<ul><li>John Dalton  </li></ul><ul><li>[email_address] </li></ul><ul><li>Tel:  978 369-2465 </li></ul>Joint CEA Customer C...
<ul><li>Case Study: BC AMI Investment </li></ul><ul><li>Why Smart Grid investments warrant special regulatory treatment </...
<ul><li>FortisBC proposed installing 108,000 AMI-enabled meters </li></ul><ul><ul><li>Cost of $37 million </li></ul></ul><...
<ul><li>Insufficient detail on: </li></ul><ul><ul><li>The long term vision for AMI </li></ul></ul><ul><ul><ul><li>Applicat...
<ul><li>Smart Grid investments more risky due to: </li></ul><ul><ul><li>Premature obsolescence of  assets </li></ul></ul><...
<ul><li>Smart Grid investments applications of IT  </li></ul><ul><ul><li>Which evolves very quickly making equipment obsol...
<ul><li>Smart grid allows better grid operation in real time by giving operators real-time information on grid status beyo...
<ul><li>Some Smart Grid investments may require premature retirement of assets </li></ul><ul><ul><li>AMI investments requi...
<ul><li>FERC Smart Grid Policy Statement </li></ul><ul><ul><li>Smart Grid investments eligible for a special Interim Rate ...
<ul><li>Special rate treatment allows </li></ul><ul><ul><li>Rate application to recover Smart Grid investment without revi...
<ul><li>Green Energy and Green Economy Act  targeted Smart Grid investments </li></ul><ul><ul><li>OEB opened a proceeding ...
<ul><li>Accelerated capital cost recovery </li></ul><ul><ul><li>Asset life equal to contract life </li></ul></ul><ul><ul><...
<ul><li>FERC set the four conditions to be met </li></ul><ul><ul><li>During interim period, utilities must do their part t...
<ul><li>Smart Grid investments are different  and warrant special regulatory treatment </li></ul><ul><ul><li>Utilities nee...
I look forward to your questions <ul><ul><ul><ul><ul><li>John Dalton </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li...
Introducing Power Advisory <ul><li>Power Advisory specializes in electricity market analysis and strategy, power procureme...
Introducing Power Advisory <ul><li>Clients include: </li></ul><ul><ul><li>Algonquin Power </li></ul></ul><ul><ul><li>Atlan...
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Power Advisory Smart Grid Presentation

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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

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

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