Utilities stymied by complex regulatory structure

State, federal regulators not on the same page
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Make no mistake -- energy regulation is complicated. And if there is one thing that's apparent about the smart grid, it's that state and federal regulators must get on the same page to create policies and regulations that can advance -- not handicap -- the deployment of the most advanced technologies. This includes working toward solutions that help utilities make a business case for investment in smart grid infrastructures and incentivize customers to invest and participate in energy efficiency programs.

Utilities are working to balance regulations and their bottom line.

Slow but steady progress

"I think we have done some major steps in the last few years to better enable -- from what we regulate, the transmission grid and the wholesale competitive market -- to create a market and atmosphere for the deployment of smart grid," said John Norris, a commissioner with the Federal Energy Regulatory Commission (FERC), during a recent GridWeek panel.

In support of this claim, Norris cited the issuance of FERC Orders 719 and 745, which focused on demand response optimization and compensation in the wholesale market. FERC also worked to enable demand response aggregation at the retail level and make cost recovery on advanced transmission grid infrastructure easier to approve. According to Norris, those regulations -- especially as they relate to compensation -- are all examples of FERC working to enhance the value of the smart grid.

"There is an appetite to create a more efficient grid and recognition that [the industry] is changing," he said, adding that FERC is looking forward to a beginning a better dialogue with state regulatory commissions in order to better understand what policies would be most beneficial to foster continued growth of the smart grid.

Norris predicts that FERC will not greatly expand its regulatory influence, other than perhaps its recently announced initiative to crack down on cyber security.

States get creative

In New York, smart grid success has been driven largely by state-level initiatives and funded by ARRA grants, according to Maureen Harris, commissioner of the New York State Department of Public Service. But achieving success with these programs can be difficult in the complicated energy regulatory environment.

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Especially in this economy, utilities (IOUs in particular) are reluctant to engage in any efficiency regulations that can take revenue away from their bottom line. ______________________________

"The regulatory compact as it is does not foster innovation. It's not the right platform for quick response," Harris said during the GridWeek panel. "There are ways to work around this and work together to make sure we have the information we need."

Nancy Ryan, Executive Director of the California Public Utilities Commission (CPUC), agreed that there is work to be done on the current regulatory structure. She said the regulatory tension as being especially apparent in the areas of interoperability, demand response.

But for Harris, Ryan and other regulators in their positions, the bottom line is reconciling policy with consumer pocketbooks.

"I have to see that the benefits are outweighing the costs," Harris said. "At the end of the day, when I look at all the other competing interests, I have to say that these are these costs that I'm going to impose on ratepayers are worth it."

Especially in this economy, utilities (IOUs in particular) are reluctant to engage in any efficiency regulations that can take revenue away from their bottom line.

"When you are looking at making your money off of the number of kilowatt hours you sell, and you are going to reduce the number of kilowatt hours you sell, it becomes a much tougher business case to sell to those people that need to and explain what we are doing to our shareholders," said Becky Harrison, Interim President of the GridWise Alliance and former Progress Energy employee.

Unifying the process

Going forward, new smart grid and energy standards are likely to be a cornerstone to unifying state and federal interests in the energy industry. Without solid standards, utilities are more reluctant to invest, and vendors are hesitant to roll out new products.

"Commissioners don't want to vote for rate increases," said the CPUC's Ryan. "We already have numerous pressures that are leading to rate increases in California, so every expenditure will be closely securitized and standards from [the Federal level] are helpful to point to in terms of saying these are legitimate expenses that utilities have."

In addition to standards, the panelists agreed that the most important thing is for utilities to be more willing to work together, being more forthcoming with lessons learned and best practices. Although it may be a competitive environment, the shared success of the entire energy industry rests on better dialogue and learning what works and what doesn't.