Renewable Energy Law Alert: FERC Policy Statement Seeks to Accelerate Deployment of Smart Grid Technology
Jul 20, 2009 - Stoel Rives
On July 16, 2009, the Federal Energy Regulatory Commission ("FERC") issued its Policy Statement on smart grid technologies, directing the development of key operational standards and implementing an interim incentive rate policy that will allow for cost recovery of deployed smart grid technologies and certain legacy systems made obsolete by such deployment. The Policy Statement also establishes an important jurisdictional line by providing that, although FERC's rate recovery authority is limited by section 205 of the Federal Power Act, FERC is vested with the authority to adopt smart grid standards applicable to all electric power facilities—even those at the local distribution level and those directly used by retail consumers.
The Policy Statement identifies four grid functionalities that may serve to inform the Department of Energy's release of stimulus funds for smart grid projects. These functionalities are (1) wide-area situational awareness, i.e., the near real-time ability to view and react to interconnection-wide conditions; (2) demand response; (3) electric storage; and (4) electric transportation. FERC also stated that these functionalities are key to the development of future standards that will apply to smart grid technologies.
As stated above, the Policy Statement creates an interim rate policy with which FERC hopes to accelerate the implementation of smart grid technologies installed on the grid. Public utilities seeking assurance that they will recover smart grid costs must make a filing under section 205 of the Federal Power Act, or file an application for declaratory order, before FERC adopts smart grid interoperability standards. An applicant seeking cost recovery must make four demonstrations: (1) the smart grid facilities must advance the modernization of the nation's electricity transmission and distribution to securely and reliably meet future demand growth; (2) the deployed technology will maintain compliance with FERC-approved Reliability Standards such that grid cybersecurity will not be compromised; (3) the applicant has minimized the risk of stranded investment by relying on existing, widely-adopted interoperability standards and technologies that are readily and quickly upgradable; and (4) the applicant must share with the Department of Energy Smart Grid Clearinghouse the same information required by the Department of Energy for its grant program.
The Policy Statement establishes a number of incentive rate treatments that are meant to encourage the near-term deployment of smart grid technology, including pilot and demonstration projects. For example, a public utility applying for cost recovery will be allowed to undergo a single-issue ratemaking, meaning that the applicant need not reopen its entire rate base for FERC's review. A public utility may also use a single-issue rate proceeding to recover the costs of jurisdictional legacy systems being replaced by jurisdictional smart grid technologies. In addition, the interim rate policy allows rate treatments that provide for accelerated depreciation and abandonment authority, the latter of which may allow a public utility to recover the costs of certain abandoned smart grid projects.
If you would like to discuss the opportunities that are available as a result of FERC's Policy Statement, or if you have questions about smart grid funding opportunities available through the American Recovery and Reinvestment Act, please contact one of the following individuals. Click here for a copy of FERC's Policy Statement.