Energy Independence and Security Act of 2007 - Section 1307, Standard (16)

Consideration of Smart Grid Investments

Standard:

Energy Independence and Security Act of 2007 - Section 1307, PURPA 111(d):

(16) Consideration of Smart Grid Investments:

(A) In general: Each State shall consider requiring that, prior to undertaking investments in non

advanced grid technologies, an electric utility of the State demonstrate to the State that the electric

utility considered an investment in a qualified smart grid system based on appropriate factors

including:

(i) total costs;

(ii) cost-effectiveness;

(iii) improved reliability;

(iv) security;

(v) system performance; and

(vi) societal benefit.

(B) Rate recovery: Each State shall consider authorizing each electric utility of the State to recover

from ratepayers any capital, operating expenditure, or other costs of the electric utility relating to

the deployment of a qualified smart grid system, including a reasonable rate of return on capital

expenditures of the electric utility for the deployment of the qualified smart grid system.

(C) Obsolete Equipment: Each state shall consider authorizing any electric utility or other party of

the State to deploy a qualified smart grid system to recover in a timely manner the remaining

book-value costs of any equipment rendered obsolete by the deployment of the qualified smart grid

system, based on the remaining depreciable life of the obsolete equipment.

Description of Standard:

This standard asks States and non-regulated utilities to consider requiring utilities to invest in smart grid technologies before investing in traditional system technologies, allowing utilities to recover the costs of smart grid investments and permitting utilities to be compensated for the remaining book value of infrastructure made obsolete by smart grid investments.

Purposes and Goals of Standard:

Conservation of energy supplied by electric utilities
Optimal efficiency of electric utility facilities and resources
Equitable rates for electric consumers

16 (A): Consideration of Smart Grid Investments

This standard asks States and non-regulated utilities to consider requiring utilities to invest in smart grid technologies before investing in traditional system technologies based upon appropriate factors including total costs, cost effectiveness, improved reliability, security, system performance and societal benefit.

Management Recommendation:

SEIEC has been investigating and implementing smart grid technologies in lieu of traditional distribution system technologies based upon appropriate factors. Examples include the deployment of an automated meter reading system, automated disconnect system, automated transfer switches, automated voltage monitoring, automated outage detection, solid state digital meters, solid state control systems, etc. Management recommends the continual investigation and investment in smart grid technologies and implement smart grid technologies that prove to be in the best interest of the Cooperative based upon appropriate factors including costs, cost effectiveness, improved reliability, security, system performance and societal benefit.

16 (B): Rate Recovery

There has been concern in recent years that standard ratemaking regulations by States do not permit utilities the ability to recover investments in smart grid technologies, therefore resulting in diminishing margins and earnings for utilities that invest in smart grid technologies and a subsequent disincentive to invest in smart grid technologies. For cooperatively-owned utilities, the impact can be similar, except in this case rather than decreasing earnings or margins, a smart grid investment could lead to higher costs required to operate and maintain the utility and subsequent increase in member rates.

Non-regulated utilities do not have a rate proceeding requirement with a regulatory authority of the State. Non-regulated utilities have the direct authority to adjust or revise rates as necessary to recover costs of operating the utility.

Management Recommendation:

Management will carefully consider investments in smart grid applications and implement smart grid technologies where they prove to be in the best interest of the Cooperative based upon appropriate factors. Management recommends that all costs to implement additional smart grid technologies be considered part of the cost of service with the associated rate classes and rates be designed to collect the necessary costs of implementing smart grid technologies.

16 (C): Obsolete Equipment

There has been concern in recent years that standard ratemaking regulations by States do not permit utilities the ability to recover the remaining book value of equipment made obsolete by the investment in newer, smart grid technologies. This standard is intended to remove another possible hindrance for utilities investing in smart grid technologies. For cooperatively-owned utilities, the impact can be similar, except in this case rather than decreasing earnings or margins, a smart grid investment without the ability to recover the remaining book value of obsolete equipment could lead to a barrier in deploying smart grid technologies.

Management Recommendation:

As stated above, management recommends the continual consideration of investments in smart grid applications and the implementation of smart grid technologies where they prove to be in the best interest of the Cooperative based upon appropriate factors. Management also recommends that all costs to implement additional smart grid technologies, including the remaining book value costs of equipment or infrastructure made obsolete by the smart grid technology, be considered part of the cost of service with the associated rate classes and rates be designed to collect the necessary costs of implementing smart grid technologies.

Policy Recommendation:

SEIEC will continue to investigate investments in smart grid technologies and implement them where they prove to be in the best interest of the Cooperative based upon appropriate factors including costs, cost effectiveness, improved reliability, security, system performance and societal benefit. In consideration of the smart grid technology investment, the Cooperative will consider the required investment amount and costs associated with equipment or infrastructure made obsolete by the new technology. Where smart grid technologies are implemented, all costs associated with the smart grid technologies, including the book value costs of equipment or infrastructure made obsolete by the smart grid technologies, will be considered part of the cost of service with the associated rate classes and rates will be designed to collect the necessary costs of implementing them.