Regulatory Reality

Amid Economic Crisis, Federal Support Remains Strong

Published In: Intelligent Utility Magazine January/February 2009

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Despite an ailing economy, the federal government's interest in modernizing the electricity grid to be more reliable, use less energy, save money, increase the nation's security and lower greenhouse gas emissions, remains strong.

Utilities, for instance, are set to benefit from a measure included in the $700-billion bailout package signed into law last year that would allow them to write off smart grid-related meters and equipment at a hastened pace. These tax incentives would be worth $915 million and, by taking bigger deductions annually, would let companies depreciate investments over 10 years, instead of the usual 20, according to a recent Dow Jones Newswire article. 

But whether this measure will be enough to spur capital spending on these applications is yet to be seen. The U.S. Department of Energy (DOE) estimates that investments totaling near $1.5 trillion will be needed between 2010 and 2030 to build the new infrastructure.

Standard & Poor's, an international credit ratings company, is optimistic. The company predicts that although utilities may significantly adjust their spending because of the economic crisis, expenditures are more likely to be deferred rather than to be eliminated permanently. The company's most recent report goes on to say that utilities will continue to invest in improving ''a rapidly aging and increasingly unreliable infrastructure,'' instead of the more expensive option of building a new plant.

President Barack Obama sees improved energy efficiency rather as essential to stimulating the economy. Transforming to a clean energy economy could create five million new jobs, says Obama's ''New Energy for America'' plan. Modernizing the electricity grid, in particular, is paramount to remaining. globally competitive and minimizing the impact of global warming, the president said in an interview last October. However, he believes investments in a new, more intelligent infrastructure cannot be left to private enterprise. The federal government is going to have to be involved in the process, he said.

Several pieces of legislation at different stages of consideration would encourage this federal support.

Under Title XIII of the 2007 Energy Independence and Security Act, signed into law just over one year ago, the DOE is expected to establish a ''Smart Grid Investment Matching Grant Program'' to reimburse 20 percent of the cost of all qualifying smart grid investments and, in cooperation with the Federal Energy Regulatory Commission, to scale up research and demonstration projects. In particular, the legislation tasks the DOE with carrying out projects in five areas of the United States, including rural areas and one governed by a tax-exempt entity, such as a public power utility.

By the Act, states, starting in December 2008, had to consider making utilities show that they had thought about investing in ''smart'' technologies before investing in ''nonadvanced'' applications. States have until the end of 2009 to decide whether they will obligate utilities under the law. Another major provision of the law would direct the development of an ''interoperability framework'' to better integrate the grid.

Two main bodies - a smart grid advisory committee and a task force - are designated within the bill. The task force, which held its first implementation workshop this past June, helps to coordinate the activities of the DOE Office of Electricity Delivery and Energy Reliability.

While an abundance of other bills have been introduced that include a smattering of provisions to push forward a smarter grid, only one measure, sponsored by Congressman Rick Boucher, D-Va., was written to exclusively spark smart grid investments.

Like Title XIII, Boucher's legislation, if passed, would declare, as a national policy, support for modernizing the electricity grid ''to incorporate digital information and controls technology and to share real-time pricing information with electricity customers.'' It would direct President Obama to create a Grid Modernization Commission to facilitate the ''general adoption of smart grid practices'' and to promote ongoing support from the electricity sector.

Meanwhile, Senator Maria Cantwell, D-Wash., had introduced a similar bill in 2007, ''The Reducing Demand through Electricity Grid Intelligence Act,'' that would have created tax credits linked to reducing peak demand and on-peak consumption, including an enhanced rate of return for utilities that invest in grid modernization. The law would have allotted smart grid technologies a five-year depreciation lifetime - five years less than under President Bush's bailout package - and would have allowed utilities to recover costs on inefficient, retired meters as soon as smart meters had been installed.

However, the bill failed to pass. While several provisions were incorporated into the 2007 energy bill, former President George Bush threatened to veto the stand-alone bill. According to Sen. Cantwell's media relations team, the senator may introduce a comparable bill during the next Congressional session.

This would fall in line with President Obama's energy plan, which accords achieving aggressive energy-efficiency goals with ''a major investment in our national utility grid using smart metering, distributed storage and other advanced technologies to accommodate 21st-century energy requirements.''

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