Document ID: FERC-2009-0459-0004
Agency: ferc
Document Type: Rule
Title: Smart Grid Policy
Posted Date: 2009-07-27T04:00Z

[Federal Register: July 27, 2009 (Volume 74, Number 142)]
[Rules and Regulations]               
[Page 37097-37119]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27jy09-9]                         

[[Page 37097]]

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Part II

Department of Energy

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Federal Energy Regulatory Commission

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18 CFR Chapter I

Smart Grid Policy; Final Rule

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Chapter I

[Docket No. PL09-4-000]

 
Smart Grid Policy

Issued July 16, 2009.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Policy statement.

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SUMMARY: This Policy Statement provides guidance regarding the 
development of a smart grid for the nation's electric transmission 
system, focusing on the development of key standards to achieve 
interoperability and functionality of smart grid systems and devices. 
In response to the need for urgent action on potential challenges to 
the bulk-power system, in this Policy Statement the Commission provides 
additional guidance on standards to help to realize a smart grid. The 
Commission also adopts an Interim Rate Policy for the period until 
interoperability standards are adopted by the Commission, which will 
encourage investment in smart grid systems.

DATES: Effective Date: The Interim Rate Policy will become effective 
September 25, 2009.

FOR FURTHER INFORMATION CONTACT:
David Andrejcak, Office of Electric Reliability, 888 First Street, NE., 
Washington, DC 20426, (202) 502-6721, david.andrejcak@ferc.gov.
Elizabeth H. Arnold, Office of General Counsel, 888 First Street, NE., 
Washington, DC 20426, (202) 502-8818, elizabeth.arnold@ferc.gov.
Ray Palmer, Office of Energy Policy and Innovation, 888 First Street, 
NE., Washington, DC 20426, (202) 502-6569, ray.palmer@ferc.gov.
Dennis Reardon, Office of Energy Market Regulation, 888 First Street, 
NE., Washington, DC 20426, (202) 502-6719, dennis.reardon@ferc.gov.

SUPPLEMENTARY INFORMATION:

Table of Contents

                                                               Paragraph
                                                                 Nos.

I. Background...............................................           2
II. Discussion..............................................           9
    A. Jurisdictional Concerns..............................          12
    B. Development of Key Standards.........................          29
        1. System Security..................................          30
        2. Communication and Coordination Across Inter-               46
         System Interfaces..................................
        3. Wide-Area Situational Awareness..................          55
        4. Demand Response..................................          63
        5. Electric Storage.................................          78
        6. Electric Vehicles................................          83
        7. Additional Priorities Suggested by Commenters....          92
    C. Interim Rate Policy..................................          95
        1. Scope and Duration...............................          96
        2. Additional Showings..............................         109
        3. Incentives Under the Interim Rate Policy.........         131
            a. Single Issue Ratemaking......................         132
            b. Recovery of Stranded Costs for Legacy Systems         138
            c. Additional Incentive Rate Treatments.........         142
        4. Potential Interplay With Department of Energy             150
         Funding Grants.....................................
III. Document Availability..................................         157
IV. Information Collection Statement........................         160
V. Effective Date and Congressional Notification............         169
Appendix A List of Commenters and Short Names...............

Before Commissioners: Jon Wellinghoff, Chairman; Suedeen G. Kelly, 
Marc Spitzer, and Philip D. Moeller.

Policy Statement

Issued July 16, 2009.
    1. On March 19, 2009, the Commission issued a Proposed Policy 
Statement and Action Plan to guide the development of key standards for 
smart grid devices and systems.\1\ Many companies in the electricity 
industry are designing and deploying such devices and systems with the 
objective of achieving greater interoperability and functionality of 
the nation's electric transmission grid. In the Proposed Policy 
Statement, the Commission also put forth the notion of an interim rate 
policy to guide rate recovery while interoperability standards are 
adopted (Interim Rate Policy). Comments were invited on all aspects of 
the Proposed Policy Statement. On May 19, 2009, the Commission issued a 
notice requesting supplemental comments on one additional feature of 
the Interim Rate Policy.\2\
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    \1\ Smart Grid Policy, 126 FERC ] 61,253 (2009) (Proposed Policy 
Statement).
    \2\ Smart Grid Policy, 127 FERC ] 61,139 (2009) (Notice 
Requesting Supplemental Comments).
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    This Policy Statement generally adopts the proposals enumerated in 
the Proposed Policy Statement and provides additional guidance for 
standards that will help realize a smart grid.

I. Background

    2. As the Commission explained in the Proposed Policy Statement, 
the Commission's jurisdiction over the transmission system derives from 
provisions of the Federal Power Act (FPA) relating to the transmission 
of electric energy in interstate commerce by public utilities, and to 
the reliable operation of the bulk-power system.\3\ An additional 
responsibility was assigned by the Energy Independence and Security Act 
of 2007 (EISA) \4\ directing the Commission to initiate a rulemaking 
proceeding to adopt standards and protocols related to smart grid 
functionality and interoperability.\5\
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    \3\ 16 U.S.C. 824, 824o (2006).
    \4\ Pub. L. 110-140, 121 Stat. 1492 (2007).
    \5\ EISA section 1305(d), to be codified at 15 U.S.C. 17385(d).
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    3. EISA lays out the policy of the United States with regard to 
modernization of the nation's electricity transmission and distribution 
system in order to maintain a reliable and secure electricity 
infrastructure that can meet future demand growth and achieve a

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number of goals characterizing a smart grid.\6\ EISA also directs the 
National Institute of Standards and Technology (the Institute) to 
coordinate the development of a framework to achieve interoperability 
of smart grid devices and systems, including protocols and model 
standards for information management.\7\ The Commission explained in 
the Proposed Policy Statement that, in order to achieve the smart grid 
characteristics and functions described in EISA, interoperability of 
smart grid equipment will be essential.\8\
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    \6\ EISA section 1301, to be codified at 15 U.S.C. 17381. Among 
these goals and characteristics are deployment or realization of: 
Digital information and technology to improve reliability, security 
and efficiency; cybersecurity; distributed resources and generation; 
demand response; ``smart'' technologies for optimal grid operations 
and distribution automation; ``smart'' appliances; electricity 
storage; consumer information and control; and communication and 
interoperability standards.
    \7\ EISA section 1305(a), to be codified at 15 U.S.C. 17385(a). 
In this Policy Statement, we refer to the Institute's process as 
both the coordination and the development of standards. The 
Institute's primary function with regard to smart grid is to be a 
coordinator for the variety of smart grid standards development 
initiatives.
    \8\ Interoperability is described as exchanging meaningful 
information between two or more systems and achieving an agreed 
expectation for the response to the information exchange while 
maintaining reliability, accuracy, and security. See GridWise 
Architecture Council, Interoperability Path Forward Whitepaper, 
http://www.gridwiseac.org/pdfs/interoperability_path_whitepaper_
v1_0.pdf.
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    4. Once the Commission is satisfied that the Institute's work has 
led to ``sufficient consensus'' on interoperability standards, EISA 
directs the Commission to ``institute a rulemaking proceeding to adopt 
such standards and protocols as may be necessary to insure smart-grid 
functionality and interoperability in interstate transmission of 
electric power, and regional and wholesale electricity markets.'' \9\ 
In the Proposed Policy Statement, the Commission described some of the 
Institute's efforts to date, as well as its projected work, to develop 
a framework for interoperability standards, and sought comment on the 
most effective and efficient ways for the Commission and the Institute 
to interact in the ongoing standards development processes.
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    \9\ EISA section 1305(d).
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    5. In the Proposed Policy Statement, the Commission identified 
several potential challenges to the reliable operation of the 
Commission-jurisdictional bulk-power system and the smart grid 
functions and characteristics that could help address those challenges. 
The major challenges identified include: Existing cybersecurity issues 
\10\; issues associated with changes to the nation's generation 
mix,\11\ including an increasing reliance on variable renewable 
generation resources;\12\ and issues that could arise with increased 
and more variable electricity loads associated with transportation 
technology.\13\ In addition to these challenges, we incorporated the 
Institute's assessment that there is an overarching need for 
standardization of communication and coordination across inter-system 
interfaces.\14\
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    \10\ Proposed Policy Statement, 126 FERC ] 61,253 at P 13.
    \11\ On May 13, 2009, the Commission announced that it had 
commissioned the Lawrence Berkeley National Laboratory to use 
frequency response to help assess the potential for the reliable 
integration of wind and other renewable energy resources into the 
bulk-power system. The frequency study has three main objectives: 
(1) Determining if frequency response is an appropriate metric to 
assess the reliability effects of integrating renewables, (2) using 
the resulting metric to assess the reliability impact of various 
levels of renewables on the grid, and (3) identifying what further 
work and studies are necessary to quantify and mitigate any negative 
effects on reliability associated with the integration of 
renewables.
    \12\ Proposed Policy Statement, 126 FERC ] 61,253 at P 17-20.
    \13\ Id. P 21-22.
    \14\ National Institute of Standards and Technology, Smart Grid 
Issues Summary (2009), http://collaborate.nist.gov/twiki-sggrid/pub/
SmartGrid/TnD/Draft_NIST_Smart_Grid_Issues_Summary_
10March2009.pdf, at 1 and 4-5.
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    6. In response to the need for urgent action on these potential 
challenges to the bulk-power system, the Commission identified and 
asked for comments on several areas it proposed as deserving high 
priority in the smart grid interoperability standards development 
process, including two cross-cutting issues (cybersecurity and physical 
security to protect equipment that can provide access to smart grid 
operations, and a common information framework), and four key grid 
functionalities (wide-area situational awareness, demand response, 
electric storage, and electric transportation). The Commission also 
proposed the Interim Rate Policy to encourage investment in smart grid 
technologies intended to address potential challenges to the bulk-power 
system through the advancement of efficiency, security, reliability, 
and interoperability. The Interim Rate Policy provides that smart grid 
investments that demonstrate system security and compliance with 
Commission-approved Reliability Standards,\15\ the ability to be 
upgraded, and other specified criteria will be eligible for timely rate 
recovery and other rate treatments.
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    \15\ Adopted under FPA section 215, 16 U.S.C. 824o.
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    7. The May 19 Notice Requesting Supplemental Comments sought 
additional input regarding potential actions that the Commission could 
take to insure that public utilities may qualify for awards under 
certain Department of Energy funding programs related to jurisdictional 
facilities. On the same day of the issuance of our Proposed Policy 
Statement, the Department of Energy announced $2.4 billion for electric 
vehicle demonstration and deployment projects.\16\ On April 18, the 
Department of Energy announced another $615 million for targeted 
demonstrations programs; one of three targets is ``utility-scale energy 
storage demonstrations.'' \17\
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    \16\ See March 19, 2009 Department of Energy news release, 
President Obama Announces $2.4 Billion for Electric Vehicles, http:/
/apps1.eere.energy.gov/news/daily.cfm/hp_news_id=159. In this 
Policy Statement, ``electric vehicle'' refers to a vehicle that 
requires periodic re-charging of its propulsion battery from the 
electric grid; such a vehicle may or may not also be a ``hybrid,'' 
additionally capable of re-charging with a fuel-driven generator or 
by other mechanical means.
    \17\ See April 16, 2009 Department of Energy news release, Vice 
President Biden Outlines Funding for Smart Grid Initiatives, http://
www.energy.gov/news2009/7282.htm.
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    8. The Commission notes from its review of a recent report that the 
Institute is now using the Proposed Policy Statement to coordinate 
development of interoperability standards.\18\
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    \18\ Don Von Dollen, Report to NIST on the Smart Grid 
Interoperability Standards Roadmap, Electric Power Research 
Institute (June 17, 2009) (Roadmap Report). See also Press Release, 
Electric Power Research Institute (June 17, 2009). For example, 
Chapter four reports on the collaborative work of the Institute, the 
contractor, and its subcontractors, and attendees at two conferences 
to develop use cases, interfaces, and requirements for the 
Commission's four key grid functionalities identified in the 
Proposed Policy Statement: Wide-area situational awareness, demand 
response, electric storage, and electric transportation. Two 
additional priority functionalities have also been identified that 
relate to those proposed by the Commission: AMI systems that relate 
to the need for metering standards are identified in the demand 
response discussion of the Roadmap Report and distribution grid 
management (related to distributed energy storage) is identified in 
both the electric storage and electric transportation discussions. 
In addition, Chapter five of the report is devoted to the cross-
cutting issue of cybersecurity identified by the Commission. Chapter 
six addresses the Commission's second cross-cutting issue of a 
prioritized need for common semantic models and other standardized 
communication elements.
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II. Discussion

    9. Approximately 70 sets of comments were submitted from a broad 
array of interested parties.\19\ In general, commenters support the 
Proposed Policy Statement, including the establishment of key 
priorities \20\

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identified therein, and the need for focused leadership over the 
process going forward. There is a greater diversity of comments on the 
Interim Rate Policy. Sixteen supplemental comments were submitted, 
exhibiting a split of opinion regarding whether to offer special 
procedures for rate recovery filings for utilities seeking funding 
through certain Department of Energy programs.
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    \19\ An alphabetical listing of all commenters and abbreviations 
for each is found at the end of this document at Appendix A.
    \20\ An area considered to be a ``key priority'' is proposed as 
the first level of work to be accomplished in the interoperability 
standards-setting process. Proposed Policy Statement, 126 FERC ] 
61,253 at P 27.
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    10. In this Policy Statement, the Commission adopts the key 
priorities for standards development that were identified in the 
Proposed Policy Statement. The Commission also adopts the Interim Rate 
Policy, as discussed below, and finds that there is no need for special 
procedures associated with rate recovery filings for projects that are 
also receiving Department of Energy grant funding.
    11. A number of entities also comment on the standards development 
process and the Commission's interactions with the Institute and other 
bodies interested in the development of interoperability standards. The 
Commission will address these topics separately.

A. Jurisdictional Concerns

    12. In the Proposed Policy Statement, the Commission noted that its 
interest and authority in the area of smart grid derive from its 
authority over the rates, terms and conditions of transmission and 
wholesale sales in interstate commerce and its responsibility for 
Reliability Standards for the bulk-power system, as well as from 
EISA.\21\ Specifically, the Commission has jurisdiction over the 
transmission of electric energy in interstate commerce by public 
utilities pursuant to FPA section 201, and over the reliable operation 
of the bulk-power system in most of the nation under FPA section 
215.\22\ Section 1305(d) of EISA directs the Commission to initiate 
rulemaking proceedings to adopt such standards and protocols as may be 
necessary to insure smart grid functionality and interoperability in 
interstate transmission of electric power, and in regional and 
wholesale electricity markets.\23\
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    \21\ Id. P 1.
    \22\ 16 U.S.C. 824, 824o.
    \23\ EISA section 1305(d), to be codified at 15 U.S.C. 17385(d).
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Comments
    13. Many commenters note a tension that the Proposed Policy 
Statement raises between Federal jurisdiction and State jurisdiction 
and urge the Commission to clarify jurisdictional boundaries. Questions 
center on both standards adoption and applicability and whether 
deployed technology will be subject to State or Federal rate authority.
    14. A number of commenters maintain that EISA does not alter the 
fundamental parameters of the Commission's authority.\24\ State 
commissions, other State authorities, and several utilities remark that 
the Commission should not encroach on traditional State 
jurisdiction.\25\ The Michigan Commission maintains that implementing 
smart grid functionality and interoperability at the distribution level 
or in retail sales should be left to the states. Several entities are 
concerned by statements in the Proposed Policy Statement that, to those 
parties, indicate that the Commission may be extending its 
jurisdictional scope. In particular, commenters take issue with the 
suggestions that the potential reliability impacts of electric vehicles 
may afford the Commission some authority over distribution facilities, 
and certain devices related to the distribution system are eligible for 
cost recovery in wholesale rates because of some tangential impact on 
bulk-power operations due to interoperability issues.\26\
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    \24\ See, e.g., Michigan Commission Comments at 6-7, Maryland 
Counsel Comments at 7-8, Ohio Commission Comments at 4, and Ohio 
Partners Comments at 2-3.
    \25\ See, e.g., California Commission Comments at 6, Ohio 
Commission Comments at 5-7, Massachusetts Attorney General Comments 
at 4-5, and SDG&E Comments at 22-23.
    \26\ Michigan Commission Comments at 8 and Maryland Counsel 
Comments at 5.
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    15. The Ohio Commission comments that, since interoperability 
standards encompass areas that are outside of the Commission's 
jurisdiction, the Commission should support the development of model 
standards through the Institute's process, resolving any impasses 
through the NARUC/FERC Smart Grid Collaborative, and that the 
Commission and states should adopt model standards to be applied within 
areas subject to their respective jurisdictions. In addition, states 
should be responsible for ensuring compliance with Commission-imposed 
guidelines and standards.\27\
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    \27\ Ohio Commission Comments at 5-7.
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    16. The Ohio Commission and North Carolina Agencies note that not 
all states will want the same smart grid functionality deployed in the 
same manner, and comment that standards should accommodate different 
rate structures and policies. In contrast, NEMA and CURRENT appreciate 
national standardization, noting that the lack of a consistent national 
standard for interconnection has inhibited the development of 
distributed generation. NEMA and CURRENT urge the Commission to pursue 
nationwide standardization and encourage State commissions to develop 
policies akin to those in the Proposed Policy Statement. The Kansas 
Commission asks whether the Commission is suggesting that the Federal 
government should implement guidelines governing the procedures for 
charging electric vehicles at night as one method for storing 
electricity.\28\
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    \28\ Kansas Commission Comments at 5-6.
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    17. Various commenters request clarification or guidance in certain 
areas, notably (1) whether the Commission intends to implement 
mandatory protocols ``in areas that are traditionally under State 
jurisdiction, such as the distribution network and behind-the-meter 
installations,'' \29\ (2) how the Commission intends to determine which 
portions of a smart grid are part of the bulk-power system and those 
which are part of the distribution system,\30\ (3) whether the 
Commission has the authority to specify physical layer standards \31\ 
while preserving State ratemaking authority,\32\ and (4) whether the 
Commission has the authority to mandate a nationwide meter 
communications protocol.\33\
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    \29\ California Commission Comments at 6-7.
    \30\ Id. at 11.
    \31\ NEMA makes several references to physical connections and 
standards in its comments, including interconnection for distributed 
generation, and applications for intelligent customer energy 
management equipment. It is not clear in NEMA's comments whether 
this reference also applies to meters.
    \32\ NEMA Comments at 6.
    \33\ Id. at 7.
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    18. Many commenters ask the Commission to clarify the boundaries 
between Federal and State jurisdiction for rate recovery purposes. 
NARUC suggests that the approach should be to examine the location of 
the deployed technology. If such a technology resides on a Commission-
jurisdictional line, then it should be regulated by this Commission. If 
it resides on a line regulated by states, then it should be subject to 
State oversight.\34\ EEI highlights the need for this clarification, 
noting that specific smart grid equipment might be installed on either 
or both transmission and distribution facilities.\35\ Indianapolis P&L 
asserts that the Commission should apply the seven factor test, set 
forth in Order No.

[[Page 37101]]

888,\36\ to delineate between Federal and State activities.\37\
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    \34\ NARUC Comments at 16, Maryland Counsel Comments at 5, and 
Springfield Comments at 10-11.
    \35\ EEI Comments at 14-15.
    \36\ Promoting Wholesale Competition Through Open Access Non-
Discriminatory Transmission Services by Public Utilities; Recovery 
of Stranded Costs by Public Utilities and Transmitting Utilities, 
Order No. 888, FERC Stats. & Regs. ] 31,036, at 31,771 and 31,981 
(1996), order on reh'g, Order No. 888-A, FERC Stats. & Regs. ] 
31,048, order on reh'g, Order No. 888-B, 81 FERC ] 61,248 (1997), 
order on reh'g, Order No. 888-C, 82 FERC ] 61,046 (1998), aff'd in 
relevant part sub nom. Transmission Access Policy Study Group v. 
FERC, 225 F.3d 667 (D.C. Cir. 2000), aff'd sub nom. New York v. 
FERC, 535 U.S. 1 (2002).
    \37\ Indianapolis P&L Comments at 5-6.
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    19. NARUC is also concerned that the Commission's policies not 
allow double cost recovery, or allow Commission-jurisdictional entities 
to ``bootstrap cost recovery for projects implemented within State 
jurisdiction.'' \38\ The California Commission asserts that the 
Commission should acknowledge that State commissions are in the best 
position to address concerns as they pertain to retail customers and 
ratepayers.\39\
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    \38\ NARUC Comments at 13.
    \39\ California Commission Comments at 4, 12.
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    20. On the other hand, Ohio Commission states that cost recovery 
for the initial deployment of a demand response program should be at 
the State level. However, if such programs require later upgrading or 
replacement in order to meet model demand response standards approved 
by this Commission, then Ohio Commission argues that the associated 
costs should be recovered on a socialized, national level in 
Commission-jurisdictional rates.\40\
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    \40\ Ohio Commission Comments at 1, 10.
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    21. Finally, a number of entities encourage the Commission to work 
together with the states, and in particular with the NARUC/FERC Smart 
Grid Collaborative, to sort out jurisdictional boundaries. Maryland 
Counsel and Ohio Partners comment that ongoing dialogues should include 
consumer advocacy organizations.
Commission Determination
    22. The Commission agrees with those commenters who state that EISA 
does not alter the FPA's jurisdictional boundaries between Federal and 
State regulation over the rates, terms, and conditions of transmission 
service and sales of electricity. EISA does not modify any of the 
provisions of the FPA. Nevertheless, EISA does give the Commission new 
responsibilities for the adoption of standards needed to insure smart 
grid functionality and interoperability. The legislation specifically 
directs the Commission to institute rulemaking proceedings to adopt 
standards necessary to insure ``functionality and interoperability in 
interstate transmission of electric power, and regional and wholesale 
electricity markets.'' \41\ The Commission understands this mandate to 
mean that the Commission has the authority to adopt a standard that 
will be applicable to all electric power facilities and devices with 
smart grid features, including those at the local distribution level 
and those used directly by retail customers so long as the standard is 
necessary for the purpose just stated.\42\ We reach this conclusion 
because Congress does not exclude from the scope of EISA 1305(d) 
facilities used in local distribution, or otherwise limit Commission 
authority to approve standards. Further, other provisions in EISA 
indicate that the smart grid interoperability framework is intended to 
include all elements of the grid, including communications with the 
ultimate consumer.\43\ EISA does not identify any segment of the 
interoperability framework that is not within the scope of standards to 
be promulgated. Accordingly, the Commission finds that EISA grants the 
Commission the authority to adopt smart grid standards--such as meter 
communications protocols or standards--that affect all facilities, 
including those that relate to distribution facilities and devices 
deployed at the distribution level, if the Commission finds that such 
standards are necessary for smart grid functionality and 
interoperability in interstate transmission of electric power, and in 
regional and wholesale electricity markets.
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    \41\ EISA section 1301 and section 1305(d).
    \42\ For example, two-way communications are a distinguishing 
characteristic of smart grid devices on both the transmission and 
distribution systems. This two-way communications capability is 
essential to the smart grid vision of interoperability, allowing the 
transmission and distribution systems to communicate with each 
other. They also affect the security and functionality of each 
other.
    \43\ See, e.g., EISA section 1301 and section 1305(a) (stating 
that the framework should ``enable all electric resources, including 
demand-side resources, to contribute to an efficient, reliable 
electricity network'') and section 1305(b).
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    23. EISA, however, does not make any standards mandatory and does 
not give the Commission authority to make or enforce any such 
standards. Under current law, the Commission's authority, if any, to 
make smart grid standards mandatory must derive from the FPA. 
Similarly, its authority to allow rate recovery of smart grid costs 
must derive from the FPA. The authority to adopt standards under EISA 
does not change the scope of the Commission's ratemaking or reliability 
jurisdiction, as many commenters note.
    24. In order to determine whether particular facilities are subject 
to State or Federal jurisdiction for purposes of rate recovery, 
interested parties should refer to Commission precedent for 
guidance.\44\ The Commission will evaluate particular facilities and 
projects on a case-by-case basis. In response to commenters' concerns, 
we recognize that it would be inappropriate for a utility to recover 
the same costs for a smart grid project twice, through State-approved 
retail rates and again in a proceeding before this Commission.
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    \44\ See, e.g., Detroit Edison Co., 95 FERC ] 61,415 (2001), 
order on reh'g, 96 FERC ] 61,309 (2001). ``[T]o the extent that any 
facilities, regardless of their original nominal classification, in 
fact, prove to be used by public utilities to provide transmission 
service in interstate commerce in order to deliver power and energy 
to wholesale purchasers, such facilities are subject to this 
Commission's jurisdiction and review.'' Id., 95 FERC ] 61,415, at 
62,535. Accord, Northeast Utilities Service Co., 107 FERC ] 61,246, 
at P 22 (2004).
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    25. As the EISA mandate to adopt interoperability standards does 
not afford the Commission new economic regulatory authority over local 
distribution facilities themselves,\45\ and does not provide any 
authority or directive to mandate standards, the Commission does not 
interpret EISA to allow it to direct states to implement any particular 
retail customer policies or programs. To the extent the Commission does 
adopt smart grid standards related to facilities outside the 
Commission's jurisdiction under the FPA, we agree with the Ohio 
Commission that states can insure compliance with any standards they 
deem applicable to their jurisdictions.
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    \45\ Similarly, the Commission's previous actions approving 
proposed North American Electric Reliability Corporation (NERC) 
reliability standards applicable to distribution providers and load 
serving entities to maintain the reliability and integrity of the 
bulk-power system did not, in and of themselves, confer Commission 
rate jurisdiction over those entities' local distribution 
facilities.
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    26. In response to the question posed by the Kansas Commission 
regarding whether the Federal government should have guidelines 
governing the procedures for charging electric vehicles at night as one 
method for storing electricity, the Commission does not intend to issue 
policy guidelines for storing electric power by charging electric 
vehicles during off-peak load periods. Nevertheless, if the Institute's 
process results in a smart grid interoperability standard related to 
storing electric power by charging electric vehicles, the Commission 
would consider adoption of such a standard pursuant to EISA section 
1305(d).
    27. The Commission recognizes that states have an interest in the

[[Page 37102]]

functionalities of smart grid technologies, as suggested by North 
Carolina Agencies and the Ohio Commission, and we encourage states to 
actively participate in the ongoing discussions being organized and 
facilitated by the Institute to insure that their perspectives are 
represented. We do not believe that Commission adoption of national 
standards for smart grid technologies should interfere with a State's 
ability to adopt whatever advanced metering or demand response program 
it chooses. Nor will Commission adoption of national standards affect 
the existing statutory framework for wholesale and retail pricing. 
Interoperability standards should be designed flexibly enough to 
support alternative programs and pricing policies being considered by a 
particular State. Indeed, national standards adopted by the Commission 
should enhance, not limit, the policy choices available to each State.
    28. We believe that it is appropriate for the Commission to have a 
role in determining key priorities in the interoperability standards 
development process. The Commission's leadership in this arena will 
help to expedite the development of functionalities that are important 
to Federal energy policy (e.g., wide-area situational awareness to 
improve the reliability of the transmission grid) as well as to support 
programs that have emerged in many states (e.g., integrating renewable 
generation to permit utilities to meet State-mandated renewable 
portfolio requirements). We see great benefit from collaborating 
closely with states regarding flexibility in smart grid standards and 
adapting to new technologies, and we expect to work with the states to 
pursue these topics through the NARUC/FERC Smart Grid Collaborative.

B. Development of Key Standards

    29. The purpose of this Policy Statement, among other things, is to 
prioritize the development of key interoperability standards to provide 
a foundation for the development of many other standards. The Proposed 
Policy Statement identified and requested comment on several key 
priorities the Commission believed were necessary to address existing 
and emerging challenges to the operation of the bulk-power system. 
These challenges included existing cybersecurity issues, large-scale 
changes in generation mix and capabilities, and large potential new 
load from electric vehicles. The proposed key priorities for standards 
development included two cross-cutting issues, system security and 
inter-system communication, and four key grid functionalities: (1) 
Wide-area situational awareness, (2) demand response, (3) electric 
storage, and (4) electric transportation.\46\ Each of these topics is 
discussed in detail in the following sections. The Commission urges the 
Institute and interested parties to continue to focus their efforts on 
these key priorities first in order to achieve interoperability in a 
timely manner.
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    \46\ Proposed Policy Statement, 126 FERC ] 61,253 at P 28.
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1. System Security
    30. As explained below, the Commission adopts its Proposed Policy 
Statement position that cybersecurity is essential to the operation of 
the smart grid and that the development of cybersecurity standards is a 
key priority. Cybersecurity and physical security are ongoing concerns 
for both the Commission and the electricity industry and have received 
heightened attention as part of the creation of recent mandatory and 
enforceable Federal standards. We believe that implementation of smart 
grid technology, which is designed to improve communication, 
coordination, and interoperability, will require added attention to 
cybersecurity standards.
    31. To date, eight mandatory cybersecurity and physical critical 
infrastructure protection Reliability Standards (CIPS) have been 
approved by the Commission pursuant to section 215 of the FPA. The fact 
that a smart grid would permit two-way communication between the 
traditionally regulated components of the electric system and a large 
number of smart grid devices expected to be located beyond the 
conventional boundaries of regulated entities suggests that 
cybersecurity standards require special attention.
    32. The Commission sought comment regarding whether cybersecurity 
should be considered a cross-cutting issue affecting interoperability 
that must be included in smart grid standards.\47\ The Commission also 
proposed harmonizing cybersecurity and Reliability Standards as a 
precondition to the adoption of smart grid standards. The Commission 
further proposed to advise the Institute to undertake the necessary 
steps to assure that each standard and protocol that is developed as 
part of the Institute's interoperability framework is consistent with 
the overarching cybersecurity and reliability mandates of the EISA as 
well as existing Reliability Standards approved by the Commission 
pursuant to section 215 of the FPA.
---------------------------------------------------------------------------

    \47\ Id. P 12.
---------------------------------------------------------------------------

Comments
    33. Many commenters support system security as a priority.\48\ For 
instance, APPA states that security-related concerns should be given 
the highest priority and that they should be harmonized with the NERC 
CIPS standards to avoid conflicts during the large-scale deployment of 
smart grid installations, while ITC Companies assert that cybersecurity 
is of paramount importance for the development of a smart grid.\49\ 
ELCON recommends that the Commission use a ``measured approach to smart 
grid deployment'' so that relevant agencies and standards development 
organizations have time to overcome cybersecurity related technical 
issues.\50\
---------------------------------------------------------------------------

    \48\ NARUC Comments at 14, EEI Comments at 6, 11, NERC Comments 
at 10, and ITC Comments at 6.
    \49\ APPA Comments at 12 and ITC Companies Comments at 5-6.
    \50\ ELCON Comments at 2.
---------------------------------------------------------------------------

    34. Some entities are concerned about whether there will be 
sufficient coordination among the Institute and other relevant Federal 
and State agencies, and whether there will be a broader application of 
Federal Reliability Standards on distribution facilities.\51\ While 
several entities state that an open connectivity protocol should be 
developed through the Institute's standards coordination process to 
insure interoperability of cyber-secure smart grid components, some 
also support its development through a Commission-approved Reliability 
Standard. Other entities assert that secure protocols already exist and 
are available for adoption.\52\
---------------------------------------------------------------------------

    \51\ Michigan Commission Comments at 5-6, GridWise Alliance 
Comments at 9-10, and National Grid Comments at 4.
    \52\ ITC Companies Comments at 5-6 and PSEG Comments at 6-8.
---------------------------------------------------------------------------

    35. On the matter of coordination with the Institute, EEI points 
out that cybersecurity should be addressed early on in the development 
and manufacturing process and that smart grid products should undergo 
thorough interoperability and cybersecurity testing and certification 
at all levels prior to installation and use by independent firms that 
have been accredited by the Institute.\53\ NERC agrees that 
cybersecurity for smart grid technologies should be a top priority and 
advocates close coordination with the Institute to avoid jurisdictional 
overlaps. NERC recommends adoption of Commission policies to encourage 
the Institute to use its role, as the smart grid

[[Page 37103]]

standards proponent and coordinator, to build cybersecurity protections 
into standards that affect the full span of smart grid systems and 
devices, such as the distribution system, utilities' business systems, 
customer appliances, and information technology systems, with an eye 
towards aggregated impacts on the bulk-power system.\54\
---------------------------------------------------------------------------

    \53\ EEI Comments at 7.
    \54\ NERC Comments at 11-12.
---------------------------------------------------------------------------

    36. The Michigan Commission counsels that the Commission should 
avoid being overly prescriptive in its standards until the Institute's 
process is complete and should undertake a ``bottom up'' collaborative 
process that includes the States, standards development organizations 
and other private actors to identify, up front, the reliability and 
security considerations that smart grid technologies must address while 
respecting the traditional statutory distinctions between state and 
Federal jurisdiction over electricity.\55\ NERC warns that the possible 
aggregate effects of smart grid devices that reach into the 
distribution system can have substantial impact on the security of the 
bulk-power system.\56\
---------------------------------------------------------------------------

    \55\ Michigan Commission Comments at 5-6.
    \56\ Id. at 11-12, 15.
---------------------------------------------------------------------------

    37. With respect to sufficient specificity in the Proposed Policy 
Statement, CPower asserts that the Commission's objective should be to 
bar only significant gaps in cybersecurity.\57\ ELCON suggests that 
more consistency and standardization are required with respect to 
authentication standards, physical protection standards, and the impact 
to the bulk-power system. GWAC argues that the Proposed Policy 
Statement should be expanded to address system architectures, define 
the classes of security requirements, and include risk management 
aspects, such as costs and potential consequences, instead of directing 
policy towards low-level details.\58\ B-D Research contends that the 
definition of cybersecurity must be expanded to include matters such as 
(1) non-disruptive events, (2) unauthorized access to, or modification 
of, a critical system, (3) information leakage, and (4) system 
compromise.\59\ E.ON offers that existing cybersecurity standards 
should not serve as constraints on the adoption of improved and 
potentially more secure technologies.\60\
---------------------------------------------------------------------------

    \57\ CPower Comments at 3.
    \58\ GWAC Comments at 13-15, 29-31.
    \59\ B-D Research Comments at 1-4.
    \60\ E.ON Comments at 4-6.
---------------------------------------------------------------------------

    38. The Ohio Commission requests that the Commission clarify its 
neutrality towards specific configurations and/or technology and that 
the common information model should not be too formulaic and thereby 
provide easy opportunities to defeat the cybersecurity standards.\61\ 
The California Commission suggests that standards should protect the 
grid from inadvertent and direct cyber attacks while approved 
technologies should have the ability to: (1) Withstand direct cyber 
attacks, (2) maintain resiliency in times of extreme stress and 
congestion, and (3) automatically (or intelligently) respond to adverse 
system conditions as they occur.\62\
---------------------------------------------------------------------------

    \61\ Ohio Commission Comments at 11-12.
    \62\ California Commission Comments at 7.
---------------------------------------------------------------------------

    39. On the matter of Commission-approved Reliability Standards, 
Southern contends that the Commission should confirm that smart grid 
installations do not automatically create mandatory Reliability 
Standard compliance obligations and that they do not automatically 
constitute critical cyber assets. In its view, smart grid technologies 
and applications should be considered critical cyber assets only when 
they would be designated as such under the requirements of Commission-
approved CIPS Reliability Standard CIP-002.\63\ NRECA suggests that a 
number of NERC Reliability Standards may need to be developed or 
revised concurrently with the implementation of smart grid technology.
---------------------------------------------------------------------------

    \63\ Southern Comments at 8-9.
---------------------------------------------------------------------------

Commission Determination
    40. The Commission adopts its proposed policy position that the 
development of cybersecurity standards is a key priority in protecting 
the electricity grid. The possibility that an adversary could access 
any of potentially millions of smart grid devices and use this access 
to disrupt the proper functioning of the bulk-power system creates new 
challenges for the operation of the nation's electricity grid. These 
challenges are a natural consequence of the extensive communications 
network comprising the smart grid. Because cybersecurity becomes a 
concern whenever one system communicates with another, it is important 
to focus from the outset on cybersecurity as an essential feature of 
the design of interoperability standards. There is strong support for 
this focus from the commenters.
    41. Accordingly, consistent with our cybersecurity mandates under 
EISA, the Commission will require a demonstration of sufficient 
cybersecurity protections in proposed smart grid standards to be 
considered in a rulemaking proceeding under EISA, including, where 
appropriate, a proposed smart grid standard applicable to local 
distribution-related components of smart grid. Specifically, there must 
be a demonstration that a proposed smart grid standard: (1) Directly 
incorporates cybersecurity protection provisions, or (2) incorporates 
cybersecurity protection provisions from other smart grid standards or 
electric Reliability Standards that are submitted to the Commission 
concurrently, are already pending before the Commission, or have 
previously been adopted or approved by the Commission under EISA or 
section 215 of the FPA, respectively, provide cybersecurity protection 
for the electric power system for the proposed standard.
    42. The Commission does not intend to preempt the development and 
implementation of an interoperability smart grid framework with the 
prioritization of cybersecurity and physical security. On the contrary, 
given our reliability and security oversight mandates under EISA and 
FPA section 215, we are attempting to promote and accelerate 
development and implementation of cybersecurity elements that are 
foundational to the smart grid, and which will also promote maintenance 
of the integrity and reliability of the underlying bulk-power system. 
Clearly, interoperability standards must support, and not conflict 
with, critical efforts to improve the cybersecurity of electric power 
systems.
    43. As noted, many of the commenters request collaboration between 
the Institute and NERC on the development of smart grid standards. The 
Commission agrees with this approach and encourages NERC, as the 
Electric Reliability Organization certified by the Commission pursuant 
to FPA section 215, along with the states and other Federal agencies, 
to collaborate with the Institute in developing its interoperability 
framework. We expect that NERC will monitor the compatibility of the 
smart grid standards with the Commission-approved CIPS standards and 
help identify any gaps or inconsistencies that are left unaddressed. To 
the extent necessary, the Commission would direct NERC to submit to the 
Commission a new or modified Reliability Standard as necessary or 
appropriate to carry out the Commission's responsibilities under 
section 215 of the FPA as they relate to the development of smart grid 
standards.
    44. On the matter of Commission jurisdiction over standards, the 
Commission notes, as discussed above, that the cybersecurity 
characteristic of the smart grid is statutorily specified under EISA. 
In EISA, Congress

[[Page 37104]]

envisions a smart grid with cybersecurity as a foundational element of 
its system and provided for cybersecurity throughout the statute.\64\ 
Thus the Commission agrees with commenters such as NERC and CAISO that 
the reliability of the bulk-power system hinges on insuring the 
cybersecurity of all interconnections, including distribution system 
interconnections, to the extent allowed by EISA.
---------------------------------------------------------------------------

    \64\ See EISA section 1301(2).
---------------------------------------------------------------------------

    45. With respect to comments regarding the level of specificity in 
the cybersecurity requirements, constraints on improvements, and system 
resiliency and responsiveness to attacks, the Commission agrees that 
these concerns warrant the attention of the Institute, NERC, and others 
who are working on proposed smart grid cybersecurity issues. The 
Commission appreciates that the Roadmap Report highlights several 
relevant cybersecurity requirements, including those required in the 
Commission-approved CIPS standards.\65\ The Commission takes no 
position here regarding specific technologies and technical 
configurations that are appropriate for particular smart grid 
standards. Finally, we agree that deploying smart grid technologies 
does not, in and of itself, result in the need for compliance with 
Reliability Standards. Compliance with Reliability Standards is 
determined through other processes under FPA 215, such as the NERC 
compliance registration process and the specific requirements of 
Commission-approved Reliability Standards.
---------------------------------------------------------------------------

    \65\ See Roadmap Report at 7.
---------------------------------------------------------------------------

2. Communication and Coordination Across Inter-System Interfaces
    46. The Proposed Policy Statement suggested making the development 
of standards for inter-system interfaces a key priority. It described 
the issue as follows:

    The second cross-cutting issue is the need for a common semantic 
framework (i.e., agreement as to meaning) and software models for 
enabling effective communication and coordination across inter-
system interfaces. An interface is a point where two systems need to 
exchange data with each other; effective communication and 
coordination occurs when each of the systems understands and can 
respond to the data provided by the other system, even if the 
internal workings of each system are quite different.\66\
---------------------------------------------------------------------------

    \66\ Proposed Policy Statement, 126 FERC ] 61,253 at P 32.

    47. The Commission stated that IEC Standards 61970 and 61968 
(together, Common Information Model), along with IEC 61850 
(Communications Networks and Systems in Substations), could provide a 
basis for addressing this issue.\67\ We clarified that we were not 
proposing any Commission requirement that these standards be developed 
further, but were identifying them for comment on whether these 
standards should be considered as important elements in efforts to 
realize significant early benefits of the smart grid.\68\
---------------------------------------------------------------------------

    \67\ Id.
    \68\ Id. P 33.
---------------------------------------------------------------------------

Comments
    48. Many commenters agree on the need for effective communication 
and coordination across inter-system interfaces,\69\ as well as using 
the Common Information Model standards as a starting place. Starting 
with Common Information Model standards was mentioned positively by 
GWAC, National Grid, NRG, Kansas Commission, Midwest ISO, and CAISO. 
However, some commenters caution that the premature implementation of 
standards for common information models for inter-system interfaces 
might result in valuable existing information systems being deemed 
inconsistent, requiring unnecessary replacement. They suggest a gradual 
phasing in of new technologies as other systems are retired.\70\ NERC, 
on the other hand, contends that development of inter-system interfaces 
is one method whereby new and legacy control systems can be enabled to 
communicate with each other, which should extend the life of such 
legacy systems.\71\
---------------------------------------------------------------------------

    \69\ GWAC Comments at 16, Kansas Commission Comments at 3, Duke 
Comments at 8, NEMA Comments at 5, Midwest ISO Comments at 3, CAISO 
Comments at 7, ISO-NE Comments at 2, NRECA Comments at 17, NRG 
Comments at 7, National Grid Comments at 2, GridWise Alliance 
Comments at 1, and NERC Comments at 12.
    \70\ Kansas Commission Comments at 3 and SDG&E Comments at 19-
20.
    \71\ NERC Comments at 12.
---------------------------------------------------------------------------

    49. Silver Spring Networks suggests that the Commission also 
include networking as a priority in smart grid standards 
development.\72\ Silver Spring Networks and AT&T also strongly support 
the use of Internet Protocol as a networking standard.\73\
---------------------------------------------------------------------------

    \72\ Silver Spring Networks Comments at 1.
    \73\ Id. at 3; AT&T Comments at 3.
---------------------------------------------------------------------------

    50. Regional transmission organizations that submitted comments 
support the Commission's proposals and offer some suggestions. CAISO 
suggests that communication across inter-system interfaces would be 
essential for ``deep-area situational awareness'' and for demand 
response.\74\ NYISO suggests that regional transmission organizations 
(RTOs) and independent system operators (ISOs) should take a prominent 
role in the development of inter-system interface definitions and data 
communication protocols.\75\
---------------------------------------------------------------------------

    \74\ CAISO Comments at 7.
    \75\ NYISO Comments at 5.
---------------------------------------------------------------------------

Commission Determination
    51. The Commission adopts the proposed policy position that the 
development of standards for communicating and coordinating across 
inter-system interfaces is a key priority cross-cutting issue. We agree 
with GWAC that the smart grid is essentially a ``system of systems'' 
and that standardized communications across the interfaces of these 
systems is a critical enabler of smart grid functionality and 
interoperability. The Commission recognizes that development of a 
common semantic framework and software models for enabling effective 
communication and coordination across the inter-system interfaces is 
critical to supporting virtually all of the smart grid goals, such as 
system self-healing, integration of diversified resources, and improved 
system efficiency and reliability. We note that the Institute's 
interoperability standards development process has already paid a 
substantial amount of attention to this topic. The Institute's 
preliminary list of sixteen standards \76\ identified for the smart 
grid framework includes IEC 61968/61970 and IEC 61850, which had been 
suggested by the Commission as part of a starting point for 
communication across interfaces.\77\ The Roadmap Report document 
indicates that much of the ongoing work in the Institute's process will 
center on developing common semantic and information models.\78\
---------------------------------------------------------------------------

    \76\ See Initial List of Smart Grid Interoperability Standards, 
Request for Comments, 74 FR 27288 (June 9, 2009).
    \77\ See Proposed Policy Statement, 126 FERC ] 61,253 at P 33.
    \78\ Roadmap Report at 90.
---------------------------------------------------------------------------

    52. The Commission agrees with the Kansas Commission that the 
standards development process to enable communications and coordination 
across inter-system interfaces should not cause premature dismantling 
of utility and RTO systems that currently function well. Older software 
systems should be able to continue in service during a transition 
period by using translators or bridges of reasonable cost that enable 
the outputs of such systems to be understood by newer higher 
functionality systems.
    53. We agree with NYISO's suggestion that RTOs and ISOs should take 
a prominent role in defining system

[[Page 37105]]

interfaces, and we encourage ISOs, RTOs and all other FERC-
jurisdictional utilities to engage in the Institute's standards 
development process.
    54. With regard to networking standards and the potential use of 
Internet Protocol, the Commission will consider the findings of the 
Institute's standards development process in our rulemaking process.
3. Wide-Area Situational Awareness
    55. In the Proposed Policy Statement, the Commission placed 
emphasis on wide-area situational awareness as another key priority for 
the smart grid. Wide-area situational awareness is the visual display 
of interconnection-wide system conditions in near real time at the 
reliability coordinator level and above. The implementation of wide-
area situational awareness could help mitigate the effect of 
reliability events by giving reliability entities an improved and 
manageable high-level view of system conditions and parameters.
    56. Furthermore, the Commission identified increased deployment of 
advanced sensors like Phasor Measurement Units as a tool to give bulk-
power system operators access to large volumes of high-quality 
information about the actual state of the electric system. This 
functionality could help a smart grid address transmission congestion 
and system optimization. The Commission acknowledged that this 
technology would present its own set of challenges in the form of 
information processing and management and suggested that the Institute 
should strive to identify the necessary advanced software and systems 
that would be most useful to system operators in addressing 
transmission congestion and reliability.\79\ The Commission recognized 
the efforts undertaken by the North American SynchroPhasor Initiative 
and encouraged RTOs to take a leadership role in coordinating such work 
with the member transmission owners.\80\
---------------------------------------------------------------------------

    \79\ Proposed Policy Statement at P 36.
    \80\ Id. P 35.
---------------------------------------------------------------------------

Comments
    57. Commenters generally support the proposition that wide-area 
situational awareness should be a key priority in the development of 
Smart Grid interoperability standards. Many commenters agree with the 
Proposed Policy Statement that advanced sensors like Phasor Measurement 
Units will give bulk-power system operators access to large volumes of 
high-quality information about the system.\81\ Furthermore, commenters 
agree with the Commission that accessing that level of information will 
require the development of advanced software and systems. Various 
commenters note that further investigation regarding additional 
features for Phasor Measurement Units is required. Furthermore, using 
high quality information about the actual state of the system to 
possibly switch from the current static transmission line rating system 
to a dynamic transmission line rating system would require more 
research.\82\ NERC, for example, notes that although there might be 
additional uses for Phasor Measurement Units, their primary use should 
be to improve and protect the reliability of the bulk-power system.
---------------------------------------------------------------------------

    \81\ See, e.g., Kansas Commission Comments at 4-5, Gridwise 
Alliance Comments at 11, and Duke Comments at 11.
    \82\ See, e.g., Kansas Commission Comments at 4-5, Gridwise 
Alliance Comments at 11, Open Secure Systems Comments at 4, NERC 
Comments at 17, and American Transmission Comments at 8.
---------------------------------------------------------------------------

    58. Commenters agree with the Commission that coordination between 
RTOs and the North American SynchroPhasor Initiative will play a key 
role in the development of synchrophasor initiatives.\83\ Furthermore, 
commenters agree that the Institute should identify the core 
requirements for advanced software and systems that will gather large 
volumes of data and present it in a useful manner to operators. 
However, NERC states that such efforts have been underway for several 
years under the guidance of the Department of Energy's visualization 
and controls research and development program with contributions from 
TVA, Bonneville Power Administration, and CAISO.\84\ NERC believes that 
since these entities are already engaged on these issues, they, and not 
the Institute, should be in charge of designing and implementing the 
core requirements for software and hardware systems.
---------------------------------------------------------------------------

    \83\ See, e.g., CAISO Comments at 9-10, Gridwise Alliance 
Comments at 11, and Midwest ISO Comments at 4.
    \84\ NERC Comments at 18.
---------------------------------------------------------------------------

    59. AWEA notes that hardware and software tools that will serve to 
integrate wind should be considered vital smart grid technology. For 
example, AWEA states that devices that will contribute to consolidating 
balancing authorities, tools for faster-interval/dispatch scheduling, 
and tools to better forecast wind energy should be considered smart 
grid technology.\85\
---------------------------------------------------------------------------

    \85\ AWEA Comments at 7-11.
---------------------------------------------------------------------------

    60. Duke seeks clarification on the Proposed Policy Statement's 
definition of wide-area situational awareness as ``the visual display 
of interconnection-wide system conditions in near real time at the 
reliability coordinator level and above.'' \86\ Duke believes that 
wide-area situational awareness should be the responsibility of all 
NERC-defined functional reliability entities, such as balancing 
authorities, transmission operators, and so forth, and not just limited 
to the reliability coordinator level and above. Furthermore, Duke 
states that ``if the result of the Commission's term `reliability 
coordinator and above' is that Duke Energy would be required to provide 
to other parties information or data that is not Duke Energy specific 
(i.e., information that pertains to other regional entities), this is 
of concern, and would require new information-sharing and disclosure 
protocols.'' \87\
---------------------------------------------------------------------------

    \86\ Duke Comments at 10.
    \87\ Id. at 11.
---------------------------------------------------------------------------

Commission Determination
    61. The Commission adopts its proposed policy position that wide-
area situational awareness should be a key priority for the standards 
development process. Wide-area situational awareness is imperative for 
enhancing reliability of the bulk-power system because it allows for 
greater knowledge of the current state of available resources, load 
requirements, and transmission capabilities. Increased situational 
awareness could allow for additional system automation and quicker 
reaction times to various reliability events. Given this concern about 
the need for increased situational awareness, and in response to Duke's 
request for clarification that the Commission's description of wide-
area situational awareness in the Proposed Policy Statement was not 
intended to limit such responsibility to reliability coordinators only, 
we clarify that this was not our intent.
    62. Regarding the development of wide-area situational awareness 
standards, the Commission agrees with NERC that it would be reasonable 
for the Institute to consider work done by the Department of Energy and 
others as the Institute develops standards.
4. Demand Response
    63. In the Proposed Policy Statement, the Commission stated that 
smart grid-enabled demand response is a key priority for standards 
development because of its potential to help address several bulk-power 
system challenges including reliably integrating unprecedented amounts 
of variable generation resources into the electric grid. The Commission 
stated that the

[[Page 37106]]

further development of key standards should enhance interoperability 
and communications between system operators, demand response resources, 
and the systems that support them.\88\
---------------------------------------------------------------------------

    \88\ See Proposed Policy Statement, 126 FERC ] 61,253 at P 37-
39.
---------------------------------------------------------------------------

    64. The Commission proposed the development of a series of demand 
response use cases \89\ employing readily available tools in order to 
achieve an appropriate level of standardization. The Commission 
encouraged a particular focus on use cases for the key demand response 
activities of dispatchable demand response load reductions to address 
loss or unavailability of variable resources, and the potential for 
dispatchable demand response to increase power consumption during over-
generation situations.
---------------------------------------------------------------------------

    \89\ As noted in the Proposed Policy Statement, the use case 
approach is a concept from the software and systems engineering 
communities whereby a developer, usually in concert with the end 
user, attempts to identify all of the functional requirements of a 
system. Each use case essentially describes how a user will interact 
with a system of other actors and objects to achieve a specific 
goal. The use case will identify the interfaces between different 
elements and the information being exchanged.
---------------------------------------------------------------------------

    65. The Commission noted that considerable work has been done to 
develop demand response standards (e.g., Open Automated Demand 
Response) and further encouraged a focus on additional standardization 
of the interfaces between systems on the customer premises and utility 
systems, including addressing data confidentiality issues.
    66. The Commission encouraged the Institute and industry to work 
together on further standards development, starting with the 
Institute's suggestion of the harmonization of IEC standard 61850 and 
several meter standards, namely ANSI C12.19 and C12.22. Finally, the 
Commission requested comment from states and other parties on the 
optimal approach to develop standards in the area of customer meters, 
and stated that the Commission will pursue direct communications with 
the states on this topic.
Comments
    67. Most comments recognize the importance of demand response for 
helping to address the types of challenges listed in the Proposed 
Policy Statement.\90\ NARUC supports working with the Commission to 
further develop and expand demand response programs.\91\ That said, 
NARUC and others stress the need to remember that demand response, and 
the metering and retail pricing reforms that might be needed to fully 
realize demand response's potential, require retail customer 
involvement and are thus firmly State-jurisdictional matters.\92\
---------------------------------------------------------------------------

    \90\ See, e.g., NYISO Comments at 10, ISO-NE Comments at 4, and 
ELCON Comments at 4-5.
    \91\ NARUC Comments at 8.
    \92\ See, e.g., NARUC Comments at 6-8, Ohio Commission Comments 
at 7, Kansas Commission Comments at 5, and Wal-Mart Comments at 5.
---------------------------------------------------------------------------

    68. NARUC also emphasizes that demand response programs can and 
have operated without smart grid capabilities.\93\ On the other hand, 
there were several comments stressing the importance to demand response 
of national standardization of certain supporting technologies, like 
communication between customer equipment and utility systems and 
national metering standards.\94\ These commenters state that the 
development of metering standards at a national level would be helpful 
to increase the use of the smart grid by demand response resources and 
avoid implementing multiple, proprietary, non-compatible metering 
standards across the country that raise the cost of doing business in 
different markets.
---------------------------------------------------------------------------

    \93\ NARUC Comments at 8.
    \94\ See, e.g., NEM and Intelligent Energy Comments at 8 and 
Wal-Mart Comments at 3-4.
---------------------------------------------------------------------------

    69. Another key issue for commenters involves the need to develop 
measurement and verification standards for demand response. The demand 
response aggregation industry believes that standards will open up new 
markets for demand response (e.g., capacity or ancillary services 
markets) and will leverage and enable demand response integration to 
address variable generation needs.\95\ In addition, American 
Transmission states that specific, concrete requirements will be key to 
ensuring that committed demand response is available when needed 
allowing utilities to reliably include demand response capabilities in 
their transmission planning.\96\
---------------------------------------------------------------------------

    \95\ See, e.g., Comverge Comments at 1-2 and DRSG Coalition 
Comments at 7-8.
    \96\ American Transmission Comments at 6.
---------------------------------------------------------------------------

    70. Several commenters focus on the Proposed Policy Statement's 
discussion of dispatchable demand response, though their comments tend 
to reflect different viewpoints.\97\ GWAC seems to interpret this 
discussion as imposing demand response on some group of customers that 
might be given no option but to respond to dispatch signals from system 
operators regardless of whether they are able to or want to 
participate.\98\ GWAC prefers voluntary response to dynamic pricing 
signals. In contrast, some commenters support a focus on voluntary 
dispatchable demand response programs.\99\ Black Hills Corporation 
expresses concern with the additional investment required for ``time 
sensitive'' rates for retail customers since ratepayers are already 
paying higher rates due to recovery mechanisms for efficiency, 
renewable portfolio, and carbon reduction standards in various 
states.\100\
---------------------------------------------------------------------------

    \97\ As discussed in the Proposed Policy Statement, 
``dispatchable'' demand response allows participants to adjust their 
demand at the direction of a system operator. Proposed Policy 
Statement, 126 FERC ] 61,253 at P 20.
    \98\ GWAC Comments at 4.
    \99\ See, e.g., Kansas Commission Comments at 4-5 and Black 
Hills Corp. Comments at 3.
    \100\ Black Hills Corp. Comments at 3.
---------------------------------------------------------------------------

    71. Those commenters who speak to the issue seem to support the 
focus on developing demand response use cases as a first step toward 
interoperability standards.\101\ In a similar vein, some stress the 
need to identify and support valuable opportunities for the use of 
demand response; for example, to provide ancillary services.
---------------------------------------------------------------------------

    \101\ See, e.g., NYISO Comments at 10, Alcoa Comments at 5-6, 
and CAISO Comments at 12.
---------------------------------------------------------------------------

    72. There are also comments stressing the importance to demand 
response of providing appropriate access to information gathered from 
advanced meters.\102\ However, NARUC also touches upon this topic in 
discussing data confidentiality and other such issues. It emphasizes 
that these issues are firmly within the jurisdiction of State 
commissions and that a rulemaking targeting standards connected to the 
customer premises will exceed the Commission's jurisdiction.\103\
---------------------------------------------------------------------------

    \102\ NEMA and Intelligent Energy Comments at 2, 4.
    \103\ NARUC Comments at 9.
---------------------------------------------------------------------------

    73. Wal-Mart argues that any environmental attributes (e.g., carbon 
reduction allowances) associated with demand response equipment should 
be retained by the customer in order to foster customer participation 
and purchase of such equipment.\104\
---------------------------------------------------------------------------

    \104\ Wal-Mart at 5.
---------------------------------------------------------------------------

Commission Determination
    74. The Commission adopts its proposed policy position that the 
development of standards for demand response is a key priority. We 
agree with ELCON that smart grid technologies have considerable 
potential to promote demand response, which can reduce wholesale prices 
and wholesale price volatility and reduce potential generator market 
power. We also agree with NERC that smart grid capability can enhance 
the application of demand response to accommodate the integration of 
variable generation. As NYISO also points out, demand response 
resources play an

[[Page 37107]]

important role in maintaining system security, especially in 
constrained areas. Moreover, demand response can be particularly 
helpful in situations when production from variable generating 
resources has fallen. We note that the Institute has identified demand 
response as a key priority focus in its interoperability standards 
development process.
    75. In order to achieve appropriate demand response standards, the 
Commission also adopts its proposed policy position that emphasis 
should be put on further development of use cases and scenarios for 
demand response, particularly with regard to dispatchable demand 
response and various forms of dynamic pricing. We agree with comments 
by Alcoa and Wal-Mart recommending that the dispatchable demand 
response interoperability standards effort should support the full 
range of customer types from large industrial customers through 
commercial and smaller residential customers. Furthermore, we expect 
that a standard for a dispatchable demand response program would 
support either a mandatory or voluntary program, as determined by the 
utility or retail regulator. With regard to dynamic pricing, the 
Commission agrees with GWAC that it is important to develop standards 
that support dynamic pricing, which offers an efficient means and 
incentive for large numbers of smaller customers to take appropriate 
demand response actions. We clarify that it is not our intention to 
require the use of dynamic pricing in retail rates. It is, important, 
however, for utilities and states that choose this option to develop 
standard pricing terminology and methods for communicating pricing 
information.\105\
---------------------------------------------------------------------------

    \105\ The Jurisdictional Concerns section of this Policy 
Statement contains a more extensive discussion of the boundaries 
between Federal and State jurisdiction.
---------------------------------------------------------------------------

    76. The Commission notes that the early stages of the Institute's 
interoperability standards development process included investigation 
of standards for advanced metering systems. The Commission suggested in 
the Proposed Policy Statement that the development of national 
interoperability standards for meters may be appropriate.\106\ Such 
standards could also lead to more communications among systems as well 
as facilitate the transfer of a successful program to other systems. 
National interoperability standards for meters should enable the use of 
direct load control, dynamic pricing, current tariff pricing or other 
program options that are approved by retail regulators. We stress, 
however, that the development of national interoperability standards 
for meters does not create an obligation for states or utilities to use 
them or to offer any specific type of demand response program. The 
Commission continues to recognize that State and local regulators have 
jurisdiction over retail rates and cost recovery. Recovery of retail 
jurisdictional costs will continue to be determined by State and local 
regulators. The Commission will continue to pursue direct 
communications with the states and other parties on the optimal 
approach to develop interoperability standards in the area of customer 
meters. It is with these understandings that we encourage the Institute 
and its industry collaborators to continue investigating potential 
national interoperability standards for meters.
---------------------------------------------------------------------------

    \106\ See Proposed Policy Statement, 126 FERC ] 61,253 at P 39.
---------------------------------------------------------------------------

    77. Several commenters state the importance of developing 
measurement and verification standards for demand response. We agree. 
However, the Commission need not further address this topic because 
participants in several forums are doing so, including the North 
American Energy Standards Board and in compliance filings before the 
Commission resulting from Order No. 719.\107\ Finally, the Commission 
finds that Wal-Mart's request that any environmental attributes (e.g., 
carbon reduction allowances) associated with demand response equipment 
should be retained by the customer is outside the scope of this Policy 
Statement.
---------------------------------------------------------------------------

    \107\ Wholesale Competition in Regions with Organized Electric 
Markets, Order No. 719, 73 FR 61,400 (Oct. 28, 2008), FERC Stats. & 
Regs. ] 31,281 (2008).
---------------------------------------------------------------------------

5. Electric Storage
    78. In the Proposed Policy Statement, the Commission stated that if 
electricity storage technologies could be more widely deployed, they 
would present an important means of addressing some of the difficult 
issues facing the electric industry, including helping to address 
large-scale changes in generation mix. The Commission noted that, to 
date, the most significant bulk-electricity storage technology has been 
pumped storage hydroelectric technology but that new types of storage 
technologies are under development and in some cases are being 
deployed, and could also potentially provide substantial value to the 
electric grid.\108\ The Commission proposed that, while continued 
research and development appeared necessary before any widespread 
deployment of such newer technologies can take place, it is appropriate 
to encourage the identification and standardization of all possible 
electricity storage use cases at an early stage. While the suggested 
prioritization of storage use cases was the Commission's only proposal 
in this area, the Commission then went on to highlight certain existing 
standards that may be relevant to further work on storage-related 
interoperability standards.\109\
---------------------------------------------------------------------------

    \108\ For the purposes of this Policy Statement, electric 
storage refers to the storage of different forms of energy that may 
be beneficial to the bulk-power system. For example, while pumped 
hydroelectric storage refers to the potential energy stored in a 
reservoir of water, it is the conversion of that energy to 
electricity by a water turbine generator that makes it useful. 
Similarly, a flywheel stores kinetic energy to spin a generator, and 
batteries convert chemical energy directly into electricity. 
Moreover, there are useful applications for stored energy (for 
example, thermal energy) that is not converted into electricity, but 
can substitute for electrical power by providing an end use.
    \109\ Proposed Policy Statement, 126 FERC ]61,253 at P 40.
---------------------------------------------------------------------------

Comments
    79. GridWise Alliance describes the many benefits energy storage 
may provide to the nation's grid, such as grid optimization for bulk-
power production; balancing in systems with variable renewable energy 
sources; facilitation of integration of electric vehicles; deferring 
investments in transmission and distribution infrastructure to meet 
peak loads; and providing ancillary services to grid/market 
operators.\110\ Many commenters agree that standards for electric 
storage should be a priority. APPA agrees that standardization of use 
cases, protocols and communications regarding new types of electricity 
storage should be undertaken early to avoid a proliferation of 
competing and incompatible deployments of storage system 
technologies.\111\ National Grid and Public Interest Organizations 
state that electric storage will enable system integration of greater 
amounts of renewable energy as well as improve overall system 
efficiency.\112\ NERC recommends that the Commission adopt standards 
and protocols on electric storage, and states that NERC plans to work 
collaboratively with the Commission and the Institute on electric 
storage issues that could have an impact on bulk-power system 
reliability.\113\
---------------------------------------------------------------------------

    \110\ GridWise Alliance Comments at 11.
    \111\ APPA Comments at 14.
    \112\ National Grid Comments at 5, and Public Interest 
Organizations Comments at 3.
    \113\ NERC Comments at 20-21.
---------------------------------------------------------------------------

    80. Some commenters express reservations about establishing storage 
standards at this time. NYISO recommends that the Commission allow more 
time to develop experience with

[[Page 37108]]

integrating these devices and that standardization of uses should await 
actual operating experience with these devices.\114\ CAISO indicates 
that tariffs and not detailed standards would best shape storage 
development and integration.\115\ Xcel voices a concern that early 
standardization of storage could stifle innovation.\116\ CPower 
questions the Commission's ability to properly delineate yet un-
developed storage use cases.\117\
---------------------------------------------------------------------------

    \114\ NYISO Comments at 11.
    \115\ CAISO Comments at 13-14.
    \116\ Xcel Comments at 5-6.
    \117\ CPower Comments at 5.
---------------------------------------------------------------------------

Commission Determination
    81. The Commission agrees with the comments of GridWise Alliance 
and others that electricity storage can serve as a potentially valuable 
resource providing a variety of services to the bulk-power system. We 
adopt our proposed policy position that electric storage is a key 
functionality of the smart grid, and standards related to storage 
should be treated as a key priority by the Institute and industry in 
the interoperability standards development process, subject to certain 
reservations. However, the Commission appreciates the concerns of 
commenters such as NYISO that have expressed reservations about the 
premature establishment of electric storage standards. Indeed, it was 
just such concern that led us, in the Proposed Policy Statement, to 
suggest prioritization of the development of storage use cases at that 
time. However, it is important to note that the Institute's 
interoperability standards development process has already assembled a 
limited number of storage use cases and identified a few standards that 
could be a starting point for development of interoperability standards 
for storage. Thus, we encourage the Institute and industry to continue 
this effort for interoperability standards for storage.
    82. The Commission continues to believe that storage use case 
development is an important step on the path to developing relevant 
interoperability standards, and thus on the path to enabling the wider 
deployment of storage. However, any initial identification of storage 
use cases would not be exhaustive; if new use cases are identified in 
the future, they can be added to the initially identified set of use 
cases for storage at that time. Initial identification of use cases 
should not impede future storage innovations.
6. Electric Vehicles
    83. The Commission also identified the integration of electric 
transportation as a key priority of smart grid functionality. The 
Commission stated that, to the extent that new electric transportation 
options become more widely adopted in the near future, maintaining the 
reliable operation of the bulk-power system will require some level of 
control over when and how electric vehicles draw electricity off of the 
electric system.
    84. The Commission explained its hope that smart grid 
interoperability standards would ultimately accommodate a wide array of 
advanced options for electric vehicle interaction with the grid, 
including full vehicle-to-grid capabilities. However, as a first step, 
the Commission decided only to request that appropriate standards be 
made a high priority so that distribution utilities will be able to 
encourage customers to charge their vehicles during off-peak load 
periods.\118\
---------------------------------------------------------------------------

    \118\ Proposed Policy Statement, 126 FERC ] 61,253 at P 42.
---------------------------------------------------------------------------

    85. The Commission also noted that, for the potential provision of 
ancillary services to the grid by electric vehicles, electrical 
interconnection issues must be dealt with along with potential 
expansion of communications ability and urged the Society of Automotive 
Engineers and the automobile industry to plan upgradable data 
communications systems between electric vehicles and the power system. 
Finally, the Proposed Policy Statement urged the Institute to include 
electric vehicles in its distributed energy resource standards 
development.
Comments
    86. National Grid points out the benefits of electric 
transportation as being a significant part of the solution to electric 
storage, shaping demand, and providing ancillary services to maintain 
reliability and operational efficiency of the electric delivery 
system.\119\ NYISO agrees with the Commission's proposed approach 
toward addressing the greater penetration of electric vehicles and 
developing a common set of operating rules, market rules, and 
communication standards.\120\ AWEA agrees with the Commission that 
electric vehicles can improve the flexibility of the grid and provide 
electricity storage solutions that help to address the potential for 
over-generation in off-peak periods.\121\ Comverge agrees that electric 
vehicles deserve particular attention with respect to interoperability, 
smart charging, enhanced information processing, and high-speed 
communications and control.\122\ NERC points out that the reliability 
of the bulk-power system could be impacted by high levels of the 
penetration of electric vehicles, changing the complexity of managing 
demand and energy dramatically.\123\
---------------------------------------------------------------------------

    \119\ National Grid Comments at 5.
    \120\ NYISO Comments at 11.
    \121\ AWEA Comments at 10.
    \122\ Comverge Comments at 3.
    \123\ NERC Comments at 20-21.
---------------------------------------------------------------------------

    87. On the other hand, some commenters assert that either electric 
transportation technology itself or the standards for its integration 
should not be priority items. The most common reason stated is that 
widespread adoption of electric vehicles is seen as occurring too far 
into the future and that prioritization should be given to more 
immediately beneficial functionalities.\124\ The early stage of 
electric vehicle development is also cited by CAISO and NRECA as a 
reason that it would be premature to develop standards for them.\125\ 
While NRECA indicates that standards development should be put off 
until more research and analysis is done, CAISO indicates that 
standards should only address basic, structural, competitive and 
architectural issues. CAISO views electric vehicles as another resource 
to be shaped by tariff incentives rather than technology standards.
---------------------------------------------------------------------------

    \124\ See, e.g., Illinois Commission Comments at 3-4, Maryland 
Counsel Comments at 3-4, and Springfield Comments at 6.
    \125\ CAISO Comments at 13-14 and NRECA Comments at 19.
---------------------------------------------------------------------------

    88. Kansas Commission questions which mandates related to vehicle 
charging and real time metering the Commission intends to implement. 
Kansas Commission also asks the Commission to clarify what it believes 
is the extent of its jurisdiction.\126\ Maryland Counsel similarly 
expresses jurisdictional concerns when it asserts that, unless related 
to wholesale and transmission functions, electric vehicles will fall 
into the State's jurisdiction over distribution (and so costs related 
to them should not be recoverable in Commission-regulated rates).\127\
---------------------------------------------------------------------------

    \126\ Kansas Commission Comments at 6.
    \127\ Maryland Counsel Comments at 4.
---------------------------------------------------------------------------

    89. Allegheny Companies indicate that electric vehicles should be 
viewed like all pieces of equipment with demand response responsibility 
and that while electric transportation standard development should not 
be a priority, the grid must have flexible standards and protocols to 
support electric vehicles.\128\ Ohio Partners view modifications to the 
grid to support electric vehicles as a subsidy for electric

[[Page 37109]]

car makers to the harm of existing fuel retailers and at a cost to 
customers.\129\
---------------------------------------------------------------------------

    \128\ Allegheny Companies Comments at 4.
    \129\ Ohio Partners Comments at 9.
---------------------------------------------------------------------------

Commission Determination
    90. The Commission adopts the proposed policy position that 
electric transportation is a key functionality of the smart grid, and 
standards relating to electric transportation should be treated as a 
key priority by the Institute and industry in the process of developing 
interoperability standards. We agree with NERC that the reliability of 
the bulk-power system could be affected by the high levels of 
penetration by electric vehicles. However, the ability of distribution 
utilities to facilitate off-peak charging may be able to mitigate such 
reliability concerns. Discussions at the Institute's recent conferences 
indicate that certain metropolitan areas are likely to experience high 
penetrations of electric vehicles more quickly than others. NYISO 
suggests that environmental concerns could lead to relatively high 
levels of electric vehicle penetration in New York by 2020.
    91. For these reasons, although the market will likely play the 
principal role in determining whether and when electric vehicle load 
will become significant for utility systems, we urge the early 
development of technical requirements that can permit distribution 
utilities to facilitate electric vehicle charging during off-peak load 
periods. Such technical capability should provide the State commissions 
with an additional tool to deal with any electric vehicle-related load 
growth that they may see in the future. Interoperability standards that 
support such a choice by states permitting the electric vehicle to, for 
example, receive and respond appropriately to peak pricing signals 
could greatly improve the success of such an effort. However, if 
another State commission sees no need for such price signals in its 
area, the mere existence of interoperability standards would in no way 
require the State to adopt such a pricing policy. Accordingly, we see 
no jurisdictional issues with this recommendation for prioritization.
7. Additional Priorities Suggested by Commenters
    92. In addition to the key priorities listed in the Proposed Policy 
Statement, several commenters suggest additional priorities for 
interoperability standards: Modernization of the communications and 
control technologies in the grid; standards for existing resources 
(legacy) equipment and cost effective integration of legacy equipment; 
interfaces between utilities (with interfaces between utilities and 
customers and other systems to be developed along with State and other 
regulatory bodies); and limitations on access to and use of individual 
customer power usage information. The Valley Group states that, because 
standards for enabling technologies (rather than communications 
standards) will provide the grid with immediate and tangible benefits, 
these should also be a priority. AWEA lists several more general 
matters that it suggests must be addressed before broad-based 
deployment of smart grid technologies can fully utilize their potential 
to better accommodate renewable power. These include investment in an 
extra-high voltage backbone system, faster interval dispatch and 
scheduling, expanded area control error diversity, integration of wind 
energy forecasts, and dynamic line rating.
Commission Determination
    93. The Commission will not make any additional standards a 
priority for development at this time. Some of the proposed additional 
priorities are already included in this Policy Statement. For example, 
support for the modernization of the communications and control 
technologies on the grid underlies this entire effort, and the use of 
legacy equipment as utilities migrate to a smart grid is addressed in 
the Interim Rate Policy. Similarly, to the extent that standards for 
enabling technology are needed to permit the development of useful 
smart grid capabilities like wide-area situational awareness standards, 
then such standards would be encompassed by our broader recommendation 
to make wide-area situational awareness standards a key priority.
    94. Limitations on access to, and use of, individual customer power 
usage information may be addressed by retail regulators and, in any 
event, are beyond the scope of this Policy Statement. Finally, although 
the topics suggested by AWEA are important, they do not relate to the 
development of interoperability standards and, therefore, are more 
appropriate to address outside of this proceeding.

C. Interim Rate Policy

    95. In the Proposed Policy Statement, the Commission stated that 
certain upcoming challenges to the operation of the bulk-power system 
justified enacting policies to encourage the near-term deployment of 
smart grid systems capable of helping to address those challenges.\130\ 
Accordingly, the Commission proposed certain rate policies meant to 
encourage such near-term deployment while appropriately protecting 
customers from stranded costs and the electric system from potential 
cybersecurity threats. Consistent with FPA section 205, which requires 
that all rates for the transmission or sale of electric energy subject 
to the Commission's jurisdiction be just and reasonable,\131\ the 
Commission proposed to consider smart grid devices and equipment--
including those used in a smart grid pilot program or demonstration 
project--to be ``used and useful'' \132\ for purposes of cost recovery 
if the applicant makes certain showings.\133\
---------------------------------------------------------------------------

    \130\ Proposed Policy Statement, 126 FERC ] 61,253 at P 45.
    \131\ 16 U.S.C. 824d.
    \132\ The general rate-making principle is that expenditures for 
an item may be included in a public utility's rate base only when 
the item is ``used and useful'' in providing service. See NEPCO 
Municipal Rate Committee v. FERC, 668 F.2d 1327, 1333 (D.C. Cir. 
1981).
    \133\ Proposed Policy Statement at P 45.
---------------------------------------------------------------------------

1. Scope and Duration
    96. In the Proposed Policy Statement, the Commission stated that, 
once interoperability standards are adopted, it will consider making 
compliance with those standards a mandatory condition for rate recovery 
of jurisdictional smart grid costs. For the period until 
interoperability standards are adopted, the Commission proposed the 
Interim Rate Policy to accept rate filings submitted under FPA section 
205 by public utilities to recover the costs of smart grid deployments 
involving jurisdictional facilities, provided those filings make 
certain showings set out by the Commission in this Policy Statement. 
The Commission restated this proposal in terms of finding smart grid 
investments to be ``used and useful'' for purposes of rate recovery if 
an applicant makes these showings.
Comments
    97. Several commenters support the Interim Rate Policy.\134\ These 
commenters state that an interim rate policy is necessary for the 
deployment of smart grid resources. National Grid states that the 
Commission properly recognizes that utilities will only be willing to 
deploy smart grid equipment if they are able to recover the associated 
costs in regulated rates.\135\ PSEG

[[Page 37110]]

believes that implementing the Interim Rate Policy is a critical 
component in advancing the ultimate smart grid evolution.\136\
---------------------------------------------------------------------------

    \134\ Gridwise Alliance Comments at 12, PSEG Companies Comments 
at 4-5, 8, National Grid Comments at 5-7, Duke Comments at 11-12, 
Comverge Comments at 5-6, and FirstEnergy Comments at 10.
    \135\ National Grid Comments at 5.
    \136\ PSEG Comments at 4.
---------------------------------------------------------------------------

    98. Allegheny Companies assert that utilities with stated 
transmission rates may fail to recover their full cost of service as 
the deployment of smart grid technologies may reduce the amount of 
electricity they sell, and argue that rates should be revised to 
decouple revenues from electricity sold.\137\ Meanwhile, several 
commenters expect or seek clarification that smart grid costs can be 
recovered in formula rates including existing formula rates, and that 
existing rate formulae do not require modification in order to 
accommodate such smart grid costs.\138\
---------------------------------------------------------------------------

    \137\ Allegheny Comments at 8.
    \138\ American Transmission Comments at 6-7, EEI Comments at 14, 
and National Grid Comments at 6.
---------------------------------------------------------------------------

    99. NARUC states that efficiency gains and other related benefits 
of smart grid deployments should be factored into rate-setting before 
passing all costs through to consumers.\139\ NARUC also comments that 
any government funding under the Department of Energy smart grid grant 
programs should be factored into cost recovery. AARP urges caution 
regarding expedited consideration of such rate filings before final 
adoption of interoperability standards.\140\
---------------------------------------------------------------------------

    \139\ NARUC Comments at 12.
    \140\ AARP Comments at 4, 13-15.
---------------------------------------------------------------------------

    100. Wal-Mart proposes that the Commission include a deadline for 
either terminating or at least revisiting the Interim Rate Policy.\141\ 
Alternatively, Wal-Mart argues for a deadline by which utilities who 
have made use of the Interim Rate Policy must file a full rate case. 
Wal-Mart also supports the concept of some type of sharing of risk with 
shareholders.
---------------------------------------------------------------------------

    \141\ Wal-Mart Comments at 6-7.
---------------------------------------------------------------------------

    101. Alcoa asserts that the Proposed Policy Statement is silent 
about cost allocation issues associated with smart grid costs and 
argues that the Commission should specify that smart grid costs will be 
allocated in accordance with long-standing cost causation 
principles.\142\ In particular, Alcoa argues that consideration of cost 
causation and allocation based on proportional benefits should be 
specified so that, for example, stable high load-factor loads would not 
be over-burdened by the allocation of costs for smart grid equipment 
deployed primarily to support variable loads and resources.\143\ 
Meanwhile, GridSolar states that existing cost allocation schemes 
within RTOs may unduly favor the development of transmission over 
competing distributed energy projects by allocating costs regionally 
while a competing distributed energy project might only qualify for 
local cost allocation.\144\ GridSolar urges the Commission to require 
that, where distributed energy projects incorporating smart grid 
technologies and practices have been approved by a State regulatory 
commission in lieu of transmission reliability upgrades, these 
distributed energy projects receive the same cost allocation treatment 
as transmission reliability upgrades.
---------------------------------------------------------------------------

    \142\ Alcoa Comments at 6-7.
    \143\ Id. at 7.
    \144\ GridSolar Comments at 6-8.
---------------------------------------------------------------------------

    102. Several entities comment on broad market design issues. 
CPower, in an appendix to its filing, includes a letter to the 
Commission dated February 24, 2009 that includes various rate 
proposals.\145\ The letter includes proposals for how demand response 
should participate in various RTO markets. Academic Commenters believe 
that the Proposed Policy Statement does not go far enough because it 
fails to provide guidance on the revised market structures that they 
believe would be needed to realize the benefits of a smart grid.\146\ 
BP makes similar comments, focusing primarily on the possibility of 
moving away, at least partially, from the current model of centrally 
dispatched large-scale generation with passive load to a more 
decentralized decision-making process more like other commodities 
markets.\147\ CAISO indicates that a wholesale energy and transmission 
market that allows a more refined and granular understanding of what is 
happening on the grid would take better advantage of smart grid 
capabilities.\148\ NEMA points out that some smart grid technologies, 
like Phasor Measurement Units and associated software, could have 
benefits beyond those identified in the Proposed Policy Statement.\149\
---------------------------------------------------------------------------

    \145\ CPower states that this letter was originally submitted in 
connection with the Commission's demand response stakeholder 
process. It is not entirely clear what stakeholder process is 
referenced but it appears to have been an informal submission.
    \146\ Academic Commenters Comments at 1-13.
    \147\ BP Comments at 3-6.
    \148\ CAISO Comments at 3-4.
    \149\ NEMA Comments at 7-8.
---------------------------------------------------------------------------

Commission Determination
    103. The Commission will adopt an Interim Rate Policy allowing the 
recovery of jurisdictional smart grid costs if certain showings are 
made, as discussed in the next section. Through this Interim Rate 
Policy, the Commission will provide for assurance of recovery of future 
smart grid costs. To receive this assurance, a public utility must file 
either a petition for declaratory order or an FPA section 205 filing 
demonstrating that it has made the relevant showings described below. 
This Interim Rate Policy will be effective until relevant 
interoperability standards have been adopted through Commission 
rulemakings, as provided for under EISA section 1305(d).\150\ There are 
certain potentially imminent challenges to the operation of the 
nation's bulk-power system as described earlier, and the key smart 
grid-related capabilities identified in this Policy Statement can help 
address these concerns. Utility equipment that performs Commission-
jurisdictional activities could be affected by many of these smart 
grid-related investments. Accordingly, we find that the adoption of the 
Interim Rate Policy is appropriate.
---------------------------------------------------------------------------

    \150\ Thus, utilities that want to receive the benefit of this 
Interim Rate Policy must submit their filings seeking such treatment 
prior to the issuance of a final rule adopting relevant standards.
---------------------------------------------------------------------------

    104. Several commenters argue that having an Interim Rate Policy 
for smart grid investments is premature, citing unresolved technical 
issues, such as interoperability standards. However, waiting for all 
technical issues to be resolved before beginning investment in smart 
grid deployment would frustrate the development of those very 
standards. Smart grid resources deployed with appropriate protections 
in the interim period could increase our body of knowledge and 
ultimately assist the standards development process. In this case, the 
Commission proposed several protections, in the form of additional 
showings, to be discussed in the next section.
    105. Several commenters seek to modify rate treatments other than 
those targeted by the Commission in the Proposed Policy Statement. 
Allegheny Companies seek a decoupling of electricity sales from 
revenues to encourage utilities to develop these technologies even 
though they may lead to lower electricity revenues. The Commission 
finds that Allegheny Companies' proposal is beyond the scope of this 
Policy Statement.
    106. Alcoa's arguments regarding cost allocation are outside the 
scope of this Policy Statement. We have not proposed any modification 
to currently-effective cost allocation policies for Commission-
jurisdictional transmission rates. For similar reasons, we decline to 
address GridSolar's request to modify cost allocation methods within 
RTOs, Valley Group's real-time ratings incentive proposal, and the 
comments on broad market design.

[[Page 37111]]

    107. Smart grid costs may be recovered through formula rates if the 
formula rate already authorizes cost recovery of a particular type of 
investment. In this case, the public utility may recover that cost as 
it would any other recoverable cost. However, in the event the public 
utility desires the assurance of cost recovery provided under the 
Interim Rate Policy, it must submit an FPA section 205 filing or a 
request for a declaratory order justifying such rate treatment by 
making the demonstrations required herein.\151\ In the absence of a 
Commission order approving such a proposal, a smart grid-related cost 
automatically incorporated into a formula rate could be subject to 
future review and challenge.
---------------------------------------------------------------------------

    \151\ The Commission will allow a public utility to file to 
amend a formula rate to recover such costs and to seek rate 
assurance under this Interim Rate Policy without reopening other 
elements of the formula rate.
---------------------------------------------------------------------------

    108. Finally, with regard to Wal-Mart's proposal for a stated 
deadline for terminating or revisiting the Interim Rate Policy, the 
Interim Rate Policy is structured to allow applicants to file with the 
Commission for rate treatment under the Interim Rate Policy until the 
Commission adopts relevant interoperability standards. This is 
necessary because standards will likely be filed for certain functions 
before others and setting an arbitrary deadline may result in rate 
treatment for some standards and not others. Moreover, our regulations, 
which are based on the requirements of the FPA, provide customers with 
the ability to file complaints if they believe that an existing rate 
has become unjust or unreasonable. Because this Interim Rate Policy 
provides protections in addition to such existing protections, nothing 
more is needed here.
2. Additional Showings
    109. In the Interim Rate Policy, the Commission proposed to require 
applicants seeking the recovery of costs associated with smart grid 
investments made during the period in which interoperability standards 
are being developed to make several showings, beyond the normal filing 
requirements, before being considered ``used and useful'' and therefore 
eligible to recover such costs. First, the Commission proposed that an 
applicant must demonstrate that the reliability and security of the 
bulk-power system will not be adversely affected by the deployment of 
smart grid facilities at issue. Second, the Commission proposed that 
the filing be required to show that the applicant has minimized the 
possibility of stranded costs for smart grid equipment, in light of the 
fact that such filings will predate adoption of interoperability 
standards through Commission rulemakings. Finally, because it would be 
important for early smart grid deployments, particularly pilot and 
demonstration projects, to provide feedback useful to the 
interoperability standards development process, the Commission proposed 
to direct the applicant to share certain information with the 
Department of Energy Smart Grid Clearinghouse, provided for in the 
American Recovery and Reinvestment Act (ARRA).\152\
---------------------------------------------------------------------------

    \152\ American Recovery and Reinvestment Act, Pub. L. 111-5, 
section 405(3)(2009).
---------------------------------------------------------------------------

Comments
    110. Midwest ISO Transmission Owners fully support the Commission's 
proposals regarding the used and useful determination for smart grid 
costs.\153\ Ice Energy supports the proposed eligibility requirements 
and discusses how its own thermal-storage air conditioning technology 
meets those requirements and could aid utility compliance with those 
requirements as well.\154\ Public Interest Organizations support the 
criteria already included in the Interim Rate Policy, and also propose 
two additional criteria: First, a requirement that the smart grid cost 
in question be vetted through a regional planning process and that such 
planning process demonstrates the value of such investments for meeting 
reliability, security, dispatchable demand response, or renewable 
energy integration needs, and second, a requirement to perform a cost/
benefit analysis.\155\ Ohio Counsel states that it fully supports the 
comments made by Public Interest Organizations but would add further 
emphasis to the need for a comprehensive plan based upon appropriate 
criteria to insure prudence in project scope, implementation, and cost 
recovery. It views this as necessary to insure that the cost/benefit 
analysis of the deployment will be favorable and that the guidelines 
for cost recovery are prudent and net of operation and asset management 
benefits.\156\
---------------------------------------------------------------------------

    \153\ Midwest ISO Transmission Owners Comments at 7.
    \154\ Ice Energy Comments at 19-20.
    \155\ Public Interest Organizations Comments at 4.
    \156\ Ohio Counsel Comments at 1-3.
---------------------------------------------------------------------------

    111. NRECA states that smart grid deployments should not exceed 
``the pace of value'' with new elements entering the system only as 
they are able to demonstrate value.\157\ Ohio Partners and Maryland 
Counsel similarly argue that the benefits to customers must be shown 
before cost recovery is granted.\158\ Likewise if any Interim Rate 
Policy is finalized, ELCON believes that it must incorporate a cost/
benefit requirement.\159\
---------------------------------------------------------------------------

    \157\ NRECA Comments at 13-14.
    \158\ Ohio Partners and Maryland Counsel Comments at 5-6.
    \159\ ELCON Comments at 10.
---------------------------------------------------------------------------

    112. Several commenters \160\ also support the addition of a cost-
effectiveness requirement. In this regard, North Carolina Agencies 
stress the need for coordination with the affected State commissions, 
and Wal-Mart points to item number six in the document ``Proposed 
Funding Criteria for the ARRA Smart Grid Matching Grant Program'' 
recently proposed by the NARUC/FERC Smart Grid Collaborative to the 
Department of Energy, which proposes a variety of information 
requirements that could be used to help determine cost-effectiveness. 
Springfield argues that utilities should be required to demonstrate 
that they are following best utility practices, and should be required 
to demonstrate the incremental benefit of smart grid deployment as if 
such best practices were in place.\161\
---------------------------------------------------------------------------

    \160\ CPower Comments at 2, Alcoa Comments at 9, PSEG Companies 
Comments at 2, North Carolina Agencies Comments at 3, and Wal-Mart 
Comments at 6.
    \161\ Springfield Comments at 10.
---------------------------------------------------------------------------

    113. Illinois Commission argues that the Commission's proposed 
requirements seem to assume that smart grid proposals are economically 
justified by their very nature.\162\ Illinois Commission points out 
that under the Department of Energy's grant criteria, a smart grid 
project could be denied grant funding if it fails to adhere to the 
Institute-published standards, but under the Interim Rate Policy the 
same project could receive rate recovery and, in particular, guaranteed 
recovery of abandonment costs. Illinois Commission seeks clarification 
that this would not be automatically permitted. Instead, Illinois 
Commission argues that during the period between when the Institute 
publishes standards and the Commission adopts them through rulemaking, 
any affected smart grid rate recovery applicants should have the burden 
to establish that such project remains used and useful.\163\ Illinois 
Commission and AWEA also urge the Commission to limit application of 
the Interim Rate Policy to only those smart grid projects that further 
the Commission's goals associated with the two cross-cutting issues and 
priority functionalities identified in the

[[Page 37112]]

Proposed Policy Statement.\164\ Finally, Illinois Commission also 
argues that the Commission should maintain a traditional cost-
causation, beneficiary-pays cost allocation methodology and, in 
particular, prohibit broad socialization of such costs within 
RTOs.\165\
---------------------------------------------------------------------------

    \162\ Illinois Commission Comments at 4.
    \163\ Id. at 6. Maryland Counsel Comments at 5, n.4.
    \164\ Illinois Commission Comments at 6-7 and AWEA Comments at 
11-12.
    \165\ Illinois Commission Comments at 7.
---------------------------------------------------------------------------

    114. Michigan Commission argues that the Interim Rate Policy should 
be applied carefully and conservatively to avoid inefficient spending 
on equipment that does not promote real progress toward true smart grid 
functionality. Michigan Commission is particularly concerned about 
permitting cost recovery for smart grid deployments that cannot be 
upgraded to final interoperability standards. Accordingly, it argues 
that if the Commission proceeds with an Interim Rate Policy, it should 
clarify that its eligibility criteria will be strictly applied and only 
available to investments that create significant new smart grid 
functionality or serve as the basis for upgrading or expanding such 
functionality in the future.\166\
---------------------------------------------------------------------------

    \166\ Michigan Commission Comments at 10-12.
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    115. Indianapolis P&L also supports the proposed criteria but 
requests that the Commission apply these criteria with some degree of 
flexibility given that national smart grid development is a work-in-
progress. Specifically, Indianapolis P&L suggests that the need to 
demonstrate good faith adherence to the smart grid vision articulated 
in EISA may be complicated by the early stage of the interoperability 
process generally. In this regard, Indianapolis P&L suggests that any 
evaluation of applicant good faith decisions take into account the 
state of affairs at the time any decisions were made.\167\ Regarding 
the requirement to share information with the Department of Energy 
Smart Grid Clearinghouse, Indianapolis P&L respectfully requests that 
confidential and commercially-sensitive information not be demanded or 
that appropriate protections be permitted to apply.\168\
---------------------------------------------------------------------------

    \167\ Indianapolis P&L Comments at 4.
    \168\ Id. at 4-5.
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    116. FirstEnergy urges the Commission not to require applicants to 
make showings that would be unreasonable, overly burdensome, or 
inflexible such that any proposed cost recovery would discourage 
investment. It does not, however, specify whether any of the 
Commission's proposed eligibility criteria would fall into this 
category.\169\ DRSG Coalition, on the other hand, seems to argue that 
some of the Commission's proposed security criteria for cost recovery 
may be overly burdensome.\170\
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    \169\ First Energy Comments at 10.
    \170\ DRSG Coalition Comments at 9-10.
---------------------------------------------------------------------------

    117. SDG&E proposes that, where an application for rate recovery or 
incentives involves the utility's share of the cost of a project 
receiving partial Department of Energy funding, the Commission could 
deem the utility's share of the investment per se prudent as used and 
useful plant so that rate recovery of such costs would be deemed per se 
just and reasonable. If this proposal is not adopted outright, then 
SDG&E argues that the Commission should at least apply a rebuttable 
presumption that such costs are per se prudent and their rate recovery 
would be per se just and reasonable.
    118. AARP argues that the Commission's proposed eligibility 
criteria are equivalent to ``near automatic rate recovery'' for new 
investments labeled ``smart grid.'' \171\ AARP does not believe that 
the Commission's statutory responsibility to insure just and reasonable 
rates can be fulfilled with such criteria. First, it asserts that the 
Commission has failed to identify the specific investments, devices, or 
other systems that would or could be subject to the proposed Interim 
Rate Policy. It also asserts that the Commission should require 
applicants to affirmatively demonstrate benefits, such as enhanced 
reliability, as a condition for rate recovery. It also seems to argue 
that rate recovery should not be granted unless the applicant can 
demonstrate that the smart grid equipment in question can be 
upgraded.\172\ Finally, AARP proposes that the Commission require 
applicants to demonstrate that their investments have been reviewed and 
approved by State regulators when those investments are intimately 
related to, and coordinated with, investments that are subject to State 
regulatory authorities.\173\
---------------------------------------------------------------------------

    \171\ AARP Comments at 10.
    \172\ The Proposed Policy Statement encourages upgradeability 
but stops short of requiring it because it may not always be 
technically or economically feasible. Proposed Policy Statement, 126 
FERC ] 61,253 at P 49.
    \173\ AARP Comments at 10-12.
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    119. APPA has two concerns in this area.\174\ First, it is 
concerned that only smart grid costs associated with wholesale rates 
and transmission functions be recovered through filings under this 
proposal. It argues that the cost of smart grid installations that 
support retail service should be recovered in retail rates. Second, 
APPA opposes the Commission's proposal to consider smart grid devices 
and equipment to be used and useful for cost recovery purposes if the 
applicant meets the criteria set out in the Proposed Policy Statement. 
APPA believes that such treatment shifts the burden of proof from the 
applicant to customers opposing such a finding. Third, APPA believes 
that applicants for smart grid-related rate recovery or incentives 
should be required to show that their suppliers have attested to the 
integrity of the components used in the smart grid installation in 
question.
---------------------------------------------------------------------------

    \174\ APPA Comments at 16-17, 19.
---------------------------------------------------------------------------

    120. Kansas Commission concurs with the need to provide certainty 
and guidance regarding cost recovery issues but expresses concerns 
regarding the three criteria proposed by the Commission. Specifically, 
it prefers that more traditional demonstrations of the used and useful 
requirement be preserved and also supports a cost/benefit 
requirement.\175\ Massachusetts Attorney General believes that no smart 
grid costs should be eligible for rate recovery until after the 
Institute provides guidance on which technologies are most cost 
effective and where device deployment will be most valuable.\176\ 
Massachusetts Attorney General also recommends that the Commission 
require applicants to demonstrate that they maximized all opportunities 
to secure Federal funding to offset the costs associated with smart 
grid deployment.
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    \175\ Kansas Commission Comments at 7-8.
    \176\ Massachusetts Attorney General Comments at 3-4.
---------------------------------------------------------------------------

    121. Citizens Coalition opposes the proposal to find smart grid 
equipment used and useful if three conditions are met on the basis that 
such changes are ``simply dishonest manipulation of traditional utility 
principles.'' \177\ It also expresses concern with the proposal to 
require good faith efforts to adhere to the vision of a smart grid 
described in Title XIII of EISA. Specifically, it opposes a ``good 
faith'' standard and instead urges that applicants be required to show 
that they acted reasonably and prudently, which it characterizes as a 
standard of reasonableness.
---------------------------------------------------------------------------

    \177\ Citizens Coalition Comments at 10, 12-13.
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Commission Determination
    122. To help inform our review for rate approval of smart grid 
costs, an applicant seeking the recovery of smart grid costs must make 
four demonstrations. The first, and threshold, demonstration is that an 
applicant must show that the smart grid facilities will advance the 
goals of EISA section 1301. Second an applicant must show that the 
reliability and

[[Page 37113]]

cybersecurity of the bulk-power system will not be adversely affected 
by the deployment of the smart grid facilities at issue. Third, the 
applicant must show that it has minimized the possibility of stranded 
investment in smart grid equipment, in light of the fact that such 
filings will predate adoption of interoperability standards. Finally, 
because it will be important for early smart grid deployments, 
particularly pilot and demonstration projects, to provide feedback 
useful to the interoperability standards development process, an 
applicant must agree to provide feedback useful to the interoperability 
standards development process, by sharing information with the 
Department of Energy Smart Grid Clearinghouse.
    123. To make the first and threshold demonstration, an applicant 
must describe the proposed investment (including the technologies, 
systems, and applications it entails) and how it is consistent with the 
policy and one or more of the goals Congress set forth in section 1301 
of EISA. In section 1301 of EISA, Congress made clear that ``it is the 
policy of the United States to support the modernization of the 
Nation's electricity transmission and distribution system to maintain 
reliable and secure electricity infrastructure that can meet future 
demand growth'' and to achieve certain goals, ``which together 
characterize a Smart Grid.'' \178\ Those goals include increased use of 
digital information and controls technology to improve reliability, 
security, and efficiency of the electric grid, dynamic optimization of 
grid operations and resources, with full cybersecurity, and deployment 
and integration of distributed resources and generation, including 
renewable resources, demand side resources and energy efficiency 
resources. This threshold showing was implicit in the Proposed Policy 
Statement, but in light of many comments we received, we now state it 
explicitly.
---------------------------------------------------------------------------

    \178\ EISA section 1301.
---------------------------------------------------------------------------

    124. In order to make the second showing, an applicant must 
describe how its proposed deployment of smart grid equipment will 
maintain compliance with Commission-approved Reliability Standards, 
such as the CIPS Reliability Standards, during and after the 
installation and activation of smart grid technologies so the 
reliability and cyber security of the bulk-power system will not be 
jeopardized. An applicant must also address: (1) The integrity of data 
communicated (whether the data is correct), (2) the authentication of 
the communications (whether the communication is between the intended 
smart grid device and an authorized device or person), (3) the 
prevention of unauthorized modifications to smart grid devices and the 
logging of all modifications made, (4) the physical protection of smart 
grid devices, and (5) the potential impact of unauthorized use of these 
smart grid devices on the bulk-power system.
    125. To make the third showing concerning potential stranded smart 
grid investment, applicants must show how they have relied to the 
greatest extent practical on existing, widely adopted and open \179\ 
interoperability standards; and where feasible, relied on systems and 
firmware that can be securely upgraded readily and quickly.
---------------------------------------------------------------------------

    \179\ An open architecture is publicly known, so any and all 
vendors can build hardware or software that fits within that 
architecture, and the architecture stands outside the control of any 
single individual or group of vendors. In contrast, a closed 
architecture is vendor-specific and proprietary, and blocks other 
vendors from adoption. An open architecture encourages multi-vendor 
competition because every vendor has the opportunity to build 
interchangeable hardware or software that works with other elements 
within the system. See Gridwise Architecture Council Decision-
Maker's Interoperability Checklist Draft Version 1.0, http://
www.gridwiseac.org/pdfs/gwac_decisionmakerchecklist.pdf. We note 
that Congress recently made utilization of open protocols and 
standards, if available and appropriate, a condition of receiving 
funding from the Department of Energy for demonstration projects and 
grants pursuant to EISA section 1304 and 1306. See ARRA section 
405(3) and 405(8).
---------------------------------------------------------------------------

    126. Finally, to make the showing concerning the sharing of 
information, an applicant must agree to share with the Department of 
Energy Smart Grid Clearinghouse the same information required by the 
Department of Energy for its grant program. While in the Proposed 
Policy Statement the Commission initially proposed seven specific 
categories of information to be shared, modeled on a similar proposal 
made to the Department of Energy by the NARUC/FERC Smart Grid 
Collaborative, the Department of Energy has now released its final 
information sharing requirements and we will rely on those requirements 
instead.
    127. Some commenters argue that these showings represent a 
departure from traditional ratemaking practice. We disagree. These 
showings do not replace the Commission's existing demonstrations, but 
supplement them. The supplemental information is needed in this case to 
assure the Commission that recovery of investments in these new 
technologies, in some cases still experimental, are serving the 
interests of consumers while advancing the effort to create a smart 
grid. Further, although the Commission generally does not allow the 
recovery of new costs outside a rate case, we will do so for smart grid 
costs as explained further below, and this fact alone creates a need 
for additional filing requirements designed for just these costs. Here 
we are allowing cost recovery for jurisdictional smart grid costs based 
on traditional standards of review with an added showing that the 
technologies will not adversely affect the security and reliability of 
the grid, have minimized potential stranded investment related to 
consistency with interoperability standards as they are fully developed 
over time, and assist in providing information for future projects. 
Such considerations are fully consistent with the ``used and useful'' 
standard, and are the proper determinations for the Commission to make 
when considering whether a smart grid cost is just and reasonable in 
this interim period before a substantial body of relevant 
interoperability standards are adopted through Commission rulemaking.
    128. These considerations do not constitute automatic rate recovery 
for smart grid projects, as some commenters have suggested. The 
Commission has laid out specific showings that must be made, in 
addition to normal rate filing requirements, for rate recovery for a 
smart grid project to be approved. The burden is on the applicant to 
make these showings.
    129. The Commission rejects the arguments that a formal cost/
benefit or cost-effectiveness analysis should be required in addition 
to these three filing requirements. Under section 205 of the FPA, the 
Commission already considers whether rates are just and reasonable and 
not unduly discriminatory. Formal quantitative analyses typically 
contain some areas with highly subjective benefits that could lead to 
protracted debate between each side's experts and increase the cost of 
litigation. Further, a cost-benefit analysis would be particularly 
infeasible in this instance. For example, if the benefits of smart grid 
deployment were to include enhanced ability to accommodate changes in 
generation mix, including heavier reliance on renewable generation, 
then the costs of failure to deploy such technology could potentially 
include such hard-to-quantify costs as the results of global climate 
change. Such cost estimates will be highly dependent on a broad range 
of assumptions and would likely be highly contentious in every case. 
Accordingly, the value of such a requirement would be questionable. In 
any event, intervenors in rate proceedings can and do raise the issue 
of whether utility investments

[[Page 37114]]

were prudently made in light of their costs and they may continue to do 
so.
    130. Several commenters state that the Commission should identify 
what devices will be eligible for smart grid rate recovery. The 
Commission will not attempt to list all the particular facilities, 
equipment, or devices that are eligible or ineligible. In response to 
APPA and others, and as noted above, rate recovery will apply only to 
smart grid costs within the Commission's FPA jurisdiction. EISA does 
not alter the FPA's jurisdictional boundaries between Federal and State 
regulation over the rates, terms, and conditions of transmission 
service and sales of electricity.
3. Incentives Under the Interim Rate Policy
    131. In its Proposed Policy Statement the Commission proposed 
several incentive rate treatments for smart grid costs. These rate 
treatments are meant to encourage the adoption of and investment in 
smart grid technologies.
a. Single Issue Ratemaking
    132. As part of the Interim Rate Policy, the Commission proposed 
that jurisdictional entities should be able to recover costs for used 
and useful smart grid facilities on a single issue basis. That is, 
entities would be able to recover the cost of smart grid investments 
without having to open their entire rate base to Commission review.
Comments
    133. Some commenters \180\ support the Commission's proposal to 
permit single issue rate filings for qualifying smart grid investments. 
NYISO notes that allowing jurisdictional transmission owners to recover 
the cost of investment in new controls and communication devices may 
assist in stimulating needed investment.\181\ Midwest ISO Transmission 
Owners state that such a policy will encourage investment because it 
allows transmission owners to invest in smart grid equipment without 
running the risk that other aspects of their system-wide rates will 
become subject to review and possible alteration.\182\
---------------------------------------------------------------------------

    \180\ SDG&E Comments at 24-25, Indianapolis P&L Comments at 3-4, 
Black Hills Corp. Comments at 4, Midwest ISO Transmission Owners 
Comments at 3-7, and Allegheny Companies Comments at 8.
    \181\ NYISO Comments at 12.
    \182\ Midwest ISO Transmission Owners Comments at 4.
---------------------------------------------------------------------------

    134. Several commenters argue against the proposed single issue 
ratemaking, and state that the Commission should adhere to traditional 
ratemaking practices.\183\ ELCON states that such cost recovery is 
premature, given unresolved technical issues.\184\ APPA argues that 
single issue ratemaking for smart grid technology could lead to an 
over-recovery of costs, and is part of a trend in which the Commission 
overlooks its duty to insure just and reasonable rates in the name of 
current policy goals.\185\ Commenters also argue against treating 
approved smart grid technologies as used and useful.\186\ Citizens 
Coalition opposes any special rate treatment for smart grid equipment, 
as does ELCON for the same reasons that it opposes finalization of the 
Interim Rate Policy generally.\187\
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    \183\ NRECA Comments at 11-13, Maryland Counsel Comments at 2, 
4-5, Ohio Partners Comments at 9-10, ELCON Comments at 9-10, and 
Citizens Coalition Comments at 12-14.
    \184\ ELCON Comments at 9-10.
    \185\ APPA Comments at 17-18.
    \186\ NRECA Comments at 11-13, Maryland Counsel Comments at 4, 
and Ohio Partners at 9-10.
    \187\ Citizens Coalition Comments at 14 and ELCON Comments at 
13.
---------------------------------------------------------------------------

    135. EEI also argues that for purposes of smart grid-related single 
issue rate filings, the Commission should consider providing waiver of 
the full financial data requirements in the Commission's regulations. 
In particular, EEI argues that Period I data may be adequate for 
determining whether such rates are just and reasonable and the 
otherwise required Period II data may not be needed.
Commission Determination
    136. The Commission will allow single issue rate treatment for the 
recovery of costs associated with smart grid investments as part of its 
Interim Rate Policy. Although the Commission generally does not allow 
the recovery of new costs outside a rate case that considers all costs, 
the Commission has entertained exceptions for special cases. For 
example, in implementing FPA section 219, as enacted in the Energy 
Policy Act of 2005, the Commission has stated that it would allow 
single issue rate treatment for new transmission projects.\188\ 
Furthermore, such rate treatment is not unheard of in other 
jurisdictions; retail rates may include surcharges to the base rates in 
order to recover unusual, or ``single issue,'' costs.\189\ Here the 
Commission will allow single issue rate treatment in response to a 
pressing need for the development of new and innovative smart grid 
capabilities that will be needed by the electric system, and in 
response to a statutory directive to support the modernization of the 
electric grid. This will in no way affect the ability of customers to 
file a complaint pursuant to section 206 of the FPA if they believe 
that the ultimate rate charged by the public utility is no longer just 
and reasonable.
---------------------------------------------------------------------------

    \188\ Promoting Transmission Investment Through Pricing Reform, 
Order No. 679, FERC Stats. & Regs. ] 31,222, at P 191 (2006), order 
on reh'g, Order No. 679-A, FERC Stats. & Regs. ] 31,236 (2006), 
order on reh'g, 119 FERC ] 61,062 (2007).
    \189\ See, e.g., Kan. Stat. Ann. section 66-117(f) (2009), Pa. 
Pub. Util. Code section 2804(16)(ii) (2009) and WUTC v. Puget Sound 
Energy, Inc., Docket Nos. UE-011570 and UG-011571, at P 25 and 27 
(2002).
---------------------------------------------------------------------------

    137. As to EEI's request for clarification regarding waiver of the 
full financial data requirements in the Commission's regulations, the 
Commission already permits applicants to seek such waiver on a case-by-
case basis. On the record before us, we see no need for a blanket 
waiver. Applicants seeking such a waiver must retain the burden for 
supporting the waiver.
b. Recovery of Stranded Costs for Legacy Systems
    138. The Commission also proposed to permit applicants to seek 
recovery of the otherwise stranded costs of legacy systems that are to 
be replaced by smart grid equipment. The Commission stated that an 
appropriate plan for the staged deployment of smart grid equipment, 
which could include appropriate upgrades to legacy systems where 
technically feasible and cost-effective, could help minimize the 
stranding of unamortized costs of legacy systems. The Commission 
therefore proposed that any request to recover stranded legacy system 
costs must demonstrate that such a migration plan has been developed.
Comments
    139. AARP argues that the proposed stranded cost policies for 
legacy systems are unreasonable because they may present significant 
cost risk exposure to consumers. AARP recommends that the Commission 
transfer at least some portion of the risks of stranded costs from 
ratepayers to shareholders.\190\ APPA states that retail costs, 
including stranded costs, should not be reflected in wholesale rates. 
APPA also argues that applicants should be required to make every 
effort to minimize the stranding of legacy costs through phased 
integration strategies.\191\ Citizens Coalition opposes any recovery of 
the stranded legacy costs of legacy systems, stating that past stranded 
cost proceedings cost consumers billions of dollars.\192\ It argues 
that smart grid advocates should reimburse utilities and

[[Page 37115]]

their customers for such costs if they wish to replace such systems 
prematurely. ELCON also opposes permitting recovery of the stranded 
cost of legacy systems.\193\ NRECA argues that if the Commission's 
discussion of permitting applicants to seek stranded cost recovery was 
meant to change existing ratemaking policies, the Commission must 
provide more justification for doing so and detailed criteria for 
evaluating such applications.\194\ Additionally, several commenters 
argue that every effort should be made to minimize the stranding of 
legacy costs.\195\
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    \190\ AARP Comments at 12-13.
    \191\ APPA Comments at 20.
    \192\ Citizens Coalition Comments at 9, 14.
    \193\ ELCON Comments at 13.
    \194\ NRECA Comments at 14-15.
    \195\ Ohio Partners Comments at 11, National Grid Comments at 7, 
and Maryland Counsel Comments at 6.
---------------------------------------------------------------------------

    140. Other commenters support the Commission's proposals with 
respect to recovery of the stranded investment in legacy systems to be 
replaced by smart grid equipment, including the proposals meant to 
minimize such stranded costs.\196\ FirstEnergy also proposes that the 
Commission consider permitting accelerated depreciation or amortization 
for legacy systems to be replaced with smart grid equipment.\197\
---------------------------------------------------------------------------

    \196\ SDG&E Comments at 26, FirstEnergy Comments at 10, Midwest 
ISO Transmission Owners Comments at 9-11, PSEG Companies Comments at 
8, and Black Hills Corp. Comments at 4.
    \197\ First Energy Comments at 10.
---------------------------------------------------------------------------

Commission Determination
    141. As part of the Interim Rate Policy, the Commission will allow 
single issue rate treatment of otherwise stranded costs for 
jurisdictional legacy systems being replaced by jurisdictional smart 
grid equipment, provided that proposals to recover these costs are 
supported by an equipment migration plan that minimizes the stranding 
of unamortized costs of legacy systems. Elsewhere in this document, the 
Commission discusses several major potential challenges to the 
operation of the bulk-power system, and the smart grid capabilities 
that could help address those challenges. We view these challenges as 
potentially serious enough to justify making the development of these 
smart grid capabilities a high priority. Accordingly, if developing 
these capabilities requires the early replacement of some legacy 
equipment, we would view that as a strong argument for doing so, and 
would not necessarily render these previously-approved investments 
imprudent.
c. Additional Incentive Rate Treatments
    142. The Commission also stated that it will entertain requests for 
rate treatments such as accelerated depreciation and abandonment 
authority (whereby an applicant is assured of recovery of abandoned 
plant costs if the project is abandoned for reasons outside the control 
of the public utility) specifically tied to smart grid deployments 
under our FPA section 205 authority. The Commission stated that any 
requests for such rate treatment for smart grid costs would need to 
address all of the requirements for rate recovery and make the showings 
described in FPA section 205. The Commission also stated that it would 
consider applying these rate treatments to the portion of a smart grid 
pilot or demonstration project's cost that is not already paid for by 
Department of Energy funds, such as those authorized by EISA sections 
1304 and 1306.\198\ The Commission further stated that to the extent 
that such showings are made as discussed, it proposed to consider 
permitting abandonment authority to apply to any smart grid investments 
that, despite reasonable efforts, could not be upgraded and must 
ultimately be replaced if found to conflict with the final standards 
approved in the Institute's standards development process.
---------------------------------------------------------------------------

    \198\ To be codified at 42 U.S.C. 17384 and 17386.
---------------------------------------------------------------------------

Comments
    143. SDG&E supports the Commission's incentive proposals, 
particularly as to accelerated depreciation and the opportunity to 
recover the costs of abandoned plant. However, SDG&E seeks 
clarification that the Commission will entertain rate requests for 
abandoned plant costs over and above undepreciated capital costs, 
including other costs associated with abandoned facilities such as 
costs of early or premature contract termination.\199\
---------------------------------------------------------------------------

    \199\ SDG&E Comments at 26-27.
---------------------------------------------------------------------------

    144. In contrast, AARP urges caution regarding incentives for smart 
grid equipment before the adoption of final interoperability standards 
and proposes that requests for such incentives should be required to 
document the costs and benefits that will ultimately be borne by retail 
consumers. As with cost recovery generally, AARP argues that the 
Commission should identify specific investments, devices, or other 
systems that would or could be eligible for incentive treatment under 
this proposed policy. AARP argues that, at a minimum, requests for 
incentive treatment should be required to document the actual and 
improved reliability benefits from such investments and the applicant 
should bear all of the risk that those benefits will actually occur. 
Citizens Coalition opposes any special rate treatment for smart grid 
equipment, as does ELCON for the same reasons that it opposes 
finalization of the Interim Rate Policy generally.\200\ NRECA states 
that if the Commission's discussion of permitting applicants to seek 
rate treatments such as accelerated depreciation and abandonment 
authority was meant to change existing ratemaking policies, the 
Commission must provide more justification for doing so and detailed 
criteria for evaluating such applications.\201\
---------------------------------------------------------------------------

    \200\ Citizens Coalition Comments at 14 and ELCON Comments at 
13.
    \201\ NRECA Comments at 14-15.
---------------------------------------------------------------------------

    145. Massachusetts Attorney General urges the Commission to 
consider prohibiting, or at least significantly limiting, applicants' 
ability to recover return on equity incentive adders for smart grid 
investments. It argues that the potential risks associated with smart 
grid investments are minimal compared to large-scale transmission 
projects, especially in light of Department of Energy support through 
stimulus funding.\202\
---------------------------------------------------------------------------

    \202\ Massachusetts Attorney General Comments at 5-6.
---------------------------------------------------------------------------

    146. In contrast, Allegheny Companies recommend that three 
additional rate treatments be permitted: incentive return on equity, 
recovery of a return on 100 percent of construction work in progress, 
and the expensing of pre-commercial costs.\203\ Allegheny Companies 
also support the proposals regarding accelerated depreciation and 
abandonment but request that applicants be permitted to demonstrate on 
a case-by-case basis significantly shorter depreciable lives for early 
smart grid investments without needing to demonstrate that such shorter 
lives are required for cash flow purposes.\204\
---------------------------------------------------------------------------

    \203\ Allegheny Companies Comments at 6-7.
    \204\ Id. at 8-9.
---------------------------------------------------------------------------

    147. Valley Group asserts that real-time transmission ratings could 
reduce congestion cost by enabling more of the existing capacity of 
transmission facilities to be used safely, and proposes a new rate 
incentive tied to investment associated with enabling real-time 
transmission ratings.\205\
---------------------------------------------------------------------------

    \205\ Valley Group Comments at 2, 5-6.
---------------------------------------------------------------------------

    148. Finally, ITC Companies and EEI request clarification regarding 
the interplay between Order No. 679 and the incentive rate treatments 
discussed in the Interim Rate Policy. ITC Companies request that the 
Commission clarify that smart grid technologies applicable to the 
transmission system are considered advanced transmission

[[Page 37116]]

technologies eligible for transmission rate incentives under Order No. 
679.\206\ EEI asks the Commission to clarify whether the Commission 
will differentiate between devices that qualify for advanced technology 
incentives under Order No. 679 and those that qualify under the Interim 
Rate Policy; or whether the same technology may qualify for either 
incentive. EEI also requests that the Commission clarify whether 
projects receiving treatment under the Interim Rate Policy preclude 
smart grid projects from receiving incentives under Order No. 679.\207\ 
AARP argues that such single issue rate filings should be required to 
adhere to the Commission's regulations and conform to procedures 
enacted under FPA section 219.\208\
---------------------------------------------------------------------------

    \206\ ITC Companies Comments at 8-10.
    \207\ EEI Comments at 15.
    \208\ AARP Comments at 13-15.
---------------------------------------------------------------------------

Commission Determination
    149. The Commission will permit utilities to request accelerated 
depreciation and abandonment authority under the terms of its Interim 
Rate Policy under FPA section 205. As discussed elsewhere in this 
Policy Statement, smart grid investment can help address major 
challenges facing the bulk-power system. However, as with any section 
205 filing or petition for declaratory order, the Commission will make 
the rate determination based on the specific facts and circumstances 
presented, including the relationship to other incentives, if any.
4. Potential Interplay With Department of Energy Funding Grants
    150. Subsequent to the Commission's issuance of the Proposed Policy 
Statement, the Department of Energy announced two smart grid funding 
opportunities for up to fifty percent of the costs of certain smart 
grid projects. In addition, the Department of Energy planned to require 
applicants to identify the source of non-Department of Energy funds, 
along with some evidence as to the certainty of these funds.
    151. Given that applicants for these programs might include 
jurisdictional public utilities that seek rate recovery through 
Commission-jurisdictional rates for the non-Department of Energy 
portion of funds for transmission-related projects, the Commission 
sought supplemental comments on the matter. The Commission received 16 
supplemental comments.
Comments
    152. There are two major themes in the supplemental comments. 
First, the investor-owned electric industry is supportive of the 
Commission's proposal to conditionally approve rate adjustments on 
smart grid projects, including those eligible for Department of Energy 
funding. EEI is fully supportive of the Commission's smart grid Interim 
Rate Policy proposal, stating that it provides certainty and incentives 
for utilities to aggressively pursue Department of Energy funding.\209\ 
Without interim rate policies, utilities may be less willing or unable 
to pursue Department of Energy funding. EEI encourages the Commission 
to issue its Interim Rate Policy before the Department's release of its 
June 17, 2009 final funding opportunity documents, and certainly prior 
to the July 29 project submission deadline. EEI supports rate recovery 
of upgrades to legacy systems and rate recovery of stranded costs 
resulting from smart grid upgrades.\210\ EEI also states that expedited 
rate adjustments can be accomplished through formula rates.\211\ SDG&E, 
PSEG, PG&E, and the New York Transmission Owners all filed comments in 
support of the Commission's Interim Rate Policy proposals.\212\ None of 
the Investor Owned Utility commenters suggests that the Commission 
adopt a separate rate policy for investments supported by Department of 
Energy funds.
---------------------------------------------------------------------------

    \209\ EEI Supplemental Comments at 4-5.
    \210\ Id. at 6.
    \211\ Id.
    \212\ SDGE Supplemental Comments at 1-2, PSEG Supplemental 
Comments at 1-2, PGE Supplemental Comments at 1, and NYISO 
Supplemental Comments at 3.
---------------------------------------------------------------------------

    153. Second, the public power sector, energy consumer 
representatives, and state regulatory commissions oppose or have 
serious reservations about the Commission's policy proposal. NRECA and 
ELCON continue to oppose the Commission's Interim Rate Policy proposal 
generally. NRECA stresses that the Commission should strictly adhere to 
the just and reasonable requirements of the FPA.\213\ NRECA's position 
is that rate adjustments related to smart grid investments can be 
processed expeditiously while still following requirements prescribed 
in the FPA. NRECA also states that cost recovery assurance for 
facilities not under construction is beyond the Commission's 
authority.\214\ NRECA further states that a careful reading of the 
Department of Energy draft funding opportunity announcement does not 
condition grant award upon assurance of recovery of smart grid 
facilities in rates.\215\ Similarly, ELCON states the Commission should 
proceed carefully and focus on its statutory obligation that utility 
costs are prudently incurred, and used and useful.\216\ ELCON also 
reaffirms its opposition to the Commission's proposed Interim Rate 
Policy and states that special rate treatment for smart grid 
investments is contrary to the FPA.\217\
---------------------------------------------------------------------------

    \213\ NRECA Supplemental Comments at 4-5.
    \214\ Id. at 10-11.
    \215\ Id. at 8-9.
    \216\ ELCON Supplemental Comments at 3.
    \217\ Id. at 3.
---------------------------------------------------------------------------

    154. NARUC asserts, as does NRECA, that many if not most of the 
grant projects will occur on the distribution-retail side of the 
grid.\218\ In consequence, the Commission should not provide funding 
guarantees for that portion of smart grid projects not covered by 
Department of Energy grants; State commissions must have the 
opportunity to review these projects. The Maryland Commission comments 
mirror NARUC's and NRECA's, opposing the Interim Rate Proposal 
generally and specifically opposing conditional rate recovery of 
projects it considers to be State jurisdictional.\219\ The California 
Commission provided a copy of an order describing how it will review 
smart grid projects eligible for Department of Energy funds.\220\
---------------------------------------------------------------------------

    \218\ NARUC Supplemental Comments at 1.
    \219\ Maryland Commission Supplemental Comments at 1-2.
    \220\ CPUC Supplemental Comments at 1.
---------------------------------------------------------------------------

    155. AARP comments, while not explicitly opposing the Commission's 
Interim Rate Proposal, say that additional clarity should be provided 
to the smart grid cost approval process, including conducting a 
preliminary review of smart grid grant applications to determine 
whether they are complete.\221\ Similarly, the Massachusetts Attorney 
General stresses that the Commission should have a project approval and 
monitoring process that focuses on cost containment.\222\
---------------------------------------------------------------------------

    \221\ AARP Supplemental Comments at 1-3.
    \222\ Massachusetts Commission Supplemental Comments at 3-4.
---------------------------------------------------------------------------

Commission Determination
    156. Having considered the supplemental comments, the Commission 
sees no need for special procedures for rate recovery filings for 
projects that also receive Department of Energy grant funding. The 
Department of Energy does not require an assurance of rate recovery as 
a condition for grant funding. In fact, the most recent version of the 
Department of Energy's Smart Grid Grant Program states that applicants 
that do not yet have regulatory approval are eligible to

[[Page 37117]]

receive an award.\223\ The more general concerns expressed by the 
commenters regarding the Interim Rate Policy have been addressed in 
previous sections of this Policy Statement.
---------------------------------------------------------------------------

    \223\ See generally Recovery Act Smart Grid Grant Investment 
Program, http://www.grants.gov/search/
search.do;jsessionid=fvXjKDLQNQG8kgxwx65nJs4rYhGgThcL9t7KzGZCkqFXSRpG
pn9z!1215949849?oppId=46833&flag2006=false&mode=VIEW.
---------------------------------------------------------------------------

III. Document Availability

    157. In addition to publishing the full text of this document in 
the Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through the Commission's Home Page (http://www.ferc.gov) and 
in the Commission's Public Reference Room during normal business hours 
(8:30 a.m. to 5 p.m. Eastern time) at 888 First Street, NE., Room 2A, 
Washington, DC 20426.
    158. From the Commission's home page on the Internet, this 
information is available on eLibrary. The full text of this document is 
available on eLibrary in PDF and Microsoft Word format for viewing, 
printing, and/or downloading. To access this document in eLibrary, type 
the docket number excluding the last three digits of this document in 
the docket number field.
    159. User assistance is available for eLibrary and the Commission's 
website during normal business hours from Federal Energy Regulatory 
Commission Online Support at 202-502-6652 (toll free at 1-866-208-3676) 
or e-mail at ferconlinesupport@ferc.gov, or the Public Reference Room 
at (202) 502-8371, TTY (202) 502-8659. E-mail the Public Reference Room 
at public.referenceroom@ferc.gov.

IV. Information Collection Statement

    160. Office of Management and Budget's (OMB) regulations in 5 CFR 
1320.11 require that it approve certain reporting and recordkeeping 
requirements (collections of information) imposed by an agency. Upon 
approval of a collection of information, OMB assigns an OMB control 
number and an expiration date. Entities subject to the filing 
requirements of the Interim Rate Policy will not be penalized for 
failing to respond to this collection of information unless the 
collection of information displays a valid OMB control number.
    161. The Interim Rate Policy may affect the following existing data 
collection: Electric Rate Schedule and Tariff Filings (FERC-516) OMB 
Control No. 1902-0096.
    162. The following burden estimate is based on the projected costs 
for the industry to implement revisions to satisfy the requirements of 
the Interim Rate Policy if and when rate recovery is sought under that 
policy:

----------------------------------------------------------------------------------------------------------------
                                                                Number of
             Data collection                  Number of       responses per       Hours per      Total number of
                                             respondents       respondent         response            hours
----------------------------------------------------------------------------------------------------------------
FERC-516................................               116                 1                15              1740
                                         -----------------------------------------------------------------------
    Totals..............................  ................  ................  ................              1740
----------------------------------------------------------------------------------------------------------------

    Total Annual Hours for Collection
    (Reporting and Recordkeeping, (if appropriate)) = 1740
    163. Information Collection Costs: The Commission projects the 
average annualized cost for all respondents to be the following: \224\
---------------------------------------------------------------------------

    \224\ The total annualized costs for the information collection 
is $261,000. This number is reached by multiplying the total hours 
to prepare responses (1740 hours) by an hourly wage estimate of $150 
(a composite estimate that includes legal, technical and support 
staff rates, $90+$35+$25). $261,000 = $150 x 1740.

------------------------------------------------------------------------
                                                               FERC-516
------------------------------------------------------------------------
Total Annualized Costs.....................................     $261,000
------------------------------------------------------------------------

    164. The Commission sought comments on the Interim Rate Policy, 
among other things, in the Proposed Policy Statement. No comments were 
filed relating to the burden of reporting or complying with the 
requirements for seeking rate recovery pursuant to the Interim Rate 
Policy.
    165. The Commission's Interim Rate Policy adopted herein is 
necessary to encourage the near-term deployment of smart grid systems 
capable of addressing upcoming challenges to the operation of the bulk-
power system. Requiring the information specified in the Interim Rate 
Policy will encourage this near-term deployment while appropriately 
protecting customers from stranded costs and the electric system from 
potential cybersecurity threats.
    166. These requirements conform to the Commission's goal for 
efficient information collection, communication, and management within 
the electric power industry. The Commission has assured itself, by 
means of its internal review, that there is specific, objective support 
for the burden estimates associated with the information requirements.
    167. OMB regulations \225\ require it to approve information 
collection requirements imposed by an agency. The Commission is 
submitting notification of the Interim Rate Policy to OMB. These 
information collections are voluntary and apply only to the extent that 
an entity seeks to benefit from the Interim Rate Policy.
---------------------------------------------------------------------------

    \225\ 5 CFR 1320.12.
---------------------------------------------------------------------------

    Title: Electric Rate Schedule and Tariff Filings (FERC-516).
    Action: Proposed collection.
    OMB Control No.: 1902-0096.
    Respondents: Business or other for profit.
    Frequency of Responses: Estimated to be one time per respondent. 
The Interim Rate Policy will be in effect until relevant 
interoperability standards have been adopted through Commission 
rulemaking as provided by the EISA.
    Necessity of the Information: The Interim Rate Policy will 
encourage near-term deployment of smart grid systems capable of helping 
to address the upcoming challenges to the operation of the bulk-power 
system associated with the EISA. The information to be collected is 
necessary to protect customers from stranded costs and the electric 
system from potential cybersecurity threats. The Commission will use 
the information in rate proceedings to review rate and tariff changes 
by public utilities, for general industry oversight, and to supplement 
the documentation used during the Commission's audit process.
    168. The Commission is submitting to OMB a notification of these 
proposed collections of information. For information on the 
requirements, submitting comments on the collection of information and 
the associated burden estimates, including suggestions for reducing 
this burden, please contact the following:

Federal Energy Regulatory Commission, Attn: Michael Miller, Office of 
the Executive Director, 888 First Street, NE., Washington, DC 20426, 
Tel: (202)

[[Page 37118]]

502-8415/Fax: (202) 273-0873, E-mail: michael.miller@ferc.gov.

Or contact:

Office of Information and Regulatory Affairs, Office of Management and 
Budget, Washington, DC 20503, Attention: Desk Officer for the Federal 
Energy Regulatory Commission, (Re: OMB Control Nos. 1902-0096), Tel: 
(202) 395-4638, E-mail: omb_submissions@omb.eop.gov.

V. Effective Date and Congressional Notification

    169. The Interim Rate Policy adopted in this Policy Statement is 
effective September 25, 2009. The Commission has determined, with the 
concurrence of the Administrator of the Office of Information and 
Regulatory Affairs of OMB, that this Policy Statement is a ``major 
rule'' as defined in section 351 of the Small Business Regulatory 
Enforcement Fairness Act of 1996.\226\ The Commission will submit this 
Policy Statement to both houses of Congress and to the Government 
Accountability Office.
---------------------------------------------------------------------------

    \226\ See 5 U.S.C. 804(2) (2007).

    By the Commission.
Nathaniel J. Davis, Sr.,
Deputy Secretary.

             Appendix A--List of Commenters and Short Names
------------------------------------------------------------------------
              Abbreviation                          Commenter
------------------------------------------------------------------------
AARP...................................  American Association of Retired
                                          Persons.
Academic Commenters....................  Michael C. Caramanis, Geoffrey
                                          Parker, and Richard D. Tabors.
Alcoa..................................  Alcoa Inc. and Alcoa Power
                                          Generating Inc.
Allegheny Companies....................  Trans-Allegheny Interstate Line
                                          Company and Allegheny Power.
American Transmission..................  American Transmission Company
                                          LLC.
APPA...................................  American Public Power
                                          Association.
APS....................................  Arizona Public Service Company.
AT&T...................................  AT&T, Inc.
AWEA...................................  American Wind Energy
                                          Association.
B-D Research...........................  Bochman-Danahy Research.
Black Hills Corp.......................  Black Hills Power, Black Hills/
                                          Colorado Electric Utility
                                          Company, LP d/b/a Black Hills
                                          Energy, and Cheyenne Light,
                                          Fuel and Power Company.
BP.....................................  BP Energy Company.
CAISO..................................  California Independent System
                                          Operator Corporation.
California Commission..................  Public Service Commission of
                                          California.
CenterPoint............................  CenterPoint Energy Houston
                                          Electric, LLC.
Chamber................................  U.S. Chamber of Commerce.
Citizens Coalition.....................  The Empowerment Center of
                                          Greater Cleveland, the
                                          Neighborhood Environmental
                                          Coalition, Consumers for Fair
                                          Utility Rates, and Cleveland
                                          Neighborhood Housing.
Comverge...............................  Comverge, Inc.
CPower.................................  CPower, Inc.
CURRENT................................  CURRENT Group, LLC.
DRSG Coalition.........................  Demand Response and Smart Grid
                                          Coalition.
Duke...................................  Duke Energy Corporation.
EEI....................................  Edison Electric Institute.
ELCON..................................  Electricity Consumers Resource
                                          Council.
EPSA...................................  Electric Power Supply
                                          Association.
E.ON...................................  E.ON U.S. LLC.
FirstEnergy............................  FirstEnergy Service Company on
                                          behalf of its affiliates
                                          American Transmission Systems,
                                          Incorporated, the Cleveland
                                          Electric Illuminating Company,
                                          Jersey Central Power and Light
                                          Company, Metropolitan Edison
                                          Company, Ohio Edison Company,
                                          Pennsylvania Electric Company,
                                          Pennsylvania Power Company,
                                          and the Toledo Edison Company.
GridSolar..............................  GridSolar, LLC.
GridWise Alliance......................  GridWise Alliance.
GWAC...................................  GridWise Architecture Council.
Ice Energy.............................  Ice Energy, Inc.
Illinois Commission....................  Illinois Commerce Commission.
Indianapolis P&L.......................  Indianapolis Power & Light
                                          Company.
ISO-NE.................................  ISO New England Inc.
ITC Companies..........................  International Transmission
                                          Company d/b/a ITCTransmission,
                                          Michigan Electric Transmission
                                          Company, LLC, and ITC Midwest
                                          LLC.
James E. Miller........................  James E. Miller.
Kansas Commission......................  Kansas Corporation Commission.
Maryland Commission....................  Public Service Commission of
                                          Maryland (supplemental
                                          comments only).
Maryland Counsel.......................  Maryland Office of People's
                                          Counsel.
Massachusetts Attorney General.........  Massachusetts Office of
                                          Attorney General.
Michigan Commission....................  Michigan Public Service
                                          Commission.
Midwest ISO............................  Midwest Independent
                                          Transmission System Operator,
                                          Inc.
Midwest ISO Transmission Owners........  Midwest ISO Transmission
                                          Owners.
NARUC..................................  National Association of
                                          Regulatory Utility
                                          Commissioners.
National Grid..........................  National Grid USA.

[[Page 37119]]

Natural Gas Commenters.................  Natural Gas Supply Association,
                                          Interstate Natural Gas
                                          Association of America, and
                                          Independent Petroleum
                                          Association of America.
NEM and Intelligent Energy.............  National Energy Marketers
                                          Association and Intelligent
                                          Energy.
NEMA...................................  National Electrical
                                          Manufacturers Association.
NERC...................................  North American Electric
                                          Reliability Corporation.
New York Transmission Owners...........  Central Hudson Gas & Electric
                                          Corporation, Consolidated
                                          Edison Company of New York,
                                          Inc., New York Power
                                          Authority, New York State
                                          Electric & Gas Corporation,
                                          Orange and Rockland Utilities,
                                          Inc., and Rochester Gas and
                                          Electric Corporation
                                          (supplemental comments only).
North Carolina Agencies................  North Carolina Public Utilities
                                          Commission and Public Staff-NC
                                          Utilities Commission.
NRECA..................................  National Rural Electric
                                          Cooperative Association.
NRG Companies..........................  NRG Energy, Inc. and Reliant
                                          Energy Retail Services, LLC.
NYISO..................................  New York Independent System
                                          Operator.
Ohio Commission........................  Public Utilities Commission of
                                          Ohio.
Ohio Counsel...........................  Office of the Ohio Consumers'
                                          Counsel.
Ohio Partners..........................  Citizen Power, Cleveland
                                          Housing Network, Edgemont
                                          Neighborhood Coalition of
                                          Dayton, the Empowerment Center
                                          of Greater Cleveland, the
                                          Energy Project, the National
                                          Consumer Law Center, the
                                          Neighborhood Environmental
                                          Coalition, and Ohio Partners
                                          for Affordable Energy.
Open Secure Systems....................  Open Secure Energy Control
                                          Systems, LLC.
PG&E...................................  Pacific Gas and Electric
                                          Company.
PNM....................................  Public Service Company of New
                                          Mexico.
PSEG Companies.........................  PSEG Energy Resources & Trade
                                          LLC, Public Service Electric
                                          and Gas Company, PSEG Power
                                          LLC, PSEG Global LLC.
Public Interest Organizations..........  Project for Sustainable FERC
                                          Energy Policy, Conservation
                                          Law Foundation, Natural
                                          Resources Defense Council, The
                                          Commons, Union of Concerned
                                          Scientists, and Western Grid
                                          Group.
SDG&E..................................  San Diego Gas & Electric
                                          Company.
Silver Spring Networks.................  Silver Spring Networks.
Southern...............................  Southern Company Services, Inc.
Springfield............................  Springfield Utility Board.
TANC...................................  Transmission Agency of Northern
                                          California.
TAPS...................................  Transmission Access Policy
                                          Study Group (supplemental
                                          comments only).
TVA....................................  Tennessee Valley Authority.
Valley Group...........................  The Valley Group.
Wal-Mart...............................  Wal-Mart Stores, Inc.
Xcel...................................  Xcel Energy Services Inc.
------------------------------------------------------------------------

[FR Doc. E9-17624 Filed 7-24-09; 8:45 am]

BILLING CODE 6717-01-P