# 128 FERC ¶ 61,060: Smart Grid Policy Statement > Federal · Agency guidance · In force URL: https://www.frixlaw.com/law-library/statutes/FERC_PL09_4_000 ## Section - **Citation:** 128 FERC ¶ 61,060 - **Heading:** Smart Grid Policy Statement - **Jurisdiction:** Federal - **Kind:** Agency guidance - **Status:** In force - **Text as of:** August 14, 2026 - **Source:** Compiled text - **Location:** FERC Policy Statements / Smart Grid Policy Statement ## Text 128 FERC ¶ 61,060 UNITED STATES OF AMERICA 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 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. EFFECTIVE DATE: The Interim Rate Policy will become effective [Insert_Date 60 days after publication in the FEDERAL REGISTER]. Docket No. PL09-4-000 - 2 - FOR FURTHER INFORMATION CONTACT: David Andrejcak Office of Electric Reliability 888 First Street, N.E. Washington, D.C. 20426 (202) 502-6721 david.andrejcak@ferc.gov Elizabeth H. Arnold Office of General Counsel 888 First Street, N.E. Washington, D.C. 20426 (202) 502-8818 elizabeth.arnold@ferc.gov Ray Palmer Office of Energy Policy and Innovation 888 First Street, N.E. Washington, D.C. 20426 (202) 502-6569 ray.palmer@ferc.gov Dennis Reardon Office of Energy Market Regulation 888 First Street, N.E. Washington, D.C. 20426 rc.gov Elizabeth H. Arnold Office of General Counsel 888 First Street, N.E. Washington, D.C. 20426 (202) 502-8818 elizabeth.arnold@ferc.gov Ray Palmer Office of Energy Policy and Innovation 888 First Street, N.E. Washington, D.C. 20426 (202) 502-6569 ray.palmer@ferc.gov Dennis Reardon Office of Energy Market Regulation 888 First Street, N.E. Washington, D.C. 20426 (202) 502-6719 dennis.reardon@ferc.gov SUPPLEMENTARY INFORMATION: UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION Smart Grid Policy Docket No. PL09-4-000 TABLE OF CONTENTS Paragraph Numbers 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-System Interfaces................... 46. 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 ......................................... 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 Funding Grants...................... 150. III. Document Availability ............................................................................................ 157. IV. Information Collection Statement .......................................................................... 160. V. Effective Date and Congressional Notification........................................................ 169. Appendix A List of Commenters and Short Names cument Availability ............................................................................................ 157. IV. Information Collection Statement .......................................................................... 160. V. Effective Date and Congressional Notification........................................................ 169. Appendix A List of Commenters and Short Names 128 FERC ¶ 61,060 UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION Before Commissioners: Jon Wellinghoff, Chairman; Suedeen G. Kelly, Marc Spitzer, and Philip D. Moeller. Smart Grid Policy Docket No. PL09-4-000 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 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). erim 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 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). Docket No. PL09-4-000 - 2 - 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 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 number of goals characterizing a smart grid.6 EISA also directs the National Institute of (continued…) 3 16 U.S.C. 824, 824o (2006). 4 Public Law No. 110-140, 121 Stat. 1492 (2007). 5 EISA sec. 1305(d), to be codified at 15 U.S.C. 17385(d). 6 EISA sec. 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 d…) 3 16 U.S.C. 824, 824o (2006). 4 Public Law No. 110-140, 121 Stat. 1492 (2007). 5 EISA sec. 1305(d), to be codified at 15 U.S.C. 17385(d). 6 EISA sec. 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 Docket No. PL09-4-000 - 3 - 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 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 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 sec. 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 d 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 sec. 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. 9 EISA sec. 1305(d). Docket No. PL09-4-000 - 4 - 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. 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 10 Proposed Policy Statement, 126 FERC ¶ 61,253 at P 13 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 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. Docket No. PL09-4-000 - 5 - overarching need for standardization of communication and coordination across inter- system interfaces.14 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) ving 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. 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.pd f, at 1 and 4-5. 15 Adopted under FPA sec. 215, 16 U.S.C. 824o. Docket No. PL09-4-000 - 6 - 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 8 d 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 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 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. 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 (continued…) 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 (continued…) Docket No. PL09-4-000 - 7 - 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 priorities20 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. 10. In this Policy Statement, the Commission adopts the key priorities for standards development that were identified in the Proposed Policy Statement. The Commission 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 dditional 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. 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. Docket No. PL09-4-000 - 8 - 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 d 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 21 Id. P 1. 22 16 U.S.C. 824, 824o. Docket No. PL09-4-000 - 9 - grid functionality and interoperability in interstate transmission of electric power, and in regional and wholesale electricity markets.23 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 onal and wholesale electricity markets.23 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 23 EISA sec. 1305(d), to be codified at 15 U.S.C. 17385(d). 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. 23 EISA sec. 1305(d), to be codified at 15 U.S.C. 17385(d). 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. Docket No. PL09-4-000 - 10 - 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 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 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 26 Michigan Commission Comments at 8 and Maryland Counsel Comments at 5. 27 Ohio Commission Comments at 5-7. 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 26 Michigan Commission Comments at 8 and Maryland Counsel Comments at 5. 27 Ohio Commission Comments at 5-7. Docket No. PL09-4-000 - 11 - 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 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 standards31 while preserving state ratemaking authority,32 and (4) whether the Commission has the authority to mandate a nationwide meter communications protocol.33 28 Kansas Commission Comments at 5-6. 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. -6. 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. Docket No. PL09-4-000 - 12 - 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. 888,36 to delineate between federal and state activities.37 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 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 sion 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. Docket No. PL09-4-000 - 13 - 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 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 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 38 NARUC Comments at 13. 39 California Commission Comments at 4, 12 ission 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 38 NARUC Comments at 13. 39 California Commission Comments at 4, 12. 40 Ohio Commission Comments at 1, 10. Docket No. PL09-4-000 - 14 - 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 41 EISA sec. 1301 and sec. 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 s intended to include all 41 EISA sec. 1301 and sec. 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. Docket No. PL09-4-000 - 15 - lesale of the Commission’s ratemaking or reliability jurisdiction, as many commenters 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 who electricity markets. 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 note. 43 See, e.g., EISA sec. 1301 and sec. 1305(a) (stating that the framework should “enable all electric resources, including demand-side resources, to contribute to an efficient, reliable electricity network”) and sec. 1305(b). larly, 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 note. 43 See, e.g., EISA sec. 1301 and sec. 1305(a) (stating that the framework should “enable all electric resources, including demand-side resources, to contribute to an efficient, reliable electricity network”) and sec. 1305(b). Docket No. PL09-4-000 - 16 - ion ects t it ropriate for a utility to recover the same costs for a smart grid project particular retail customer policies or programs. To the extent the Commission does adopt 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 Commiss precedent for guidance.44 The Commission will evaluate particular facilities and proj on a case-by-case basis. In response to commenters’ concerns, we recognize tha would be inapp twice, through state-approved retail rates and again in a proceeding before this Commission. 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 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) f 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). 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. Docket No. PL09-4-000 - 17 - e n insure compliance with any art mission would consider adoption of such a standard pursuant to EISA ies of ions smart of smart grid standards related to facilities outside the Commission’s jurisdiction under th FPA, we agree with the Ohio Commission that states ca standards they deem applicable to their jurisdictions. 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 sm grid interoperability standard related to storing electric power by charging electric vehicles, the Com section 1305(d). 27 ing 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 sm grid interoperability standard related to storing electric power by charging electric vehicles, the Com section 1305(d). 27. The Commission recognizes that states have an interest in the functionalit smart grid technologies, as suggested by North Carolina Agencies and the Ohio Commission, and we encourage states to actively participate in the ongoing discuss 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 grid technologies should interfere with a state’s ability to adopt whatever advanced metering or demand response program it chooses. Nor will Commission adoption national standards affect the existing statutory framework for wholesale and retail pricing. Interoperability standards should be designed flexibly enough to support Docket No. PL09-4-000 - 18 - ed, Commission should enhance, not limit, the policy alternative programs and pricing policies being considered by a particular state. Inde national standards adopted by the 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 emerge many states ( d in e.g., integrating renewable generation to permit utilities to meet state- mandated renewable portfolio requirements) ership 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 emerge many states ( d in e.g., integrating renewable generation to permit utilities to meet state- mandated renewable portfolio requirements). We see great benefit from collaborati closely with states regarding flexibility in smart grid standards and adapting to new technologies, and we expect to work with th ng e 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 prioritiz 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 address existing and emerging challenges to the operation of the bulk-power sys These challenges included existing cybersecurity issues, large-scale changes in e the to tem. Docket No. PL09-4-000 - 19 - he s rts on these key priorities first in order to achieve interoperability in a timely manner. generation mix and capabilities, and large potential new load from electric vehicles. T 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 ieve interoperability in a timely manner. generation mix and capabilities, and large potential new load from electric vehicles. T 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 focu their effo 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 have received heightened attention as part of the creation of recent mandatory and enforceable federal standards. We believe that implementation of smart grid technolog which is designed to improve communication, coord and y, ination, and interoperability, will require added attention to cybersecurity standards. 46 Proposed Policy Statement, 126 FERC ¶ 61,253 at P 28. Docket No. PL09-4-000 - 20 - cture and ber of smart grid devices expected to be located beyond the conventional be art he erarching cybersecurity and reliability the EISA as well as existing Reliability Standards approved by the 31. To date, eight mandatory cybersecurity and physical critical infrastru protection Reliability Standards (CIPS) have been approved by the Commission pursuant to section 215 of the FPA cture and ber of smart grid devices expected to be located beyond the conventional be art he erarching cybersecurity and reliability the EISA as well as existing Reliability Standards approved by the 31. To date, eight mandatory cybersecurity and physical critical infrastru 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 a large num boundaries of regulated entities suggests that cybersecurity standards require special attention. 32. The Commission sought comment regarding whether cybersecurity should considered a cross-cutting issue affecting interoperability that must be included in sm grid standards.47 The Commission also proposed harmonizing cybersecurity and Reliability Standards as a precondition to the adoption of smart grid standards. T 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 ov mandates of Commission pursuant to section 215 of the FPA. Comments 47 Id. P 12. Docket No. PL09-4-000 - 21 - “measured approach to smart grid deployment” e n will - me also support its development through a Commission- 33. Many commenters support system security as a priority. 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 menters support system security as a priority. 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. ELCON recommends that the Commission use a 48 49 so that relevant agencies and standards development organizations have time to overcom cybersecurity related technical issues.50 34. Some entities are concerned about whether there will be sufficient coordinatio among the Institute and other relevant federal and state agencies, and whether there 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, so 48 NARUC Comments at 14, EEI Comments at 6, 11, NERC Comments at 10, and ITC Co TC Companies Comments at 5-6. Michigan Commission Comments at 5-6, GridWise Alliance Comments at 9-10, and Na mments at 6. 49 APPA Comments at 12 and I 50 ELCON Comments at 2. 1 5 tional Grid Comments at 4. Docket No. PL09-4-000 - 22 - y ting stitute tion system, utilities’ business ds ing approved Reliability Standard. Other entities assert that secure protocols already exist and are available for adoption.52 35 omments at 9-10, and Na mments at 6. 49 APPA Comments at 12 and I 50 ELCON Comments at 2. 1 5 tional Grid Comments at 4. Docket No. PL09-4-000 - 22 - y ting stitute tion system, utilities’ business ds ing approved Reliability Standard. Other entities assert that secure protocols already exist and are available for adoption.52 35. On the matter of coordination with the Institute, EEI points out that cybersecurit should be addressed early on in the development and manufacturing process and that smart grid products should undergo thorough interoperability and cybersecurity tes 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 In to avoid jurisdictional overlaps. NERC recommends adoption of Commission policies to encourage the Institute to use its role, as the smart grid standards proponent and coordinator, to build cybersecurity protections into standards that affect the full span of smart grid systems and devices, such as the distribu systems, customer appliances, and information technology systems, with an eye towar aggregated impacts on the bulk-power system.54 36. The Michigan Commission counsels that the Commission should avoid be 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 52 ITC Companies Comments at 5-6 and PSEG Comments at 6-8. 53 EEI Comments at 7. 54 NERC Comments at 11-12. Docket No. PL09-4-000 - 23 - ability RC warns that the possible aggregate effects of smart grid devices that - red scriptive in its standards until the Institute’s process is complete and should undertake a “bottom up” collaborative process that includes the states, standards 52 ITC Companies Comments at 5-6 and PSEG Comments at 6-8. 53 EEI Comments at 7. 54 NERC Comments at 11-12. Docket No. PL09-4-000 - 23 - ability RC warns that the possible aggregate effects of smart grid devices that - red (2) unauthorized access to, or modification of, a critical system, (3) information leakage, development organizations and other private actors to identify, up front, the reli and security considerations that smart grid technologies must address while respecting the traditional statutory distinctions between state and federal jurisdiction over electricity.55 NE reach into the distribution system can have substantial impact on the security of the bulk power system.56 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 requi 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, 55 Michigan Commission Comments at 5-6. 56 Id. at 11-12, 15. 57 CPower Comments at 3. 58 GWAC Comments at 13-15, 29-31. pects, 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, 55 Michigan Commission Comments at 5-6. 56 Id. at 11-12, 15. 57 CPower Comments at 3. 58 GWAC Comments at 13-15, 29-31. Docket No. PL09-4-000 - 24 - hould traints on the adoption of improved and potentially more secure ld 3) automatically (or intelligently) respond to adverse system s ly and and (4) system compromise.59 E.ON offers that existing cybersecurity standards s not serve as cons technologies.60 38. The Ohio Commission requests that the Commission clarify its neutrality towards specific configurations and/or technology and that the common information model shou 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 ( conditions as they occur.62 39. On the matter of Commission-approved Reliability Standards, Southern contend that the Commission should confirm that smart grid installations do not automatical create mandatory Reliability Standard compliance obligations and that they do not automatically constitute critical cyber assets. In its view, smart grid technologies applications should be considered critical cyber assets only when they would be 59 B-D Research Comments at 1-4. 60 E.ON Comments at 4-6. 61 Ohio Commission Comments at 11-12. 62 California Commission Comments at 7. omatical create mandatory Reliability Standard compliance obligations and that they do not automatically constitute critical cyber assets. In its view, smart grid technologies applications should be considered critical cyber assets only when they would be 59 B-D Research Comments at 1-4. 60 E.ON Comments at 4-6. 61 Ohio Commission Comments at 11-12. 62 California Commission Comments at 7. Docket No. PL09-4-000 - 25 - be developed or revised concurrently with the implementation of smart grid 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 technology. 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 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 g 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 o the design of in use rid. f teroperability standards. There is strong support for this focus from the EISA, 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 63 Southern Comments at 8-9. ndards. There is strong support for this focus from the EISA, 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 63 Southern Comments at 8-9. Docket No. PL09-4-000 - 26 - cal on e cybersecurity protection for the electric power n andates ot d by the including, where appropriate, a proposed smart grid standard applicable to lo 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 secti 215 of the FPA, respectively, provid system for the proposed standard. 42. The Commission does not intend to preempt the development and implementatio of an interoperability smart grid framework with the prioritization of cybersecurity and physical security. On the contrary, given our reliability and security oversight m 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 n conflict with, critical efforts to improve the cybersecurity of electric power systems. 43. As noted, many of the commenters request collaboration between the Institute an NERC on the development of smart grid standards art grid, and which will also promote maintenance of the integrity and reliability of the underlying bulk-power system. Clearly, interoperability standards must support, and n conflict with, critical efforts to improve the cybersecurity of electric power systems. 43. As noted, many of the commenters request collaboration between the Institute an NERC on the development of smart grid standards. The Commission agrees with this approach and encourages NERC, as the Electric Reliability Organization certified Docket No. PL09-4-000 - 27 - t to nder section 215 of the FPA ty as a that ections, including distribution system interconnections, to the extent allowed by 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 tha are left unaddressed. To the extent necessary, the Commission would direct NERC submit to the Commission a new or modified Reliability Standard as necessary or appropriate to carry out the Commission’s responsibilities u 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 envisions a smart grid with cybersecuri foundational element of its system and provided for cybersecurity throughout the statute.64 Thus the Commission agrees with commenters such as NERC and CAISO the reliability of the bulk-power system hinges on insuring the cybersecurity of all interconn EISA. 45 y characteristic of the smart grid is statutorily specified under EISA. In EISA, Congress envisions a smart grid with cybersecuri foundational element of its system and provided for cybersecurity throughout the statute.64 Thus the Commission agrees with commenters such as NERC and CAISO the reliability of the bulk-power system hinges on insuring the cybersecurity of all interconn EISA. 45. With respect to comments regarding the level of specificity in the cybersecurity requirements, constraints on improvements, and system resiliency and responsiveness to 64 See EISA sec. 1301(2). Docket No. PL09-4-000 - 28 - , es. The , s rocess and the specific requirements of Commission-approved Reliability Standar 2. Communication and Coordination Across Inter-System attacks, the Commission agrees that these concerns warrant the attention of the Institute NERC, and others who are working on proposed smart grid cybersecurity issu 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 Standard is determined through other processes under FPA 215, such as the NERC compliance registration p ds. Interfaces 46. The Proposed Policy Statement suggested making the development of standards for inte c r-system interfaces a key priority. It described the issue as follows: The second cross-cutting issue is the need for a common semanti framework (i.e., agreement as to meaning) and software models for enabling effective communication and coordination across inter- system interfaces p ds. Interfaces 46. The Proposed Policy Statement suggested making the development of standards for inte c r-system interfaces a key priority. It described the issue as follows: The second cross-cutting issue is the need for a common semanti 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 an coordination occurs when each of the systems understa d nds and can respond to the data provided by the other system, even if the 65 See Roadmap Report at 7. Docket No. PL09-4-000 - 29 - t s ements in efforts to realize significant early benefits of the smart grid.68 internal workings of each system are quite different.66 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, bu were identifying them for comment on whether these standards should be considered a important el 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 st 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 inte andards rfaces 66 Proposed Policy Statement, 126 FERC ¶ 61,253 at P 32. 67 Id. 68 Id. P 33 mmon Information Model st 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 inte andards rfaces 66 Proposed Policy Statement, 126 FERC ¶ 61,253 at P 32. 67 Id. 68 Id. P 33. 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. Docket No. PL09-4-000 - 30 - stem interfaces is one method whereby new and legacy control networking as T also e ) and independent system operators (ISOs) should take 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-sy systems can be enabled to communicate with each other, which should extend the life of such legacy systems.71 49. Silver Spring Networks suggests that the Commission also include a priority in smart grid standards development.72 Silver Spring Networks and AT& strongly support the use of Internet Protocol as a networking standard.73 50. Regional transmission organizations that submitted comments support th 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 70 Kansas Commission Comments at 3 and SDG&E Comments at 19-20. ts at 1. 71 NERC Comments at 12. 72 Silver Spring Networks Commen 73 Id uggestions. 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 70 Kansas Commission Comments at 3 and SDG&E Comments at 19-20. ts at 1. 71 NERC Comments at 12. 72 Silver Spring Networks Commen 73 Id. at 3; AT&T Comments at 3. 74 CAISO Comments at 7. Docket No. PL09-4-000 - 31 - opment of inter-system interface definitions and data a prominent role in the devel communication protocols.75 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 essential “system of systems” and that standardized communications across the interfaces o 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 a system self-healing, integration of diversified resources, and improved system efficienc 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 ly a f these s y ludes IEC 61968/61970 and IEC 61850, which had been suggested by the Commission as part 76 identified for the smart grid framework inc 75 NYISO Comments at 5. 76 See Initial List of Smart Grid Interoperability Standards, Request for Comments, 74 FR 27288 (June 9, 2009). The Institute’s preliminary list of sixteen standards ly a f these s y ludes IEC 61968/61970 and IEC 61850, which had been suggested by the Commission as part 76 identified for the smart grid framework inc 75 NYISO Comments at 5. 76 See Initial List of Smart Grid Interoperability Standards, Request for Comments, 74 FR 27288 (June 9, 2009). Docket No. PL09-4-000 - 32 - titute’s process will center m t RC- findings of the Institute’s standards development process in our rule of a starting point for communication across interfaces.77 The Roadmap Report document indicates that much of the ongoing work in the Ins on developing common semantic and information models.78 52. The Commission agrees with the Kansas Commission that the standards development process to enable communications and coordination across inter-syste 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 prominen role in defining system interfaces, and we encourage ISOs, RTOs and all other FE 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 making process. 3. Wide-Area Situational Awareness 55. In the Proposed Policy Statement, the Commission placed emphasis on wide-are situational awareness as another key priority for the smart grid. Wide-area situational a 77 See Proposed Policy Statement, 126 FERC ¶ 61,253 at P 33. 78 Roadmap Report at 90. , the Commission will consider the making process. 3. Wide-Area Situational Awareness 55. In the Proposed Policy Statement, the Commission placed emphasis on wide-are situational awareness as another key priority for the smart grid. Wide-area situational a 77 See Proposed Policy Statement, 126 FERC ¶ 61,253 at P 33. 78 Roadmap Report at 90. Docket No. PL09-4-000 - 33 - ea tities an improved and manageable high-level view of system conditions and ent re and ake a leadership role in coordinating such work with the member transmission owners.80 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-ar situational awareness could help mitigate the effect of reliability events by giving reliability en 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 pres 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 softwa 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 t 79 Proposed Policy Statement at P 36. 80 Id. P 35. ssing and management and suggested that the Institute should strive to identify the necessary advanced softwa 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 t 79 Proposed Policy Statement at P 36. 80 Id. P 35. Docket No. PL09-4-000 - 34 - 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. 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 81 See, e.g., Kansas Commission Comments at 4-5, Gridwise Alliance Comments at 11, and Duke Comments at 11 should be to improve and protect the reliability of the bulk-power system. 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 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. Docket No. PL09-4-000 - 35 - 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. 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 60. Duke seeks clarification on the Proposed Policy Statement’s definition of wide- area situational awareness as “the visual display of interconnection-wide system 83 See, e.g., CAISO Comments at 9-10, Gridwise Alliance Comments at 11, and Midwest ISO Comments at 4 r faster- interval/dispatch scheduling, and tools to better forecast wind energy should be considered smart grid technology.85 60. Duke seeks clarification on the Proposed Policy Statement’s definition of wide- area situational awareness as “the visual display of interconnection-wide system 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. 85 AWEA Comments at 7-11. Docket No. PL09-4-000 - 36 - 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 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 86 Duke Comments at 10. 87 Id. at 11. nt 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 86 Duke Comments at 10. 87 Id. at 11. Docket No. PL09-4-000 - 37 - 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 further development of key standards should enhance interoperability and communications between system operators, demand response resources, and the systems that support them.88 64. The Commission proposed the development of a series of demand response use cases89 employing readily available tools in order to achieve an appropriate level of 88 See Proposed Policy Statement, 126 FERC ¶ 61,253 at P 37-39 operability and communications between system operators, demand response resources, and the systems that support them.88 64. The Commission proposed the development of a series of demand response use cases89 employing readily available tools in order to achieve an appropriate level of 88 See Proposed Policy Statement, 126 FERC ¶ 61,253 at P 37-39. 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 (continued…) Docket No. PL09-4-000 - 38 - 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. 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 opment, 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. other actors and objects to achieve a specific goal. The use case will identify the interfaces between different elements and the information being exchanged. Docket No. PL09-4-000 - 39 - 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 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 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. 93 NARUC Comments at 8 ms and national metering standards.94 These commenters state that the development 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. 93 NARUC Comments at 8. 94 See, e.g., NEM and Intelligent Energy Comments at 8 and Wal-Mart Comments at 3-4. Docket No. PL09-4-000 - 40 - 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. 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 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 95 See, e.g., Comverge Comments at 1-2 and DRSG Coalition Comments at 7-8. 96 American Transmission Comments at 6. 97As discussed in the Proposed Policy Statement, “dispatchable” demand response allows participants to adjust their demand at the direction of a system operator 7 GWAC seems to interpret this discussion as imposing demand response on 95 See, e.g., Comverge Comments at 1-2 and DRSG Coalition Comments at 7-8. 96 American Transmission Comments at 6. 97As 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. Docket No. PL09-4-000 - 41 - 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 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. 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. 101 See, e.g., NYISO Comments at 10, Alcoa Comments at 5-6, and CAISO Comments at 12. ilar vein, some stress the need to identify and support valuable opportunities for the use of demand response; for example, to provide ancillary services. 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. 101 See, e.g., NYISO Comments at 10, Alcoa Comments at 5-6, and CAISO Comments at 12. Docket No. PL09-4-000 - 42 - n of mer 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 jurisdictio state commissions and that a rulemaking targeting standards connected to the custo premises will exceed the Commission’s jurisdiction.103 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 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 102 NEMA and Intelligent Energy Comments at 2, 4. 103 NARUC Comments at 9. 104 Wal-Mart at 5. lesale 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 102 NEMA and Intelligent Energy Comments at 2, 4. 103 NARUC Comments at 9. 104 Wal-Mart at 5. Docket No. PL09-4-000 - 43 - also points out, demand response resources play an 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 ricing, 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 Docket No. PL09-4-000 - 44 - choose this option to develop standard pricing terminology and methods for communicating pricing information.105 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 105 The Jurisdictional Concerns section of this Policy Statement contains a more extensive discussion of the boundaries between federal and state jurisdiction diction 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 105 The Jurisdictional Concerns section of this Policy Statement contains a more extensive discussion of the boundaries between federal and state jurisdiction. 106 See Proposed Policy Statement, 126 FERC ¶ 61,253 at P 39. Docket No. PL09-4-000 - 45 - 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. 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. 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 107 Wholesale Competition in Regions with Organized Electric Markets, Order No. 719, 73 Fed Reg 61,400 (Oct 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 107 Wholesale Competition in Regions with Organized Electric Markets, Order No. 719, 73 Fed Reg 61,400 (Oct. 28, 2008), FERC Stats. & Regs. ¶ 31,281 (2008). Docket No. PL09-4-000 - 46 - 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 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; 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 ystems with variable renewable energy sources; facilitation of integration of electric vehicles; deferring investments in transmission and distribution infrastructure to meet peak loads; 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. Docket No. PL09-4-000 - 47 - d n lity.113 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, an states that NERC plans to work collaboratively with the Commission and the Institute o electric storage issues that could have an impact on bulk-power system reliabi 80 at 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, an states that NERC plans to work collaboratively with the Commission and the Institute o electric storage issues that could have an impact on bulk-power system reliabi 80. Some commenters express reservations about establishing storage standards at this time. NYISO recommends that the Commission allow more time to develop experience with integrating these devices and that standardization of uses should await actual operating experience with these devices.114 CAISO indicates that tariffs and not detailed 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. 114 NYISO Comments at 11. Docket No. PL09-4-000 - 48 - 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 Commission Determination 81. The Commission agrees with the comments of GridWise Alliance and others t 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 treated as a key priority by the Institute and industry in the interoperability standa 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 e is a key functionality of the smart grid, and standards related to storage should treated as a key priority by the Institute and industry in the interoperability standa 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 su 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 Institute’s interoperability standards development process has already assembled a hat be rds ch the limited number of storage use cases and identified a few standards that could be a starting 115 CAISO Comments at 13-14. 116 Xcel Comments at 5-6. 117 CPower Comments at 5. Docket No. PL09-4-000 - 49 - 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 ases 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 Docket No. PL09-4-000 - 50 - priority so that distribution utilities will be able to encourage customers to charge their vehicles during off-peak load periods.118 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 alt 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 118 Proposed Policy Statement, 126 FERC ¶ 61,253 at P 42. 119 National Grid Comments at 5. 120 NYISO Comments at 11. Docket No. PL09-4-000 - 51 - 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 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 ions 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 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 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 121 AWEA Comments at 10. 122 Comverge Comments at 3. 123 NERC Comments at 20-21. 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. Docket No. PL09-4-000 - 52 - basic, structural, competitive and architectural issues. CAISO views electric vehicles as another resource to be shaped by tariff incentives rather than technology standards. 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 89 s 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 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 car makers to the harm of existing fuel retailers and at a cost to customers.129 126 Kansas Commission Comments at 6. 127 Maryland Counsel Comments at 4. 128 Allegheny Companies Comments at 4. 129 Ohio Partners Comments at 9. Docket No. PL09-4-000 - 53 - 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 tate 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 Docket No. PL09-4-000 - 54 - 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 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. re 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. Docket No. PL09-4-000 - 55 - 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 evelopment 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 Docket No. PL09-4-000 - 56 - 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 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 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. 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. Docket No. PL09-4-000 - 57 - 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 believes that implementing the Interim Rate Policy is a critical component in advancing the ultimate smart grid evolution.136 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 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. ies may reduce the amount of electricity they sell, and argue that rates should be revised to decouple 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. Docket No. PL09-4-000 - 58 - 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 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.140 100. 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 137 Allegheny Comments at 8. 138 American Transmission Comments at 6-7, EEI Comments at 14, and National Grid Comments at 6. 139 NARUC Comments at 12. 140 AARP Comments at 4, 13-15. 141 Wal-Mart Comments at 6-7. r 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 137 Allegheny Comments at 8. 138 American Transmission Comments at 6-7, EEI Comments at 14, and National Grid Comments at 6. 139 NARUC Comments at 12. 140 AARP Comments at 4, 13-15. 141 Wal-Mart Comments at 6-7. Docket No. PL09-4-000 - 59 - rate case. Wal-Mart also supports the concept of some type of sharing of risk with shareholders. 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. on 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. Docket No. PL09-4-000 - 60 - 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 m [Text truncated at 120,000 characters. The full text is on the page linked above.] ## Nearby sections - [77 FERC ¶ 61,263 Policy Statement Establishing Factors the Commission Will Consider in Evaluating Whether A Proposed Merger is Consistent With the Public Interest](https://www.frixlaw.com/law-library/statutes/FERC_RM96_6_000.md) - [88 FERC ¶ 61,227 Certification of New Interstate Natural Gas Pipeline Facilities](https://www.frixlaw.com/law-library/statutes/FERC_PL99_3_000.md) - [109 FERC ¶ 61,186 Policy Statement on Credit-Related Issues for Electric OATT Transmission Providers, ISOs & RTOs](https://www.frixlaw.com/law-library/statutes/FERC_PL05_3_000.md) - [112 FERC ¶ 61,040 Order Further Clarifying Policy Statement on Natural Gas and Electric Price Indices](https://www.frixlaw.com/law-library/statutes/FERC_PL03_3_006.md) - [120 FERC ¶ 61,060 Section 203 Supplemental Policy Statement](https://www.frixlaw.com/law-library/statutes/FERC_PL07_1_000.md) - [121 FERC ¶ 61,221 FERC Hydrokinetic Energy Project Policy Statement](https://www.frixlaw.com/law-library/statutes/FERC_PL08_1_000.md) - [123 FERC ¶ 61,048 Composition of Proxy Groups for Determining and Oil Pipeline Return on Equity](https://www.frixlaw.com/law-library/statutes/FERC_PL07_2_000.md) - [123 FERC ¶ 61,156 Revised Policy Statement on Enforcement](https://www.frixlaw.com/law-library/statutes/FERC_PL08_3_000.md) - [125 FERC ¶ 61,058 Compliance with Statutes, Regulations, and Orders](https://www.frixlaw.com/law-library/statutes/FERC_PL09_1_000.md) - [125 FERC ¶ 61,208 Material Changes in Facts that Require Notifications Under Commission Regulations Under the Public Utility Holding Company Act of 2005](https://www.frixlaw.com/law-library/statutes/FERC_PL09_2_000.md) - [128 FERC ¶ 61,060 Smart Grid Policy Statement](https://www.frixlaw.com/law-library/statutes/FERC_PL09_4_000.md) - [129 FERC ¶ 61,248 Policy Statement On Disclosure Of Exculpatory Materials](https://www.frixlaw.com/law-library/statutes/FERC_PL10_1_000.md) - [130 FERC ¶ 61,220 Policy Statement On Penalty Guidelines](https://www.frixlaw.com/law-library/statutes/FERC_PL10_4_000_20100318.md) - [132 FERC ¶ 61,216 Revised Policy Statement On Penalty Guidelines](https://www.frixlaw.com/law-library/statutes/FERC_PL10_4_000.md) --- Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/FERC_PL09_4_000. Check the current official text before relying on it. Not legal advice.