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Power Advisory Smart Grid Presentation
 

Power Advisory Smart Grid Presentation

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Regulatory Challenges to Securing Regulatory Support for Smart Grid Grid Investments

Regulatory Challenges to Securing Regulatory Support for Smart Grid Grid Investments

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  • “ No evidence of utilities reporting positive tangible results from DSM from AMI … suggests a n eed to proceed with caution rather than haste in reaching conclusion with respect to development of AMI program” “ In light of nascent nature of the technology, relatively small size of FortisBC and the concurrent development of the BC Hydro program, FortisBC should take a more measured and cautious approach to the AMI Project”

Power Advisory Smart Grid Presentation Power Advisory Smart Grid Presentation Presentation Transcript

    • John Dalton
    • [email_address]
    • Tel: 978 369-2465
    Joint CEA Customer Council & Corporate Partners Committee Securing Regulatory Support for Smart Grid Investments November 24, 2009
    • Case Study: BC AMI Investment
    • Why Smart Grid investments warrant special regulatory treatment
      • Characteristics that distinguish Smart Grid investment
    • Regulatory policies and proposals
      • FERC: Smart Grid Policy Statement
      • OEB: Discussion Paper on Regulatory Treatment of Infrastructure Investment
    • Conclusions
    Presentation Outline Power Advisory LLC 2009 All Rights Reserved
    • FortisBC proposed installing 108,000 AMI-enabled meters
      • Cost of $37 million
      • 0.4% rate impact in 2010
    • Three primary benefits identified:
      • Operational cost savings
      • “ Soft benefits”: improved customer service
      • “ Future benefits”: ability to implement DSM
    • BCUC rejected investment
      • Viewed application as incomplete and premature
    Case study demonstrates challenges associated with securing regulatory approvals for Smart Grid investment Power Advisory LLC 2009 All Rights Reserved
    • Insufficient detail on:
      • The long term vision for AMI
        • Application of remote disconnection
        • Implications of TOU rates and load control
      • How and if gas & water meters incorporated
      • Costs of various AMI components
    • The application viewed as premature because:
      • BC Hydro’s smart meter regulations hadn’t been defined
      • No analysis of impacts of DSM measures
      • No comprehensive plan in BC for AMI
    • Net result unable to determine that AMI is cost-effective
    BCUC found AMI proposal incomplete and premature Power Advisory LLC 2009 All Rights Reserved
    • Smart Grid investments more risky due to:
      • Premature obsolescence of assets
      • Changes in technical standards
        • Interoperability critical to achieving objectives
      • Exposure to rapid change in the applied technology
    • Smart Grid investments may strand older assets
      • Retail meters may have significant book value
    • In spite of these risks a desire for some to be “first movers”
      • Policy makers seeking expected benefits
    Smart Grid investments warrant special regulatory treatment Power Advisory LLC 2009 All Rights Reserved
    • Smart Grid investments applications of IT
      • Which evolves very quickly making equipment obsolete sooner
      • Expected lifetime of some smart grid assets much shorter than that of other investments
    • Smart Grid technology is still evolving
      • Investment may become prematurely obsolete if standards change or adjacent systems use other technology
      • Standards still under development
        • NIST interoperability standards
      • Risk that technology doesn’t perform as claimed
        • Effectiveness of programs that utilize technology
    Technology risk Power Advisory LLC 2009 All Rights Reserved
    • Smart grid allows better grid operation in real time by giving operators real-time information on grid status beyond their own jurisdiction
      • Such information may have prevented the August 2003 blackout
        • Better allowing operators to react to the sequence of problems
    • Most Canadian systems integrated with US as well as Canada, these smart grids must be interoperable with US systems
      • Standards for the US systems are being developed but are not yet final
    Interoperability Power Advisory LLC 2009 All Rights Reserved
    • Some Smart Grid investments may require premature retirement of assets
      • AMI investments require removing existing meters that are not fully depreciated
      • Their costs may no longer be recoverable once they are no longer used and useful
        • Special rate treatment required for unamortized costs
      • Other transmission assets, such as control systems, may similarly be displaced by Smart Grid investment
    Stranded Costs Power Advisory LLC 2009 All Rights Reserved
    • FERC Smart Grid Policy Statement
      • Smart Grid investments eligible for a special Interim Rate Treatment if they meet certain conditions
        • Promote development of Smart Grid
        • Do not compromise existing grid
        • Are flexible to minimize possibility that they will be stranded by new technology or new standards
        • Will exchange information with DOE Smart Grid Clearinghouse
    FERC recognizes need for special regulatory treatment Power Advisory LLC 2009 All Rights Reserved
    • Special rate treatment allows
      • Rate application to recover Smart Grid investment without review of full rate base
      • Recovery of stranded costs
      • Can apply for other incentives FERC allows for needed transmission investments
    FERC recognizes need for special regulatory treatment Power Advisory LLC 2009 All Rights Reserved
    • Green Energy and Green Economy Act targeted Smart Grid investments
      • OEB opened a proceeding on Regulatory Treatment of Infrastructure
        • For smart grid and to incorporate renewables
    • Staff discussion paper issued asking for comments on 26 issues
    • Other provinces have not yet addressed smart grid issues
      • British Columbia inquiry on transmission infrastructure capacity and adequacy which does not fully address smart grid issues
    In Canada, the OEB has gone furthest in consideration of regulatory treatment of Smart Grid Power Advisory LLC 2009 All Rights Reserved
    • Accelerated capital cost recovery
      • Asset life equal to contract life
      • Recovery of Construction Work in Progress
    • Stranded cost treatment
      • Recovery of cost of abandoned facilities
    • Incentive mechanisms
      • ROE adder
      • Project-specific capital structures
    • Measures are not incentives to reward good performance
      • Intended to ensure implementation of transmission and distribution investments that might not otherwise occur
    The Ontario Energy Board staff discussion paper suggested some measures Power Advisory LLC 2009 All Rights Reserved
    • FERC set the four conditions to be met
      • During interim period, utilities must do their part to minimize risks with Smart Grid investments
    • OEB proposed to distinguish three kinds of investments:
      • Routine
      • Non-routine incremental
      • GEGEA-related
    • Routine investments would not qualify for incentives; others would be considered case by case
    Not all investments would qualify Power Advisory LLC 2009 All Rights Reserved
    • Smart Grid investments are different and warrant special regulatory treatment
      • Utilities need assurance that they will be able to recover costs of prudently incurred investments
      • Special treatment clearly needed for interim period until smart grid standards are final
    • A minimum requirement could include
      • Abandoned facilities cost recovery if abandonment is beyond utility’s reasonable control
      • Accelerated cost recovery
    Conclusions Power Advisory LLC 2009 All Rights Reserved
  • I look forward to your questions
            • John Dalton
            • Power Advisory LLC
            • [email_address]
            • (978) 369-2465
            • www.poweradvisoryllc.com
    Power Advisory LLC 2009 All Rights Reserved
  • Introducing Power Advisory
    • Power Advisory specializes in electricity market analysis and strategy, power procurement, policy development, regulatory and litigation support, resource planning and project feasibility assessment.
      • We offer clients insightful analyses based on detailed understanding of market fundamentals and regulatory policy.
      • We offer policy and regulatory support services that communicate effectively clients’ positions and demonstrate the benefits offered.
      • For additional information regarding our services, please contact:
            • John Dalton
            • [email_address]
            • 978-369-2465
    Power Advisory LLC 2009 All Rights Reserved
  • Introducing Power Advisory
    • Clients include:
      • Algonquin Power
      • Atlantic Power
      • Bluewater Power Generation
      • Brookfield Renewable Power
      • Bruce Power
      • Canadian Wind Energy Association
      • Connecticut Resources Recovery Authority
      • Direct Energy
      • EPCOR
      • Great Lakes Power
      • Nalcor Energy
      • National Energy Board
      • Natural Resources Canada
    Power Advisory LLC 2009 All Rights Reserved
      • New Jersey Resources
      • NewPage
      • Northland Power
      • Office of Environmental Commissioner of Ontario
      • Ontario Energy Board
      • Ontario Power Authority
      • Suncor
      • TransAlta
      • TransCanada
      • Tribute Resources
      • Vermont Public Service Board
      • Wheelabrator Technologies, Inc.