"Steel in the ground": greening the grid with the iUtility.

• Author: Tomain, Joseph P.
• Position: Greening the Grid Building a Legal Framework for Carbon Neutrality

1. INTRODUCTION II. INTRODUCTION TO GRID MODERNIZATION III. INDUSTRY OVERVIEW IV. THE TRADITIONAL UTILITY AND ITS REGULATION A. Natural Monopoly B. The Regulatory Compact C. Traditional Rate Making D. The Electricity Future V. THE NEW REGULATORY COMPACT AND THE IUTILITY A. Smart Energy Obligations 1. RPS 2. RECs 3. Disclosure 4. Surcharges B. Smart Rate Designs 1. Inverted Block Rates 2. Decoupling 3. Straight Fixed Variable Rate and Feebate 4. Incentive Rates and the Smart Grid C. iUtility Products and Services 1. Green Electricity 2. Energy Efficiency 3. PED--Personal Energy Device. 4. The iEfficiency Utility 5. Energy Hedging 6. Energy Audits VI. REGULATION 3G VII. CONCLUSION I. INTRODUCTION

   However, even as we talk about ever increasing congestion on the current system and the need for rapid deployment of renewables, there is little, if any, steel in the ground. (1) The Greening the Grid conference was both timely and important. The electricity grid is the infrastructure of the industry in both real and in symbolic ways. As we move into our energy future anticipating a greater reliance on alternative and renewable forms of energy, a greater independence from imported oil, and a reduction of carbon emissions, we need to transform the electricity grid, as well as the electric industry, (2) in several significant ways. A modernized, or smart, grid will be more efficient and reliable, will help reduce carbon emissions, and will promote national security. Grid investment will be aimed at achieving technological advances and serving new sources of energy. The new electric industry will broaden its focus from simply selling electricity to providing an array of energy services and products. Moreover, the government response to the challenges posed by the need for grid transformation symbolizes a new generation of regulation--Regulation 3G.

2. INTRODUCTION TO GRID MODERNIZATION

   There are three reasons for improving the existing electric grid. First, although the growth of the electricity industry has slowed, the demand for electricity will continue to rise into the future and the existing grid needs expansion and upgrades. Over the last sixty years, the growth in demand for electricity has slowed appreciably. The post-World War II annual increase in electricity production of approximately 9% has declined as the infrastructure has been constructed and as the country has realized gains in efficiency. (3) Since 2000, annual growth has fallen to 1.1% with the projection falling lower to approximately 1%. (4) The Electric Power Research Institute further estimates that through energy efficiency programs electricity growth from 2008 through 2030 can be reduced to between 0.83% to 0.68%. (5) Even at those reduced levels, from 2007 to 2030, electricity demand is expected to increase 26%. (6)

   The base case for increased demand is that by 2030 the United States will need an additional 214 gigawatts (GW) of electricity at a cost of $697 billion) That estimated demand with its attendant costs could be reduced by between 38% to 48% by using energy efficiency and demand response programs. (8) To satisfy increased demand, we will continue to rely on traditional energy sources such as coal because of their abundance, and we are witnessing an increased interest in commercial nuclear power. (9) Both of these traditional sources are already connected to an aging power grid in need of modernization. Most recently, the North American Electric Reliability Corporation estimated that over the next ten years, the United States will need 1700 more circuit miles of transmission lines to maintain reliability and to integrate new resources. (10) To maximize gains in efficiency and integrate renewable resources, the projected costs for investment in needed transmission and distribution range between $1.5 and $2.0 trillion. (11)

   The second reason for investing in the electricity grid is efficiency. The smart grid can be broken down into two major components--smart transmission and smart distribution. Both components promise an increase in energy and economic efficiency. The smart transmission segment of the grid is comprised of a superhighway, which will deliver wholesale power across 765 kilovolt (kV) extra high voltage (EHV) transmission lines. (12) These lines increase energy efficiency, as one EHV line can transmit as much power as six existing 345 kV lines and can reduce the transmission line footprint by a factor of nearly four to one. (13) Additionally, smart grid investments will not only increase energy efficiency, they will also improve reliability as well as reduce congestion. (14)

   The other, and equally important, component of the smart grid involves smart distribution of electricity to end users. Today, distribution is a one-way street with electricity moving from the local utility to the customer, and with the utility reading meters for the sole purpose of billing the customer for consumption. Today's electric distribution system is hardly different from Edison's first system at the end of the nineteenth century. (15) Smart distribution will provide better information about the price and use of electricity to both parties. Consumers can then use electricity at the lowest costs to them, and producers can acquire information about stress on their load and system. In short, a smarter grid will facilitate demand response programming, more accurate price signals, and real-time pricing, which, in turn, will enable producers and consumers to capture more surplus, thus increasing efficiency.

   The smart grid will require investment in both segments and will require the development of communications technologies throughout the electricity system from producers to end users. Communications technologies are necessary to coordinate regional transmission operations, send supply and demand signals between and among consumers and producers, indicate stresses on the grid, provide information about weather patterns for variable sources such as wind and solar power, and generally fine tune price signals to improve the electricity market as a whole. This portion of the smart grid has been referred to as "transactive," meaning that the grid network is the platform connecting producers and consumers for the purpose not only of conveying information and improving reliability, but also facilitating purchase and sale transactions at lower cost. (16)

   Third, the grid can play an important role in reducing carbon emissions by expanding the grid's connections to alternative and renewable resources. An integral part of this segment of the grid must incorporate feeder lines to resources such as solar and wind, which are generally not located near the existing transmission corridors. (17) Technological changes can improve efficiency and, to the extent that electricity is generated from renewable resources, those new sources must be connected to a modernized grid. (18) The Department of Energy (DOE), for example, reports that the nation can achieve 20% wind energy by 2030 only if the transmission grid is improved. (19) Additionally, it is estimated that there are over 4000 MW of large solar power plants scheduled for construction over the next five years that will also need access to the grid. (20)

   The development of the smart grid is not taking place in a vacuum. The last few years have witnessed an uptick in utility investment in transmission and distribution. (21) Most recently, federal modernization efforts are underway and those efforts will need to be coordinated both regionally and locally. (22) Pursuant to the Energy Independence and Security Act of 2007 (EISA), (23) the DOE was given the authority to engage in smart grid planning. (24) On March 3, 2009, DOE announced their intention to issue funding opportunities for smart grid demonstration projects. (25) This notice was part of the American Recovery and Reinvestment Act, (26) which provides at least $11 billion for smart grid investments. (27) Another solicitation for the grid is expected under EISA. (28) Additionally, Congress is currently debating the American Clean Energy and Security Act, which addresses climate change and also provides support for the smart grid through smart grid advancement and transmission planning. (29) Assuming that federal research, development, demonstration, deployment, and decommissioning efforts are fruitful, the existing regulatory scheme will leave a large role for state regulators. Nevertheless, the regulatory roles at all levels of government must be reevaluated and, where necessary, changed so that smart technologies can optimize their potential for efficiency and carbon reduction.

3. INDUSTRY OVERVIEW

   The development of the electric industry can be broken down into four historic periods. (30) From September 4, 1882, until 1935, the electric industry went from local and competitive to state regulated and then became a major interstate and federally regulated industry. (31) Next, the period from 1935 to 1965 was the Golden Age of electricity; utilities expanded production at a constant and predictable rate, as consumers' utilities bills stayed flat or declined, and as the country experienced the growth of a vibrant and strong economy. (32) After 1965, until the present, the industry has gone through convulsions trying to reform but has met with little success. (33) Today, we find ourselves in the fourth period of the industry's historic development as the industry and its regulators respond to the challenges of climate change.

   When thinking about greening the grid, it is important to recognize that electricity regulation as it largely exists today is roughly a century old and has significantly contributed to the problems we now face. (34) We can better understand those problems by briefly examining the upheaval and difficulties in the industry since the mid-1960s. In approximately 1965, the marginal cost of electricity began to exceed its average cost--an...