[QUOTE] requires states seeking stimulus funding to provide assurances that they will work to implement rules ensuring that utilities won't make less money as energy use declines. .... under revenue decoupling, a single customer can still save money by cutting electricity use, but an entire community cannot. Once the revenue of a utility is guaranteed regardless of usage, it doesn't matter how much energy the community conserves -- all together they are still obligated to pay the same amount to the utility. [/QUOTE]

An obviously blatant attempt to further hamper the clearly beneficial trend toward distributed generation / micro-generation, taking measures well beyond the existing hurdles ranging from absolute bans to, in the best cases, prohibitively costly "grid studies" paid by the prospective customers.

I find it completely astounding that any legislation with such wording could get approval from the people's representatives. What a piece of corruption! I simply cannot imagine any circumstance under which such a bill could get passed in the Canadian parliament. US electorate needs to track down every person involved in this corruption and boot them out of office or any position of influence at the very next opportunity. Incredible!

Perhaps "someone"? (FERC)? is trying to force de-regulation onto recalcitrant states? There's no way any such wording could be forced onto a properly de-regulated utility system, with "pipes and wires" services properly separated from generation, as must happen in de-regulated market systems in order to assure a fair playing field for ALL generation installations regardless of size, from the large nuclear plants to the smallest solar or micro-CHP SOFC fuel cell furacne / water heater system.

So, although wonderful Copenhagen is especially wonderful in the summer, I'm not as impressed as some people are with the Danish electricity sector.

Another sister problem to this is the physical control of all those smart devices once this universal communication is operational. At best, it allows operation patterns not in the best interest of the consumer. At worst, it will perpetuate the current monopoly of all electron transfer, bi-directionally, with price manipulation at every turn.

The unfortunate part of this article and Len's follow-up comments is that it has brought out the anti-deregulation and nuke-everything trolls that too often suffocate these much needed discussions with their one-size-fits-all, tired old speeches. For once, it would be nice to have an intelligent conversation without the head-in-the-sand crowd.

I'm not sure paying premium prices for sub-par electricity (wind turbines) is necessarily a sterling answer either, however. At the least, one should try to decouple the power lines (and access to such) from the power sources. I agree that top-down control of smart devices is highly problematic in the long run.

Utility rates are "coupled" by regulators in the rate setting process. The "coupling" is the result of rates which under-recover fixed costs in the fixed portion of the utility's rates, forcing the utility to recover the remainder of its fixed costs through the variable portion of the rate. Such rates make the utility's ability to fully recover its fixed costs plus earn its allowable return on investment dependent on sales volumes. "Decoupling" fundamentally restructures rates so that the utility's fixed monthly service charge recovers its fixed costs plus its return on investment. The variable portion of the rate then recovers only the variable costs of operation.

A restructured distribution or distribution + transmission utility has very limited variable costs, most associated with incremental resistance losses resulting from high demand. Therefore, its revenues can be effectively "decoupled" from sales volumes rather simply.

A vertically integrated generation + transmission + distribution utility includes generation assets in its fixed costs. Its variable costs are fuel costs, purchased power costs and line losses.

Several have argued in this forum that customers whose demand caused the utility to invest "x" dollars, but who now choose to impose a demand which could have been served with an investment of "x-y" dollars, should only be charged a fixed monthly charge for their current level of demand, despite the fact that the investment to serve their previous, higher demand has already been made and the equipment and facilities installed. That is clearly an unreasonable expectation.

Several have also argued here that utilities should have to buy surplus power generated at customer sites through "net metering", thus valuing all power at the same price, regardless of contemporaneous power prices in the market. That, as I have argued here before, is an unsustainable situation. It is also antithetical to the fundamental concept of "smart grid".

Renewable energy providers expect that the capacity to move their power from the point of generation to a point of use be in place and available to them. The ERCOT West region in Texas provides an interesting opportunity to consider this issue. Current wind energy availability in ERCOT West frequently causes instantaneous power prices in the region to be negative at night, since the wind power available exceeds the contemporaneous demand less the minimum net power output of long lead time generation assest which must operate overnight to be available for morning dispatch. There is very limited incentive for transmission utilities to add additional transmission capacity to move this low value, off-peak power. There would be even less incentive if they were unable to earn a return on the required investments.

I will now place my head back in the sand and wait for the "brickbats".

Ed

It's important that people see, debate and understand what's written in the smart grid legislation. It's also important that people see, debate, understand and influence what will soon be written in the smart grid technology standards.

Robin Chase (co-founder and former CEO of Zipcar) notes in her April 8 blog post (http://networkmusings.blogspot.com/), "In early March, I happened to be in Washington meeting with Ed Markey. It turns out that the incredibly important words that required the $6.6 billion in smart grid demonstration projects to use "open standards and internet protocol" was his amendment! These words were modified in the final Economic Recovery Act by industry lobbyists to include "where available and appropriate."

Distributed generation is very much driven by new opportunities for distributed ownership and control of energy assets. The standards organizations' technical committees' "Enterprise View" (as in Reference Model for Open Distributed Processing) needs to take into account, for example, customer ownership of microgrids (a la Galvin Institute's 'Perfect Power').

We have reason to hope that the new OASIS Energy Market Information Exchange (eMIX) Technical Committee and the new OASIS Energy Interoperation Technical Committee will provide standards that don't inadvertently limit, for example, end user and small generator participation in carbon trading. And we have reason to hope that EPRI, who will orchestrate the smart grid contributions of multiple standards organizations, will have a transformational vision. But experts not institutionally bound to centralized generation will need to work in these standards organizations' committees to keep the features and benefits of distributed generation foremost, because experts that ARE institutionally bound to centralized generation -- and centralized ownership -- will surely be active in these committees.

Lance McKee lmckee@opengeospatial.org

State utility regulators have/had the authority to regulate all aspects of electric utility fuel supply, generation, transmission and distribution for vertically integrated utilities. That system worked, though it was fraught with problems, most working to the disadvantage of large customers. State regulators still have authority over intrastate transmission and distribution, even if generation has been deregulated to one degree or another. (CA is an example of when deregulation is just re-regulation under different terms and conditions.) Federal regulators still regulate interstate transmission.

I believe there are advantages to utility restructuring. Distribution utilities which are not affiliated with a generating company have no internal corporate pressure to buy power from the affiliated generator. They can and will buy power from the lowest cost, most reliable suppliers. They will also, when forced to do so by regulators, purchase power from the highest cost and least reliable suppliers. In that circumstance, the utility is always careful to register its objections to buying higher cost, less reliable power, since they are held accountable for rates and the reliability of the grid they operate. That is generally a trivial concern at present, because solar and wind are a very small fraction of their supply portfolios. However, aggressive RPS will change that over time.

Distribution utilities can still be expected to object to any arrangement which adversely affects their reliability, or has the potential to do so. They will also object to paying premium prices for wind power at night, when they have little or no need for it, while delivering power at average prices on peak through net meters. "Free" virtual storage on the grid is not free for the distribution utility.

Distribution utilities which are merely service providers and do not have POLR responsibility have no problem with delivering any supplier's power to any customer at any time, since they are merely compensated for moving power from supplier to customer. However, that arrangement requires discipline, since if a particular customer's supplier defaults, the customer must go offline until the supplier comes into compliance or another supplier is located by the POLR. In practice, in the mid-90s world of Enron, not only did that not happen, but the system was "gamed" for the benefit of Enron to the detriment of the distribution utility. ( I have the scars!)

True generation deregulation requires that the generator be able to sell power to any customer under any set of mutually agreeable terms and conditions. Several states have had great difficulty with that concept over the past ten or so years. CA, for example, had "must serve" requirements for in-state generators, which required that if CA needed power, even if the power was contracted to an out of state utility or customer, the CA demand had to be served.

I am a supporter of micro-grids. However, I draw the line when the participants in the micro-grid expect the distribution utility to move their power at no cost or to provide on-demand backup at no cost. On the other hand, I also object to a distribution utility which has the existing system capacity to wheel power for the micro-grid attempting to price the service as if it depended on the construction of new physical plant.

I believe the secret to success in the "brave new world" is "open kimono" negotiations. That is incredibly difficult with regulators in the room. It is also incredibly difficult with suppliers with poor track records. There are very few "virgins" in the electric utility industry.

Ed

A wide audience should read the EnergyPulse article Smart Grids: How Smart?, by Mark Sardella, PE, Executive Director, Local Energy.

First posted on the GMH Blog on April 14th, 2009

Hello Mark,

Yesterday I made a tweet with the hashtag #EWPC, which as you can see served to tell my followers on Twitter that your article deserves to be read by a wide audience.

I see 3 key parts to your article, which I qualify as follows:

a) Making the public aware of the results of the lobby to keep the power industry under the obsolete investor owned utilities framework. Smart work! b) Suggesting the need to open the power industry to innovation. As you wrote, “modernizing our electric power infrastructure using policies that create entrepreneurial opportunities for small businesses is where the smart money will go.” Smart work! c) Giving the example of feed-in-tariffs. Not so smart.

In regard to a), Len, Todd, and Lance, seem to agree with the value of making the public aware. Relatively to decoupling, as has been commented by Jim and Ed, I try to explain in the post Forget Decoupling Under Price Controls, that “… regulated decoupling has an insidious secondary effect: extending the obsolete utilities and regulators price controls business model.”

In response to part b), EWPC means electricity without price control (EWPC) and it is a framework, which tells about the whole power industry that is emerging is what you are writing about. The EWPC Blog has more than 160 post and articles describing the framework from many different perspectives. The EWPC aim of this post is next.

Trying to add value to your article, I will concentrate this post on replacing, the not so smart, part c). EWPC is an extension of the works done, back in the 80s, by the late M.I.T. professor Fred C. Schweppe and his colleagues. They wrote the following about avoided costs (which are related to feed-in-tariffs) in their book Spot Pricing of Electricity:

"In the United States, the PURPA legislation stated that buy-back rates should be based on avoided costs without clearly defining what avoided costs are. Hourly spot prices provided such a definition."

So, based on that quote and Fred comment, I have only one observation of your entire excellent article: the real secret I suggest is to consider hourly spot prices instead of Denmark’s feed-in-tariffs. Since Schweppe and his team also advised to consider the criteria of the engineering requirements for controlling, operating and planning an electric power system, the shift to spot prices need to be based on the architecting imperative of system’s ultraqualiity.

System’s ultraquality is one of the essential elements of EWPC, as I just discover now that spot pricing should be another one. One of the flaws of deregulation was a lack of the system’s ultraquality imperative, which meant a policy economy first, performance second, which is reversed under the EWPC policy, performance first, economy second.

System’s ultraquality is what makes possible that “Those appropriations are stirring the hopes of renewable energy advocates, who foresee expanded opportunities for solar and wind technologies as well as a big, new role for plug-in electric and hybrid-electric vehicles.”

As I see it, the concerns against a truly smart grid seem to stem from the question of how does the utility company increase its profit when the push is to lean out our power usage? I fully understand how decoupling works and why its desired, but it flat out does not make economic sense. Why incent someone to make money doing something opposite of traditional market forces? That's just asking for problems. Why not expand their marketability and keep them competing on cost?

An argument Ed makes that is currently justified is that reliable power and unreliable should not be priced the same. Well, why not simply price that into their payment? Same goes for all the other players as well, like transmission and distribution... and even demand reduction or onsite generation? This requires nothing more than a first-come, first served market based on response time. To do that, we would need to go to a real-time priced market. The proposals for day-ahead, hour-ahead and even 15-minute-ahead market would still allow gaming in that area or would be biased against certain parties.

The "de-coupling" I'd like to see is to isolate distribution from transmission from generation. In a real-time priced market, each of these has their incentives aligned correctly with making the profit from selling the most service for the least cost. This should support efficiency and reduced waste at all levels. The incentive for the consumer to conserve is then the greatest since their price most closely correlates with their energy use.

Also possible under this system, is the capability of price (peak) predictions by all players. Just as a regulator can predict demand now, a generation company, transmission company or end consumer could predict a repetitively variable price if it were allowed to directly follow the market. Then the more intelligence you put behind your predictions, the more you could profit by being correct. As the quality of the average predictions by everyone became more and more accurate, the grid peak swings would settle to their optimum levels. This is a key point. If we're trying to maximize the utilization of transmission lines, baseload generators, expensive fueled peakers and distributed sources/loads, shouldn't we give each the incentive to best match their offering to whatever helps that utilization the most?

Expansion planning and operation criteria: the sum of the least costs of the parts does not result in the least costs of the whole. The least costs is the total investments and operating and maintenance and outage costs of the whole (utilities and also customers) is the key to maximum social welfare. T&D should be integrated and the power system operator must have complete control of the whole system at operations time. Business transactions before and after real time operation is what should be decoupled and subject to a lot of innovation. That is how EWPC is architected.

There appear to me to be two "smart grid" camps. One camp views "smart grid" as an opportunity to control peak demand by controlling customer appliances and equipment to shave peaks. The other camp views smart grid as an opportunity to expose customers to the real cost of electric power and to empower them to adjust their consumption patterns in response to price signals.

The "command and control" camp has met with significant resistance from customers, because customers are unwilling to cede control of their lives to "big brother". However, when customers have been given the opportunity to respond to peak pricing by managing demand, they have responded beyond expectations.

However, it is time to move beyond the short term trials which limit response by discouraging investment as part of the process. It is time for a permanent program which encourages customers to invest in responsive appliances and equipment which can automatically respond to price signals as according to the customers' criteria.

The second camp needs reform to get away from the investor owned utilities framenwork. Your first camp is about Demand Side Management, while the second is about Demand Side Innovations (DSI). The obsolete business model of winning coupled energy sales rate cases to the regulator should end asap.

Instead of regulated retailers, we need competitive retailers that will introduce business model innovations to reap the increasing DSI development in the open market. Customers have a choice to invest in appliances for demand response (short term price signals), energy efficiency (long term price signals) and many other innovations that will come up as it happened in other industries after reform.

Fully agreed here. The command and control camp refuses to recognize the other camp in public or at any lobbying table. VERY smart move on their part because they're taking the credit from the empowering camp's support while simultaneously gagging their voice. In the meantime, they're confiscating all the subsidies for smart grid money and using it to install more half smart meters which will become stranded.

The empowered camp needs a new acronym to differentiate it from the smart grid. I see a couple floating around, but there's not enough cohesion for any of them to stick.

The IOU distribution grid exists. There is no reason why it cannot be operated efficiently as a common carrier system. There is certainly no economic justification for installing competing distribution grids.

Their is no fundamental conflict between the concept of competitive retailers and the concept of a regulated common carrier distributor of a commodity supplied by competitive retailers. The devil, as usual, is in the details.

With decoupling, there is no reason why the common carrier distributor should be responsible for metering. There is also no need for the common carrier distributor to have a direct customer interface; the distributor can be compensated by the competitive retailer for providing the service.

One of the details which must be addressed is the POLR. I am not convinced that a POLR is necessary in a competitive market. I am convinced that the common carrier distributor should not be the POLR, if regulators insist on a POLR. There is also no reason why the competing retailers could not support a POLR "pool", if the regulators insist on a POLR.

First posted on the GMH Blog on April 16th, 2009

WOW!!! As you can see, Ed is describing key features of EWPC framework, as opposed to the IOUs framework. So as Todd suggest, we need another acronym for the EWPC framework.

The suggestion is to change IOUs to Investor Owned Transporters (IOTs). IOTs plan, operate, and control, a regulated transportation (T&D) power system, under a responsibility to transport in exchange for a reasonable rate of return. That is, we need to add that the distribution grid should be integral with the transmission grid in every control area.

If that is the case, no artificial decoupling rules are necessary, as generation, retail and customers are in an open market value chain. For retailers - which are competitive Second Generation Retailers - 2GRs as opposed to the traditional no regulated retailer - survival under competition will produce the necessary decoupling to offer the best business plans to customers, as a mix of DSIs to develop a long term relationship. Yes, 2GRs should be responsible for metering and handle the customer interface.

Just as artificial decoupling, POLR is a mean to keep the IOUs paradigm alive. It is also a mean to unnecessarily duplicate investments (known since the late 90s). Need to add to the NO POLR, that no incumbent retailer under Chinese walls be allowed.

There is only one smart grid that will be smart. We need to shift to the EWPC paradigm to enable it.

I have no interest in interfering in Energy Pulse's longest running "pissing contest". I will leave you to your amusements.

I only hope that someone figures out the right answer before the entire system implodes. US EPA is apparently prepared to: halt the construction of any new coal plants; use NSR to prevent any improvements to existing plants; and, use mercury rules to precipitate early retirement of older, smaller coal plants for which mercury capture would be uneconomic. In the face of declining demand, that might be survivable; in the face of growing demand, it appears to be a disaster waiting to happen.

Fortunately for EPA, they can pull a "Pontius Pilate" and wash their hands of responsibility for the failure of the grid. I'd like to get the ticket concession for the "theater" which will likely follow. Instead of Don Quixote "tilting at windmills", we will have Secretary Chu "tilting with windmills".

Len run out arguments a long time ago. Now you went against his main one (no need for retailers), when you wrote that they are needed: "Their is no fundamental conflict between the concept of competitive retailers and the concept of a regulated common carrier distributor of a commodity supplied by competitive retailers." That is why he said nothing specific about retailers.

The U.S power industry met the enemy as it is already making customers spend 50 additional cents (and increasing) for every dollar billed to customers (the enemy is making a large part of that money in the open market). That is why reform is urgently needed and investors should consider becoming competitive 2GRs to get a piece of the action in the open market.

State Secretary H. R. Clinton said in Santo Domingo last friday "“No new source, no new generation, but just use more efficiently what we currently have.” You are missing that in your argument.

Believe it or not, humanity, especially in the developed countries, may go back to a much lower standard of living, until clean energy innovations come through. The wait-and-see attitude is gone.

"State Secretary H. R. Clinton said in Santo Domingo last friday "“No new source, no new generation, but just use more efficiently what we currently have.” You are missing that in your argument."

Secretary Clinton is trying to comprehend the forest by looking at only one tree at a time. She is a politician. She is not a futurist. She is not a strategic thinker. She is not a big picture person. She is not an engineer. She is not a capitalist.

Increased efficiency has a place. Conservation has a place. Solar and wind have a place. A lower standard of living will not be accepted voluntarily, though history suggests that it can be forced, as appears to be the case in Venezuela today.

Madam Secretary ignores the Administration's "80% by 2050" wish. Realizing that wish with "no new source, no new generation", when 70% of generation is fossil-based is delusional. Doing so in the face of ~1.3% annual population growth merely adds to the delusion.

In the words of my favorite American philosopher, Yogi Berra: "If you don't know where you're going, any road will get you there." The Obama Administration is clearly on the road to somewhere. Eventually we will find out where "somewhere" is.

There are several regular commenters here who do not clearly understand utility regulation. There are some who would clearly prefer not to understand it.

Len and Jose Antonio do understand it, find it wanting and have clearly defined, but very different, approaches to changing the historical regulatory structures.

The future of US utility regulation will be impacted by several challenging issues, including: preserving low rates in the face of requirements to add increasing quantities of more expensive power to their portfolios; maintaining system stability and reliability in the face of requirements to add more intermittent power to their portfolios; maintaining adequate conventional capacity reserve margins to deal with intermittent sources in the face of carbon emissions caps, universal 90% mercury capture regulations, NIMBY and BANANA.

Focusing on any one of these issues can make the future look far clearer and easier than it will be in practice. That "works" for politicians, but not for utility managements.

Madam Secretary is just explaining how valuable energy efficiency is. In my latest response to William Norquay, I wrote: "I guess that we are bound to use more efficiently the energy sources we currently have all over the world. The concept refers essentially to having energy efficiency as one of the key elements of the clean energy mix."

This is a transcript of the corresponding section of the Digital Town Hall

The next question will be placed by Ariel Roberto Contreras Medos in the Dominican Republic.

QUESTION: (Via interpreter.) In spite of the agreements achieved, especially in the framework of the Fifth Summit of the Americas and in reference to the promotion of sustainable environment, what initiatives will be taken to guarantee the implementation of the agreements achieved?

SECRETARY CLINTON: Well, let me say that first of all, the United States, with the new Administration, has recognized our responsibility as the largest historic emitter of greenhouse gas emissions. This is an abrupt change from the prior administration. It enables us to take the problem of climate change and sustainable development seriously and begin to address it.

Secondly, President Obama is committed to pursuing domestic legislation that will equip the United States to play our role in combating greenhouse gas emissions. In the stimulus package that President Obama introduced and that was passed, we had a lot of money set aside for renewable energy, to begin becoming more energy efficient, to refit – retrofit houses and commercial buildings, to weatherize them, to take what are long overdue steps to begin to do our part. We also are looking at an economy-wide approach with a cap-and-trade system that we think makes a lot of sense, that would enable us to reduce our emissions significantly by – we hope 80 percent by 2050.

Thirdly, we are very actively engaged in the international arena. There will be the summit on climate change in Copenhagen at the end of this year. The President and I jointly appointed a Special Envoy for Climate Change who’s working with his counterparts around the world. We are going to do everything we can to get an agreement that includes everybody. Nobody can be left out. There may be different requirements and maybe different timetables for developing countries and for the developed world, but everybody must be in the agreement. And we’ve had very productive conversations with a number of nations from China to Russia to the European Union and beyond.

And let me just say a word about some of the steps that can be taken by countries in this hemisphere. We’ve got to stop the destruction of the rainforest. The destruction of the rainforest is a double whammy. It reduces our capacity in the world through what has been referred to as the lungs that the rainforest represent to absorb carbon dioxide. And the substituted uses of the land, primarily for agriculture, emit more greenhouse gas emissions. So we have to do more to figure how to protect these very precious resources that are within national boundaries, but have global consequences.

We also have to do more to help all of us become energy efficient. The cost of electricity, however it is generated, is a significant drain on both family and government resources. How do we get more energy efficiency? We believe, in the United States, that we could go a long way toward meeting our global goals for reducing greenhouse gas emissions if we were more energy efficient. No new source, no new generation, but just use more efficiently what we currently have. So we will be discussing this at the summit. We’re going to be looking to work with our partners in the region to chart a clear path toward a low carbon economy for the future.

To follow my responses tune in to http://twitter.com/gmh_upsa

The EWPC Framework involves a market feedback mechanism (demand elasticity) to reduce demand as fuel price increases, leading to less fuel consumption and lower customer’s costs under individualized prices. The IOU Framework as you explained transfers fuel costs under socialized prices. The original Deregulation Framework had no feedback mechanism at retail (no elasticity) which amplified fuel costs (marginal costs means the most expensive unit dispatched sets the price) enabling in addition price spikes from time to time, when system limits were reached.

Now: The language used in the article is -- [QUOTE]These rules, termed "revenue decoupling" rules because they decouple utility revenues from the volume of energy sold, [/QUOTE]

"First decoupling does not guarantee revenue it assures net income. "

My concern is EITHER you OR the author is wrong. I MAY choose to live with your interpretation of "revenue decoupling" as "income decoupling" (though I have specific problems with that as well), but FIRST I'm seeking explicit reliable assurances that YOUR interpretation of revenue is what the terminology means, not that in the Websters Dictionary.

I would also note that I have no problem with guaranteeing the distribution side revenue of existing utilities within reason and on regulatory approval, but a serious problem guaranteeing the generation side revenue. The first step in revenue de-coupling MUST be decoupling of the distributin entity from the generation.

"Len and Jose Antonio do understand it, find it wanting and have clearly defined, but very different, approaches to changing the historical regulatory structures.

The future of US utility regulation will be impacted by several challenging issues, including: preserving low rates in the face of requirements to add increasing quantities of more expensive power to their portfolios; maintaining system stability and reliability in the face of requirements to add more intermittent power to their portfolios; maintaining adequate conventional capacity reserve margins to deal with intermittent sources in the face of carbon emissions caps, universal 90% mercury capture regulations, NIMBY and BANANA. "

To paraphrase one of Shoeless Joe's young fans, "Say it ain't so, Ed!" To me there's something mutually exclusive about the two paragraphs. Possibly I've got the mistaken impression that the "contest" is with a strong headwind in both cases.

I don't expect regulators to address the issues I listed above until "the excrement encounters the wind turbine".

I expect the "contest" is impacted by strong headwinds.

Ed

The smart grid gets the customer involved in what his demand really 'costs'; by bringing the crucial element of 'time' into the equation. We start to break the old Utility charging model 'Pay me may a fixed amount per kWh and you can use what you like whenever you like'!!.

We need to recognise that all elements of Power Delivery are involved - Generation, Supply (retail market), Transmisison, Distribution and System Operation (as unbundled in GB). This is a 'Smart Enterprise', not just a Smart Grid; everything affects everything else instataneously in the business of Electricity Production, Transport and Supply (to the customer).. The Power system is of course always in balance; Generation=Demand in real time. Generation and Demand have to be matched within close limits to keep the system running in a stable manner (frequency very close to 50Hz) and Transmission and Distribution operating securely.

So, Predictability of Generation and Demand is obviously crucial in the timescales for planning and committing of main power plant to run. We want to introduce smart competitive customer choice into the system, but not at the expense of making the remaining main power plant (pricipally fossil) run unnecessary and inefficiently.

The trick is in how to set dynamic prices and working out what the customer systems (must be automatic) are going to do in advance. I reckon we have 3 basic types of demand Time Critical Non Time Critical Unnecessary!! (energy efficiency for that one!!) and Smart systems will focus on exposing the cost and worth of the last two.

In GB, Generation, Supply (Retail market to Customer), Transmision, Distribution and System Operator functions have all been progressively unbundled. We have (marginal) price signals from the wholesale market (Generation to Supply). The smart objective is to create a dymanic retail market ineracting to the wholesale market and System Operator processes. The clever use of commercial/geographical aggregation and dissemination equipment (metering up price signals down) will allow for adequate levels of control influence and system security management. Measures of price elasticity (level of demand change) and the 'duration' for which customer demand can be interrupted/moved or controllable embedded generation can be run must be clearly understood and modelled to give the desired result in terms of the price signals to use.

Thats just a short observation; I spend many years with tools for System Operator modelling of Generation, Demand, Fuel, System and Market processes.

Stephen has the future exactly right, as far as he goes. -- "by bringing the crucial element of 'time' into the equation. We start to break the old Utility charging model " -- Would add to his discussion one good useful element beyond charging varying price per kwh according to marginal cost of generation on short intervals (15 min or 1 hr), which is a rate escalater per kwh beyond a base kwh / day consumption according to type of property serviced (per family in residence or per sq ft of commercial space).

I fail to see the justification for your "escalator", other than to punish larger users.

The Chinese have demonstrated one approach to population limitation.

A couple of US states are declining expensive procedures to the terminally ill, but offering to provide assisted suicide, which would help deal with the retiree issue. This could be extended to the old and infirm, or perhaps even to the no longer productive.

If all customers pay the full cost of all delivered energy, adjusted for realtime conditions, I fail to understand the desirability of further penalizing them.

Ed

First, regarding the Danes, I'm not prepared to slag them over their policy choice without hearing from ordinary citizens. My impression, admittedly shaped by the media rather than personal communications, is that the Danes are happy to pay more per unit for electricity if it reduces their dependence on imported fuel and improves the environment. It is their tradeoff to make. It may cause Dr. Banks to pay a bit more for his electricity, but I offset some of the economic damage by purchasing more fuel efficient vehicles and using them sparingly, which helps keep his petrol prices lower than they would otherwise be.

Second, I can assure you that Americans will summarily reject a smart grid in which utilities "control" devices inside their homes and businesses. Even if we agreed to a crazy scheme like this, it is largely unworkable. Grid operators are already challenged in their ability to manage the complexity of dispatching a few hundred generating plants on sub-hourly intervals because the optimization algorithms they rely on can't be solved fast enough by existing computer hardware. Extending the grid operator's reach to millions of devices, each of which has new constraints that are not included in the existing algorithms, would require inconceivable amounts of computing power. Engaging aggregators that "control" groups of customers in order to better manage the size and complexity of the problem is equally impractical.

Third, one of the justifications for a Smart Grid is that it will provide consumers with better service at lower cost, even though most of the conversations I've seen discuss specifics in terms that have engineers salivating but don't make a clear connection between investments and customer benefits. Conservation and demand management permeate the Smart Grid discussions I've heard. However, policymakers and regulators continue to send out a mixed message by pointing out the need for conservation and energy efficiency on the one hand, and keeping prices unrealistically low on the other. If electricity is a scarce resource, then let's price it accordingly, especially when scarcity is more apparent. In other words, let's move to some form of retail pricing that is explicitly linked to wholesale prices. If electricity is deemed so essential that the price must be kept at artificially low levels, then let's forget about conservation and efficiency.

Finally, I think there's a simple way to implement revenue decoupling that will provide distribution operators with adequate revenues, encourage conservation, and avoid perverse incentives to overinvest. Customers would be charged a fixed fee each month based on their peak demand, which will be readily available from all of the interval meters that are being installed around the country, and that fee would be based on the replacement cost of distribution facilities rather than their historical cost. Distribution network operators would have to accommodate injections into their grids from distributed generation sources (perhaps with a generous limit on size). In this way, distribution operators would have the funds they need to expand and modernize, but they would face competition from customer-owned generation and demand response that would force them to be intelligent about how they plan, expand and maintain their networks.

I seem to be left with the notion that demand control would allow for an economical response to the very expensive peaking events that occur 100 or so hours every year. This is the main economic justification that I could see utilities responding to. Perhaps their desire for top-down control is partly based on the notion that they can force the system during these rare times that it is needed. They must not have much faith in the ability to mitigate these events with simple pricing. Everything else about the smart grid to them (lower costs to the consumer, incorporation of RE and DG, etc.) is rubbish and feel-good PR to them. Economically, it has to be about these peaking events, which can cost them a significant percent of their operating cost for just a few hours of operating time.

Not trusting the 'pricing' model is also in tune with the conservative beliefs of utilities. Imagine their fears about spending multi-millions on new metering only to have the whole thing not deliver when it comes to peaking event management.

Nonetheless, I think they are mistaken in this belief. Unfortunately, I don't see how it can really be adequately tested to really shake them of this fear.

As a side note, I also believe the the economy has driven down electricity demand so much that we can do lots of stupid stuff with the grid and it won't really matter too much. Until the economy revives and we find ourselves a day late and a Megawatt-hour short if we aren't careful.

Regulated utilities earn a return on the net physical assets employed to serve their customers. Contrary to your points above, the common complaint about utilities is their supposed tendency to "gold plate" their systems to increase their earning potential. Fuel cost and purchased power cost are expenses which pass through the utilities' books without markup.

Utility managements probably do not trust the pricing model, among other reasons, because they have virtually no experience with it. Their rates have always been regulated, typically by regulatory commissions which have drastically limited their pricing flexibility. I suspect most utility managements doubt that the regulators could be disabused of their most deeply held beliefs. Their experience with restructuring (frequently referred to erroneously as deregulation) would certainly tend to reinforce the utility managements' doubts in this regard.

If a utility must meet very sharp peaks, it must own or have access to sufficient generation to meet the peaks. If it owns the capacity, it is permitted to earn on its investment, at the same rate at which it earns on other generation assets, even if they operate very few hours each year. If it must purchase expensive power on peak, it merely passes the costs of that power through to its customers. Regrettably, most regulators have chosen to isolate customers at all levels from the extreme power price spikes, thus failing to enable the utilities to manage the spikes through real time pricing. That situation could be changed by the regulators, if they had the will to do so.

I strongly agree with Jack's point regarding customer verses utility discretion regarding peak shaving. Customers have and will continue to resist granting someone else control of their energy use decisions. Customers have been unwilling to invest in new, responsive appliances during "smart grid' demo projects, because they knew the projects were time limited and they could not be sure they would recover their investments. Customers have also limited their price responses in these demo projects because the regulators have typically limited their exposure to real time peak prices.

If regulators continue to insist that utilities treat customers like children, the customers will continue to respond like children. I believe the converse is also true. Regulators would be well advised to try Ronald Reagan's "trust, but verify" approach. They might be pleasantly surprised by the outcome.

Ed

The California ISO, at FERC's urging, is trying to make demand (response) look like a supply resource in its ability to bid into the wholesale market. That's not going to happen. Demand response exists in many parts of our economy, but asking customers to submit a price and quantity offer to avoid using electricity is as unnatural an act as compensating (actually bribing) them to do so.

I believe Smart Grid is a concept that was developed by Robert Galvin as part of his Galvin Initiative, for which Kurt Yeager, former CEO of EPRI, is the executive director and chief proponent. I think there are some useful technologies that can and should be adopted, with or without a catchy moniker to justify the investment. However anything on the customer side of the meter should be driven by customers, not by regulators and certainly not by utilities. I can envision consumer-oriented in-home control devices that are developed and sold by the likes of Apple. I can't see them being developed by the traditional utility players like Siemens, GE, Itron, etc.

A parallel track on the issues issues is as follows:

Following the lead given by James Carson, I posted a comment under the SmartGrid.com featured article Smart Grid Stimulus Bill: DOE Snubs IOUs and Meters. This is what I wrote:

I find the above discussion a productive one, that was enabled by a well written and timely article. The main barrier to the smart grid is the obsolete IOUs Framework with demand as an externality and supply side power system planning, operation and control. That framework served very well its useful purpose up to close to 1970.

The IOUs Framework is based on the business model of winning rate cases to the regulator for energy and transportation (T&D) sales. That Framework should remain for transportation only as the IOT Framework. The Smart Grid should enable business model innovations under competition in the open market to develop and integrate the resources of the demand side to power system planning, operation, and control.

I have written extensively in the Electricity Without Price Controls (EWPC) Blog, which emerge as a holistic Framework to replace the IOUs Framework. Please go to www(dot)energyblogs(dot)com(slash)ewpc to see the articles and posts.

The EWPC Framework divides the complex emergent whole power industry in two parts, which is the simplest wait to do it. One part is the open market on the value chain generation, retail, prosumer (a consumer that may produce). The other part is the regulated transporter (the T&D smart grid). The transporter’s compact will give IOTs the responsibility to transport in exchange for reasonable tolls. Distribution in fact will become indistinct from transmission.

I believe that the small grant size is well thought out. Like IBM with the PC development, IOUs need to set up independent units if they want to be funded and to stay in the game.

While under the IOUs Framework isolation will win over interoperability, under the EWPC Framework interoperability is about business model innovations competition for the federal retail market, by what I term Second Generation Retailers (search my blog for 2GR). Isolation thus becomes a losing proposition. Financiers’ will recognize the environment similar to that of the computer industry.

If the grid is to become trully smart, I suggest to offer input asap to the meeting organized by NIST (and EPRI) for the standards workshop coming on April 28-29, at the Hyatt Regency in Reston, Virginia. This is my firts input, which I already posted under the EWPC article On Cyber Spies Threats: Keep Public Wires Regulation and go for Energy Markets (where comments might also be posted:

Under Alex Yu Zheng’s, Smart Grid News.com, Blogging the Grid article Foreign Cyber-Spies Inject Spyware into U.S. Grid with Potential for Serious Damage, I posted the following comment:

Balancing regulation and markets by shifting away from the excessively unbalanced IOUs Framework, the maximum social benefit purpose can be aimed at by letting regulated Investor Owned Transporters (IOT), that replace IOUs, be responsible for the public grid (see my comment under Philip Bane’s article “Smart Grid Stimulus Bill: DOE Snubs IOUs and Meters”). As to the private grids, which are behind the (potentially smart) meters, security management should [be] one of the key market issues open to innovation.

A paradigm shift from the IOUs Framework to the EWPC Framework is the key for the emerging EWPC based EPAct (see also my comment under Jesse Berst’s blog " The Coming Paradigm Shift and How To Achieve It"). Standards development by EPRI and NIST should look deeper into these suggestions.

For more details, go to EWPC Blog at www(dot)energyblogs(dot)com(slash)ewpc

On the bright side since combined cycle Nat Gas plants are efficient and extremely responsive even though they have a large efficiency loss at low loads they are great mates for renewables etc. I am convinced in the long term Nat Gas will rise. Nat Gas is a great fuel and old coal plants can be converted to burn it with little more than a pipe, burners and boiler tuning. Even building new plants is affordable. Its innate usefulness will drive its consumption and price up until it is in its normal zone cheaper than oil higher than coal. My guess is gas will hover between $7-9 per mmbtu after the new wears off the News we have a lot of it. Coal prices may even drop a little but with India’s and China’s unquenchable thirst for cheap fuel I do not see any drop long term drop in mining or greenhouse gas production. My conjecture is that every utility in the country has feelers out for long term Nat Gas. If supplies are such that enough of them get long term gas at $7 or below plans for both coal and nuc plants will be scrapped and we will see another wave of combined cycle Nat Gas construction like in 2001-2003.

One last point since sanity has returned to crude prices I think is safe to say peak oil was and is a ridiculous concept. Oil is very useful fuel actually the most useful since can be used to produce distillates that are liquids at ambient temperatures. I think it is safe to say the demand would be dozens of times current levels if it were free. Its usefulness like all resources is limited basically by its price. Reduced availability due to exhausted supply is still simply availability and has been a part of human existence since the controlled use of fire. Oil will continue to be used where it has the most value. To me it means the sub-Saharan Africans can look forward to starvation and actually face increased starvation and wealthy countries like the US will face recessions as more funds are drained away until the next equilibrium point is reached. Whether that point is Nuclear, Renewable or whatever I have no idea whether is 5 years or 20 years away again I do not know but I do know lots of Nat Gas in the US is short term great news for the US and its neighbors and should not be ignored. Maybe here in the US we should use this little window the fates have provided to make solid plans and smart decisions rather than dipping billions in Elmer’s glue and throwing them around to see if any of it sticks to good spot. Sadly, the dollars and trucks loaded with glue are already lined up for the slinging to begin.

I will chance to predict the future of the Smart Grid. It will basically be sliding rates based on time of day and time of year. The big winners will be utilities, consultants and software vendors. The losers will be ratepayers and taxpayers. The plans will look a lot like the current plans that most utilities offer except they will be mandatory. All and all the off peak prices will be slightly cheaper 75% of current cost the peak periods will 200% of current with random critical periods 600% the shoulder hours will be at the current levels. What this means if one organizes one’s life around his/her electric bill they will save 10%. The vast majority will pay 25% or so more and the utilities will keep it as return on the investment in the Smart Grid Technology.

Your last paragraph describes quite closely the spread of mandatory regulated Time-Of-Use rates soon to roll out to all 5 million residential customers in Ontario as we all are being equipped with smart meters. The utility companies here are mostly distribution companies, and they were forced by our provincial government legislation to adopt smart meters for TOU rates. But the government would not pay for them with tax revenues, instead they allowed utilities to finance the smart meters by tacking on a monthly smart meter charge on everyone's bill, which was expected to pay off their infrastructure investment over 15 years. Trouble is most expect the new smart meters will need replacing within 10 years, since after all their service life is not expected to be anywhere near as long as the old electromechanical units. Other pressures will emerge too to force smart meter replacement to upgrade their software or hardware to handle any sort of Smart Grid applications, like HANs, etc.

The unfortunate part is customers in Ontario are being left out completely from participating in any Smart Grid plans. Any form of demand response using smart meters or Smart Grid is all being viewed as utility controlled, making it unappealing for consumer product companies like Apple or others to jump in with new products on the customer side of the meter. Google will find they will have a tough time implementing their plans to provide real-time power demand or real-time pricing information to residential customers without intimately working with utility companies, which means there will have to be some benefit (meaning money) for the utility companies before they allow Google work with their smart meter systems.

DOE process to grant funding on the Smart Grid seems to be on the opposite site of Ontario's goverment, sooner or later, 'dumb' grid as a one time big shot, as Bob explains. I say the DOE funding intent is not just 'smart,' they are wise.

Responding to James Carson's plead to keep the IOUs Framework in place, the EWPC Blog post Smart Grid: Can the U.S Waste Billions in Taxpayer Dollars? leads to show how DOE is trying to introduce succesive innovations to enable the 'smart' grid' via grants and how IOUs are trying to keep the 'dumb' grid in a one time big shot. I invite comments to it.

The introduction of the article says: "The question "Can the U.S Waste Billions in Taxpayer Dollars?" should be in the mind of every participant in the Smart Grid Interoperability Standards Interim Roadmap Workshop, that will be held at the Hyatt Regency at Reston Town Center, 1800 Presidents Street in Reston, Virginia. The workshop is open to the public and free of charge, after registering."

Tomorrow and the day after tomorow may have an impact of the real future of the Smart Grid in a roadmap of succesive innovations.

There is no such core problem. Minimum interoperation is required, as well as prudential regulations. Instead of IOUs based closed standards, as Bob endorsed, in the past, open standars are absolutely necessarary.

If you may, I like to see those figures in terms of GHGs, not just CO2. Apparently missing in the comparison (correct me if I am wrong) is that coal power plants can also be designed for combined cycle operation. If the coal plant is close to a city, Can it be part of a district energy redesign? On the other hand, coal plants have mercury impacts too.

You have your rights, which I strongly respect, not to worry about making earth living environment collapse; I understand that that collapse is similar to what happened in Easter Island under different circumstances. I may be wrong, but given the example of Easter Island, I think that global leaders have the responsibility to get the general population aware as soon as possible that the environmental collapse can not be taken with a wait and see attitude. So to meet the large reduction of GHG emissions as soon as possible, for those that have a right to a different understanding than you, Can we conclude that Nat gas is not the silver bullet either?

The US administration's "wish" is an 80% reduction in US GHG emissions by 2050, to "save the globe" from AGW. We all know that the US could not "save the globe", but that is obviously just an insignificant detail, which can be conveniently ignored.

UN FAO estimates that ~18% of global GHG emissions are emitted by domesticated animals. If we assume that meat remains a dietary staple, then no more fossil fuel emissions after 2050.

Therefore, you are correct that NG is not the "silver bullet". NG is not even acceptable as part of the solution, unless it is combined with 100% carbon capture. Of course, that is also true of coal and petroleum.

The future is hydro (existing), geothermal, solar, wind, wave power, OTEC, storage batteries, very long distance transmission, supplier or government controlled equipment service interruptions, brownouts and blackouts.

Fortunately, hydrogen/plug hybrid vehicles get infinite miles per gallon, using the common parlance, so we don't need to worry about transportation.

I add energy efficiency on the demand side and new green architecture and design of buildings. Those innovative buildings may result in net output towards the grid, becoming then as a whole one of the most important "energy" sources in the future. Unlike the IOUs Framework, which prefers the supply side, the EWPC Framework is well set to cover any mix of the development of the resources of supply side and the demand side.

For that reason, the long transition expected to a global clean energy (the U.S. is now taking the leadership) transformation will need to add customers with smart systems interfaces (not necessarily meter) organically. That is why it is important that innovation in retail business models be set for the federal market.

There may be also other sources in the making that a real smart grid will help enable under the EWPC based EPAct. So the way to go is EWPC.

petroleum - peak "any-day-now", reserve "?? 40 yrs"

Nat Gas - peak "20 yrs", reserve "?? 80 yrs"

Coal outside N America - peak "now", reserves "?? not very long"

Coal in N America - peak "??50 yrs", reserves "?? 200 yrs"

uranium - peak ?? nearby, reserves "?? depends on consumption (special case, as self-created energy can add to reserve by affording exploitation of very lowgrade resources, if allowed)"

Phosphorous fertilizer - peak past, reserves 80 yrs

Potasium fertilizer - peak "about now", reserves 110 yrs

Many exotic metals used in electronics - peak past, reserves "10 to 20 yrs"

Many metals used in normal manufacturing and construction - peak past, reserves - limits in sight

Uncontaminated freshwater - peak past, reserves 0, replentishes at lower rate than present usage.

Uncontaminated atmosphere other than GHG's - peak past, reserves 0

Uncontaminated atmosphere GHG's - peak past, reserves "?? 10 to 20 yrs"

Most technological fixes for these problems involve applying huge additional energy inputs to exploit very low-grade deposits not presently considered resources, but one must be an extreme optimist (with no children or plans for same) to read the above list and not get some level of frown.

For local generation that uses natural gas, such as the ecopower and some of the fuel cell products, there is incentive for some utilities to encourage this type of power generation.

Understandably utlities want to protect investments, but there needs to be a way for growth both in distributed and in better power plants. For undersized distributed energy, issues about right of ways and new, expensive power lines are mitigated. Each approach has its strengths.

Phil Morales Technical Writer / Web Developer / Designer http://www.marathonengine.com