
require good faith efforts to adhere to
the vision of a smart grid described in
Title XIII of EISA. Specifically, it
opposes a ‘‘good faith’’ standard and
instead urges that applicants be required
to show that they acted reasonably and
prudently, which it characterizes as a
standard of reasonableness.
Commission Determination
122. To help inform our review for
rate approval of smart grid costs, an
applicant seeking the recovery of smart
grid costs must make four
demonstrations. The first, and
threshold, demonstration is that an
applicant must show that the smart grid
facilities will advance the goals of EISA
section 1301. Second an applicant must
show that the reliability and
175 Kansas
Commission Comments at 7–8.
Attorney General Comments at
176 Massachusetts
3–4.
177 Citizens
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cybersecurity of the bulk-power system
will not be adversely affected by the
deployment of the smart grid facilities at
issue. Third, the applicant must show
that it has minimized the possibility of
stranded investment in smart grid
equipment, in light of the fact that such
filings will predate adoption of
interoperability standards. Finally,
because it will be important for early
smart grid deployments, particularly
pilot and demonstration projects, to
provide feedback useful to the
interoperability standards development
process, an applicant must agree to
provide feedback useful to the
interoperability standards development
process, by sharing information with the
Department of Energy Smart Grid
Clearinghouse.
123. To make the first and threshold
demonstration, an applicant must
describe the proposed investment
(including the technologies, systems,
and applications it entails) and how it
is consistent with the policy and one or
more of the goals Congress set forth in
section 1301 of EISA. In section 1301 of
EISA, Congress made clear that ‘‘it is the
policy of the United States to support
the modernization of the Nation’s
electricity transmission and distribution
system to maintain reliable and secure
electricity infrastructure that can meet
future demand growth’’ and to achieve
certain goals, ‘‘which together
characterize a Smart Grid.’’ 178 Those
goals include increased use of digital
information and controls technology to
improve reliability, security, and
efficiency of the electric grid, dynamic
optimization of grid operations and
resources, with full cybersecurity, and
deployment and integration of
distributed resources and generation,
including renewable resources, demand
side resources and energy efficiency
resources. This threshold showing was
implicit in the Proposed Policy
Statement, but in light of many
comments we received, we now state it
explicitly.
124. In order to make the second
showing, an applicant must describe
how its proposed deployment of smart
grid equipment will maintain
compliance with Commission-approved
Reliability Standards, such as the CIPS
Reliability Standards, during and after
the installation and activation of smart
grid technologies so the reliability and
cyber security of the bulk-power system
will not be jeopardized. An applicant
must also address: (1) The integrity of
data communicated (whether the data is
correct), (2) the authentication of the
communications (whether the
178 EISA
section 1301.
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communication is between the intended
smart grid device and an authorized
device or person), (3) the prevention of
unauthorized modifications to smart
grid devices and the logging of all
modifications made, (4) the physical
protection of smart grid devices, and (5)
the potential impact of unauthorized
use of these smart grid devices on the
bulk-power system.
125. To make the third showing
concerning potential stranded smart
grid investment, applicants must show
how they have relied to the greatest
extent practical on existing, widely
adopted and open 179 interoperability
standards; and where feasible, relied on
systems and firmware that can be
securely upgraded readily and quickly.
126. Finally, to make the showing
concerning the sharing of information,
an applicant must agree to share with
the Department of Energy Smart Grid
Clearinghouse the same information
required by the Department of Energy
for its grant program. While in the
Proposed Policy Statement the
Commission initially proposed seven
specific categories of information to be
shared, modeled on a similar proposal
made to the Department of Energy by
the NARUC/FERC Smart Grid
Collaborative, the Department of Energy
has now released its final information
sharing requirements and we will rely
on those requirements instead.
127. Some commenters argue that
these showings represent a departure
from traditional ratemaking practice. We
disagree. These showings do not replace
the Commission’s existing
demonstrations, but supplement them.
The supplemental information is
needed in this case to assure the
Commission that recovery of
investments in these new technologies,
in some cases still experimental, are
serving the interests of consumers while
advancing the effort to create a smart
grid. Further, although the Commission
generally does not allow the recovery of
179 An open architecture is publicly known, so
any and all vendors can build hardware or software
that fits within that architecture, and the
architecture stands outside the control of any single
individual or group of vendors. In contrast, a closed
architecture is vendor-specific and proprietary, and
blocks other vendors from adoption. An open
architecture encourages multi-vendor competition
because every vendor has the opportunity to build
interchangeable hardware or software that works
with other elements within the system. See
Gridwise Architecture Council Decision-Maker’s
Interoperability Checklist Draft Version 1.0, https://
www.gridwiseac.org/pdfs/
gwac_decisionmakerchecklist.pdf. We note that
Congress recently made utilization of open
protocols and standards, if available and
appropriate, a condition of receiving funding from
the Department of Energy for demonstration
projects and grants pursuant to EISA section 1304
and 1306. See ARRA section 405(3) and 405(8).
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37113
new costs outside a rate case, we will do
so for smart grid costs as explained
further below, and this fact alone creates
a need for additional filing requirements
designed for just these costs. Here we
are allowing cost recovery for
jurisdictional smart grid costs based on
traditional standards of review with an
added showing that the technologies
will not adversely affect the security
and reliability of the grid, have
minimized potential stranded
investment related to consistency with
interoperability standards as they are
fully developed over time, and assist in
providing information for future
projects. Such considerations are fully
consistent with the ‘‘used and useful’’
standard, and are the proper
determinations for the Commission to
make when considering whether a smart
grid cost is just and reasonable in this
interim period before a substantial body
of relevant interoperability standards
are adopted through Commission
rulemaking.
128. These considerations do not
constitute automatic rate recovery for
smart grid projects, as some commenters
have suggested. The Commission has
laid out specific showings that must be
made, in addition to normal rate filing
requirements, for rate recovery for a
smart grid project to be approved. The
burden is on the applicant to make these
showings.
129. The Commission rejects the
arguments that a formal cost/benefit or
cost-effectiveness analysis should be
required in addition to these three filing
requirements. Under section 205 of the
FPA, the Commission already considers
whether rates are just and reasonable
and not unduly discriminatory. Formal
quantitative analyses typically contain
some areas with highly subjective
benefits that could lead to protracted
debate between each side’s experts and
increase the cost of litigation. Further, a
cost-benefit analysis would be
particularly infeasible in this instance.
For example, if the benefits of smart grid
deployment were to include enhanced
ability to accommodate changes in
generation mix, including heavier
reliance on renewable generation, then
the costs of failure to deploy such
technology could potentially include
such hard-to-quantify costs as the
results of global climate change. Such
cost estimates will be highly dependent
on a broad range of assumptions and
would likely be highly contentious in
every case. Accordingly, the value of
such a requirement would be
questionable. In any event, intervenors
in rate proceedings can and do raise the
issue of whether utility investments
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were prudently made in light of their
costs and they may continue to do so.
130. Several commenters state that the
Commission should identify what
devices will be eligible for smart grid
rate recovery. The Commission will not
attempt to list all the particular
facilities, equipment, or devices that are
eligible or ineligible. In response to
APPA and others, and as noted above,
rate recovery will apply only to smart
grid costs within the Commission’s FPA
jurisdiction. EISA does not alter the
FPA’s jurisdictional boundaries between
Federal and State regulation over the
rates, terms, and conditions of
transmission service and sales of
electricity.
3. Incentives Under the Interim Rate
Policy
131. In its Proposed Policy Statement
the Commission proposed several
incentive rate treatments for smart grid
costs. These rate treatments are meant to
encourage the adoption of and
investment in smart grid technologies.
traditional ratemaking practices.183
ELCON states that such cost recovery is
premature, given unresolved technical
issues.184 APPA argues that single issue
ratemaking for smart grid technology
could lead to an over-recovery of costs,
and is part of a trend in which the
Commission overlooks its duty to insure
just and reasonable rates in the name of
current policy goals.185 Commenters
also argue against treating approved
smart grid technologies as used and
useful.186 Citizens Coalition opposes
any special rate treatment for smart grid
equipment, as does ELCON for the same
reasons that it opposes finalization of
the Interim Rate Policy generally.187
135. EEI also argues that for purposes
of smart grid-related single issue rate
filings, the Commission should consider
providing waiver of the full financial
data requirements in the Commission’s
regulations. In particular, EEI argues
that Period I data may be adequate for
determining whether such rates are just
and reasonable and the otherwise
required Period II data may not be
needed.
a. Single Issue Ratemaking
Commission Determination
136. The Commission will allow
single issue rate treatment for the
recovery of costs associated with smart
grid investments as part of its Interim
Rate Policy. Although the Commission
generally does not allow the recovery of
new costs outside a rate case that
considers all costs, the Commission has
entertained exceptions for special cases.
For example, in implementing FPA
Comments
section 219, as enacted in the Energy
133. Some commenters 180 support the Policy Act of 2005, the Commission has
Commission’s proposal to permit single stated that it would allow single issue
issue rate filings for qualifying smart
rate treatment for new transmission
grid investments. NYISO notes that
projects.188 Furthermore, such rate
allowing jurisdictional transmission
treatment is not unheard of in other
owners to recover the cost of investment jurisdictions; retail rates may include
in new controls and communication
surcharges to the base rates in order to
devices may assist in stimulating
recover unusual, or ‘‘single issue,’’
needed investment.181 Midwest ISO
costs.189 Here the Commission will
Transmission Owners state that such a
allow single issue rate treatment in
policy will encourage investment
because it allows transmission owners
183 NRECA Comments at 11–13, Maryland
to invest in smart grid equipment
Counsel Comments at 2, 4–5, Ohio Partners
Comments at 9–10, ELCON Comments at 9–10, and
without running the risk that other
Citizens Coalition Comments at 12–14.
aspects of their system-wide rates will
184 ELCON Comments at 9–10.
become subject to review and possible
185 APPA Comments at 17–18.
alteration.182
186 NRECA Comments at 11–13, Maryland
134. Several commenters argue
Counsel Comments at 4, and Ohio Partners at 9–10.
187 Citizens Coalition Comments at 14 and
against the proposed single issue
ELCON Comments at 13.
ratemaking, and state that the
188 Promoting Transmission Investment Through
Commission should adhere to
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132. As part of the Interim Rate
Policy, the Commission proposed that
jurisdictional entities should be able to
recover costs for used and useful smart
grid facilities on a single issue basis.
That is, entities would be able to recover
the cost of smart grid investments
without having to open their entire rate
base to Commission review.
180 SDG&E
Comments at 24–25, Indianapolis P&L
Comments at 3–4, Black Hills Corp. Comments at
4, Midwest ISO Transmission Owners Comments at
3–7, and Allegheny Companies Comments at 8.
181 NYISO Comments at 12.
182 Midwest ISO Transmission Owners Comments
at 4.
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Pricing Reform, Order No. 679, FERC Stats. & Regs.
¶ 31,222, at P 191 (2006), order on reh’g, Order No.
679–A, FERC Stats. & Regs. ¶ 31,236 (2006), order
on reh’g, 119 FERC ¶ 61,062 (2007).
189 See, e.g., Kan. Stat. Ann. section 66–117(f)
(2009), Pa. Pub. Util. Code section 2804(16)(ii)
(2009) and WUTC v. Puget Sound Energy, Inc.,
Docket Nos. UE–011570 and UG–011571, at P 25
and 27 (2002).
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response to a pressing need for the
development of new and innovative
smart grid capabilities that will be
needed by the electric system, and in
response to a statutory directive to
support the modernization of the
electric grid. This will in no way affect
the ability of customers to file a
complaint pursuant to section 206 of the
FPA if they believe that the ultimate rate
charged by the public utility is no
longer just and reasonable.
137. As to EEI’s request for
clarification regarding waiver of the full
financial data requirements in the
Commission’s regulations, the
Commission already permits applicants
to seek such waiver on a case-by-case
basis. On the record before us, we see
no need for a blanket waiver. Applicants
seeking such a waiver must retain the
burden for supporting the waiver.
b. Recovery of Stranded Costs for Legacy
Systems
138. The Commission also proposed
to permit applicants to seek recovery of
the otherwise stranded costs of legacy
systems that are to be replaced by smart
grid equipment. The Commission stated
that an appropriate plan for the staged
deployment of smart grid equipment,
which could include appropriate
upgrades to legacy systems where
technically feasible and cost-effective,
could help minimize the stranding of
unamortized costs of legacy systems.
The Commission therefore proposed
that any request to recover stranded
legacy system costs must demonstrate
that such a migration plan has been
developed.
Comments
139. AARP argues that the proposed
stranded cost policies for legacy systems
are unreasonable because they may
present significant cost risk exposure to
consumers. AARP recommends that the
Commission transfer at least some
portion of the risks of stranded costs
from ratepayers to shareholders.190
APPA states that retail costs, including
stranded costs, should not be reflected
in wholesale rates. APPA also argues
that applicants should be required to
make every effort to minimize the
stranding of legacy costs through phased
integration strategies.191 Citizens
Coalition opposes any recovery of the
stranded legacy costs of legacy systems,
stating that past stranded cost
proceedings cost consumers billions of
dollars.192 It argues that smart grid
advocates should reimburse utilities and
190 AARP
Comments at 12–13.
Comments at 20.
192 Citizens Coalition Comments at 9, 14.
191 APPA
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their customers for such costs if they
wish to replace such systems
prematurely. ELCON also opposes
permitting recovery of the stranded cost
of legacy systems.193 NRECA argues that
if the Commission’s discussion of
permitting applicants to seek stranded
cost recovery was meant to change
existing ratemaking policies, the
Commission must provide more
justification for doing so and detailed
criteria for evaluating such
applications.194 Additionally, several
commenters argue that every effort
should be made to minimize the
stranding of legacy costs.195
140. Other commenters support the
Commission’s proposals with respect to
recovery of the stranded investment in
legacy systems to be replaced by smart
grid equipment, including the proposals
meant to minimize such stranded
costs.196 FirstEnergy also proposes that
the Commission consider permitting
accelerated depreciation or amortization
for legacy systems to be replaced with
smart grid equipment.197
Commission Determination
141. As part of the Interim Rate
Policy, the Commission will allow
single issue rate treatment of otherwise
stranded costs for jurisdictional legacy
systems being replaced by jurisdictional
smart grid equipment, provided that
proposals to recover these costs are
supported by an equipment migration
plan that minimizes the stranding of
unamortized costs of legacy systems.
Elsewhere in this document, the
Commission discusses several major
potential challenges to the operation of
the bulk-power system, and the smart
grid capabilities that could help address
those challenges. We view these
challenges as potentially serious enough
to justify making the development of
these smart grid capabilities a high
priority. Accordingly, if developing
these capabilities requires the early
replacement of some legacy equipment,
we would view that as a strong
argument for doing so, and would not
necessarily render these previouslyapproved investments imprudent.
c. Additional Incentive Rate Treatments
142. The Commission also stated that
it will entertain requests for rate
193 ELCON
Comments at 13.
Comments at 14–15.
195 Ohio Partners Comments at 11, National Grid
Comments at 7, and Maryland Counsel Comments
at 6.
196 SDG&E Comments at 26, FirstEnergy
Comments at 10, Midwest ISO Transmission
Owners Comments at 9–11, PSEG Companies
Comments at 8, and Black Hills Corp. Comments at
4.
197 First Energy Comments at 10.
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194 NRECA
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treatments such as accelerated
depreciation and abandonment
authority (whereby an applicant is
assured of recovery of abandoned plant
costs if the project is abandoned for
reasons outside the control of the public
utility) specifically tied to smart grid
deployments under our FPA section 205
authority. The Commission stated that
any requests for such rate treatment for
smart grid costs would need to address
all of the requirements for rate recovery
and make the showings described in
FPA section 205. The Commission also
stated that it would consider applying
these rate treatments to the portion of a
smart grid pilot or demonstration
project’s cost that is not already paid for
by Department of Energy funds, such as
those authorized by EISA sections 1304
and 1306.198 The Commission further
stated that to the extent that such
showings are made as discussed, it
proposed to consider permitting
abandonment authority to apply to any
smart grid investments that, despite
reasonable efforts, could not be
upgraded and must ultimately be
replaced if found to conflict with the
final standards approved in the
Institute’s standards development
process.
Comments
143. SDG&E supports the
Commission’s incentive proposals,
particularly as to accelerated
depreciation and the opportunity to
recover the costs of abandoned plant.
However, SDG&E seeks clarification that
the Commission will entertain rate
requests for abandoned plant costs over
and above undepreciated capital costs,
including other costs associated with
abandoned facilities such as costs of
early or premature contract
termination.199
144. In contrast, AARP urges caution
regarding incentives for smart grid
equipment before the adoption of final
interoperability standards and proposes
that requests for such incentives should
be required to document the costs and
benefits that will ultimately be borne by
retail consumers. As with cost recovery
generally, AARP argues that the
Commission should identify specific
investments, devices, or other systems
that would or could be eligible for
incentive treatment under this proposed
policy. AARP argues that, at a
minimum, requests for incentive
treatment should be required to
document the actual and improved
reliability benefits from such
investments and the applicant should
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198 To
be codified at 42 U.S.C. 17384 and 17386.
Comments at 26–27.
199 SDG&E
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37115
bear all of the risk that those benefits
will actually occur. Citizens Coalition
opposes any special rate treatment for
smart grid equipment, as does ELCON
for the same reasons that it opposes
finalization of the Interim Rate Policy
generally.200 NRECA states that if the
Commission’s discussion of permitting
applicants to seek rate treatments such
as accelerated depreciation and
abandonment authority was meant to
change existing ratemaking policies, the
Commission must provide more
justification for doing so and detailed
criteria for evaluating such
applications.201
145. Massachusetts Attorney General
urges the Commission to consider
prohibiting, or at least significantly
limiting, applicants’ ability to recover
return on equity incentive adders for
smart grid investments. It argues that
the potential risks associated with smart
grid investments are minimal compared
to large-scale transmission projects,
especially in light of Department of
Energy support through stimulus
funding.202
146. In contrast, Allegheny
Companies recommend that three
additional rate treatments be permitted:
incentive return on equity, recovery of
a return on 100 percent of construction
work in progress, and the expensing of
pre-commercial costs.203 Allegheny
Companies also support the proposals
regarding accelerated depreciation and
abandonment but request that
applicants be permitted to demonstrate
on a case-by-case basis significantly
shorter depreciable lives for early smart
grid investments without needing to
demonstrate that such shorter lives are
required for cash flow purposes.204
147. Valley Group asserts that realtime transmission ratings could reduce
congestion cost by enabling more of the
existing capacity of transmission
facilities to be used safely, and proposes
a new rate incentive tied to investment
associated with enabling real-time
transmission ratings.205
148. Finally, ITC Companies and EEI
request clarification regarding the
interplay between Order No. 679 and
the incentive rate treatments discussed
in the Interim Rate Policy. ITC
Companies request that the Commission
clarify that smart grid technologies
applicable to the transmission system
are considered advanced transmission
200 Citizens Coalition Comments at 14 and
ELCON Comments at 13.
201 NRECA Comments at 14–15.
202 Massachusetts Attorney General Comments at
5–6.
203 Allegheny Companies Comments at 6–7.
204 Id. at 8–9.
205 Valley Group Comments at 2, 5–6.
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technologies eligible for transmission
rate incentives under Order No. 679.206
EEI asks the Commission to clarify
whether the Commission will
differentiate between devices that
qualify for advanced technology
incentives under Order No. 679 and
those that qualify under the Interim Rate
Policy; or whether the same technology
may qualify for either incentive. EEI
also requests that the Commission
clarify whether projects receiving
treatment under the Interim Rate Policy
preclude smart grid projects from
receiving incentives under Order No.
679.207 AARP argues that such single
issue rate filings should be required to
adhere to the Commission’s regulations
and conform to procedures enacted
under FPA section 219.208
Commission Determination
149. The Commission will permit
utilities to request accelerated
depreciation and abandonment
authority under the terms of its Interim
Rate Policy under FPA section 205. As
discussed elsewhere in this Policy
Statement, smart grid investment can
help address major challenges facing the
bulk-power system. However, as with
any section 205 filing or petition for
declaratory order, the Commission will
make the rate determination based on
the specific facts and circumstances
presented, including the relationship to
other incentives, if any.
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4. Potential Interplay With Department
of Energy Funding Grants
150. Subsequent to the Commission’s
issuance of the Proposed Policy
Statement, the Department of Energy
announced two smart grid funding
opportunities for up to fifty percent of
the costs of certain smart grid projects.
In addition, the Department of Energy
planned to require applicants to identify
the source of non-Department of Energy
funds, along with some evidence as to
the certainty of these funds.
151. Given that applicants for these
programs might include jurisdictional
public utilities that seek rate recovery
through Commission-jurisdictional rates
for the non-Department of Energy
portion of funds for transmission-related
projects, the Commission sought
supplemental comments on the matter.
The Commission received 16
supplemental comments.
Comments
152. There are two major themes in
the supplemental comments. First, the
206 ITC
Companies Comments at 8–10.
Comments at 15.
208 AARP Comments at 13–15.
207 EEI
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investor-owned electric industry is
supportive of the Commission’s
proposal to conditionally approve rate
adjustments on smart grid projects,
including those eligible for Department
of Energy funding. EEI is fully
supportive of the Commission’s smart
grid Interim Rate Policy proposal,
stating that it provides certainty and
incentives for utilities to aggressively
pursue Department of Energy
funding.209 Without interim rate
policies, utilities may be less willing or
unable to pursue Department of Energy
funding. EEI encourages the
Commission to issue its Interim Rate
Policy before the Department’s release
of its June 17, 2009 final funding
opportunity documents, and certainly
prior to the July 29 project submission
deadline. EEI supports rate recovery of
upgrades to legacy systems and rate
recovery of stranded costs resulting
from smart grid upgrades.210 EEI also
states that expedited rate adjustments
can be accomplished through formula
rates.211 SDG&E, PSEG, PG&E, and the
New York Transmission Owners all
filed comments in support of the
Commission’s Interim Rate Policy
proposals.212 None of the Investor
Owned Utility commenters suggests that
the Commission adopt a separate rate
policy for investments supported by
Department of Energy funds.
153. Second, the public power sector,
energy consumer representatives, and
state regulatory commissions oppose or
have serious reservations about the
Commission’s policy proposal. NRECA
and ELCON continue to oppose the
Commission’s Interim Rate Policy
proposal generally. NRECA stresses that
the Commission should strictly adhere
to the just and reasonable requirements
of the FPA.213 NRECA’s position is that
rate adjustments related to smart grid
investments can be processed
expeditiously while still following
requirements prescribed in the FPA.
NRECA also states that cost recovery
assurance for facilities not under
construction is beyond the
Commission’s authority.214 NRECA
further states that a careful reading of
the Department of Energy draft funding
opportunity announcement does not
condition grant award upon assurance
of recovery of smart grid facilities in
rates.215 Similarly, ELCON states the
Commission should proceed carefully
and focus on its statutory obligation that
utility costs are prudently incurred, and
used and useful.216 ELCON also
reaffirms its opposition to the
Commission’s proposed Interim Rate
Policy and states that special rate
treatment for smart grid investments is
contrary to the FPA.217
154. NARUC asserts, as does NRECA,
that many if not most of the grant
projects will occur on the distributionretail side of the grid.218 In
consequence, the Commission should
not provide funding guarantees for that
portion of smart grid projects not
covered by Department of Energy grants;
State commissions must have the
opportunity to review these projects.
The Maryland Commission comments
mirror NARUC’s and NRECA’s,
opposing the Interim Rate Proposal
generally and specifically opposing
conditional rate recovery of projects it
considers to be State jurisdictional.219
The California Commission provided a
copy of an order describing how it will
review smart grid projects eligible for
Department of Energy funds.220
155. AARP comments, while not
explicitly opposing the Commission’s
Interim Rate Proposal, say that
additional clarity should be provided to
the smart grid cost approval process,
including conducting a preliminary
review of smart grid grant applications
to determine whether they are
complete.221 Similarly, the
Massachusetts Attorney General stresses
that the Commission should have a
project approval and monitoring process
that focuses on cost containment.222
Commission Determination
156. Having considered the
supplemental comments, the
Commission sees no need for special
procedures for rate recovery filings for
projects that also receive Department of
Energy grant funding. The Department
of Energy does not require an assurance
of rate recovery as a condition for grant
funding. In fact, the most recent version
of the Department of Energy’s Smart
Grid Grant Program states that
applicants that do not yet have
regulatory approval are eligible to
215 Id.
Supplemental Comments at 4–5.
210 Id. at 6.
211 Id.
212 SDGE Supplemental Comments at 1–2, PSEG
Supplemental Comments at 1–2, PGE Supplemental
Comments at 1, and NYISO Supplemental
Comments at 3.
213 NRECA Supplemental Comments at 4–5.
214 Id. at 10–11.
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209 EEI
Frm 00020
Fmt 4701
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at 8–9.
Supplemental Comments at 3.
217 Id. at 3.
218 NARUC Supplemental Comments at 1.
219 Maryland Commission Supplemental
Comments at 1–2.
220 CPUC Supplemental Comments at 1.
221 AARP Supplemental Comments at 1–3.
222 Massachusetts Commission Supplemental
Comments at 3–4.
216 ELCON
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receive an award.223 The more general
concerns expressed by the commenters
regarding the Interim Rate Policy have
been addressed in previous sections of
this Policy Statement.
III. Document Availability
157. In addition to publishing the full
text of this document in the Federal
Register, the Commission provides all
interested persons an opportunity to
view and/or print the contents of this
document via the Internet through the
Commission’s Home Page (https://
www.ferc.gov) and in the Commission’s
Public Reference Room during normal
business hours (8:30 a.m. to 5 p.m.
Eastern time) at 888 First Street, NE.,
Room 2A, Washington, DC 20426.
158. From the Commission’s home
page on the Internet, this information is
available on eLibrary. The full text of
this document is available on eLibrary
in PDF and Microsoft Word format for
viewing, printing, and/or downloading.
To access this document in eLibrary,
type the docket number excluding the
last three digits of this document in the
docket number field.
159. User assistance is available for
eLibrary and the Commission’s website
during normal business hours from
Federal Energy Regulatory Commission
Online Support at 202–502–6652 (toll
free at 1–866–208–3676) or e-mail at
ferconlinesupport@ferc.gov, or the
Public Reference Room at (202) 502–
8371, TTY (202) 502–8659. E-mail the
Public Reference Room at
public.referenceroom@ferc.gov.
IV. Information Collection Statement
160. Office of Management and
Budget’s (OMB) regulations in 5 CFR
1320.11 require that it approve certain
reporting and recordkeeping
requirements (collections of
information) imposed by an agency.
Upon approval of a collection of
information, OMB assigns an OMB
control number and an expiration date.
Entities subject to the filing
requirements of the Interim Rate Policy
will not be penalized for failing to
respond to this collection of information
unless the collection of information
displays a valid OMB control number.
161. The Interim Rate Policy may
affect the following existing data
collection: Electric Rate Schedule and
Tariff Filings (FERC–516) OMB Control
No. 1902–0096.
162. The following burden estimate is
based on the projected costs for the
industry to implement revisions to
satisfy the requirements of the Interim
Rate Policy if and when rate recovery is
sought under that policy:
Number of
responses per
respondent
Number of
respondents
Data collection
37117
Hours per
response
Total number of
hours
FERC–516 .......................................................................................
116
1
15
1740
Totals ........................................................................................
............................
............................
............................
1740
166. These requirements conform to
the Commission’s goal for efficient
information collection, communication,
and management within the electric
power industry. The Commission has
assured itself, by means of its internal
review, that there is specific, objective
support for the burden estimates
FERC–516 associated with the information
Total Annualized Costs ............
$261,000 requirements.
167. OMB regulations 225 require it to
approve information collection
164. The Commission sought
requirements imposed by an agency.
comments on the Interim Rate Policy,
The Commission is submitting
among other things, in the Proposed
notification of the Interim Rate Policy to
Policy Statement. No comments were
OMB. These information collections are
filed relating to the burden of reporting
voluntary and apply only to the extent
or complying with the requirements for
that an entity seeks to benefit from the
seeking rate recovery pursuant to the
Interim Rate Policy.
Interim Rate Policy.
Title: Electric Rate Schedule and
165. The Commission’s Interim Rate
Tariff Filings (FERC–516).
Policy adopted herein is necessary to
Action: Proposed collection.
encourage the near-term deployment of
OMB Control No.: 1902–0096.
smart grid systems capable of
Respondents: Business or other for
addressing upcoming challenges to the
profit.
operation of the bulk-power system.
Frequency of Responses: Estimated to
Requiring the information specified in
the Interim Rate Policy will encourage
be one time per respondent. The Interim
this near-term deployment while
Rate Policy will be in effect until
appropriately protecting customers from relevant interoperability standards have
stranded costs and the electric system
been adopted through Commission
from potential cybersecurity threats.
rulemaking as provided by the EISA.
Necessity of the Information: The
Interim Rate Policy will encourage nearterm deployment of smart grid systems
capable of helping to address the
upcoming challenges to the operation of
the bulk-power system associated with
the EISA. The information to be
collected is necessary to protect
customers from stranded costs and the
electric system from potential
cybersecurity threats. The Commission
will use the information in rate
proceedings to review rate and tariff
changes by public utilities, for general
industry oversight, and to supplement
the documentation used during the
Commission’s audit process.
168. The Commission is submitting to
OMB a notification of these proposed
collections of information. For
information on the requirements,
submitting comments on the collection
of information and the associated
burden estimates, including suggestions
for reducing this burden, please contact
the following:
223 See generally Recovery Act Smart Grid Grant
Investment Program, https://www.grants.gov/search/
search.do;jsessionid=fvXjKDLQNQG8kgxwx
65nJs4rYhGgThcL9t7KzGZCkqFXSRpGpn9z!
(1740 hours) by an hourly wage estimate of $150
(a composite estimate that includes legal, technical
and support staff rates, $90+$35+$25). $261,000 =
$150 × 1740.
225 5 CFR 1320.12.
jlentini on DSKJ8SOYB1PROD with RULES2
Total Annual Hours for Collection
(Reporting and Recordkeeping, (if
appropriate)) = 1740
163. Information Collection Costs:
The Commission projects the average
annualized cost for all respondents to be
the following: 224
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1215949849?oppId=46833&
flag2006=false&mode=VIEW.
224 The total annualized costs for the information
collection is $261,000. This number is reached by
multiplying the total hours to prepare responses
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Federal Energy Regulatory Commission,
Attn: Michael Miller, Office of the
Executive Director, 888 First Street,
NE., Washington, DC 20426, Tel: (202)
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502–8415/Fax: (202) 273–0873, Email: michael.miller@ferc.gov.
Or contact:
Office of Information and Regulatory
Affairs, Office of Management and
Budget, Washington, DC 20503,
Attention: Desk Officer for the Federal
Energy Regulatory Commission, (Re:
OMB Control Nos. 1902–0096), Tel:
(202) 395–4638, E-mail:
omb_submissions@omb.eop.gov.
V. Effective Date and Congressional
Notification
169. The Interim Rate Policy adopted
in this Policy Statement is effective
September 25, 2009. The Commission
has determined, with the concurrence of
the Administrator of the Office of
Information and Regulatory Affairs of
OMB, that this Policy Statement is a
‘‘major rule’’ as defined in section 351
of the Small Business Regulatory
Enforcement Fairness Act of 1996.226
The Commission will submit this Policy
Statement to both houses of Congress
and to the Government Accountability
Office.
By the Commission.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
APPENDIX A—LIST OF COMMENTERS AND SHORT NAMES
Abbreviation
Commenter
AARP ........................................................................................................
Academic Commenters ............................................................................
Alcoa .........................................................................................................
Allegheny Companies ...............................................................................
American Transmission ............................................................................
APPA ........................................................................................................
APS ...........................................................................................................
AT&T .........................................................................................................
AWEA .......................................................................................................
B–D Research ..........................................................................................
Black Hills Corp. .......................................................................................
American Association of Retired Persons.
Michael C. Caramanis, Geoffrey Parker, and Richard D. Tabors.
Alcoa Inc. and Alcoa Power Generating Inc.
Trans-Allegheny Interstate Line Company and Allegheny Power.
American Transmission Company LLC.
American Public Power Association.
Arizona Public Service Company.
AT&T, Inc.
American Wind Energy Association.
Bochman-Danahy Research.
Black Hills Power, Black Hills/Colorado Electric Utility Company, LP d/
b/a Black Hills Energy, and Cheyenne Light, Fuel and Power Company.
BP Energy Company.
California Independent System Operator Corporation.
Public Service Commission of California.
CenterPoint Energy Houston Electric, LLC.
U.S. Chamber of Commerce.
The Empowerment Center of Greater Cleveland, the Neighborhood Environmental Coalition, Consumers for Fair Utility Rates, and Cleveland Neighborhood Housing.
Comverge, Inc.
CPower, Inc.
CURRENT Group, LLC.
Demand Response and Smart Grid Coalition.
Duke Energy Corporation.
Edison Electric Institute.
Electricity Consumers Resource Council.
Electric Power Supply Association.
E.ON U.S. LLC.
FirstEnergy Service Company on behalf of its affiliates American
Transmission Systems, Incorporated, the Cleveland Electric Illuminating Company, Jersey Central Power and Light Company, Metropolitan Edison Company, Ohio Edison Company, Pennsylvania
Electric Company, Pennsylvania Power Company, and the Toledo
Edison Company.
GridSolar, LLC.
GridWise Alliance.
GridWise Architecture Council.
Ice Energy, Inc.
Illinois Commerce Commission.
Indianapolis Power & Light Company.
ISO New England Inc.
International Transmission Company d/b/a ITCTransmission, Michigan
Electric Transmission Company, LLC, and ITC Midwest LLC.
James E. Miller.
Kansas Corporation Commission.
Public Service Commission of Maryland (supplemental comments
only).
Maryland Office of People’s Counsel.
Massachusetts Office of Attorney General.
Michigan Public Service Commission.
Midwest Independent Transmission System Operator, Inc.
Midwest ISO Transmission Owners.
National Association of Regulatory Utility Commissioners.
National Grid USA.
BP .............................................................................................................
CAISO .......................................................................................................
California Commission ..............................................................................
CenterPoint ...............................................................................................
Chamber ...................................................................................................
Citizens Coalition ......................................................................................
Comverge .................................................................................................
CPower .....................................................................................................
CURRENT ................................................................................................
DRSG Coalition ........................................................................................
Duke .........................................................................................................
EEI ............................................................................................................
ELCON .....................................................................................................
EPSA ........................................................................................................
E.ON .........................................................................................................
FirstEnergy ...............................................................................................
GridSolar ...................................................................................................
GridWise Alliance .....................................................................................
GWAC .......................................................................................................
Ice Energy ................................................................................................
Illinois Commission ...................................................................................
Indianapolis P&L .......................................................................................
ISO–NE .....................................................................................................
ITC Companies .........................................................................................
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James E. Miller .........................................................................................
Kansas Commission .................................................................................
Maryland Commission ..............................................................................
Maryland Counsel .....................................................................................
Massachusetts Attorney General .............................................................
Michigan Commission ..............................................................................
Midwest ISO .............................................................................................
Midwest ISO Transmission Owners .........................................................
NARUC .....................................................................................................
National Grid .............................................................................................
226 See
5 U.S.C. 804(2) (2007).
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37119
APPENDIX A—LIST OF COMMENTERS AND SHORT NAMES—Continued
Abbreviation
Commenter
Natural Gas Commenters .........................................................................
Natural Gas Supply Association, Interstate Natural Gas Association of
America, and Independent Petroleum Association of America.
National Energy Marketers Association and Intelligent Energy.
National Electrical Manufacturers Association.
North American Electric Reliability Corporation.
Central Hudson Gas & Electric Corporation, Consolidated Edison Company of New York, Inc., New York Power Authority, New York State
Electric & Gas Corporation, Orange and Rockland Utilities, Inc., and
Rochester Gas and Electric Corporation (supplemental comments
only).
North Carolina Public Utilities Commission and Public Staff–NC Utilities
Commission.
National Rural Electric Cooperative Association.
NRG Energy, Inc. and Reliant Energy Retail Services, LLC.
New York Independent System Operator.
Public Utilities Commission of Ohio.
Office of the Ohio Consumers’ Counsel.
Citizen Power, Cleveland Housing Network, Edgemont Neighborhood
Coalition of Dayton, the Empowerment Center of Greater Cleveland,
the Energy Project, the National Consumer Law Center, the Neighborhood Environmental Coalition, and Ohio Partners for Affordable
Energy.
Open Secure Energy Control Systems, LLC.
Pacific Gas and Electric Company.
Public Service Company of New Mexico.
PSEG Energy Resources & Trade LLC, Public Service Electric and
Gas Company, PSEG Power LLC, PSEG Global LLC.
Project for Sustainable FERC Energy Policy, Conservation Law Foundation, Natural Resources Defense Council, The Commons, Union of
Concerned Scientists, and Western Grid Group.
San Diego Gas & Electric Company.
Silver Spring Networks.
Southern Company Services, Inc.
Springfield Utility Board.
Transmission Agency of Northern California.
Transmission Access Policy Study Group (supplemental comments
only).
Tennessee Valley Authority.
The Valley Group.
Wal-Mart Stores, Inc.
Xcel Energy Services Inc.
NEM and Intelligent Energy .....................................................................
NEMA .......................................................................................................
NERC ........................................................................................................
New York Transmission Owners ..............................................................
North Carolina Agencies ..........................................................................
NRECA .....................................................................................................
NRG Companies ......................................................................................
NYISO .......................................................................................................
Ohio Commission .....................................................................................
Ohio Counsel ............................................................................................
Ohio Partners ...........................................................................................
Open Secure Systems .............................................................................
PG&E ........................................................................................................
PNM ..........................................................................................................
PSEG Companies ....................................................................................
Public Interest Organizations ...................................................................
SDG&E .....................................................................................................
Silver Spring Networks .............................................................................
Southern ...................................................................................................
Springfield .................................................................................................
TANC ........................................................................................................
TAPS ........................................................................................................
TVA ...........................................................................................................
Valley Group .............................................................................................
Wal-Mart ...................................................................................................
Xcel ...........................................................................................................
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]]>Agencies
[Federal Register Volume 74, Number 142 (Monday, July 27, 2009)]
[Rules and Regulations]
[Pages 37098-37119]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-17624]
[[Page 37097]]
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Part II
Department of Energy
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Federal Energy Regulatory Commission
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18 CFR Chapter I
Smart Grid Policy; Final Rule
Federal Register / Vol. 74, No. 142 / Monday, July 27, 2009 / Rules
and Regulations
[[Page 37098]]
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DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Chapter I
[Docket No. PL09-4-000]
Smart Grid Policy
Issued July 16, 2009.
AGENCY: Federal Energy Regulatory Commission.
ACTION: Policy statement.
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SUMMARY: This Policy Statement provides guidance regarding the
development of a smart grid for the nation's electric transmission
system, focusing on the development of key standards to achieve
interoperability and functionality of smart grid systems and devices.
In response to the need for urgent action on potential challenges to
the bulk-power system, in this Policy Statement the Commission provides
additional guidance on standards to help to realize a smart grid. The
Commission also adopts an Interim Rate Policy for the period until
interoperability standards are adopted by the Commission, which will
encourage investment in smart grid systems.
DATES: Effective Date: The Interim Rate Policy will become effective
September 25, 2009.
FOR FURTHER INFORMATION CONTACT:
David Andrejcak, Office of Electric Reliability, 888 First Street, NE.,
Washington, DC 20426, (202) 502-6721, david.andrejcak@ferc.gov.
Elizabeth H. Arnold, Office of General Counsel, 888 First Street, NE.,
Washington, DC 20426, (202) 502-8818, elizabeth.arnold@ferc.gov.
Ray Palmer, Office of Energy Policy and Innovation, 888 First Street,
NE., Washington, DC 20426, (202) 502-6569, ray.palmer@ferc.gov.
Dennis Reardon, Office of Energy Market Regulation, 888 First Street,
NE., Washington, DC 20426, (202) 502-6719, dennis.reardon@ferc.gov.
SUPPLEMENTARY INFORMATION:
Table of Contents
Paragraph
Nos.
I. Background............................................... 2
II. Discussion.............................................. 9
A. Jurisdictional Concerns.............................. 12
B. Development of Key Standards......................... 29
1. System Security.................................. 30
2. Communication and Coordination Across Inter- 46
System Interfaces..................................
3. Wide-Area Situational Awareness.................. 55
4. Demand Response.................................. 63
5. Electric Storage................................. 78
6. Electric Vehicles................................ 83
7. Additional Priorities Suggested by Commenters.... 92
C. Interim Rate Policy.................................. 95
1. Scope and Duration............................... 96
2. Additional Showings.............................. 109
3. Incentives Under the Interim Rate Policy......... 131
a. Single Issue Ratemaking...................... 132
b. Recovery of Stranded Costs for Legacy Systems 138
c. Additional Incentive Rate Treatments......... 142
4. Potential Interplay With Department of Energy 150
Funding Grants.....................................
III. Document Availability.................................. 157
IV. Information Collection Statement........................ 160
V. Effective Date and Congressional Notification............ 169
Appendix A List of Commenters and Short Names...............
Before Commissioners: Jon Wellinghoff, Chairman; Suedeen G. Kelly,
Marc Spitzer, and Philip D. Moeller.
Policy Statement
Issued July 16, 2009.
1. On March 19, 2009, the Commission issued a Proposed Policy
Statement and Action Plan to guide the development of key standards for
smart grid devices and systems.\1\ Many companies in the electricity
industry are designing and deploying such devices and systems with the
objective of achieving greater interoperability and functionality of
the nation's electric transmission grid. In the Proposed Policy
Statement, the Commission also put forth the notion of an interim rate
policy to guide rate recovery while interoperability standards are
adopted (Interim Rate Policy). Comments were invited on all aspects of
the Proposed Policy Statement. On May 19, 2009, the Commission issued a
notice requesting supplemental comments on one additional feature of
the Interim Rate Policy.\2\
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\1\ Smart Grid Policy, 126 FERC ] 61,253 (2009) (Proposed Policy
Statement).
\2\ Smart Grid Policy, 127 FERC ] 61,139 (2009) (Notice
Requesting Supplemental Comments).
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This Policy Statement generally adopts the proposals enumerated in
the Proposed Policy Statement and provides additional guidance for
standards that will help realize a smart grid.
I. Background
2. As the Commission explained in the Proposed Policy Statement,
the Commission's jurisdiction over the transmission system derives from
provisions of the Federal Power Act (FPA) relating to the transmission
of electric energy in interstate commerce by public utilities, and to
the reliable operation of the bulk-power system.\3\ An additional
responsibility was assigned by the Energy Independence and Security Act
of 2007 (EISA) \4\ directing the Commission to initiate a rulemaking
proceeding to adopt standards and protocols related to smart grid
functionality and interoperability.\5\
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\3\ 16 U.S.C. 824, 824o (2006).
\4\ Pub. L. 110-140, 121 Stat. 1492 (2007).
\5\ EISA section 1305(d), to be codified at 15 U.S.C. 17385(d).
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3. EISA lays out the policy of the United States with regard to
modernization of the nation's electricity transmission and distribution
system in order to maintain a reliable and secure electricity
infrastructure that can meet future demand growth and achieve a
[[Page 37099]]
number of goals characterizing a smart grid.\6\ EISA also directs the
National Institute of Standards and Technology (the Institute) to
coordinate the development of a framework to achieve interoperability
of smart grid devices and systems, including protocols and model
standards for information management.\7\ The Commission explained in
the Proposed Policy Statement that, in order to achieve the smart grid
characteristics and functions described in EISA, interoperability of
smart grid equipment will be essential.\8\
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\6\ EISA section 1301, to be codified at 15 U.S.C. 17381. Among
these goals and characteristics are deployment or realization of:
Digital information and technology to improve reliability, security
and efficiency; cybersecurity; distributed resources and generation;
demand response; ``smart'' technologies for optimal grid operations
and distribution automation; ``smart'' appliances; electricity
storage; consumer information and control; and communication and
interoperability standards.
\7\ EISA section 1305(a), to be codified at 15 U.S.C. 17385(a).
In this Policy Statement, we refer to the Institute's process as
both the coordination and the development of standards. The
Institute's primary function with regard to smart grid is to be a
coordinator for the variety of smart grid standards development
initiatives.
\8\ Interoperability is described as exchanging meaningful
information between two or more systems and achieving an agreed
expectation for the response to the information exchange while
maintaining reliability, accuracy, and security. See GridWise
Architecture Council, Interoperability Path Forward Whitepaper,
https://www.gridwiseac.org/pdfs/interoperability_path_whitepaper_v1_0.pdf.
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4. Once the Commission is satisfied that the Institute's work has
led to ``sufficient consensus'' on interoperability standards, EISA
directs the Commission to ``institute a rulemaking proceeding to adopt
such standards and protocols as may be necessary to insure smart-grid
functionality and interoperability in interstate transmission of
electric power, and regional and wholesale electricity markets.'' \9\
In the Proposed Policy Statement, the Commission described some of the
Institute's efforts to date, as well as its projected work, to develop
a framework for interoperability standards, and sought comment on the
most effective and efficient ways for the Commission and the Institute
to interact in the ongoing standards development processes.
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\9\ EISA section 1305(d).
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5. In the Proposed Policy Statement, the Commission identified
several potential challenges to the reliable operation of the
Commission-jurisdictional bulk-power system and the smart grid
functions and characteristics that could help address those challenges.
The major challenges identified include: Existing cybersecurity issues
\10\; issues associated with changes to the nation's generation
mix,\11\ including an increasing reliance on variable renewable
generation resources;\12\ and issues that could arise with increased
and more variable electricity loads associated with transportation
technology.\13\ In addition to these challenges, we incorporated the
Institute's assessment that there is an overarching need for
standardization of communication and coordination across inter-system
interfaces.\14\
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\10\ Proposed Policy Statement, 126 FERC ] 61,253 at P 13.
\11\ On May 13, 2009, the Commission announced that it had
commissioned the Lawrence Berkeley National Laboratory to use
frequency response to help assess the potential for the reliable
integration of wind and other renewable energy resources into the
bulk-power system. The frequency study has three main objectives:
(1) Determining if frequency response is an appropriate metric to
assess the reliability effects of integrating renewables, (2) using
the resulting metric to assess the reliability impact of various
levels of renewables on the grid, and (3) identifying what further
work and studies are necessary to quantify and mitigate any negative
effects on reliability associated with the integration of
renewables.
\12\ Proposed Policy Statement, 126 FERC ] 61,253 at P 17-20.
\13\ Id. P 21-22.
\14\ National Institute of Standards and Technology, Smart Grid
Issues Summary (2009), https://collaborate.nist.gov/twiki-sggrid/pub/SmartGrid/TnD/Draft_NIST_Smart_Grid_Issues_Summary_10March2009.pdf, at 1 and 4-5.
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6. In response to the need for urgent action on these potential
challenges to the bulk-power system, the Commission identified and
asked for comments on several areas it proposed as deserving high
priority in the smart grid interoperability standards development
process, including two cross-cutting issues (cybersecurity and physical
security to protect equipment that can provide access to smart grid
operations, and a common information framework), and four key grid
functionalities (wide-area situational awareness, demand response,
electric storage, and electric transportation). The Commission also
proposed the Interim Rate Policy to encourage investment in smart grid
technologies intended to address potential challenges to the bulk-power
system through the advancement of efficiency, security, reliability,
and interoperability. The Interim Rate Policy provides that smart grid
investments that demonstrate system security and compliance with
Commission-approved Reliability Standards,\15\ the ability to be
upgraded, and other specified criteria will be eligible for timely rate
recovery and other rate treatments.
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\15\ Adopted under FPA section 215, 16 U.S.C. 824o.
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7. The May 19 Notice Requesting Supplemental Comments sought
additional input regarding potential actions that the Commission could
take to insure that public utilities may qualify for awards under
certain Department of Energy funding programs related to jurisdictional
facilities. On the same day of the issuance of our Proposed Policy
Statement, the Department of Energy announced $2.4 billion for electric
vehicle demonstration and deployment projects.\16\ On April 18, the
Department of Energy announced another $615 million for targeted
demonstrations programs; one of three targets is ``utility-scale energy
storage demonstrations.'' \17\
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\16\ See March 19, 2009 Department of Energy news release,
President Obama Announces $2.4 Billion for Electric Vehicles, https://apps1.eere.energy.gov/news/daily.cfm/hp_news_id=159. In this
Policy Statement, ``electric vehicle'' refers to a vehicle that
requires periodic re-charging of its propulsion battery from the
electric grid; such a vehicle may or may not also be a ``hybrid,''
additionally capable of re-charging with a fuel-driven generator or
by other mechanical means.
\17\ See April 16, 2009 Department of Energy news release, Vice
President Biden Outlines Funding for Smart Grid Initiatives, https://www.energy.gov/news2009/7282.htm.
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8. The Commission notes from its review of a recent report that the
Institute is now using the Proposed Policy Statement to coordinate
development of interoperability standards.\18\
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\18\ Don Von Dollen, Report to NIST on the Smart Grid
Interoperability Standards Roadmap, Electric Power Research
Institute (June 17, 2009) (Roadmap Report). See also Press Release,
Electric Power Research Institute (June 17, 2009). For example,
Chapter four reports on the collaborative work of the Institute, the
contractor, and its subcontractors, and attendees at two conferences
to develop use cases, interfaces, and requirements for the
Commission's four key grid functionalities identified in the
Proposed Policy Statement: Wide-area situational awareness, demand
response, electric storage, and electric transportation. Two
additional priority functionalities have also been identified that
relate to those proposed by the Commission: AMI systems that relate
to the need for metering standards are identified in the demand
response discussion of the Roadmap Report and distribution grid
management (related to distributed energy storage) is identified in
both the electric storage and electric transportation discussions.
In addition, Chapter five of the report is devoted to the cross-
cutting issue of cybersecurity identified by the Commission. Chapter
six addresses the Commission's second cross-cutting issue of a
prioritized need for common semantic models and other standardized
communication elements.
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II. Discussion
9. Approximately 70 sets of comments were submitted from a broad
array of interested parties.\19\ In general, commenters support the
Proposed Policy Statement, including the establishment of key
priorities \20\
[[Page 37100]]
identified therein, and the need for focused leadership over the
process going forward. There is a greater diversity of comments on the
Interim Rate Policy. Sixteen supplemental comments were submitted,
exhibiting a split of opinion regarding whether to offer special
procedures for rate recovery filings for utilities seeking funding
through certain Department of Energy programs.
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\19\ An alphabetical listing of all commenters and abbreviations
for each is found at the end of this document at Appendix A.
\20\ An area considered to be a ``key priority'' is proposed as
the first level of work to be accomplished in the interoperability
standards-setting process. Proposed Policy Statement, 126 FERC ]
61,253 at P 27.
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10. In this Policy Statement, the Commission adopts the key
priorities for standards development that were identified in the
Proposed Policy Statement. The Commission also adopts the Interim Rate
Policy, as discussed below, and finds that there is no need for special
procedures associated with rate recovery filings for projects that are
also receiving Department of Energy grant funding.
11. A number of entities also comment on the standards development
process and the Commission's interactions with the Institute and other
bodies interested in the development of interoperability standards. The
Commission will address these topics separately.
A. Jurisdictional Concerns
12. In the Proposed Policy Statement, the Commission noted that its
interest and authority in the area of smart grid derive from its
authority over the rates, terms and conditions of transmission and
wholesale sales in interstate commerce and its responsibility for
Reliability Standards for the bulk-power system, as well as from
EISA.\21\ Specifically, the Commission has jurisdiction over the
transmission of electric energy in interstate commerce by public
utilities pursuant to FPA section 201, and over the reliable operation
of the bulk-power system in most of the nation under FPA section
215.\22\ Section 1305(d) of EISA directs the Commission to initiate
rulemaking proceedings to adopt such standards and protocols as may be
necessary to insure smart grid functionality and interoperability in
interstate transmission of electric power, and in regional and
wholesale electricity markets.\23\
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\21\ Id. P 1.
\22\ 16 U.S.C. 824, 824o.
\23\ EISA section 1305(d), to be codified at 15 U.S.C. 17385(d).
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Comments
13. Many commenters note a tension that the Proposed Policy
Statement raises between Federal jurisdiction and State jurisdiction
and urge the Commission to clarify jurisdictional boundaries. Questions
center on both standards adoption and applicability and whether
deployed technology will be subject to State or Federal rate authority.
14. A number of commenters maintain that EISA does not alter the
fundamental parameters of the Commission's authority.\24\ State
commissions, other State authorities, and several utilities remark that
the Commission should not encroach on traditional State
jurisdiction.\25\ The Michigan Commission maintains that implementing
smart grid functionality and interoperability at the distribution level
or in retail sales should be left to the states. Several entities are
concerned by statements in the Proposed Policy Statement that, to those
parties, indicate that the Commission may be extending its
jurisdictional scope. In particular, commenters take issue with the
suggestions that the potential reliability impacts of electric vehicles
may afford the Commission some authority over distribution facilities,
and certain devices related to the distribution system are eligible for
cost recovery in wholesale rates because of some tangential impact on
bulk-power operations due to interoperability issues.\26\
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\24\ See, e.g., Michigan Commission Comments at 6-7, Maryland
Counsel Comments at 7-8, Ohio Commission Comments at 4, and Ohio
Partners Comments at 2-3.
\25\ See, e.g., California Commission Comments at 6, Ohio
Commission Comments at 5-7, Massachusetts Attorney General Comments
at 4-5, and SDG&E Comments at 22-23.
\26\ Michigan Commission Comments at 8 and Maryland Counsel
Comments at 5.
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15. The Ohio Commission comments that, since interoperability
standards encompass areas that are outside of the Commission's
jurisdiction, the Commission should support the development of model
standards through the Institute's process, resolving any impasses
through the NARUC/FERC Smart Grid Collaborative, and that the
Commission and states should adopt model standards to be applied within
areas subject to their respective jurisdictions. In addition, states
should be responsible for ensuring compliance with Commission-imposed
guidelines and standards.\27\
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\27\ Ohio Commission Comments at 5-7.
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16. The Ohio Commission and North Carolina Agencies note that not
all states will want the same smart grid functionality deployed in the
same manner, and comment that standards should accommodate different
rate structures and policies. In contrast, NEMA and CURRENT appreciate
national standardization, noting that the lack of a consistent national
standard for interconnection has inhibited the development of
distributed generation. NEMA and CURRENT urge the Commission to pursue
nationwide standardization and encourage State commissions to develop
policies akin to those in the Proposed Policy Statement. The Kansas
Commission asks whether the Commission is suggesting that the Federal
government should implement guidelines governing the procedures for
charging electric vehicles at night as one method for storing
electricity.\28\
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\28\ Kansas Commission Comments at 5-6.
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17. Various commenters request clarification or guidance in certain
areas, notably (1) whether the Commission intends to implement
mandatory protocols ``in areas that are traditionally under State
jurisdiction, such as the distribution network and behind-the-meter
installations,'' \29\ (2) how the Commission intends to determine which
portions of a smart grid are part of the bulk-power system and those
which are part of the distribution system,\30\ (3) whether the
Commission has the authority to specify physical layer standards \31\
while preserving State ratemaking authority,\32\ and (4) whether the
Commission has the authority to mandate a nationwide meter
communications protocol.\33\
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\29\ California Commission Comments at 6-7.
\30\ Id. at 11.
\31\ NEMA makes several references to physical connections and
standards in its comments, including interconnection for distributed
generation, and applications for intelligent customer energy
management equipment. It is not clear in NEMA's comments whether
this reference also applies to meters.
\32\ NEMA Comments at 6.
\33\ Id. at 7.
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18. Many commenters ask the Commission to clarify the boundaries
between Federal and State jurisdiction for rate recovery purposes.
NARUC suggests that the approach should be to examine the location of
the deployed technology. If such a technology resides on a Commission-
jurisdictional line, then it should be regulated by this Commission. If
it resides on a line regulated by states, then it should be subject to
State oversight.\34\ EEI highlights the need for this clarification,
noting that specific smart grid equipment might be installed on either
or both transmission and distribution facilities.\35\ Indianapolis P&L
asserts that the Commission should apply the seven factor test, set
forth in Order No.
[[Page 37101]]
888,\36\ to delineate between Federal and State activities.\37\
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\34\ NARUC Comments at 16, Maryland Counsel Comments at 5, and
Springfield Comments at 10-11.
\35\ EEI Comments at 14-15.
\36\ Promoting Wholesale Competition Through Open Access Non-
Discriminatory Transmission Services by Public Utilities; Recovery
of Stranded Costs by Public Utilities and Transmitting Utilities,
Order No. 888, FERC Stats. & Regs. ] 31,036, at 31,771 and 31,981
(1996), order on reh'g, Order No. 888-A, FERC Stats. & Regs. ]
31,048, order on reh'g, Order No. 888-B, 81 FERC ] 61,248 (1997),
order on reh'g, Order No. 888-C, 82 FERC ] 61,046 (1998), aff'd in
relevant part sub nom. Transmission Access Policy Study Group v.
FERC, 225 F.3d 667 (D.C. Cir. 2000), aff'd sub nom. New York v.
FERC, 535 U.S. 1 (2002).
\37\ Indianapolis P&L Comments at 5-6.
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19. NARUC is also concerned that the Commission's policies not
allow double cost recovery, or allow Commission-jurisdictional entities
to ``bootstrap cost recovery for projects implemented within State
jurisdiction.'' \38\ The California Commission asserts that the
Commission should acknowledge that State commissions are in the best
position to address concerns as they pertain to retail customers and
ratepayers.\39\
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\38\ NARUC Comments at 13.
\39\ California Commission Comments at 4, 12.
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20. On the other hand, Ohio Commission states that cost recovery
for the initial deployment of a demand response program should be at
the State level. However, if such programs require later upgrading or
replacement in order to meet model demand response standards approved
by this Commission, then Ohio Commission argues that the associated
costs should be recovered on a socialized, national level in
Commission-jurisdictional rates.\40\
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\40\ Ohio Commission Comments at 1, 10.
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21. Finally, a number of entities encourage the Commission to work
together with the states, and in particular with the NARUC/FERC Smart
Grid Collaborative, to sort out jurisdictional boundaries. Maryland
Counsel and Ohio Partners comment that ongoing dialogues should include
consumer advocacy organizations.
Commission Determination
22. The Commission agrees with those commenters who state that EISA
does not alter the FPA's jurisdictional boundaries between Federal and
State regulation over the rates, terms, and conditions of transmission
service and sales of electricity. EISA does not modify any of the
provisions of the FPA. Nevertheless, EISA does give the Commission new
responsibilities for the adoption of standards needed to insure smart
grid functionality and interoperability. The legislation specifically
directs the Commission to institute rulemaking proceedings to adopt
standards necessary to insure ``functionality and interoperability in
interstate transmission of electric power, and regional and wholesale
electricity markets.'' \41\ The Commission understands this mandate to
mean that the Commission has the authority to adopt a standard that
will be applicable to all electric power facilities and devices with
smart grid features, including those at the local distribution level
and those used directly by retail customers so long as the standard is
necessary for the purpose just stated.\42\ We reach this conclusion
because Congress does not exclude from the scope of EISA 1305(d)
facilities used in local distribution, or otherwise limit Commission
authority to approve standards. Further, other provisions in EISA
indicate that the smart grid interoperability framework is intended to
include all elements of the grid, including communications with the
ultimate consumer.\43\ EISA does not identify any segment of the
interoperability framework that is not within the scope of standards to
be promulgated. Accordingly, the Commission finds that EISA grants the
Commission the authority to adopt smart grid standards--such as meter
communications protocols or standards--that affect all facilities,
including those that relate to distribution facilities and devices
deployed at the distribution level, if the Commission finds that such
standards are necessary for smart grid functionality and
interoperability in interstate transmission of electric power, and in
regional and wholesale electricity markets.
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\41\ EISA section 1301 and section 1305(d).
\42\ For example, two-way communications are a distinguishing
characteristic of smart grid devices on both the transmission and
distribution systems. This two-way communications capability is
essential to the smart grid vision of interoperability, allowing the
transmission and distribution systems to communicate with each
other. They also affect the security and functionality of each
other.
\43\ See, e.g., EISA section 1301 and section 1305(a) (stating
that the framework should ``enable all electric resources, including
demand-side resources, to contribute to an efficient, reliable
electricity network'') and section 1305(b).
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23. EISA, however, does not make any standards mandatory and does
not give the Commission authority to make or enforce any such
standards. Under current law, the Commission's authority, if any, to
make smart grid standards mandatory must derive from the FPA.
Similarly, its authority to allow rate recovery of smart grid costs
must derive from the FPA. The authority to adopt standards under EISA
does not change the scope of the Commission's ratemaking or reliability
jurisdiction, as many commenters note.
24. In order to determine whether particular facilities are subject
to State or Federal jurisdiction for purposes of rate recovery,
interested parties should refer to Commission precedent for
guidance.\44\ The Commission will evaluate particular facilities and
projects on a case-by-case basis. In response to commenters' concerns,
we recognize that it would be inappropriate for a utility to recover
the same costs for a smart grid project twice, through State-approved
retail rates and again in a proceeding before this Commission.
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\44\ See, e.g., Detroit Edison Co., 95 FERC ] 61,415 (2001),
order on reh'g, 96 FERC ] 61,309 (2001). ``[T]o the extent that any
facilities, regardless of their original nominal classification, in
fact, prove to be used by public utilities to provide transmission
service in interstate commerce in order to deliver power and energy
to wholesale purchasers, such facilities are subject to this
Commission's jurisdiction and review.'' Id., 95 FERC ] 61,415, at
62,535. Accord, Northeast Utilities Service Co., 107 FERC ] 61,246,
at P 22 (2004).
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25. As the EISA mandate to adopt interoperability standards does
not afford the Commission new economic regulatory authority over local
distribution facilities themselves,\45\ and does not provide any
authority or directive to mandate standards, the Commission does not
interpret EISA to allow it to direct states to implement any particular
retail customer policies or programs. To the extent the Commission does
adopt smart grid standards related to facilities outside the
Commission's jurisdiction under the FPA, we agree with the Ohio
Commission that states can insure compliance with any standards they
deem applicable to their jurisdictions.
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\45\ Similarly, the Commission's previous actions approving
proposed North American Electric Reliability Corporation (NERC)
reliability standards applicable to distribution providers and load
serving entities to maintain the reliability and integrity of the
bulk-power system did not, in and of themselves, confer Commission
rate jurisdiction over those entities' local distribution
facilities.
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26. In response to the question posed by the Kansas Commission
regarding whether the Federal government should have guidelines
governing the procedures for charging electric vehicles at night as one
method for storing electricity, the Commission does not intend to issue
policy guidelines for storing electric power by charging electric
vehicles during off-peak load periods. Nevertheless, if the Institute's
process results in a smart grid interoperability standard related to
storing electric power by charging electric vehicles, the Commission
would consider adoption of such a standard pursuant to EISA section
1305(d).
27. The Commission recognizes that states have an interest in the
[[Page 37102]]
functionalities of smart grid technologies, as suggested by North
Carolina Agencies and the Ohio Commission, and we encourage states to
actively participate in the ongoing discussions being organized and
facilitated by the Institute to insure that their perspectives are
represented. We do not believe that Commission adoption of national
standards for smart grid technologies should interfere with a State's
ability to adopt whatever advanced metering or demand response program
it chooses. Nor will Commission adoption of national standards affect
the existing statutory framework for wholesale and retail pricing.
Interoperability standards should be designed flexibly enough to
support alternative programs and pricing policies being considered by a
particular State. Indeed, national standards adopted by the Commission
should enhance, not limit, the policy choices available to each State.
28. We believe that it is appropriate for the Commission to have a
role in determining key priorities in the interoperability standards
development process. The Commission's leadership in this arena will
help to expedite the development of functionalities that are important
to Federal energy policy (e.g., wide-area situational awareness to
improve the reliability of the transmission grid) as well as to support
programs that have emerged in many states (e.g., integrating renewable
generation to permit utilities to meet State-mandated renewable
portfolio requirements). We see great benefit from collaborating
closely with states regarding flexibility in smart grid standards and
adapting to new technologies, and we expect to work with the states to
pursue these topics through the NARUC/FERC Smart Grid Collaborative.
B. Development of Key Standards
29. The purpose of this Policy Statement, among other things, is to
prioritize the development of key interoperability standards to provide
a foundation for the development of many other standards. The Proposed
Policy Statement identified and requested comment on several key
priorities the Commission believed were necessary to address existing
and emerging challenges to the operation of the bulk-power system.
These challenges included existing cybersecurity issues, large-scale
changes in generation mix and capabilities, and large potential new
load from electric vehicles. The proposed key priorities for standards
development included two cross-cutting issues, system security and
inter-system communication, and four key grid functionalities: (1)
Wide-area situational awareness, (2) demand response, (3) electric
storage, and (4) electric transportation.\46\ Each of these topics is
discussed in detail in the following sections. The Commission urges the
Institute and interested parties to continue to focus their efforts on
these key priorities first in order to achieve interoperability in a
timely manner.
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\46\ Proposed Policy Statement, 126 FERC ] 61,253 at P 28.
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1. System Security
30. As explained below, the Commission adopts its Proposed Policy
Statement position that cybersecurity is essential to the operation of
the smart grid and that the development of cybersecurity standards is a
key priority. Cybersecurity and physical security are ongoing concerns
for both the Commission and the electricity industry and have received
heightened attention as part of the creation of recent mandatory and
enforceable Federal standards. We believe that implementation of smart
grid technology, which is designed to improve communication,
coordination, and interoperability, will require added attention to
cybersecurity standards.
31. To date, eight mandatory cybersecurity and physical critical
infrastructure protection Reliability Standards (CIPS) have been
approved by the Commission pursuant to section 215 of the FPA. The fact
that a smart grid would permit two-way communication between the
traditionally regulated components of the electric system and a large
number of smart grid devices expected to be located beyond the
conventional boundaries of regulated entities suggests that
cybersecurity standards require special attention.
32. The Commission sought comment regarding whether cybersecurity
should be considered a cross-cutting issue affecting interoperability
that must be included in smart grid standards.\47\ The Commission also
proposed harmonizing cybersecurity and Reliability Standards as a
precondition to the adoption of smart grid standards. The Commission
further proposed to advise the Institute to undertake the necessary
steps to assure that each standard and protocol that is developed as
part of the Institute's interoperability framework is consistent with
the overarching cybersecurity and reliability mandates of the EISA as
well as existing Reliability Standards approved by the Commission
pursuant to section 215 of the FPA.
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\47\ Id. P 12.
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Comments
33. Many commenters support system security as a priority.\48\ For
instance, APPA states that security-related concerns should be given
the highest priority and that they should be harmonized with the NERC
CIPS standards to avoid conflicts during the large-scale deployment of
smart grid installations, while ITC Companies assert that cybersecurity
is of paramount importance for the development of a smart grid.\49\
ELCON recommends that the Commission use a ``measured approach to smart
grid deployment'' so that relevant agencies and standards development
organizations have time to overcome cybersecurity related technical
issues.\50\
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\48\ NARUC Comments at 14, EEI Comments at 6, 11, NERC Comments
at 10, and ITC Comments at 6.
\49\ APPA Comments at 12 and ITC Companies Comments at 5-6.
\50\ ELCON Comments at 2.
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34. Some entities are concerned about whether there will be
sufficient coordination among the Institute and other relevant Federal
and State agencies, and whether there will be a broader application of
Federal Reliability Standards on distribution facilities.\51\ While
several entities state that an open connectivity protocol should be
developed through the Institute's standards coordination process to
insure interoperability of cyber-secure smart grid components, some
also support its development through a Commission-approved Reliability
Standard. Other entities assert that secure protocols already exist and
are available for adoption.\52\
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\51\ Michigan Commission Comments at 5-6, GridWise Alliance
Comments at 9-10, and National Grid Comments at 4.
\52\ ITC Companies Comments at 5-6 and PSEG Comments at 6-8.
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35. On the matter of coordination with the Institute, EEI points
out that cybersecurity should be addressed early on in the development
and manufacturing process and that smart grid products should undergo
thorough interoperability and cybersecurity testing and certification
at all levels prior to installation and use by independent firms that
have been accredited by the Institute.\53\ NERC agrees that
cybersecurity for smart grid technologies should be a top priority and
advocates close coordination with the Institute to avoid jurisdictional
overlaps. NERC recommends adoption of Commission policies to encourage
the Institute to use its role, as the smart grid
[[Page 37103]]
standards proponent and coordinator, to build cybersecurity protections
into standards that affect the full span of smart grid systems and
devices, such as the distribution system, utilities' business systems,
customer appliances, and information technology systems, with an eye
towards aggregated impacts on the bulk-power system.\54\
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\53\ EEI Comments at 7.
\54\ NERC Comments at 11-12.
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36. The Michigan Commission counsels that the Commission should
avoid being overly prescriptive in its standards until the Institute's
process is complete and should undertake a ``bottom up'' collaborative
process that includes the States, standards development organizations
and other private actors to identify, up front, the reliability and
security considerations that smart grid technologies must address while
respecting the traditional statutory distinctions between state and
Federal jurisdiction over electricity.\55\ NERC warns that the possible
aggregate effects of smart grid devices that reach into the
distribution system can have substantial impact on the security of the
bulk-power system.\56\
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\55\ Michigan Commission Comments at 5-6.
\56\ Id. at 11-12, 15.
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37. With respect to sufficient specificity in the Proposed Policy
Statement, CPower asserts that the Commission's objective should be to
bar only significant gaps in cybersecurity.\57\ ELCON suggests that
more consistency and standardization are required with respect to
authentication standards, physical protection standards, and the impact
to the bulk-power system. GWAC argues that the Proposed Policy
Statement should be expanded to address system architectures, define
the classes of security requirements, and include risk management
aspects, such as costs and potential consequences, instead of directing
policy towards low-level details.\58\ B-D Research contends that the
definition of cybersecurity must be expanded to include matters such as
(1) non-disruptive events, (2) unauthorized access to, or modification
of, a critical system, (3) information leakage, and (4) system
compromise.\59\ E.ON offers that existing cybersecurity standards
should not serve as constraints on the adoption of improved and
potentially more secure technologies.\60\
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\57\ CPower Comments at 3.
\58\ GWAC Comments at 13-15, 29-31.
\59\ B-D Research Comments at 1-4.
\60\ E.ON Comments at 4-6.
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38. The Ohio Commission requests that the Commission clarify its
neutrality towards specific configurations and/or technology and that
the common information model should not be too formulaic and thereby
provide easy opportunities to defeat the cybersecurity standards.\61\
The California Commission suggests that standards should protect the
grid from inadvertent and direct cyber attacks while approved
technologies should have the ability to: (1) Withstand direct cyber
attacks, (2) maintain resiliency in times of extreme stress and
congestion, and (3) automatically (or intelligently) respond to adverse
system conditions as they occur.\62\
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\61\ Ohio Commission Comments at 11-12.
\62\ California Commission Comments at 7.
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39. On the matter of Commission-approved Reliability Standards,
Southern contends that the Commission should confirm that smart grid
installations do not automatically create mandatory Reliability
Standard compliance obligations and that they do not automatically
constitute critical cyber assets. In its view, smart grid technologies
and applications should be considered critical cyber assets only when
they would be designated as such under the requirements of Commission-
approved CIPS Reliability Standard CIP-002.\63\ NRECA suggests that a
number of NERC Reliability Standards may need to be developed or
revised concurrently with the implementation of smart grid technology.
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\63\ Southern Comments at 8-9.
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Commission Determination
40. The Commission adopts its proposed policy position that the
development of cybersecurity standards is a key priority in protecting
the electricity grid. The possibility that an adversary could access
any of potentially millions of smart grid devices and use this access
to disrupt the proper functioning of the bulk-power system creates new
challenges for the operation of the nation's electricity grid. These
challenges are a natural consequence of the extensive communications
network comprising the smart grid. Because cybersecurity becomes a
concern whenever one system communicates with another, it is important
to focus from the outset on cybersecurity as an essential feature of
the design of interoperability standards. There is strong support for
this focus from the commenters.
41. Accordingly, consistent with our cybersecurity mandates under
EISA, the Commission will require a demonstration of sufficient
cybersecurity protections in proposed smart grid standards to be
considered in a rulemaking proceeding under EISA, including, where
appropriate, a proposed smart grid standard applicable to local
distribution-related components of smart grid. Specifically, there must
be a demonstration that a proposed smart grid standard: (1) Directly
incorporates cybersecurity protection provisions, or (2) incorporates
cybersecurity protection provisions from other smart grid standards or
electric Reliability Standards that are submitted to the Commission
concurrently, are already pending before the Commission, or have
previously been adopted or approved by the Commission under EISA or
section 215 of the FPA, respectively, provide cybersecurity protection
for the electric power system for the proposed standard.
42. The Commission does not intend to preempt the development and
implementation of an interoperability smart grid framework with the
prioritization of cybersecurity and physical security. On the contrary,
given our reliability and security oversight mandates under EISA and
FPA section 215, we are attempting to promote and accelerate
development and implementation of cybersecurity elements that are
foundational to the smart grid, and which will also promote maintenance
of the integrity and reliability of the underlying bulk-power system.
Clearly, interoperability standards must support, and not conflict
with, critical efforts to improve the cybersecurity of electric power
systems.
43. As noted, many of the commenters request collaboration between
the Institute and NERC on the development of smart grid standards. The
Commission agrees with this approach and encourages NERC, as the
Electric Reliability Organization certified by the Commission pursuant
to FPA section 215, along with the states and other Federal agencies,
to collaborate with the Institute in developing its interoperability
framework. We expect that NERC will monitor the compatibility of the
smart grid standards with the Commission-approved CIPS standards and
help identify any gaps or inconsistencies that are left unaddressed. To
the extent necessary, the Commission would direct NERC to submit to the
Commission a new or modified Reliability Standard as necessary or
appropriate to carry out the Commission's responsibilities under
section 215 of the FPA as they relate to the development of smart grid
standards.
44. On the matter of Commission jurisdiction over standards, the
Commission notes, as discussed above, that the cybersecurity
characteristic of the smart grid is statutorily specified under EISA.
In EISA, Congress
[[Page 37104]]
envisions a smart grid with cybersecurity as a foundational element of
its system and provided for cybersecurity throughout the statute.\64\
Thus the Commission agrees with commenters such as NERC and CAISO that
the reliability of the bulk-power system hinges on insuring the
cybersecurity of all interconnections, including distribution system
interconnections, to the extent allowed by EISA.
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\64\ See EISA section 1301(2).
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45. With respect to comments regarding the level of specificity in
the cybersecurity requirements, constraints on improvements, and system
resiliency and responsiveness to attacks, the Commission agrees that
these concerns warrant the attention of the Institute, NERC, and others
who are working on proposed smart grid cybersecurity issues. The
Commission appreciates that the Roadmap Report highlights several
relevant cybersecurity requirements, including those required in the
Commission-approved CIPS standards.\65\ The Commission takes no
position here regarding specific technologies and technical
configurations that are appropriate for particular smart grid
standards. Finally, we agree that deploying smart grid technologies
does not, in and of itself, result in the need for compliance with
Reliability Standards. Compliance with Reliability Standards is
determined through other processes under FPA 215, such as the NERC
compliance registration process and the specific requirements of
Commission-approved Reliability Standards.
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\65\ See Roadmap Report at 7.
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2. Communication and Coordination Across Inter-System Interfaces
46. The Proposed Policy Statement suggested making the development
of standards for inter-system interfaces a key priority. It described
the issue as follows:
The second cross-cutting issue is the need for a common semantic
framework (i.e., agreement as to meaning) and software models for
enabling effective communication and coordination across inter-
system interfaces. An interface is a point where two systems need to
exchange data with each other; effective communication and
coordination occurs when each of the systems understands and can
respond to the data provided by the other system, even if the
internal workings of each system are quite different.\66\
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\66\ Proposed Policy Statement, 126 FERC ] 61,253 at P 32.
47. The Commission stated that IEC Standards 61970 and 61968
(together, Common Information Model), along with IEC 61850
(Communications Networks and Systems in Substations), could provide a
basis for addressing this issue.\67\ We clarified that we were not
proposing any Commission requirement that these standards be developed
further, but were identifying them for comment on whether these
standards should be considered as important elements in efforts to
realize significant early benefits of the smart grid.\68\
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\67\ Id.
\68\ Id. P 33.
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Comments
48. Many commenters agree on the need for effective communication
and coordination across inter-system interfaces,\69\ as well as using
the Common Information Model standards as a starting place. Starting
with Common Information Model standards was mentioned positively by
GWAC, National Grid, NRG, Kansas Commission, Midwest ISO, and CAISO.
However, some commenters caution that the premature implementation of
standards for common information models for inter-system interfaces
might result in valuable existing information systems being deemed
inconsistent, requiring unnecessary replacement. They suggest a gradual
phasing in of new technologies as other systems are retired.\70\ NERC,
on the other hand, contends that development of inter-system interfaces
is one method whereby new and legacy control systems can be enabled to
communicate with each other, which should extend the life of such
legacy systems.\71\
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\69\ GWAC Comments at 16, Kansas Commission Comments at 3, Duke
Comments at 8, NEMA Comments at 5, Midwest ISO Comments at 3, CAISO
Comments at 7, ISO-NE Comments at 2, NRECA Comments at 17, NRG
Comments at 7, National Grid Comments at 2, GridWise Alliance
Comments at 1, and NERC Comments at 12.
\70\ Kansas Commission Comments at 3 and SDG&E Comments at 19-
20.
\71\ NERC Comments at 12.
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49. Silver Spring Networks suggests that the Commission also
include networking as a priority in smart grid standards
development.\72\ Silver Spring Networks and AT&T also strongly support
the use of Internet Protocol as a networking standard.\73\
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\72\ Silver Spring Networks Comments at 1.
\73\ Id. at 3; AT&T Comments at 3.
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50. Regional transmission organizations that submitted comments
support the Commission's proposals and offer some suggestions. CAISO
suggests that communication across inter-system interfaces would be
essential for ``deep-area situational awareness'' and for demand
response.\74\ NYISO suggests that regional transmission organizations
(RTOs) and independent system operators (ISOs) should take a prominent
role in the development of inter-system interface definitions and data
communication protocols.\75\
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\74\ CAISO Comments at 7.
\75\ NYISO Comments at 5.
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Commission Determination
51. The Commission adopts the proposed policy position that the
development of standards for communicating and coordinating across
inter-system interfaces is a key priority cross-cutting issue. We agree
with GWAC that the smart grid is essentially a ``system of systems''
and that standardized communications across the interfaces of these
systems is a critical enabler of smart grid functionality and
interoperability. The Commission recognizes that development of a
common semantic framework and software models for enabling effective
communication and coordination across the inter-system interfaces is
critical to supporting virtually all of the smart grid goals, such as
system self-healing, integration of diversified resources, and improved
system efficiency and reliability. We note that the Institute's
interoperability standards development process has already paid a
substantial amount of attention to this topic. The Institute's
preliminary list of sixteen standards \76\ identified for the smart
grid framework includes IEC 61968/61970 and IEC 61850, which had been
suggested by the Commission as part of a starting point for
communication across interfaces.\77\ The Roadmap Report document
indicates that much of the ongoing work in the Institute's process will
center on developing common semantic and information models.\78\
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\76\ See Initial List of Smart Grid Interoperability Standards,
Request for Comments, 74 FR 27288 (June 9, 2009).
\77\ See Proposed Policy Statement, 126 FERC ] 61,253 at P 33.
\78\ Roadmap Report at 90.
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52. The Commission agrees with the Kansas Commission that the
standards development process to enable communications and coordination
across inter-system interfaces should not cause premature dismantling
of utility and RTO systems that currently function well. Older software
systems should be able to continue in service during a transition
period by using translators or bridges of reasonable cost that enable
the outputs of such systems to be understood by newer higher
functionality systems.
53. We agree with NYISO's suggestion that RTOs and ISOs should take
a prominent role in defining system
[[Page 37105]]
interfaces, and we encourage ISOs, RTOs and all other FERC-
jurisdictional utilities to engage in the Institute's standards
development process.
54. With regard to networking standards and the potential use of
Internet Protocol, the Commission will consider the findings of the
Institute's standards development process in our rulemaking process.
3. Wide-Area Situational Awareness
55. In the Proposed Policy Statement, the Commission placed
emphasis on wide-area situational awareness as another key priority for
the smart grid. Wide-area situational awareness is the visual display
of interconnection-wide system conditions in near real time at the
reliability coordinator level and above. The implementation of wide-
area situational awareness could help mitigate the effect of
reliability events by giving reliability entities an improved and
manageable high-level view of system conditions and parameters.
56. Furthermore, the Commission identified increased deployment of
advanced sensors like Phasor Measurement Units as a tool to give bulk-
power system operators access to large volumes of high-quality
information about the actual state of the electric system. This
functionality could help a smart grid address transmission congestion
and system optimization. The Commission acknowledged that this
technology would present its own set of challenges in the form of
information processing and management and suggested that the Institute
should strive to identify the necessary advanced software and systems
that would be most useful to system operators in addressing
transmission congestion and reliability.\79\ The Commission recognized
the efforts undertaken by the North American SynchroPhasor Initiative
and encouraged RTOs to take a leadership role in coordinating such work
with the member transmission owners.\80\
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\79\ Proposed Policy Statement at P 36.
\80\ Id. P 35.
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Comments
57. Commenters generally support the proposition that wide-area
situational awareness should be a key priority in the development of
Smart Grid interoperability standards. Many commenters agree with the
Proposed Policy Statement that advanced sensors like Phasor Measurement
Units will give bulk-power system operators access to large volumes of
high-quality information about the system.\81\ Furthermore, commenters
agree with the Commission that accessing that level of information will
require the development of advanced software and systems. Various
commenters note that further investigation regarding additional
features for Phasor Measurement Units is required. Furthermore, using
high quality information about the actual state of the system to
possibly switch from the current static transmission line rating system
to a dynamic transmission line rating system would require more
research.\82\ NERC, for example, notes that although there might be
additional uses for Phasor Measurement Units, their primary use should
be to improve and protect the reliability of the bulk-power system.
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\81\ See, e.g., Kansas Commission Comments at 4-5, Gridwise
Alliance Comments at 11, and Duke Comments at 11.
\82\ See, e.g., Kansas Commission Comments at 4-5, Gridwise
Alliance Comments at 11, Open Secure Systems Comments at 4, NERC
Comments at 17, and American Transmission Comments at 8.
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58. Commenters agree with the Commission that coordination between
RTOs and the North American SynchroPhasor Initiative will play a key
role in the development of synchrophasor initiatives.\83\ Furthermore,
commenters agree that the Institute should identify the core
requirements for advanced software and systems that will gather large
volumes of data and present it in a useful manner to operators.
However, NERC states that such efforts have been underway for several
years under the guidance of the Department of Energy's visualization
and controls research and development program with contributions from
TVA, Bonneville Power Administration, and CAISO.\84\ NERC believes that
since these entities are already engaged on these issues, they, and not
the Institute, should be in charge of designing and implementing the
core requirements for software and hardware systems.
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\83\ See, e.g., CAISO Comments at 9-10, Gridwise Alliance
Comments at 11, and Midwest ISO Comments at 4.
\84\ NERC Comments at 18.
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59. AWEA notes that hardware and software tools that will serve to
integrate wind should be considered vital smart grid technology. For
example, AWEA states that devices that will contribute to consolidating
balancing authorities, tools for faster-interval/dispatch scheduling,
and tools to better forecast wind energy should be considered smart
grid technology.\85\
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\85\
