Realizing the Smart Grid What It Will Take

Realizing the “Smart Grid”: What It Will Take ROBERT W. GEE PRESIDENT GEE STRATEGIES GROUP LLC RMEL 105 th Annual Fall Convention September 8, 2008 Vail, Colorado

Overview • What is the “Smart Grid”? What are its characteristics, and what technologies does it cover? • What are the federal and state responsibilities in deploying the Smart Grid? • How will Advanced Metering Infrastructure (AMI) change the utility paradigm? • What are the challenges to Smart Grid/AMI deployment? 2

Origins Of The “Smart” Grid • Early 2000’s – Increasing awareness of aging power delivery infrastructure to meet surge in electricity demands and digital technologies • June 2001: EPRI Report stated that power outage and power quality disturbances cost US economy $120 billion annually for all business sectors • Security and vulnerability of power delivery system heightened after 9/11 • January 2002: EPRI launched “Consortium for Electric Infrastructure to Support a Digital Society (CEIDS)” to promote public/private partnerships to digitize power delivery system (now called “Intelligrid”) • President George W. Bush, Feb 23, 2002, Radio Address: “America can’t meet tomorrow’s energy needs with yesterday’s infrastructure. ” • Energy Secretary Spencer Abraham, May 8, 2002, releasing the DOE National Transmission Grid Study : “America’s electricity infrastructure is ill equipped to sustain our country’s needs today, and wholly insufficient to handle the growth in demand that is projected over the next few decades. ” • 2002 National Research Council Report commissioned by the National Academies: “Making the Nation Safer: The Role of Science and Technology in Countering Terrorism” recommended 3 technology be developed “for an intelligent, adaptive power grid”

What Does The System Look Like Today? “. . [L]ocal distribution systems that connect the power supply to each consumer are effectively a last bastion of analog, electromechanically controlled industry. This is a particularly notable paradox given the fact that the nation’s electricity supply system powers the digital revolution on which much of the current and future value depends. ” Central Plant Step-Up Transformer Distribution Substation Receiving Station Distribution Substation Commercial Residential Industrial Commercial -- The U. S. Electricity Enterprise: Past, Present, and Future Prospects, Galvin Electricity Initiative (August 2005). 4

What is the “smart grid”? • Definitions and characteristics vary among stakeholders • In H. R. 6, The Energy Independence and Security Act of 2007 (EISA), Congress defines the “Smart Grid” as embracing: . . . increased use of additional information controls to improve operation of the electric grid; optimizing grid operations and resources to reflect the changing dynamics of the physical infrastructure and economic markets, while ensuring cybersecurity; using and integrating distributed resources, including renewable resources; developing and integrating demand response, demand-side resources, and energy-efficiency resources; deploying smart technologies for metering, communications of grid operations and status, and distribution automation; integrating “smart” appliances and other consumer devices; deploying and integrating advanced electricity storage and peak-shaving technologies; transferring information to consumers in a timely manner to allow control decisions; developing standards for the communication and the interoperability of appliances and equipment connected to the electric grid; identifying and lowering of unreasonable or unnecessary barriers to adoption of smart grid technologies, practices, and services. • This is too wordy • Fundamentally, it involves the integration of advanced communications and information technology into the electric grid (from generation to consumer) for enhanced grid operations, customer services, and environmental benefits. 5

Vision of the “Smart Grid”: 7 Characteristics • Enabling informed participation by customers • Accommodating All Generation and Storage Options (“Plug & Play” Capable) • Enabling New Products, Services and Markets • Providing the Power Quality For the 21 st Century • Optimizing Asset Utilization and Operating Efficiency • Addressing Disturbances – Automated Prevention, Containment, and Restoration • Operating Resiliently Against Attacks and Natural Disasters (“Self-healing”) Source: DOE Smart Grid Implementation Workshop June 2008 6

Schematic of the Smart Grid Source: EPRI (circa 2002) 7

Smart Grid Technology Areas 3. Advanced Transmission Operations 1. Advanced Metering Infrastructure (AMI) (ATO) – Smart Meters – – – Two-way Communications Consumer Portal Home Area Network Meter Data Management Demand Response – Substation Automation – Geographical Information System for Transmission – Wide Area Measurement System (WAMS) – Hi-speed information processing 2. Advanced Distribution Operations (ADO) – Distribution Management System with advanced sensors – Advanced protection and control – Modeling, simulation and visualization tools – 4. Advanced Asset Management (AAM) Advanced Outage Management (“real-time”) – Advanced sensors DER Operations – Distribution Automation – – Integration of real time information with other processes Source: NETL Modern Grid Strategy 8

Organizations Working on Smart Grid Today EISA-2007 DOE Smart Grid Task Force EEI EPACT 05 Hearings FERC NERC (FM) Grid. Wise Alliance DOE-OE Grid 2030 GWAC DOE/NETL Modern Grid Strategy Galvin Initiative Utility AMI CEC PIER IEEE Grid. Wise Program NW Grid. Wise Testbed Grid. Works CERTS Grid. Apps DOE-OE NIST CPUC AMI Nat'l Labs EPRI Intelligrid PSERC Open AMI NYSERDA CEC PIER Source: Eric Lightner, DOE Office of Electric Delivery and Energy Reliability 9 9

EISA: The Federal Role In Deploying The Smart Grid • Policy Statement: It is the policy of the United States to support the modernization of the electric transmission and distribution system to maintain reliability and infrastructure protection. • DOE Tasks: – Submit Smart Grid System Report after first year and every two years – Form Smart Grid Advisory Committee – Manage Smart Grid Task Force comprised of DOE, FERC, and National Institute of Standards and Technologies (NIST) – Lead Smart Grid Technology Research, Development, and Demonstration program – Submit Study of security aspects of Smart Grid systems – Submit study of effect of private wire laws on CHP facilities • NIST: Coordinates development of framework for protocols and model standards for information management for interoperability of smart grid devices and systems • Secretary of Energy shall establish a program to reimburse 20 percent of qualifying Smart Grid investments – as yet unfunded 10

State Responsibilities for Smart Grid Deployment under EISA Section 1307 • PURPA Directive -- each state must consider requiring electric utilities to demonstrate that, prior to investing in non-advanced grid technologies, Smart Grid technology is determined not to be appropriate • States required to consider allowing recovery of costs of qualified Smart Grid investments and recovery of remaining book value of assets made obsolete by Smart Grid • Requires consideration within first year of enactment, and concluded in 2 years • But state commission answer to all of these could 11 still be: “NO”

The Landscape for AMI • Automatic Meter Infrastructure (AMI) – First generation “smart grid” technology – Will pioneer the “platform” for customer interface with emerging technologies • Currently, 74 “Smart Grid” initiatives in 33 states, which include utility-sponsored Automatic Meter Infrastructure (AMI) pilot programs at different stages • California taking most aggressive approach in authorizing deployment and cost recovery of AMI; other states (DC, Maryland, Michigan, Texas) have pilots underway • One estimate: 50 million existing meters replaced by “smart meters” by 2010 at $18 billion cost (Deutsche Bank) 12

AMI Deployment: a New Utility Paradigm SMART METER/AMI NEW SERVICES DYNAMIC PRICING DEMAND RESPONSE REVENUE DECOUPLING 13

Essential Smart Grid Elements TECHNOLOGY REGULATORY POLICY BUSINESS CASE SMART GRID REALIZATION MANAGEMENT CULTURE CUSTOMER SUPPORT/ INVOLVEMENT 14

Challenges to Smart Grid Deployment • Technological – Lack of consistent standards and protocols means most systems can communicate only with technologies developed by same manufacturer – Limits interoperability of Smart Grid technologies and limits future choices for new technologies – Need to “future proof” technology or risk having technology choice rendered obsolete • Management Culture – Some utilities embarked on aggressive deployment strategies (e. g. , those exclusively in wires business) – But most risk averse, not wanting to bear entrepreneurial and technology risks; not customarily “early adopters” – Timing of market entry is key – not too soon or risk making ‘wrong choice” on technology 15

Challenges (con’t. ) • Regulatory Policy/Business Case Alignment – Groundwork essential to support utility capital expenditures – Regulators will be focused on cost-to-benefit ratio of capital expenditures, and not necessarily on utility’s revenue growth potential – Will regulators recognize societal benefits? – Cost allocation issues between customer classes benefiting from technology – Regulatory support essential for creation of new services envisioned from emerging technologies – February 2007 NARUC Resolution --guidelines for state commissions seeking to deploy “cost-effective AMI includes consideration of “intangible benefits”, timely cost recovery of AMI expenditures, and accelerated cost recovery of existing metering infrastructure to 16 generate cash for AMI deployment

Challenges (con’t. ) • Customer involvement and support – Early Pilots -- too early to tell whether customer involvement can be sustained year to year – Uncertainty whether costs can justify benefits – Question of whether technology will create a “digital divide” between higher income and lower income customers – Will customers be better off with new technologies? 17

Final Thoughts • Experience from AMI pilots needs to be validated and tested • Lessons learned from multiple Smart Grid initiatives needs to be shared – a collaborative information clearinghouse is being planned for establishment by DOE/EPRI • Consensus on the value of advanced Smart Grid technologies will be required of all stakeholders (utilities, regulators, customers) for merits to be realized 18

Robert W. Gee President Gee Strategies Group LLC 7609 Brittany Parc Court Falls Church, VA 22304 U. S. A. 703. 593. 0116 703. 698. 2033 (fax) rwgee@geestrategies. com www. geestrategies. com 19