[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
          FACILITATING THE TRANSITION TO A SMART ELECTRIC GRID 

=======================================================================

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON ENERGY AND AIR QUALITY

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 3, 2007

                               __________

                           Serial No. 110-41


      Printed for the use of the Committee on Energy and Commerce

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                    COMMITTEE ON ENERGY AND COMMERCE

                       JOHN D. DINGELL, Michigan, Chairman

HENRY A. WAXMAN, California          JOE BARTON, Texas
EDWARD J. MARKEY, Massachusetts         Ranking Member
EDOLPHUS TOWNS, New York             J. DENNIS HASTERT, Illinois
RICK BOUCHER, Virginia               RALPH M. HALL, Texas                    FRANK PALLONE, Jr., New Jersey       FRED UPTON, Michigan
BART GORDON, Tennessee               CLIFF STEARNS, Florida
BOBBY L. RUSH, Illinois              NATHAN DEAL, Georgia
ANNA G. ESHOO, California            ED WHITFIELD, Kentucky
BART STUPAK, Michigan                BARBARA CUBIN, Wyoming
ELIOT L. ENGEL, New York             JOHN SHIMKUS, Illinois
ALBERT R. WYNN, Maryland             HEATHER WILSON, New Mexico
GENE GREEN, Texas                    JOHN B. SHADEGG, Arizona
DIANA DeGETTE, Colorado              CHARLES W. ``CHIP'' PICKERING, 
   Vice Chairman                      Mississippi
LOIS CAPPS, California               VITO FOSSELLA, New York
MIKE DOYLE, Pennsylvania             STEVE BUYER, Indiana
JANE HARMAN, California              GEORGE RADANOVICH, California
TOM ALLEN, Maine                     JOSEPH R. PITTS, Pennsylvania
JAN SCHAKOWSKY, Illinois             MARY BONO, California
HILDA L. SOLIS, California           GREG WALDEN, Oregon
CHARLES A. GONZALEZ, Texas           LEE TERRY, Nebraska
JAY INSLEE, Washington               MIKE FERGUSON, New Jersey
TAMMY BALDWIN, Wisconsin             MIKE ROGERS, Michigan
MIKE ROSS, Arkansas                  SUE WILKINS MYRICK, North Carolina
DARLENE HOOLEY, Oregon               JOHN SULLIVAN, Oklahoma
ANTHONY D. WEINER, New York          TIM MURPHY, Pennsylvania
JIM MATHESON, Utah                   MICHAEL C. BURGESS, Texas
G.K. BUTTERFIELD, North Carolina     MARSHA BLACKBURN, Tennessee
CHARLIE MELANCON, Louisiana
JOHN BARROW, Georgia
BARON P. HILL, Indiana            
                               ______

                           Professional Staff

                     Dennis B. Fitzgibbons, Chief of Staff
                     Gregg A. Rothschild, Chief Counsel
                        Sharon E. Davis, Chief Clerk
                     Bud Albright, Minority Staff Director

                                  (ii)
                 Subcommittee on Energy and Air Quality

                    RICK BOUCHER, Virginia, Chairman

G.K. BUTTERFIELD, North Carolina,    J. DENNIS HASTERT, Illinois,
    Vice Chairman                        Ranking Member
CHARLIE MELANCON, Louisiana          RALPH M. HALL, Texas
JOHN BARROW, Georgia                 FRED UPTON, Michigan
HENRY A. WAXMAN, California          ED WHITFIELD, Kentucky
EDWARD J. MARKEY, Massachusetts      JOHN SHIMKUS, Illinois
ALBERT R. WYNN, Maryland             JOHN B. SHADEGG, Arizona
MIKE DOYLE, Pennsylvania             CHARLES W. ``CHIP'' PICKERING, 
JANE HARMAN, California                Mississippi
TOM ALLEN, Maine                     STEVE BUYER, Indiana
CHARLES A. GONZALEZ, Texas           MARY BONO, California
JAY INSLEE, Washington               GREG WALDEN, Oregon
TAMMY BALDWIN, Wisconsin             MIKE ROGERS, Michigan
MIKE ROSS, Arkansas                  SUE WILKINS MYRICK, North Carolina
DARLENE HOOLEY, Oregon               JOHN SULLIVAN, Oklahoma
ANTHONY D. WEINER, New York          MICHAEL C. BURGESS, Texas
JIM MATHESON, Utah                   JOE BARTON, Texas (ex officio)
JOHN D. DINGELL, Michigan (ex 
    officio)
                                 ------                                

                           Professional Staff

                    Sue D. Sheridan, Senior Counsel
                         John Jimison, Counsel
                          Margaret Horn, Clerk
                        David McCarthy, Counsel
  


















                             C O N T E N T S

                              ----------                              
                                                                   Page
 Hon. Rick Boucher, a Representative in Congress from the 
  Commonwealth of Virginia, opening statement....................     1
Hon. Jane Harman, a Representative in Congress from the State of 
  California, opening statement..................................     2
Hon. Michael C. Burgess, a Representative in Congress from the 
  State of Texas, prepared statement.............................     3
Hon. John Barrow, a Representative in Congress from the State of 
  Georgia, opening statement.....................................     3
Hon. John D. Dingell, a Representative in Congress from the State 
  of Michigan, opening statement.................................     4
 Hon. J. Dennis Hastert, a Representative in Congress from the 
  State of Illinois, prepared statement..........................     5
Hon. Joe Barton, a Representative in Congress from the State of 
  Texas, prepared statement......................................     6

                               Witnesses

Michael W. Howard, senior vice president, research & development, 
  Electric Power Research Institute..............................     7
    Prepared statement...........................................     9
    Answers to submitted questions...............................   157
Kurt Yeager, executive director, Galvin Electricity Initiative...    67
    Prepared statement...........................................    69
    Answers to submitted questions...............................   176
Dean Kamen, president, Deka Research and Development Corporation.    82
    Prepared statement...........................................    85
    Answers to submitted questions...............................   181
Brad Gammons, vice president, IBM Global Energy and Utilities 
  Industry.......................................................    91
    Prepared statement...........................................    93
    Answers to submitted questions...............................   172
Dan Delurey, executive director, Demand Response and Advanced 
  Metering Coalition.............................................    95
    Prepared statement...........................................    97
    Answers to submitted questions...............................   166
John Bryson, chairman, chief executive officer, and president, 
  Edison International...........................................   103
    Prepared statement...........................................   105
Audrey A. Zibelman, chief operating officer, PJM Interconnection.   108
    Prepared statement...........................................   110
Jon Wellinghoff, Commissioner, Federal Energy Regulatory 
  Commission.....................................................   128
    Prepared statement...........................................   130
    Answers to submitted questions...............................   190
Robert F. Lieberman, commissioner, Illinois Commerce Commission..   133
    Prepared statement...........................................   135
    Answers to submitted questions...............................   185
Kevin Kolevar, Director, Office of Energy Delivery and 
  Electricity Reliability, U.S. Department of Energy.............   137
    Prepared statement...........................................   140
    Answers to submitted questions...............................   161


          FACILITATING THE TRANSITION TO A SMART ELECTRIC GRID

                              ----------                              


                         THURSDAY, MAY 3, 2007

                  House of Representatives,
            Subcommittee on Energy and Air Quality,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:10 a.m., in 
room 2123 of the Rayburn House Office Building, Hon. Rick 
Boucher (chairman) presiding.
    Members present: Representatives Barrow, Markey, Wynn, 
Doyle, Harman, Inslee, Matheson, Dingell, Whitfield, Shimkus, 
Bono, Rogers, Burgess, and Barton.
    Staff present: Sue Sheridan, John Jimison, Laura Vaught, 
Chris Treanor, Margaret Horn, David McCarthy, Kurt Bilas, Peter 
Kielty, Matthew Johnson, and Garrett Golding.

  OPENING STATEMENT OF HON. RICK BOUCHER, A REPRESENTATIVE IN 
           CONGRESS FROM THE COMMONWEALTH OF VIRGINIA

    Mr. Boucher. The subcommittee will come to order.
    This morning the subcommittee will examine the evolution of 
our electricity transmission and distribution network into a 
smart grid, a subject regarding which I personally have a 
longstanding interest. In the coming weeks this committee will 
produce legislation for House floor consideration this summer, 
having the overall objective of promoting greater national 
energy self-sufficiency. It is my hope that today's hearing 
will yield useful legislative suggestions for smart grid 
development that we can then incorporate in the larger bill 
that this committee will soon assemble, and I would encourage 
our witnesses this morning to make legislative recommendations 
to us.
    Given the number of witnesses who are testifying before the 
subcommittee both on this opening panel and also on the second 
panel, I intend to defer any further opening statement on my 
part and use the time allotted to me to ask questions of these 
outstanding witnesses. I would simply note that our first panel 
of witnesses is comprised of individuals who are well 
positioned to offer a vision of how a smart grid would be 
configured, how it would operate, what benefits it would confer 
upon utilities, upon consumers and upon society generally, what 
barriers exist to its development and what role government can 
play in overcoming those hurdles. Our second panel of 
government representatives can then respond to the suggestions 
made by witnesses on the first panel and of course offer their 
own recommendations.
    I want to welcome today's witnesses and say that I very 
much look forward to their testimony, and I thank each of you 
for taking time to join us and share your views with us.
     I will now recognize for an opening statement of 5 minutes 
the gentleman from Kentucky, Mr. Whitfield.
    Mr. Whitfield. Mr. Chairman, thank you very much and I 
certainly look forward to the hearing this morning and I am 
going to waive my opening statement and look forward to the 
testimony of our witnesses and welcome them.
    Mr. Boucher. Thank you very much, Mr. Whitfield.
    The gentleman from Maryland, Mr. Wynn.
    Mr. Wynn. Thank you, Mr. Chairman. I will also waive.
    Mr. Boucher. Thank you, Mr. Wynn. And the gentle lady from 
California, Ms. Harman.
    Ms. Harman. Mr. Chairman, if I don't waive, have I created 
some kind of national crisis?
    Mr. Boucher. Ms. Harman, we are always delighted to hear 
from you. You would be welcome.

  OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Harman. In that case, very briefly and succinctly, I 
would like to welcome our witnesses and especially an old good 
friend, John Bryson of California. I want everyone to know that 
John was an environmentalist before he was a captain of 
industry, but the good news is, he is still an environmentalist 
while he is a captain of industry and I think that his 
testimony, and I assume the testimony of others, will show us a 
way forward that I think is enormously promising.
    If we do one thing in this subcommittee, Mr. Chairman, and 
I hope we are going to do many more than one thing, I think 
focusing on a smart electric grid is it because that is the way 
we really can get our arms around how we use energy and how we 
can conserve energy and I just want to note that my house in 
Venice, California, has solar panels on the roof, and when I 
expanded my house I added more solar panels. I got a rebate 
from the city of Los Angeles but I thought it was important to 
invest in solar power. The problem is that there really is not 
a way for me to sell excess energy back to the utility the way 
I think I should be able to do, and until I can do it, I know 
my neighbors aren't going to be that excited about putting 
solar panels on their roof.
    So this testimony will tell us more than we presently know 
or at least tell me about real-time metering, smart appliances 
and a two-way system for buying and selling electricity and the 
benefits that that can have. Information technology should be a 
weapon against the climate challenge and our dependence on 
foreign oil. If everyone up here including old Grandma can 
learn to use a Black Berry and a fancy cell phone, I think I 
could even maybe understand what advantages could come from 
facilitating a transition to a smart electric grid.
    I just want to finally add that this also has advantages 
not just for homes and appliances but for cars and trucks and 
we have been talking about the tough issues around pushing 
transportation in the right direction. A smart grid could lay 
the groundwork for plug-in electric hybrid vehicles that would 
help cut our oil imports and it could also help us use 
effectively the new battery technologies that are being 
developed, for example, by Toyota and Honda in my congressional 
district and could help people who drive cars and trucks with 
those technologies know how to store energy, for example, when 
energy prices are sky high. So it just seems to me this is the 
key to understanding a way forward on climate change and I 
think we have the right panels, and I have abused all the 
members here so that I could tell my little story, and I 
appreciate you yielding me the time.
    Mr. Boucher. Thank you very much, Ms. Harman, and we 
appreciate that opening statement.
    The gentleman from Texas, Mr. Burgess, is recognized for 3 
minutes.
    Mr. Burgess. Thank you, Mr. Chairman. Because we have got 
so much to get through today, I will just insert my comments 
into the record. I would like to welcome Mr. Brad Gammons here 
from my home State of Texas. It is good to see you, sir, on the 
panel and I look forward to the testimony. Thank you.
    [The prepared statement of Mr. Burgess follows:]

  Prepared Statement of Hon. Michael C. Burgess, a Representative in 
                    Congress from the State of Texas

    Thank you, Mr. Chairman.
    I look forward to hearing from our witnesses today about 
smart grid technology.
    The forces of supply and demand have long governed prices 
in a free enterprise system. Unfortunately, that is not the 
case with the electricity market.
    Consumers pay the same rate per kilowatt during the day, 
when demand is high, as they are in the middle of the night, 
when demand is low.
    This disguises the true costs of electricity and prevents 
consumers from adjusting their demand to the actual cost of 
electricity.
    The Smart Grid technology that we will learn more about 
today has the capacity to bring the power of the market to 
electric consumers at the retail level by providing them with 
real-time prices. This will allow them to make rational 
decisions about demanding electricity and if it costs more to 
wash a load of towels during the day than it does in the 
evening, I may wait until 8 p.m. to do my laundry.
    If a whole lot of other people make that same decision, we 
may be able to move enough electricity load to off-peak times 
to avoid building a new power plant or substation.
    That's real energy savings.
    Mr. Chairman, conservation and efficiency must play an 
important role in our strategy to wean ourselves from our 
dependence on foreign energy, so I thank you for holding this 
hearing today.
                              ----------                              

    Mr. Boucher. Thank you, Mr. Burgess.
    The gentleman from Georgia, Mr. Barrow, is recognized for 3 
minutes.
    Mr. Barrow. Thank you, Mr. Chairman.

  OPENING STATEMENT OF HON. JOHN BARROW, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF GEORGIA

    Mr. Barrow. In the interest of time, I would like to state 
an area of concern up front that I hope the witnesses will 
address as they are able in the course of their presentations. 
Advanced metering is one of the key things we can do to involve 
consumers in the management of their demand for energy and yet 
there is a marked difference in terms of the penetration in the 
market for advanced metering technology. The FERC has done a 
survey and they show that in the electric co-op sector we have 
got 13 percent of the folks. It has been 13 percent penetration 
for advanced metering in the electric co-op market. The 
investor-owned utility field, it is only about 6 percent. It is 
less than half of what they are doing in the electric co-op. So 
what I would like you all to do is address what we can do to 
try and get the investor-owned utility community to be more 
like the electrical co-op community in terms of implementing 
advanced metering technology and involving the consumers.
    Thank you.
    Mr. Boucher. Thank you very much, Mr. Barrow.
    We will turn to our witnesses momentarily, and we are 
awaiting the arrival of one other Member who has indicated 
interest in taking part in our hearing this morning, and he is 
just arriving, and it gives me pleasure at this time to 
recognize the chairman of the full Energy and Commerce 
Committee, the gentleman from Michigan, Mr. Dingell, for a 5-
minute opening statement.

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Chairman Dingell. Mr. Chairman, I thank you. I will try and 
be more brief in this matter than your generosity would permit.
    First of all, Mr. Chairman, thank you for holding the 
hearing. Second of all, I commend for the outstanding 
leadership that you are giving this committee in its 
consideration of energy matters. The committee and the country 
owe you a great thanks.
    The Nation stands in a position where we could reap 
significant benefits from new technologies which will maximize 
the efficiency of our electric power delivery system. These 
benefits include greater reliability, lower cost to consumers, 
improved ability of the industry to operate proactively, and 
alternatives for improving the Nation's energy infrastructure, 
which is unfortunately aging. The shorthand term for these new 
technologies is smart grid. Our focus today is on public 
policies that will facilitate the rapid deployment and adoption 
of these technologies without disruptions or increased costs. 
There are a number of challenging requirements created by these 
opportunities and I know under your leadership that we will 
address them.
    First, the electric grid must continue to balance and 
constantly do so between ever-shifting demand and supply. That 
is a very difficult task for a product that moves, as we know, 
at the speed of light and offers no effective means of storage. 
Second, the product, electricity, must also be exceptionally 
reliable. In today's computerized, high-tech society, even a 
momentary interruption of power can create dramatic, costly 
losses to the economy and to the society. Third, the ever-
growing demands of our aging electric infrastructure are a 
serious concern. Projections show the demand for power 
increasing significantly in the coming years. Absent some 
extraordinary innovation, we would need to invest tremendous 
resources to increase capacity and ensure greater reliability.
    Fortunately, smart technologies appear to address these 
challenges and with substantial benefits to both the 
electricity sector as well as to the consumer. These new 
technologies, by working smarter, not harder, promise electric 
generation and delivery that is more efficient, economic and 
environmentally responsive. It is expected that at some point 
smart grid technology will ultimately provide for our 
transportation sector's energy needs through plug-in hybrid 
vehicles such as plug-in hybrids that provide valuable 
electricity storage back to the grid.
    While this transition will not quick or easy, the move 
towards smart grid technology is coming and your leadership, 
Mr. Chairman, is extremely valuable. Again, I want to thank you 
for holding this hearing which will enable us all to learn 
about the issues associated with the transition, and I want to 
thank our witnesses who are here today and I know that their 
contribution to this process will be valued.
    Thank you, Mr. Chairman.
    Mr. Boucher. Thank you very much, Chairman Dingell.
    The gentleman from Pennsylvania, Mr. Doyle, is recognized 
for 3 minutes.
    Mr. Doyle. Mr. Chairman, I will waive my opening remarks. I 
just want to welcome the panelists, especially Ms. Zibelman 
from PJM.
    Mr. Boucher. Thank you very much, Mr. Doyle.
    Any other statements for the record will be accepted at 
this time.
    [The prepared statements of Messrs. Hastert and Barton 
follow:]

   Prepared Statement of Hon. J. Dennis Hastert, a Representative in 
                  Congress from the State of Illinois

    Thank you, Mr. Chairman, for holding this hearing today. 
Smart grid technologies hold much promise for the United 
States. Deployment of these technologies will help reduce our 
electricity use, keep energy costs down, provide jobs for 
Americans, and increase our energy security. This is something 
I think we all can support.
    When I first started my career in public office I wrote the 
Illinois Public Utilities Act. A lot has changed in providing 
electricity since then.
    Smart grid technology will allow for the more efficient 
operation of the electric grid. It does this in a number of 
ways: better communication, distributed generation, appliances 
that can ``talk'' to the grid and if needed, help support the 
grid. It can also lead to distributed storage of electricity 
through batteries and other devices, and facilitate the 
deployment of new generation of vehicles such as plug-in 
hybrids.
    These technologies also have the ability to reduce peak 
demand on the electric system. This helps everyone by reducing 
the need for new generation and transmission facilities saving 
consumers money.
    It also reduces peak period fuel use, which is usually 
natural gas. This reduces price pressure on natural gas, 
freeing it up for industrial and residential use. Ultimately 
keeping jobs in America from moving overseas.
    Furthermore, reduced electricity demand and the related 
reduced fuel demand means emissions of pollutants and 
greenhouse gases such as CO\2\ are lessened. As I have said 
before, good energy policy is good environmental policy. Smart 
grid technology does both.
    Using our energy resources wisely and more efficiently is 
always a good idea. The better we use our domestic resources to 
generate electricity, and power the next generation of 
vehicles, such as plug-in hybrid vehicles, the less we will 
depend on unstable foreign sources of energy. Improving our 
energy security now and into the future must be our priority. I 
am confident we can do that leaving a stronger and cleaner 
Nation for generations to come. And new technology will lead 
the way.
    Many of our best and brightest are involved in developing 
smart grid technology.
    I am particularly pleased to see Dean Kamen here today 
before the committee to testify. I have had the pleasure of 
knowing Dean for some years now and he is probably known best 
as the inventor of the Segway. However, his work in developing 
technology that generates electricity and clean water could be 
further reaching. Dean is developing a device that continuously 
outputs a kilowatt of electricity, enough to light 70 energy 
efficient light bulbs, all on abundant sources of fuel like cow 
manure. In developing countries with populations that have 
never had electricity this is life changes technology.
    It is technology and innovation from companies like Dean's 
that will lead energy needs and efficiencies into the future 
not only in this country but around the world.
    As work on smart grids comes to maturity, it should be 
utilized in developing nations, so they too will have the 
ability to manage growing electricity and energy demands and 
improve their environment. Improvements in emissions in places 
like China and India benefit everyone around the globe.
    I look forward to our witnesses' testimony today, I want to 
wish them the best in developing these new technologies that 
will make such a difference in so many peoples' lives.
    Thank you, Chairman Boucher, and I yield back the remainder 
of my time.
                              ----------                              


  Prepared Statement of Hon. Joe Barton, a Representative in Congress 
                        from the State of Texas

    Thank you, Chairman Boucher, for holding this hearing today 
on smart grid technologies. I also want to thank our witnesses 
here today. This is an exciting area and I look forward to your 
testimony.
    Smart grid technologies combine advanced communications 
technologies, electric distribution technologies and end-use 
electric technologies in order to create a more efficient 
electric system. Just as advancing computer and communications 
technologies over the last 25 years have transformed our 
everyday lives with Black Berries, e-mail, cell phones, and 
broadband Internet, so too will smart grid technologies 
transform the way utilities and consumers use the electric 
system. And the resulting system will be better.
    I have always supported a market-based approach to the 
electric utility system. The market requires three things: 
suppliers, consumers, and a distribution method. Congress has 
done a great deal to increase the number of competitive 
suppliers, starting with the Public Utilities Regulatory Policy 
Act of 1978 and extending through the Energy Policy Act of 
2005. Competition at the wholesale level for electricity supply 
has brought benefits to consumers. The Federal Regulatory 
Energy Commission and many States have reformed their 
regulations and laws to bring the benefits of competition to 
consumers.
     What has been missing in this system is the ability for 
the consumer to respond to price signals. Just like in any 
market, as prices rise, consumers use less of the product. 
Except electricity, which doesn't come with a price tag. 
Consequently, almost no one has the ability to actually know 
the price of power as they buy it. When prices rise, it takes a 
month for the bad news to show up in your mailbox. Price 
competition doesn't work when the producer won't or can't tell 
the customer the price, and this has been a fatal flaw in many 
deregulated markets starting in California in 2000.
     I can't think of much else that I would buy without 
knowing the price, and it looks like smart grid technologies 
may finally be able to fill in this last hole in the market by 
allowing me and other consumers to know the price and act 
accordingly. A true electricity market may be on the horizon.
     But there are benefits beyond the creation of a true 
competitive market. Smart grid technologies can help the 
utility distribute electricity more efficiently. This may mean 
fewer new transmission lines, substations and generating units. 
And this means lower costs for consumers.
     These technologies can help consumers use electricity more 
efficiently reducing demand and consumer costs. Greater 
efficiency in the distribution and use of electricity can also 
result in less pollution and a cleaner environment. It also 
improves our energy security. There is a lot to look forward to 
as a result of these technologies.
    I am sure though, that like any new technology and its 
penetration into the American market, there will be bumps along 
the road. There may be significant up-front coats before the 
results are apparent. Some of the technologies may not perform 
as promised. But the bottom line is that these technologies 
will be our future and we on this Committee should do 
everything we can to see that Americans reap the benefits of 
these new technologies.
     Thank you, Mr. Chairman. I yield back the remainder of my 
time.
                              ----------                              

    Mr. Boucher. We now turn to our panel of witnesses, and I 
will simply say a brief word of introduction concerning each.
    Mr. Michael Howard is the senior vice president for 
Research and Development Group for the Electric Power Research 
Institute. Mr. Kurt Yeager is the executive director of the 
nonprofit Galvin Electricity Initiative. Mr. Dean Kamen is the 
president of DEKA Research and Development Corporation. Mr. 
Kamen is also the inventor of the Segway, known to most in this 
country, and many other innovative products. Mr. Brad Gammons 
is vice president of IBM Global Energy and Utilities Industry 
of the IBM Corporation. Mr. Dan Delurey is the executive 
director of the Demand Response and Advanced Metering 
Coalition. Mr. John Bryson is the chief executive officer and 
president of Edison International, the parent company of the 
utility, Southern California Edison. And Ms. Audrey Zibelman is 
the chief operating officer and executive vice president of the 
PJM Regional Transmission Organization. We are pleased to have 
each of our witnesses with us today.
    Your prepared opening statements will be made a part of the 
record and we would welcome your oral summaries of 
approximately 5 minutes.
    Mr. Howard, we will be pleased to begin with you.

STATEMENT OF MICHAEL W. HOWARD, SENIOR VICE PRESIDENT, RESEARCH 
& DEVELOPMENT, ELECTRIC POWER RESEARCH INSTITUTE, PALO ALTO, CA

    Mr. Howard. Thank you, Mr. Chairman, Ranking Member Hastert 
and members of the committee. I am Michael Howard, senior vice 
president of the Research and Development Group for the 
Electric Power Research Institute, a nonprofit, collaborative 
research and development organization with major offices in 
Palo Alto, California, Charlotte, North Carolina, and 
Knoxville, Tennessee. My comments today reflect the work of the 
talented scientists and engineers who work across our institute 
on the many issues associated with an electric power delivery 
system.
    EPRI's purpose is to work collaboratively with the electric 
utility industry to develop the technologies that will ensure 
our existing grid infrastructure continues to work reliably and 
safely while at the same time facilitate the transition to an 
intelligent grid that supports both the changing generation mix 
in a carbon-constrained world and a more effective and 
efficient participation by consumers in managing their use of 
electricity.
    During the last 5 years, we have been helping the electric 
utility industry develop and deploy the concept of an 
intelligent grid through the implementation of our IntelliGrid 
initiative. The IntelliGrid initiative is developing the 
methodology, tools and integrating technologies that will help 
the industry and equipment manufacturers start transitioning 
the electric grid of the future.
    We believe the grid of the future will include six 
important features. It will be a dynamic system that is 
interactive with consumers and markets. It will be self-healing 
and adaptive. It will be self-optimized to make best use of 
resources and equipment. The grid of the future will be 
predictive rather than reactive and it will be able to store 
large amounts of energy and able to accommodate a variety of 
generation options including renewable energy.
    Achieving these objectives will require a power system that 
incorporates millions of sensors all connected through an 
advanced communication and data acquisition system. A 
distributed computing system will analyze in real time the 
information from the millions of sensors to enable predictive 
rather than reactive response to a blink-of-the-eye disruption.
    I mentioned that one of the six important grid of the 
future features is a dynamic system that is interactive with 
the consumers and markets. An example of a dynamic system that 
is interactive with consumers and markets is what we refer to 
as ``Prices to Devices.'' An example is an intelligent air 
conditioning unit with embedded software and hardware capable 
of two-way interaction with the power system. The intelligent 
air conditioning unit will receive day-ahead and hourly 
electricity prices and day-ahead weather forecast through the 
Internet. The system will learn the rate of building cool-down 
and heat-up based on factors such as occupant habits, outside 
temperature and time of ear, and finally the air conditioning 
unit will self-optimize to minimize energy costs.
    The potential energy efficiency savings from the 
intelligent air conditioner and similar devices remains a 
matter of ongoing analysis. A peer-reviewed analysis of 11 
studies in 2004 by EPRI indicated an achievable savings of 24 
percent of the total U.S. electricity demand, although there 
was substantial variation among the studies that we reviewed.
    Another benefit of the grid of the future is improved 
reliability and power equality. The total estimated annual cost 
for the U.S. economy from power outages and power quality 
disturbances, what I refer to as blink-of-the-eye disruptions, 
is over $100 billion. By implementing the six important grid of 
the future features outlined in this testimony, we will enable 
a robust, interactive and efficient power delivery system that 
is more energy efficient, more reliable, more immune to power 
quality disturbances and better able to support a vigorous and 
growing national economy.
    It is a pleasure being here today, Mr. Chairman, and I 
appreciate the opportunity to provide testimony to the 
committee on facilitating the transition to a smart electric 
grid. Thank you.
    [The prepared statement of Mr. Howard follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Boucher. Thank you very much, Mr. Howard.
    Mr. Yeager.

     STATEMENT OF KURT YEAGER, EXECUTIVE DIRECTOR, GALVIN 
             ELECTRICITY INITIATIVE, PALO ALTO, CA

    Mr. Yeager. Thank you, Mr. Chairman. I am Kurt Yeager, 
executive director of the nonprofit Galvin Electricity 
Initiative. This initiative is described more fully in my 
written statement.
    Today the United States faces a rapidly approaching perfect 
energy storm of rapidly rising costs, carbon constraints and 
declining security. The electric grid can either continue to be 
a vulnerable liability in meeting this threat or the key to its 
resolution and to the protection of our Nation's economy and 
its environment. The choice is clearly ours. We do have the 
technological means to achieve the prompt transition to a smart 
electric grid and we certainly have the economic and the 
environmental motives and opportunity as a Nation to do so now.
    Over the three decades, the U.S. electricity grid has had 
to survive an effective moratorium on innovation and little 
more than a life-support level of infrastructure investment. 
This dangerous situation has left us in a very vulnerable 
situation. The result is an electric grid system that now costs 
the Nation, as Dr. Howard indicated, over $100 billion each 
year in avoidable reliability losses, has very limited ability 
to reduce its carbon emissions, and faces hundreds of billions 
of dollars in pent-up infrastructure expansion costs just over 
the coming decade.
    In contrast, a small electric grid can largely eliminate 
these reliability losses and simultaneously increase both the 
efficiency of electricity use and the consumption of clean 
renewable energy. The result will be a very large reduction in 
infrastructure investment costs. For example, it costs about 
one-third as much to save energy through efficiency 
improvements than to build a new power plant to produce the 
same amount of energy. In addition, at least $1 trillion a year 
more in U.S. gross domestic product could be produced through 
the greater economic productivity and competitiveness in the 
global market that such a smart system would provide. All of 
these smart grid advantages could be achieved at an aggregate 
cost that is equivalent to about 1 year's worth of the 
unreliability penalty we are now paying, in effect a 1-year 
payback.
    A smart grid is an electronically controlled, self-healing 
electrical supply system that maintains the instantaneous and 
continuous flow of both energy and information between 
electricity consumers and suppliers. It is indeed a two-way 
street entirely open to consumers and most importantly to their 
end-use devices. Key innovative technologies that enable this, 
instantaneous digital electronic sensors and controls, the 
integration of communications, which is what makes it smart. 
The electricity business of the future is not based on how many 
kilowatt-hours we sell but how much value we can put on each 
electron as it enables a microprocessor through both 
information and energy. Transforming the electricity meter, 
what I would call the iron curtain of electricity, behind which 
we are all still captive, into a true consumer gateway that 
allows real-time price signals, demand response decisions and 
network intelligence as well as electricity to flow 
instantaneously back and forth between utilities and consumers 
and their end-use devices. The incorporation of a wide range of 
distributed energy resources and combined heat and power 
capabilities that are key to incorporating significantly more 
renewable energy into the grid, and finally, highly efficient 
smart electric buildings, appliances and devices which frankly 
cannot be utilized to best advantage until we have truly a 
smart grid. This can reduce energy consumption by at least 30 
percent and even more during peak demand periods with 
comparable reductions in emissions and in costs.
    The quickest path to transforming the performance and to 
realizing the value of the smart grid is to target the 
breakthrough technical innovations on the consumer's interface 
with the grid, that is, on the local electricity distribution 
system. In this way, the tipping point to achieving a universal 
national transition to a smart electric grid can be achieved 
within 5 years.
    In closing, Federal Government policies and actions can 
certainly be a critical motivator for the smart grid 
transition. These would include, in my judgment, first 
expediting new energy efficiency standards and establishing 
market incentives for much higher efficiency consumer products 
and best practices and buildings such as universally applying 
the International Energy Construction Code. Second, raising the 
reliability standards for the electricity grid to levels that 
are compatible with today's digital economy and society, not 
measured in minutes of outage but in fractions of a second. 
Three, mandating universal advanced electric metering 
infrastructure and real-time pricing and support of demand 
response on the part of every consumer. Four, establishing a 
national public education campaign to inform consumers about 
the value of a smart grid and to encourage local 
implementation. And finally, and I believe most importantly, 
convening the State electricity regulatory community and 
instilling in them the critical national importance of the 
smart grid and the need for their universal regulatory support. 
The rapidly approaching and unavoidable onslaught of rising 
cost rate cases that they face I believe provides a window of 
opportunity for regulators to incent and enable the smart grid 
on behalf of all their consumers, and in this regard, 
regulators must also decouple utilities' profits from the 
amount of energy they sell and make them whole on the basis of 
the reliability, efficiency and quality of consumer service 
they provide.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. Yeager follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Boucher. Thank you very much, Mr. Yeager
    Mr. Kamen, we will be glad to hear from you.

     STATEMENT OF DEAN KAMEN, PRESIDENT, DEKA RESEARCH AND 
            DEVELOPMENT CORPORATION, MANCHESTER, NH

    Mr. Kamen. First, I have to give the disclaimer that I am 
not an expert on either policy or mega and giga scale energy. I 
suspect I was invited here because of another project I have 
been working on for about 10 years that ironically was intended 
for people that live in a world where there is no grid 
whatsoever, and I am happy to tell you that after about 8 years 
of working on a little box about the size of a dorm room 
refrigerator, we were able to convince ourselves it was 
reliable enough, robust enough, efficient enough that it could 
be tested, and this box was intended to produce enough 
electricity for a small village anywhere in the world where 
they have no grid. There are 1.6 billion people in Asia and 
Africa that have never used electricity and in our lifetime are 
unlikely to see a grid suddenly appear, and we said what if we 
could make a small box, the size I just said, that could be 
moved into a village that would run for many years, presumably 
and hopefully on any local fuel, anything that burns, liquid or 
gaseous, and produce a few kilowatts, also could do it in a 
place where you could use the waste heat. I am happy to tell 
you that about a year ago we placed two of those units in two 
villages, one about 75 kilometers north of Dacca, one 75 miles 
west of Dacca, in Bangladesh and for 24 weeks around the clock 
we did a trial. We electrified these villages and they ran 
without interruption. Not bad compared to what most utilities 
in this country can do. It turns out that we certainly have 
more work to do there but some of the members know about this 
box and I think the United States ought to work on these things 
and maybe help around the world but that is probably for a 
different committee.
    How could that box or similar boxes be useful in this 
country? I think you have heard all the reasons. I would just 
simply ask you to do the mental experiment that the average 
homeowner puts a box in their house similar to their water 
heater or their furnace that can sit there and burn any locally 
available fuel. By the way, I should tell you the only thing 
that went into either of these boxes in Bangladesh for 24 
weeks, they were put next to a small pit and cow dung, very 
naturally evolving methane gas with no intervention by any 
exotic biodigester was the only source of fuel, and by the way, 
it was preventing the methane that was coming off at 20 times 
the environmental damage of CO\2\ from coming off. We then 
turned it into the CO\2\ it would have become anyway. In any 
event, what does that got to do with all this? Well, it seemed 
to us hearing the great debate going on in this country that if 
you could put that unit in a house, you might have a very, very 
significant impact on a bunch of things.
    The real effect of reliability and the real effect of 
measurement of how much energy we use and what we get for it 
and I would be the first to admit to the giant power company 
guys around here that a good, large closed-cycle steam turbine 
or other device can turn heat into electricity at about 40 
percent efficiency. My little sterling cycle device does it at 
about 20 percent. Most people would therefore say my device is 
only half as efficient as a great big generator. I think that 
19th century mindset has to change when you say what do you 
mean by efficiency because that 40 percent efficient system, 
let us say it makes a gigawatt, 1,000 megawatts, if it does it 
at 40 percent efficiency, it means you made 400 megawatts of 
electricity to go out through those lines which they do very 
well. That is why we built central plants for 100 and something 
years. The other 600 million watts creates the waste heat 
sitting in the river somewhere killing fish or polluting but 
that 60 percent, that 600 megawatts, can't easily be moved so 
it is gone. That is why we say 40 percent efficiency. My little 
box or other similar boxes that could do CHP, combined heat and 
power, could sit in somebody's house and only turn 20 percent 
of the fuel that goes into them into electricity but the other 
80 percent is the heat that heats your house and your shower 
and washes your dishes and your clothes.
    In other words, in most average homes in the United States, 
only 20 or 30 percent of the power coming in was meant to be 
electricity. The rest of the power the homeowner buys was from 
the gas company or the oil company because a unit of energy in 
terms of that you need for heat is substantially cheaper to buy 
than a very high-quality unit of energy called electricity. If 
you could take all the fuel that you would have burned in these 
central plants and build miniature power plants in somebody's 
home, as long as you burned that fuel efficiently and cleanly, 
you could make use of virtually all of the waste; it is no 
longer waste. Then for every unit of fuel we could use in this 
country, you would find that you make less of a carbon 
footprint, you got more overall total efficiency and a bunch of 
the advantages that you have heard about. If you put small 
distributed units around the country, even if they are only a 
couple of kilowatts apiece in people's homes, just do the math. 
If every homeowner got a couple of thousand dollar boxes put in 
his house and you put a million of them out there and each one 
was a couple of kilowatts, you get a couple of gigawatts 
without building another big plant. None of that power goes 
through the grid, which is getting a little old and a little 
tired and a little less reliable. If you build your smart 
transmission grids and these little boxes can talk to each 
other in the neighborhood, you get other benefits like energy 
security because no one plant going down will stop people from 
getting their critical loads. They will probably turn off their 
air conditioning and their Jacuzzi but if they can make a 
couple of kilowatts in their home, there is not a crisis when 
there is a snowstorm or other kind of interruption. Second, you 
can burn any locally made fuel which is, A, more efficient, and 
B, you can economically certainly advantage the homeowner in 
doing it that way, and oh, by the way, you can encourage all 
sorts of other, once you make this thing smart, interactions 
such that in a day where invention is now finally hitting the 
world of energy production the way it hit computing 30 or 40 
years ago. We suddenly had to go from mainframes to distributed 
computing and then the cell phones took the 100-year system 
where you had to work with Ma Bell and gave us so many 
different ways to communicate, it got better and simpler and 
the Internet got--you guys had to start updating the way that 
people could do it. I think we are now at a point where whether 
it is solar cells getting attractive and efficient, wind 
turbines getting attractive and efficient, sterling cycle, any 
kind of device getting more efficient, you are going to see 
lots of inventions that could become great innovations, that 
could make this whole thing better and make great new jobs but 
you have got to create an environment--you asked for 
recommendations. You have got to create an environment where 
all these different new ways of thinking are encouraged rather 
than the technology is there but your systems are not keeping 
up with allowing them to be implemented.
    [The prepared statement of Mr. Kamen follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Boucher. Thank you, Mr. Kamen, very much. We will have 
some questions of you shortly.
    Mr. Gammons, we will be happy to hear from you.

 STATEMENT OF BRAD GAMMONS, VICE PRESIDENT, IBM GLOBAL ENERGY 
              AND UTILITIES INDUSTRY, AMARILLO, TX

    Mr. Gammons. Good morning, Chairman Boucher and members of 
the House energy committee. I am Brad Gammons, vice president 
of IBM Global Energy and Utility Industry. IBM appreciates the 
opportunity to testify before this subcommittee today.
    Innovation is a major theme of any leader's agenda today. 
Listening to Mr. Kamen, that came up quite clearly. CEOs, 
academics, government leaders agree that innovating their 
business models, policies, problem-solving approaches and 
execution models are key drivers of economic opportunity. In 
fact, the pressure to innovate is heavy. In order to establish 
and sustain competitive differentiation and institutional value 
or to make advances in the world's most pressing issues from 
health care, globalization, the energy efficiency and the 
environment, you must innovate.
    Across all industries, there are two significant changes in 
technology that have occurred which are providing the 
foundation for innovation. First, the Internet and other 
communication technologies have connected a million businesses 
and a billion people, making it in essence the world's 
operational infrastructure and it is still only in its infancy. 
Soon trillions of things will be virtually connected. Right now 
we have nearly 3 billion people that subscribe to wireless 
technology. This network ubiquity provides a vehicle for people 
and things to work and operate in a collaborative way. Second 
is open standards very much to what Mr. Kamen was talking 
about, is you have to have a way for these things to 
communicate together to allow for innovation. The evolution in 
open standards presents the opportunity in the utility industry 
to accelerate and optimize the implementation of a smart grid 
or what IBM calls an intelligent utility network. An 
intelligent utility network or a smart grid will provide an IT-
enabled continuous sensing network which connects all parts of 
the utility, equipment, control systems, applications, 
employees providing for the automatic collection of data and 
asset conditions from across the utility on which analytic 
simulation and modeling to perform. Ultimately the smart grid 
will also connect the utility with the consumer, which will be 
bringing increased options, more control over energy usage and 
more choices for energy rates. It will literally bring power to 
the people.
    In the utility industry, there is a great desire to achieve 
new levels of operational effectiveness, reliability and energy 
stewardship to reach beyond efficiently managing generation or 
transmission or distribution to have the business management 
and operational visibility across these domains and even to 
include raw materials, transportation, supply chain and the 
customer experience, in effect the entire energy ecosystem.
    The evolution of the power grid or the smart grid is the 
connective tissue and the enabler for these utility desires but 
the appropriate infrastructure investment and policy is needed 
to create this reality.
    The utility industry faces a series of significant 
dilemmas. How can a utility company contain costs while 
increasing power reliability? How can they ensure energy 
security while still providing access to all? How do they bring 
new supply into the system to meet growing loads when the 
current system is challenged to accommodate new energy sources? 
How do they build new generation and transmission facilities 
when there is significant social and political resistance? And 
as a matter of policy, how can energy be a source of economic 
growth while preserving environmental sustainability?
    Innovation of business processes, operational practices and 
models will be key to addressing these competing demands 
utilities are facing so let us look at several examples of how 
utilities can enable innovation in their business by leveraging 
technology. We can use that technology in three important ways. 
First, to automate the power grid to make it stronger, cleaner 
and less costly; second, to integrate the power grid and create 
an end-to-end network; and finally, to expand the value of the 
grid with service and information. If we do these things, the 
grid can evolve to become an intelligent utility network or 
smart grid providing an interactive energy management system 
enabled by existing technologies such as system sensors, smart 
meters, analytical tools, high-speed communication networks and 
digitally enabled equipment and assets.
    In most cases, these technologies are not new. What is new 
is how proven technology often developed for solutions in other 
industries are being applied to the utility industry to 
generate tangible benefits and foster innovative business 
models today. Imagine if a company were to integrate all these 
capabilities with the smart grid. Such a pilot is underway in 
Washington State, the Pacific Northwest Gridwise Project 
represents a groundbreaking collaboration between Pacific 
Northwest National Lab, utility companies and technology 
partners such as IBM. This initiative allowed a select group of 
homeowners on the Olympic Peninsula to have more information 
about their energy use and its costs as an incentive to reduce 
power consumption at peak times. Automated controls will adjust 
appliances and thermostats based on pre-determined instructions 
from the homeowners, allowing consumers to choose to curtail 
energy when prices are higher than their set preferences.
    We talked how technology can address and help the current 
state of the grid. The benefits for our Nation's transformation 
to a smart grid will make the journey well worth it. In other 
words, a smart grid is a platform to enable the future. It can 
improve the Nation's ability to respond to increased energy 
demands and increased need for energy independence, improving 
reliability while still providing for a secure infrastructure. 
It can also help drive innovation across the energy supply 
chain providing value and enhancing the competitive position of 
all players in the U.S. energy industry, and oh, by the way, 
huge energy users like the IBM Corporation. It can enhance 
energy independence and protection of the Nation's critical 
infrastructure and save billions in energy productivity and 
increase national competitiveness.
    The good news is, this innovation of new technology is not 
a factor from a policy standpoint. The technology is 
sufficiently mature and adaptation for utilities can be 
addressed.
    Thank you for your time this morning.
    [The prepared statement of Mr. Gammons follows:]

                       Testimony of Brad Gammons

    Chairman Boucher and members of the House Energy and 
Commerce Subcommittee on Energy and Air Quality, my name is 
Brad Gammons and I am Vice President of IBM Global Energy and 
Utility Industry. IBM appreciates the opportunity to testify 
before this Subcommittee.
    Innovation is a major theme of any leader's agenda today. 
CEO's, academics and government leaders agree that innovating 
their business designs, policies, problem-solving approaches 
and execution models are key drivers of economic opportunity. 
In fact, the pressure to innovate is heavy in order to 
establish and sustain competitive differentiation, 
institutional value, and to make advances in the world's most 
pressing issues from healthcare and globalization to energy 
efficiency and the environment.
    It is easy to confuse innovation and invention. Invention 
of new technologies is important to IBM and other companies in 
the technology industry. However, technology invention, in and 
of itself, is not what we mean by ``innovation.'' Instead, we 
think about technology as an enabler of business, academic and 
government innovation. Technology is an enabler of new ways to 
do things whether that is developing a set of products and 
services, executing a set of management processes or rethinking 
entire business models.
    Across industries, there are two significant changes in 
technology which are providing great leverage:
    1) The Internet. The Internet and other communications 
technologies have connected a million businesses and a billion 
people. The Internet is, in essence, the world's operational 
infrastructure. And, it is still only in its infancy. Right 
now, we have nearly three billion people subscribed to wireless 
technology. This network ubiquity provides the vehicle for 
people and things to work and operate in a collaborative way.
    2) Open Standards. Starting with Internet Protocol, the 
software industry has made major strides in establishing and 
delivering to the market open standards-based products and 
technology. Whole new classes of software, like middleware, 
make it easier to build solutions faster and based on ``off the 
shelf'' components and products. Open standards has been 
evolving over the last decade beyond traditional IT to include 
networks, digital media, industrial components like sensors and 
more. It has expended IT standards to previously closed and 
proprietary domains.
    Leaders want to put in place new business designs that 
break down traditional and operational silos and enable 
horizontally-integrated institutions and enterprises. This is 
made possible with these open and ubiquitous technologies. The 
horizontally-integrated institution can make firms incredibly 
flexible in responding to business, marketplace and global 
needs.
    In the utilities industry, there is a great desire to 
achieve new levels of operational effectiveness and to reach 
beyond efficiently managing generation, transmission or 
distribution. There is a desire to have business management and 
operational visibility across these domains and even to include 
raw materials, transportation, supply management and the 
customer experience--in effect, the entire energy ecosystem.
    The desire is to improve network planning, operations and 
maintenance--improve the transparency of information, 
experience fewer and shorter outages, provide better customer 
service, and provide a platform for adding renewable energy and 
improved utilization.
    The power grid is the ``connective tissue'' of the utility 
ecosystem. Today, we are here because we know the power grid 
challenges need to be dealt with now.
    We need appropriate infrastructure investment as well as 
policies to encourage investment. No one cares about putting in 
a smart grid or what IBM calls an Intelligent Utility Network 
(IUN) just for the sake of it. What truly matters is creating 
advantage for your enterprise, value to your customers, and the 
ability to improve long-term environmental effects.
    The utility industry faces a series of significant 
dilemmas. How can utility companies contain costs while 
increasing power reliability? How can they ensure energy 
security, while still providing access to all? How can they 
deliver increasing levels of service while at the same time 
being unaware that entire neighborhoods are without power? How 
do they bring new supply into the system--to meet growing 
load--when the current system is challenged to accommodate new 
energy sources? How do they build new generation and 
transmission facilities when there is significant social and 
political resistance? And, as a matter of policy, how can 
energy be a source of economic growth while preserving 
environmental sustainability?
    In order to address these dilemmas, we need to innovate. 
Other industries have faced their own dilemmas and have 
responded by innovating their business models.
    Let's consider another capital intensive ``grid,'' but for 
the transportation industry--the airline industry. Airlines are 
able to change pricing structures and how they manage supply 
and demand in almost real time. If airlines operated the same 
way utilities do, they would charge one price for every seat, 
regardless of the class of service or the time of purchase or 
available capacity. This scenario is not different from demand 
management and pricing in the utility industry where customers 
are challenged in their ability to monitor and adjust their 
energy consumption.
    Let's think about the banking industry. Banks can account 
for every dollar of every transaction every time. They can even 
leverage the data they have about consumer habits to target 
customers with new products and services. In the utility 
industry, kilowatt hours are the currency. But utilities are 
challenged to track kilowatt hours completely and use data to 
improve customer service.
    Let's look at some examples of how utilities can innovate 
their business designs by leveraging technology.
    We can use technology in three important ways.
    (1) To automate the power grid to make it stronger, cleaner 
and less costly;
    (2) To integrate the power grid and create an end-to-end 
network;
    (3) And, to expand the value of the grid with new services 
and new markets.
    If we do these things, the grid can evolve to become a 
Smart Grid.
    Building intelligence into the grid provides the 
information backbone to better understand our energy use, and 
empowers utilities, regulators and consumers to better manage 
their energy environment and practices.
    A smart grid represents the transformation into an 
interactive energy-management system. The proliferation of 
sensors and existing technology such as smart meters, 
analytical tools, Services Oriented Architecture, high-speed 
communication networks and digitally-enabled equipment have 
made this possible.
    In most cases, these technologies are not new. What's new 
is how proven technology, often developed for solutions in 
other industries, is being applied to the utility industry to 
generate tangible benefits and foster innovative business 
models today.
    Again, we're not talking about new technology invention. 
We're talking about applying mature technologies to new 
approaches. In my view, there's tremendous potential to seize 
the ``low-hanging fruit'' for ``no-regrets'' investments.
    Utilities are extending equipment life and minimizing 
unnecessary substation inspections through remote asset 
monitoring and control. This defers costly equipment upgrades, 
maximizes the utilization of existing assets, and reduces and 
mitigates blackouts.
    Utilities like Xcel have consolidated their multiple 
operational and IP networks and are using existing 
telecommunications infrastructure to transport data from 
equipment to the back-office to make it available across the 
enterprise and apply analytical tools to turn data into 
information.
    Utilities are extending the value of their networks by 
using Advanced Meter Management. The installation of AMM 
includes the customer premise as part of the network enabling 
demand response and time-of-use pricing models.
    CenterPoint Energy is deploying a number of smart grid 
solutions including remote connect/disconnect and Advanced 
Meter Management for Houston area customers. This will give 
utilities serving consumers better usage information and make 
power distribution more reliable. With more detailed 
information on usage and pricing, consumers can potentially 
save money by changing their consumption patterns.
    A smart grid will allow for safe and reliable integration 
of distributed energy--such as wind, solar, storage and other 
environmentally desirable solutions--into the power grid. 
Examples of innovation at the intersection of the 
transportation and utility sector are: Pacific Gas & Electric, 
Southern California Edison, Xcel, and Austin Energy's vehicle-
to-grid technology. This technology allows for two-way sharing 
of electricity between electric vehicles and plug-in electric 
hybrid vehicles and the electric power grid. The technology 
turns each vehicle into a power storage system, increasing 
power reliability and the amount of renewable energy available 
to the grid during peak power usage.
    Imagine if a company were to integrate all of these 
capabilities. Such a pilot is underway in Washington State. The 
GridWise Pacific Northwest Gridwise Project represents a 
groundbreaking collaboration between the Pacific Northwest 
National Laboratory and utility companies and technology 
partners such as IBM.
    This initiative will give homeowners on the Olympic 
Peninsula more information about their energy use and its cost 
as an incentive to reduce their power consumption at peak 
times. Automated controls will adjust appliances and 
thermostats based on pre-determined instructions from the 
homeowners. This allows consumers to choose to curtail energy 
use when prices are higher than their set preferences.
    The smart grid is a platform to enable the future. It can 
improve the nation's ability to respond to increased energy 
demands and increased need for energy independence while 
mitigating security concerns and the economic impact of 
blackouts.
    Smart grid can also help drive innovation across the energy 
supply chain providing value to and enhancing the competitive 
position of all players in the US energy industry.
    Smart grid can enhance energy independence and protection 
of the nation's critical infrastructure, save billions in 
energy productivity, and substantially increase national 
competitiveness.
    The invention of new technology is not a factor from a 
policy standpoint. The technology is sufficiently mature and 
the adaptations for utilities can be addressed.
    At the same time, utilities must embrace innovation and 
collaboration to transform their business models and 
substantially improve the infrastructure. Technology providers 
must seize the opportunity to demonstrate how existing 
technologies can be applied for immediate improvement, as well 
as be a strong partner in research and development for future 
solutions on the horizon--for the benefit of consumers, the 
market and the environment.
    Thank you.
                              ----------                              

    Mr. Boucher. Thank you very much, Mr. Gammons.
    Mr. Delurey.

 STATEMENT OF DAN DELUREY, EXECUTIVE DIRECTOR, DEMAND RESPONSE 
        AND ADVANCED METERING COALITION, WASHINGTON, DC

    Mr. Delurey. Thank you, Mr. Chairman. My name is Dan 
Delurey and I serve as executive director of Demand Response 
and Advanced Metering Coalition, otherwise known as DRAM. DRAM 
members include the leading providers of smart metering, 
communications and control technologies as well as companies 
that use those technologies to provide blocks of megawatts to 
utilities with these blocks being equivalent to what they would 
otherwise procure from conventional power plants.
    Demand response is the term that refers to the business and 
policy area where electricity customers reduce or shift their 
electricity use on peak in response to price signals or other 
incentives. Demand response addresses the fact that in order to 
have a smart grid, we need to have smart rates and smart prices 
and smart technologies that provide customers and utilities 
alike with new options for how to manage electricity. That is 
not what we have today. Under our present system, the vast 
majority of customers and almost all residential customers pay 
no more for electricity on the hottest summer afternoon when 
the electricity system is strained and the cost to produce 
electricity is extremely high than they do in the middle of the 
night on a spring or fall day. That is not a smart system, 
especially when having only a percentage of those customers 
modify their peak use to prevent reliability problems and lower 
prices for all customers on the system. In order to deploy 
demand response, it is necessary for two things to happen. 
First, technology must be in place that allows electricity 
usage to be measured in time intervals instead of the present 
system where usage is measured cumulatively and all kilowatt-
hours are treated equally. That information has to then be 
communicated in a timely fashion to utilities, customers and 
other parties. Second, customers must be provided with time-
differentiated price options and/or other incentives to reward 
them for modifying their on-peak usage.
    As to the pricing part, Congress is not in position to set 
prices for electricity. That is clearly for States and other 
bodies of jurisdiction over utilities to decide but it can 
ensure that the level of attention, support and funding is 
provided that will allow the States to tackle their role in 
establishing demand response and creating a smart grid. 
Congress began to address this in the Energy Policy Act of 2005 
in section 1252. It established a requirement that States and 
other bodies with utility oversight examine whether or not its 
jurisdictional utilities should provide time-based rates and 
smart meters to all their customers. While many States still 
have a proceeding underway to consider this requirement, the 
majority of those States that have concluded their proceedings 
have decided not to adopt this new requirement. That is not to 
say that this section of law has not had a positive effect; it 
has. Demand response and smart metering are being discussed in 
more States and in more places than ever before. But in terms 
of States trying to tackle a new and multifaceted issue such as 
demand response and its enabling technology, they clearly have 
not received the training, education, technical assistance or 
other support they have needed as they have taken up this new 
requirement. States need more support from Congress so they can 
do the job that they have to. Smart grid will not happen with 
one big bang or in one fell swoop, and more than people think, 
much of it will happen in a disaggregated fashion by actions at 
the State level.
    With these issues in mind and at the chairman's request, I 
would like to just highlight some of the policy recommendations 
that I have included in my written testimony. The first area 
would be taxation, recognizing that is not the jurisdiction of 
this committee but as with energy efficiency and renewable 
energy, the proper tax incentives, for example, reduction tax 
credit to go along with the production tax credit that is given 
lift to the wind industry, that would go a long way in helping 
this industry, and I think this committee could in terms of 
definition, policy frameworks and statements do a lot in terms 
of that. I think that the establishment of a temporary national 
commission on electricity modernization should be established 
with funding provided that could conduct the proper assessment 
of the smart grid and look at funding options and also develop 
a national action plan on demand response and grid 
modernization, not just a plan, not just a report but an 
actively managed plan that would do the things necessary in the 
many different places they need to be done to make sure that 
this happens. Congress should consider in terms of funding 
these new investments looking at a national assessment on the 
transmission system. Even an extremely small wire charge would 
generate significant revenue earmarked for smart grid 
investment.
    In terms of the Federal Government showing leadership, 
Congress should consider establishing peak demand reduction 
standards for Federal agencies. In terms of appliances, you 
have heard about prices to devices. Congress should consider 
moving to additional types of appliance standards beyond those 
that govern internal energy efficiency. Congress should 
consider how to integrate smart metering systems in climate 
change strategies and regimes so that such systems and other 
technologies can be used to more precisely measure and verify 
energy reductions and the monetary rewards that accrue to those 
carbon reductions. Congress should consider providing funding 
and technical assistance to States or groups of States to 
undertake smart grid and demand response actions on their own 
or in conjunction with a national program as I described. 
Congress should consider requiring the Federal Energy 
Regulatory Commission to develop a framework on 
interoperability, something that has already been touched upon 
but is one of the key threshold issues to the growth of demand 
response and the smart grid.
    In the absence of having more time to address it, I would 
like to talk perhaps in response to a question Congresswoman 
Harman introduced, an idea that doesn't get talked about enough 
and that does all this relate to the environment, and I have 
some comments on that. I would be happy to answer in response 
to a question in terms of how a smart meter is a green meter. 
But what I would like to do in closing is more make the comment 
that it is important as we talk about the smart grid to not 
always talk about it in future tense. Yes, better technology 
will come along. Meters and other demand response technologies 
are now high-tech items and as with other high-tech items, they 
will continue to evolve and improve but smart meters and other 
smart technologies are available now that provide all of the 
benefits that my testimony describes. If consumers and 
businesses had waited to buy their first computer or cell phone 
until the best technology came along, they would likely have 
gone for years without a computer or phone and in the meantime 
have foregone the obvious benefits of using the existing 
technology. The barrier to demand response and smart grid is 
not more R&D. What is needed most is to put demand response and 
the smart grid on a national commitment basis and to make 
policy changes that will help implement the smart grid.
    With that, let me express my thanks once again for the 
opportunity to testify and I look forward to your questions.
    [The prepared statement of Mr. Delurey follows:]

                        Testimony of Dan Delurey

    My name is Dan Delurey and I am executive director of the 
Demand Response and Advanced Metering Coalition (DRAM). DRAM is 
the trade association for companies that provide technologies, 
products and services in the electricity industry segment known 
as demand response. Its members include the leading providers 
of smart metering systems, communications and control 
technologies, meter data management systems, smart thermostats 
and other ``smart'' equipment. DRAM welcomes the opportunity to 
provide testimony to the Subcommittee on Energy and Air Quality 
on why demand response needs to be included in electricity 
policy, planning and operations, and to offer comments on how 
demand response and its enabling technologies, such as smart 
meters, not only relate to but are in fact necessary for the 
development of the smart grid.
     Our testimony seeks to do several things:

     Provide a brief explanation as to what demand response is, 
why it is important to national energy policy, and why it is an 
important element of a ``smart grid''.
     Provide a brief overview and explanation on demand 
response technologies such as smart meters.
     Discuss the many and varied benefits that demand response 
and its enabling technologies deliver to various parties.
     Discuss the state of demand response policy and comment on 
the impact of provisions on demand response and smart meters 
included in the Energy Policy Act of 2005.
     Present policy options that the Congress can consider and 
act upon to accelerate the deployment of demand response 
technologies, increase the amount of demand response in the 
national electricity mix, and put the foundation in place for 
development of the smart grid.

                        What is Demand Response?

    Demand response refers to the policy and business area 
whereby electricity customers reduce or shift their peak demand 
usage in response to price signals or other types of 
incentives. At present, the vast majority of electricity 
customers, and virtually all residential customers, are on 
rates or prices that have them paying the same unit price for 
electricity at any time of day and any time of year, no matter 
how much the cost to produce or deliver electricity fluctuates 
as demands on the system rise and fall. These existing ``flat'' 
rates do nothing to stem peak electricity usage, which 
continues to grow unconstrained across the U.S. The lack of any 
disincentive to on-peak consumption does nothing to address the 
reliability of the electricity system, which continues to be 
threatened by the rapid growth in peak demand. When demand 
response is introduced, and when even a small percentage of 
customers modify their peak usage, outages can be prevented, 
overall prices to all customers can be reduced, and customers, 
utilities and many other stakeholders can reap significant 
benefits. More discussion of benefits will be provided in a 
later section of this testimony.
    As with any new field, definitions of demand response are 
still in development within the policy and business community. 
One definition that many policy makers have accepted was 
developed by the non-profit U.S. Demand Response Coordinating 
Committee (DRCC), a diverse group exclusively dedicated to the 
development of new content and information on demand response. 
Its definition is as follows:Providing electricity customers in 
both retail and wholesale electricity markets with a choice 
whereby they can respond to dynamic or time-based prices or 
other types of incentives by reducing and/or shifting usage, 
particularly during peak periods, such that these demand 
modifications can address issues such as pricing, reliability, 
emergency response, and infrastructure planning, operation, and 
deferral.
    An examination of this definition reveals that there are a 
number of different facets to demand response. While this can 
make an appreciation of demand response more challenging, it 
also means that the amount and type of benefits can 
collectively be very high. Each of these facets will be 
discussed in the benefits section below, but it is worthwhile 
to note that key to this definition, and to any definition of 
demand response, is that it is focused on customers, and 
providing them with new options to manage their energy use and 
reduce their energy bills.
    One more background item is worth noting. Just as energy 
efficiency was at one point referred to as ``energy 
conservation,'' early forms of demand response were known as 
load management. Under that name, a number of utilities have 
operated successful programs over the years where in return for 
some incentive, customers allowed utilities to put controls on 
certain of their appliances and turn those appliances off when 
peak demands on hot summer days or cold winter days threatened 
the reliability and integrity of the system. These programs 
have functioned well in years past and many continue today. The 
difference between demand response and load management is that 
new technologies in the area of metering, communications and 
controls means that many new types of demand response options 
are available to customers. These options are ``smarter'' and 
allow customers to maintain and share control of appliances and 
equipment or to employ automated controls that can respond to 
price and other signals. These options also allow other demand 
response options to be provided such as time-based rates.

                      Demand Response Technologies

    The most ubiquitous demand response technology is the 
meter, and some background on metering can be helpful in 
understanding demand response, its benefits and how it plays a 
role in the development of the smart grid.
    The vast majority of electricity customers in the U.S. do 
not have a smart meter on their home or business. (The Federal 
Energy Regulatory Commission, in its Report to Congress 
required by EPACT 2005, estimates only 6 percent have smart 
meters). Many customers still have the basic type of meter that 
has been in use for decades. This meter has one function--to 
``count'' the units of electricity that the customer consumes 
and to maintain a cumulative total of that usage that at some 
point is multiplied by the price of that unit to produce a 
total electricity bill. In a modern society where customers can 
easily and quickly obtain information about the things they 
purchase, such meters and the information they provide are 
anomalies. A customer with a basic meter gets no informational 
feedback on how and when they are using electricity or 
information they can apply to their future electricity 
purchases. They also are unable to take advantage of any time-
differentiated rates or prices that could help them reduce 
their electricity bill.
    A smart metering system does two important things. First, 
it measures and stores electricity usage in intervals, normally 
on at least an hourly basis. This time-based measurement allows 
time-based pricing and rates to be offered and accepted. 
Second, the smart meter is part of a communications network 
that allows the data measured and stored to be collected and 
retrieved on a timely basis--at least daily--for use by the 
utility and other parties and for presentation to the customer. 
This communications network and connectivity with the 
customers' premise provides other non-demand response benefits 
to utilities and customers alike, as is described below.
    Smart meters are not the only new technologies that enable 
demand response and that help create the smart grid. ``Smart'' 
advances have been made in remote controlled and price-
sensitive thermostats and lighting systems that allow the new 
products to be utilized in demand response applications. Energy 
Management Systems (EMS), formerly only used for energy 
efficiency purposes, are being made smarter and thus capable of 
empowering demand response applications. New in-home display 
devices are available that can transmit information from the 
meter to the customer in real time. New building automation and 
management technologies are available that allow optimization 
of energy use with respect to time of use. New thermal and 
battery storage systems are available that allow dynamic 
storage and release in concert with peak demand management. 
Even automobiles are developing into dynamic storage media in 
the case of the Plug-In Hybrid Electric Vehicle (PHEV), where 
the replacement of petroleum with electricity has been shown to 
have environmental benefits as well as helping to optimize grid 
management.
    It is important to note that it is not just the technology 
but also how it is employed and applied that creates demand 
response. For example, some demand response companies have a 
service, or resource-based business model, whereby they 
contract with utilities to provide a block of demand response 
(e.g. 10, 20, 30 or even 40 MWs) in the same manner as if they 
were offering a peaking power plant to the utility. The demand 
response provider takes on the responsibility for enrolling and 
aggregating customers and controlling the peak loads of those 
they enlist so as to create a ``negawatt'' resource for the 
utility that is a substitute for additional power generation.

                   Demand Response and the Smart Grid

     It is perhaps intuitive to understand why demand response 
technologies such as smart metering are an integral part of the 
Smart Grid. In the context of the smart grid, demand response 
and its enabling technologies such as smart meters are the 
place where the smart grid touches the customer. The vision of 
a smart grid is that of an intelligent, dynamic ``organism'' 
that allows the electricity system to be planned and operated 
in a way that optimizes all of its components to lower costs, 
increase reliability and utilize new informational and 
communications technologies. That vision includes an 
optimization of not only supply side options but also demand 
side options, and demand response is the way for demand side 
resources to effectively and dynamically be engaged.
     Viewed another way, given that the smart grid will not 
arrive in one instant in time or in one fell swoop, smart 
meters and other related communications and control 
technologies are, collectively, the building blocks of the 
smart grid that will provide the foundation upon which the rest 
of the smart grid will be built. Timely, and in some cases, on-
demand information from customers will help smart grid 
operators better monitor grid conditions and assess potential 
threats to the reliability and/or security of the electricity 
system. By providing information, including price signals, to 
customers, those operators will in turn be able to deploy 
customer reductions as a resource. Demand response technologies 
allow information and control over the demand side to be 
individually addressed yet aggregated into sizable blocks of 
``negawatts'' that will be key to the success of smart grid 
development. Not only will the deployment of demand response 
technologies help avoid electricity outages, but also will help 
utilities and regional operators restore electricity faster 
than otherwise when outages do occur. In the case of the last 
major Northeast Blackout, New York State, where a substantial 
number of demand response technologies are deployed with large 
customers, was able to use those technologies and customer 
connections to do a controlled restoration which resulted in 
power being restored a full day earlier than expected.

       Benefits of Demand Response and its Enabling Technologies

    Demand response and its enabling technologies offer many 
different benefits in many different areas. In terms of 
reliability, a reduction in peak electricity demand reduces the 
threat of outages. In terms of electricity markets, demand 
response and its technologies allow dynamic demand reductions 
to be deployed instead of resorting to additional power 
production, with the result being lower wholesale prices, which 
all customers pay one way or the other. Also related to 
markets, reductions in peak demand serve as a means of 
mitigating market power of suppliers, which can otherwise occur 
when demand increases unconstrained during peak periods due to 
consumers not paying prices anywhere near the cost of producing 
the electricity during that critical peak period.
    In almost all cases, technology is required to enable 
demand response even if it is only for time-based measurement 
purposes. In the case of the smart metering system, however, 
non-demand response benefits are introduced when the technology 
is deployed for demand response. A good example is grid outage 
management and restoration. At present, many utilities rely on 
customers who lose service due to a storm to make a telephone 
call to let the utility know of the outage. In other cases, 
utility truck crews drive around to identify which homes and 
businesses are out. With the communications and connectivity 
abilities that come with smart metering systems, a utility 
customer service operator can instantly know when a customer is 
out and can optimize dispatch of crews to address the 
situation, increasing the speed and decreasing the cost of 
restoration. Other types of benefits in the areas of customer 
service, outage management, system planning, system operations 
and security maintenance are possible when demand response 
technologies are deployed.
     In terms of customer benefits, demand response and its 
technologies offer many new benefits. Customers will get 
information on their electricity usage that they have never had 
before and get it in a timely manner such that it acts as 
feedback to reinforce their energy management efforts. They 
will have price and rate options that will stimulate them to be 
more efficient energy consumers. Demand response technologies 
will be the answer to the question ``how can you manage what 
you cannot measure?''. Studies have shown that even where 
customers are not on time-differentiated rates, they may reduce 
their electricity usage by 11 percent just as a result of being 
more informed and understanding better how and when they are 
using electricity.
    In terms of addressing climate change and other 
environmental issues, demand response can make important 
contributions. The obvious one is in the enhancement and 
reinforcement of customer energy efficiency, the accepted 
cornerstone of emission reduction policies. Demand response 
control and information technologies such as smart meters can 
be the platform upon which the U.S. moves to an entirely new, 
more expansive and effective era of energy efficiency. Also, 
demand response technologies and practices will not only lead 
to greater energy efficiency but also to greater accountability 
of reductions, something that will be increasingly important 
under any policy where emissions are constrained and reduction-
based offsets are monetized. Indeed, the smart electricity 
meter, while not an energy efficiency device in and of itself, 
may prove to be not only a smart meter, but also a green meter, 
as it helps improve overall energy efficiency and track energy 
savings.
    In the case of some pollutants such as NOx, time-based 
emissions (e.g. during hot summer afternoons) can lead to ozone 
non-attainment. In the case of NOx and ozone, demand response 
holds out the potential to be a dynamic emissions tool that can 
be used to reduce power plant productions (and emissions) 
precisely when they contribute the most to non-attainment. 
Finally, and still in the area of environmental benefits, is 
the contribution that demand response can make to renewable 
energy development. In the case of wind energy, a particular 
geographic wind resource may not be available during peak 
demand periods. By matching that wind resource with demand 
response during the period that wind is non-available, the wind 
resource may become more viable. The result is a greater chance 
that less environmentally friendly resources can be avoided 
through a combination of wind and demand response.

                   Existing Policy on Demand Response

     Congress.  Section 1252 of the Energy Policy Act of 2005 
represents the first legislation by Congress on demand 
response. It included several important provisions:
      A new PURPA standard that would require that 
utilities provide time-based rates and smart meters to all 
customers.
    As with other PURPA standards, States and other bodies with 
jurisdiction over electric utilities were required by EPACT to 
conduct an investigation as to whether this new standard was 
appropriate for its particular jurisdiction and to make a 
finding on such. States and other bodies were given until 
August 2007 to complete their investigation and make a finding.
    Some observers questioned the impact that this new PURPA 
standard would have at the time of EPACT enactment, pointing 
out that the only true requirement in the provision was for 
states to consider the standard, i.e. utilities were not 
required directly by the statute to do anything with respect to 
time-based rates and smart meters.
    While many states to date have chosen to not adopt the 
standards, EPAct 1252 has had significant impact across the 
country. It has become the common framework within which 
heightened discussion and debate on demand response has taken 
place at the state level over the past two years. While many 
state commissions are still in the middle of their proceeding 
to consider the standards, the level of attention, awareness 
and action has risen significantly from where it was prior to 
EPACT enactment.
    Attachment A depicts the status of State Commission 
proceedings on the new PURPA standard at this time, based on 
DRAM's assessment:
      A requirement that FERC conduct an assessment and 
report to Congress on various aspects and characteristics of 
demand response, including an estimation of the existing 
penetration of smart meters.
    FERC completed this report on time and the document 
delivered to Congress represents the first ever nationwide 
survey of smart metering and other demand response technologies 
and programs. It also includes a substantial amount of other 
information on demand response, including barriers to it and 
how they might be overcome.
      A requirement that DOE make an assessment and 
report to Congress on the nationwide potential for demand 
response and provide recommendations as to how to achieve a 
specific target by a date certain.
    DOE delivered its report to Congress within six months of 
enactment as required by EPACT but it did not address the 
question of ``how much by how soon.'' According to DOE, the 
short turn around time of six months to undertake and complete 
the report did not allow for such. Instead, DOE opted for a 
compendium approach where it produced a report that presented 
the range of work by other parties on estimating demand 
response potential.
     FERC. The Federal Energy Regulatory Commission (FERC) has 
in the past several years made significant strides in fostering 
the development of demand response. It views demand response as 
a vital ingredient to the success of wholesale markets and has 
sought to foster demand response programs and markets at the 
various regional RTOs and ISOs. As a result, some of the newest 
demand response resources that have been developed are at the 
wholesale level. FERC continues to push to demand response both 
through its actions in party-specific proceedings and in 
generic rulemakings.
     States, In order to employ demand response, it is 
necessary for two things to happen. First, technology must be 
in place that allows electricity usage to be measured in time 
intervals (instead of the present system where usage is 
measured cumulatively and where all kilowatt hours are treated 
equally) and provided to utilities, customers and other parties 
in a timely manner. Adding automated controls and other 
technologies that monitor and control usage enhances and 
increases the amount of demand response that can occur. Second, 
customers must be provided with time-differentiated price 
options and/or other incentives to reward them for modifying 
their on-peak usage.
    Each of these requirements present state public policy 
issues that are only beginning to be addressed and resolved. As 
discussed above, the investigation required by EPAct 2005 
represents for many states the first demand response activity 
they have undertaken. In many cases, state policy makers have 
been reluctant to support utility investment in new metering 
deployments. In many more cases, state policy makers have 
expressed significant reluctance to introduce time-based rates 
to customers, citing the political backlash that could or would 
occur. These expressions of concern have come even in the face 
of suggestions that such time-based rates would be voluntary, 
and even after research continues to accumulate that customers 
like having such rate options and the information and 
technology that comes along with them.
    States for the most part ``have the ball'' on demand 
response and smart metering. They also therefore have much of 
the ball on development of the smart grid, even though this is 
not conventional thought on this topic. Yet states have the 
least amount of resources to adequately assess and understand 
demand response and the smart grid. It is imperative to the 
success of both that states receive additional support to be 
able to play their necessary role.

             Policy Options for Congressional Consideration

    DRAM believes that there are a number of steps which 
Congress can consider to develop demand response, which will in 
turn be steps toward development of the smart grid. Recognizing 
that some of these may not be jurisdictional to the 
Subcommittee on Energy and Air Quality, we list them as 
follows:
     Congress should recognize that smart meters represent new, 
high-technology hardware and software and should be treated for 
tax and regulatory purposes as such. Tax policy should be 
changed to accelerate depreciation on smart meters and other 
demand response technologies.
     Tax incentives should be provided to utilities and other 
parties, including customers, to install demand response 
technologies as quickly as possible so as to develop as much 
demand response as possible in the Nation's electricity mix. 
One option would be a reduction tax credit, similar to the 
production tax credit that has allowed the renewable energy 
industry to gain traction and grow. Such a credit could only be 
granted when reductions are measured and verified using demand 
response technologies and applications, in recognition of the 
capabilities of such. Another option would be an investment tax 
credit which helps accelerate the installation of devices and 
equipment.
     A temporary National Commission on Electricity 
Modernization should be established, with funding provided, 
that would undertake the following tasks:
    (a) Conduct a national assessment of the state of the grid 
and provide detailed proposals to Congress, the President and 
the States on how to accelerate the deployment of a smart grid. 
Included in the Commission's work would be development of a 
framework for how the smart grid would operate and how its 
components would effectively communicate and interface. Also 
included would be a proposal for funding the investment 
necessary to put smart grid infrastructure in place.
    (b) Develop a National Action Plan on Demand Response and 
Smart Technologies that would provide support for education and 
training of policy makers, customers and other stakeholders, as 
well as a nationwide communications and outreach program that 
would lead to greater deployment of demand response.
    A temporary independent Commission would allow the efforts 
of industry, state policy makers and other stakeholders to be 
integrated with the efforts of DOE, FERC and other Federal 
agencies in a holistic, comprehensive and effective manner. It 
would also be able to provide the required support to states, 
where much demand response activity must take place to realize 
the potential of the resource.
     Congress should consider providing additional funds to 
develop demand response resources and the smart grid in general 
via the introduction of a national assessment on the 
transmission system. Even an extremely small ``wires charge'' 
would generate significant revenue earmarked for smart grid 
investments.
     Congress should consider requiring the Federal Government 
to demonstrate leadership by establishing peak demand reduction 
standards for Federal agencies. These standards would require 
progressive reduction in peak electricity demand as compared to 
a baseline year, in a manner similar to renewable portfolio 
standards or energy efficiency resource standards. These 
standards would complement and enhance the other efficiency 
activities that Federal agencies already are required to do 
and/or have underway.
     With the development of new communications and control 
technologies that allow individual consumer appliances to 
receive and ``act'' upon price signals and other control 
signals for purposes of demand response, Congress should 
consider moving to additional types of appliance standards 
beyond those that govern internal energy efficiency.
     Congress should consider how to integrate smart metering 
systems into climate change strategies and regimes to allow 
such systems and other demand response technologies to be used 
to more precisely measure and verify energy reductions and the 
monetary rewards that accrue to the associated carbon 
reductions.
     Congress should consider providing funding and technical 
assistance to States or groups of States for developing smart 
grid assessments and action plans which will allow them to move 
forward to begin to create smart grid components in their 
jurisdiction.
     Congress should consider requiring the Federal Energy 
Regulatory Commission to develop a framework on 
interoperability, one of the key threshold issues to the growth 
of demand response and the smart grid.
    As with any major endeavor such as the transformation of 
the Nation's electric system into a smart grid, it is important 
to consider the timing and nature of the transition. In the 
case of the smart grid, it is easy to always see it as 
something that is out in the future somewhere, just out of 
reach. It is easy to see it as something that requires 
substantial research and development and that can only be 
accomplished if new technologies, not necessarily yet invented, 
are developed and made available. Some aspects of the smart 
grid may indeed meet this future-oriented test. But in the case 
of demand response, smart meters and other smart technologies 
and applications, the future is now. These technologies, as 
with any modern technology such as in the computer or 
telecommunications area, will be on a continual path of 
evolution and will continue to improve over time. Yet those 
businesses and consumers do not wait for the next great product 
to be developed before deploying a computer or cellphone so as 
to capture the many benefits that present technology provides, 
even while recognizing that new technology will certainly 
replace what they have at some point. It is important to take 
this perspective with the smart grid and not in all cases wait 
for future technology. Demand response and smart technologies 
are available today which can deliver immediate benefits to 
utilities, customers, other stakeholders and the Nation as a 
whole. With a greater commitment by state and Federal policy 
makers to deploying these technologies now, expressed through 
funding and other types of support, the construction of the 
smart grid can begin now instead of in the future.

                              Attachment A

    Status of State Commission proceedings to consider EPACT 
section 1252 PURPA standard requiring utilities to offer time-
based pricing and advanced metering

                    Ongoing Proceedings on Standard

     Alabama, Alaska, Arizona, Arkansas, District of Columbia, 
Georgia, Illinois, Indiana, Kansas, Louisiana, Michigan, 
Minnesota, Missouri, New Hampshire, New Mexico, New York, North 
Dakota, Rhode Island, South Carolina, South Dakota, Texas, 
Washington, Wyoming

        Completed Proceedings and/or Decision on Standards Made

    Delaware--decided to not adopt but proceeding still open
    Florida--decided to not adopt
    Iowa--decided to not adopt
    Idaho--decided to not adopt
    Kentucky--decided to not adopt
    Michigan--decided to not adopt but proceeding still open
    Montana--deferred adoption
    Tennessee--decided to not adopt but proceeding still open
    Ohio--decided to adopt; proceeding still open
    Utah--decided to not adopt
    Vermont--deferred adoption
    Virginia--decided to not adopt
    West Virginia--decided to not adopt

                           Proceeding Deferred

     Colorado
     Maryland
                              ----------                              

    Mr. Boucher. Thank you very much, Mr. Delurey.
    Mr. Bryson, we will be happy to hear from you.

 STATEMENT OF JOHN BRYSON, CHAIRMAN, CEO AND PRESIDENT, EDISON 
                  INTERNATIONAL, ROSEMEAD, CA

    Mr. Bryson. Thank you, Mr. Chairman, members of the 
committee. I won't provide a summary of my testimony. The panel 
is so strong IN its entirely correct affirmation of the smart 
grid. I thought I might pick out the things I can distinctively 
offer and see if they add some value.
    The smart grid makes sense, Mr. Chairman. Your letter 
inviting us to testify indicated arguably the smart grid has 
lots of benefits. The short answer is absolutely very great 
benefits and we need to move in that direction, and Chairman 
Dingell defined the problem well at the outset. Electricity 
moves at the speed of light. Anything short of an automated 
high-technology means of controlling electricity is 
fundamentally insufficient, and as business consumers, 
residential consumers increasingly digitize their homes, their 
businesses, the traditional means, low-tech means of operating 
an electric grid simply mean lack of reliability, slow 
response, poor service, high cost. Changes are absolutely 
essential and some of them have been well described by members 
of the panel.
    I thought I would say a little bit about what we are doing 
at Southern California Edison and I want to underscore, this is 
with the really great support of the State of California. 
California has had its reliability and its cost problems. The 
response now from the Governor, across the regulators, across 
legislators, Federal and State, Congresswoman Harman 
underscored the values we bring to this, has been so strong. It 
is enabling us to make investments that as recently as 4 or 5 
years ago we couldn't make. So my key focus will be to describe 
some of the things that we are doing in a utility, a very large 
utility that serves a large part of southern California and 
central California that are smart grid-type initiatives, and I 
want to underscore just what Congresswoman Harman said and that 
is, the smart grid more than any one component of the system, 
it is the heart of it. It is the essence of bringing all these 
things together--reliability, cost reduction, environmental 
benefit. Let me just say just a little about that. I will start 
extremely briefly with the distribution system, then the 
transmission system, then talk about the reach to retail 
customers through energy meters and I will respond to some of 
the questions.
    But very briefly. First, distribution systems in the 
country are critical. They reach all the consumers. They are 
aging. They are old technology. Designing them as we designed 
them in the past is just absolutely insufficient. A transition 
in that respect will be costly but it must be done. So just one 
example of what we are doing at Southern California Edison and 
I believe it is leading the country in most of these respects 
but we are now employing and will first put into operation this 
summer something called the Avanti Circuit so it is a 
distribution circuit. It will be installed and fully 
operational in July of this summer in San Bernardino County, 
enormously fast growing east of Los Angeles. To oversimplify, 
it incorporates the best, most advanced monitoring and control 
systems. So that means something very simple. It means the kind 
of minor disturbances to the electric system that turns 
people's clocks off in homes, for example, that affects 
businesses should be substantially overcome. This is an initial 
2,000 customers. It needs to go much further but it is 
beginning. I wanted to say this was a test program. My 
engineers say don't say it is a test program, it is really the 
real thing, it will go further. That is distribution. I could 
talk much more about that.
    Let me talk about transmission, the large wires that carry 
electricity and necessarily across a large region. So 
transmission has a long way to go, again a fundamentally not 
very sophisticated system. It is not a dumb system but is at 
best a half smart system. What needs to be done? Well, let me 
talk about one thing we are doing: synchronous phasor 
measurement developed by engineers with the help of the 
Electric Power Research Institute and others. We have now 
installed this new means of providing instantaneous reads on 
stress across a very large regional transmission system. We 
have installed them at our 500kV substations, some smaller 
substations. They allow us now, and this is brand new, 
everything I am talking about is brand new, to take readings on 
stresses on the system 30 times a second. So that is 
appropriate to the speed of electricity. It allows our manual 
operators of the system to get these reads, we act faster, 
identify problems. Over the next 2 to 5 years we will put in 
the automation system that allows this means of identifying 
from multiple sources stresses on the system and an automated 
response. That is the kind of thing that needs to be done at 
the transmission level.
    Then let me turn to the retail level, the consumer level. 
The electric meters, there is talk about them. I think there 
should be no misunderstanding about the degree of which they 
need to be developed further so the meters that were available 
in the market as recently as 1 year ago were not cost-effective 
on our system. They are a modest improvement but still largely 
analog. Not a whole array of features of the best sort can be 
drawn from the computer world, Silicon Valley, so we declined 
to go ahead with those meters and instead use the base of 5 
million meters that we will install and we have reliably 
committed to install them and challenge vendors to come forth 
and we set out specifications for an array of services and 
capabilities in these meters. And the very good news is that we 
have in our labs right now from eight manufacturers meters that 
we believe will meet our specifications for interoperability, 
for two-way communication, for an array of quality consumer-
friendly services as well as smart grid friendly services. The 
key is tying it all together. It needs to be integrated. So 
what we see with this new capability is the installation on our 
system for an estimated $1.3 billion, so a large investment, 
starting next year and over 4 years across all our customers, 
not just large businesses, small businesses, residential 
customers. These meters will do lots of things and we don't 
have time to describe them all but kind of the immediate thing 
they do is what others have referred to and that is time-
sensitive or time-abuse pricing that will allow consumers to 
better manage their energy, better manage their bills, respond 
to price signals. Costs are relatively high of electricity, 
that is certainly true in our area in California, but we want 
to engage consumers in helping us manage the system. So simply 
put, one of the most expensive things on an electric system is 
building power plants that are used only occasionally to meet 
peak load needs. The meters can help with that. They can do 
multiple other things. I am getting the time signal so I will 
stop there but I can take that further. There are large 
environmental as well as reliability benefits.
    [The prepared statement of Mr. Bryson follows:]

                        Testimony of John Bryson

    Thank you Mr. Chairman, Mr. Ranking Member and members of 
the subcommittee.
    I am John Bryson, the chairman, CEO and president of Edison 
International, the parent company of the regulated utility 
Southern California Edison and the competitive power generation 
business Edison Mission Group.
    My message to you today is that a high-tech world can no 
longer afford a low-tech electricity grid. We must together 
build the smart electricity grid of the future. This will 
require substantial capital investment in the modernization of 
our transmission and distribution systems, and in the 
replacement of the dinosaurs of our industry--analog household 
electricity meters--with state of the art digital meters. We 
are fortunate that in California our public officials have 
provided the necessary regulatory environment to make these 
investments possible. I'm pleased to have the opportunity to 
share a few observations from our experience.
    I'll begin my comments by addressing the application of 
smart grid technology to the transmission and distribution 
system before focusing my comments on our advanced metering 
initiative.
    At SCE, our distribution system--the component of the 
electricity grid that delivers power directly to most 
customers--is both aging and growing. In response, and with the 
support of the California Public Utilities Commission, we are 
making capital investments in the system at an all-time high 
rate.
    We should not, however, continue to invest in the same old 
circuit designs. Even momentary interruptions can now cause 
significant economic loss for business customers. And 
residential customers using more digital home electronics have 
understandably higher expectations for service. The old 
standards are not good enough.
    An early example of the smart grid's potential will be a 12 
kV circuit that will become operational this July serving 2000 
customers in the San Bernardino area. Called the Avanti 
Circuit, it will feature a large array of advanced monitoring 
and control capabilities and will interface with our new smart 
meters. What will that mean for customers? Current distribution 
technology can now take more than a minute to locate and 
isolate a problem on the system. The Avanti Circuit will do the 
job in seconds, limiting outages and improving reliability.
    At the transmission level, we now have sophisticated new 
tools to measure stress on the system, including a new early 
warning system called Synchronous Phasor Measurement in which 
SCE leads the Nation. Over the next two to five years, we will 
increasingly have the ability to act on this warning system 
with faster and more sophisticated control technology. The 
result will be substantially improved system reliability.
    Let me give you a sense of how significant this is. If the 
technology I just described had existed in August 2003, the 
Northeast blackout, which affected 50 million customers, some 
for as many as four days, would likely have been largely 
controlled.
    These same advances will also facilitate the continued 
development of renewable power. The smart grid will be better 
able to react to the variability of wind and solar generation 
by activating other resources, dampening peak demand, and 
smoothing out disruptions. This is particularly important to 
us, since SCE leads the Nation with nearly 17 percent of our 
generation coming from renewable sources.
    The feature of smart grid technology most immediately 
visible to customers will be the advanced electricity meter. 
This is a game-changer for our industry.
    Through our advanced metering infrastructure effort, which 
we call Edison SmartConnect, every household in our service 
territory will be equipped with a truly state of the art 
``smart'' all-digital electricity meter. These new meters will 
actually be small but powerful computers and communication 
systems.
    Among many benefits, smart meters will allow time-of-use 
electricity pricing for all customers, including small business 
and residential. Time-of-use pricing will create powerful 
incentives for customers to save money by shifting their use to 
off-peak hours when electricity costs are much lower. Customers 
will be able to interface with these meters through their home 
computers to develop efficient usage patterns that can help 
reduce their electric bills.
    In a few years, it will likely be common to see signs in 
appliance stores labeling household devices as "communicating." 
Communicating thermostats already exist. Soon we will have 
communicating dishwashers, electric dryers, refrigerators and 
pool pumps. Some customers will program their appliances to 
respond to the smart meters and automatically reduce usage when 
power costs rise. Others will sign up for programs that allow 
the utility to control many of their appliances remotely when 
needed, in exchange for guaranteed additional cost savings.
    Let me spend a few moments emphasizing the importance of 
this benefit. One of the keys to meeting our Nation's power 
needs in an environmentally friendly way--along with a large 
increase in generation from renewable sources and the 
commercialization of new clean generation technologies--is the 
substantial expansion of energy efficiency and demand response 
programs.
    California and Edison International have led the way in 
both. We lead the Nation's utilities in helping our customers 
save electricity through energy efficiency programs. Since the 
Department of Energy started tracking energy efficiency in 
1992, we have helped our customers conserve more than nine 
million megawatt-hours of electricity. To put this number in 
some perspective, that's enough to power 1.1 million homes for 
a year.
    The CPUC has long supported this effort both by the 
commitment of program funds and also at a more fundamental 
level through ratemaking that decouples sales and revenue. For 
utilities this increases our risks because it requires more 
frequent rate cases, but constructive regulation makes it work 
in California.
    Edison also has the largest demand response program in 
California. When needed, we can call on more than 1,000 
megawatts of interruptible power. That's roughly equivalent to 
the size of a large power plant. It has the additional benefit 
of being spread across our service territory, which helps us 
manage the grid more effectively during times of peak demand.
    Peak consumption levels are a key factor in determining 
generating capacity requirements, so managing peak load is 
essential to controlling the need to build expensive new power 
plants. We see demand response programs therefore as an 
absolutely vital part of our effort to provide cost-effective 
and cleaner power to customers.
    After a one-in-fifty-year heat wave hit in Southern 
California last July, the CPUC very appropriately challenged us 
to increase substantially customer participation in our demand 
response programs. We responded with an enrollment push that 
since August of last year has added 58,000 new customers, 
bringing total participation to more than 250,000 customers. 
The added potential for load relief associated with those new 
enrollments is 105 megawatts, bringing total potential relief 
to nearly 500 megawatts. By the time summer arrives, we expect 
an additional 70 megawatts. Here is the key point: We added 
this capacity in less than a year, far less than time than it 
would take to build a generating station or transmission line.
    We can achieve even more in this area and we see advanced 
metering as a significant step forward. When fully deployed, we 
estimate that Edison SmartConnect could reduce peak demand on 
our system by as much as 1,000 megawatts, essentially doubling 
our current portfolio.
    It is important to note that participation in time-of-use 
and other pricing options will be completely voluntary. Some 
customers will surely choose not to participate and thus forego 
any direct benefits, although they may still benefit if SCE is 
able to defer the costs associated with building new 
generation.
    Smart meters can offer other potentially significant 
benefits as well.
    They will enable faster outage response. With the aid of 
our new meters, dispatchers will know immediately when and 
where an outage occurs. Crews will be able to respond faster.
    All customers will benefit from improved customer service 
and service automation. For example, the residential meters 
include a service switch that provides the ability to remotely 
turn-on our customers; service--a real benefit for the more 
than one million customers who move each year.
    For example, wind energy generally peaks in the early 
morning hours and solar energy generally peaks mid-day, so any 
shift in usage to those off-peak hours facilitates the future 
use of new solar and especially new wind power.
    These new meters are compatible with future plug in hybrid 
vehicles which offer the promise of replacing petroleum 
consumption with clean electric power. A soon to be released 
EPRI study will quantify the savings in greenhouse gases and 
other pollutants from this shift. Even using power from 
traditional coal plants to charge a plug in hybrid is 
environmentally superior (for CO2 and criteria pollutants) to 
driving a regular Toyota Prius. This trend increases over time 
as newer, clean generating plants replace older, less efficient 
ones.
    Just as importantly, integrating all these meters to a 
single open standards based system provides utilities 
additional communication and pricing tools and flexibility to 
respond to outages and emergencies in a far less disruptive 
manner than rolling blackouts.
    A little more than a year ago, no existing meter technology 
met our requirements for cost effectiveness and customer 
benefits. So we used the prospect of a five million meter 
purchase by SCE to drive the development of technology that met 
our requirements for open standards and future flexibility.
    Our strategy was successful and as a result new meters and 
communication networks from several manufacturers are being 
tested right now by SCE technicians. Field tests will be 
underway by the end of the year. And by 2013 we plan to install 
five million advanced meters with the largest array of 
customer-service features offered by any utility in the United 
States.
    Beginning with the first meter installations in 2008, we 
expect a transition period of learning and assessment. Large 
commercial and industrial customers (above 200KW) have already 
received smart meters, so we have already begun to climb the 
learning curve.
    Edison SmartConnect meters are a completely new breed. They 
contain two way communication capabilities and advanced 
software and computer capabilities that make them entirely 
different than the previous generation of meters. Edison 
International along with a number of other utilities has been 
working with the House Ways and Means Committee and the Senate 
Finance Committee on new tax policies that better reflect the 
nature of the new generation of high technology metering 
equipment.
    Just last week, at a first-of-its-kind conference sponsored 
by the U.S. Department of Energy and others here in Washington, 
SCE received one of the inaugural awards for ``Outstanding 
Leadership for the Advancement of a Smart Grid.'' We were the 
only utility to be recognized.
    None of this would be possible without the full support and 
backing of the California Public Utilities Commission, which to 
its great credit saw the potential value of the Edison 
SmartConnect program and is strongly encouraging the other 
utilities in the state to adopt the same fully digital 
technology.
    Thank you.
                              ----------                              

    Mr. Boucher. Thank you, Mr. Bryson.
    Ms. Zibelman.

 STATEMENT OF AUDREY A. ZIBELMAN, CHIEF OPERATING OFFICER, PJM 
                INTERCONNECTION, NORRISTOWN, PA

    Ms. Zibelman. Thank you, Chairman Boucher and to the 
members of the committee. We are absolutely delighted to be 
here today and are very pleased that the committee is embracing 
the recognition that the smart grid is actually going to be a 
very critical element if we are going to meet our goals of 
having an independent energy future and one that keeps 
electricity both affordable and environmentally sustainable, 
and we have provided written comments but let me summarize.
    Like Mr. Bryson, I wanted to talk in terms of real time, 
since PJM is the real-time operator, of how we see the smart 
grid innovation helping us do what we need to do, and the two 
things that PJM needs to do most is, we operate a reliable grid 
7 days a week, 24 hours a day, and in an area that serves 13 
States plus the District of Columbia, which is about 51 million 
people and represents about 19 percent of the GDP. And the 
other thing we look at is, we look at how do we manage the 
markets to continuously optimize the efficiency of the 
investment we make both in terms of providing affordable 
electricity but also in terms of taking advantage of renewables 
and other types of investment so that we see true innovation in 
the marketplace. And with that, let me talk about the two 
things that we see the smart grid doing. One is clearly 
improving reliability. As Representative Dingell and as all the 
panelists I think have said, electricity is a real-time 
product. It is at the speed of light which means we can't move 
faster that the speed of light. That means from our operators, 
in order to keep the grid in balance, they always have to 
anticipate what is the next event that can create a disturbance 
and then they operate in order to secure against that next 
event. The more information you can get in the hands of the 
operator so that they can anticipate that next event quicker, 
they can respond quicker and that is through automation, and if 
we do that, what that means is, you are operating the 
transmission system at its actual limits, not some predictable 
limits, and if you do that, what you are doing is, you are 
producing greater efficiency of the grid, you are having to 
produce less electricity in order to manage the grid 
responsibly, and the net effect is reduced prices, greater 
optimization, and if you are producing less energy from carbon-
producing resources, a better environment. So there is no 
question it is going to improve reliability. The automation 
also helps us against blackouts. One of the things that happens 
with a blackout is, if you can't see what is going on, you 
might have a cascading event like we saw in 2003. A smart grid 
allows the grid to essentially heal itself. We call it grid 
sectionalization so that we island the system and we don't 
create the cascading failures. That certainly helps the 
economy, it certainly helps the security and allows us to 
restore the grid because it is a physical machine, it will have 
disturbances, and the issue is just like any other machine we 
operate, how do we optimize it, and it is the intelligence and 
the smarts that allows us to do that.
    The second is of course in terms of economic efficiency. 
Over the last several years PJM has begun in its markets to 
include a revenue source for demand response that is equal to 
the types of revenue sources we provide generators and we have 
had a tremendous increase in the amount of demand response in 
our markets. Again, what we do is, we keep electricity in 
balance by either increasing generation output or decreasing 
demand output. When by setting the price signals from the 
wholesale market to industrial load and other providers, what 
they will do is, they will respond to that price and reduce 
their take in response to that price. The benefit is that they 
are actually paid from the market at the incremental energy 
price but the fact is that by reducing demand, they reduce the 
demand curve, the supply curve and therefore we produce less 
expensive energy to relieve load. To give you an example, last 
year during our peak week, the first week in August 2006, PJM 
paid demand providers approximately $5 million from the energy 
market to reduce demand during the pricing peak. These are 
voluntary participants who have said this is my price point and 
I will reduce my demand during these prices. As a result of 
that, we are able to reduce the demand curve, and over the 
course of that week we calculated that the cost savings to the 
market represented approximately $650 million. So from the 
market perspective, we provide demand responders a payment of 
$5 million. As a result of their reduced demand, the peak 
prices in the market drop about $650 million, which we think is 
a fairly decent investment. The same time during that time 
because we were reducing the production of energy, we were able 
to save large gas and oil and we calculated that equivalated to 
about 13,000, to 14,000 barrels of oil or about 227,000 MCF of 
natural gas.
    So the net effect is pretty clear. Demand response is the 
cheapest way to keep the energy system in balance. If we can do 
it this way, if we can provide these types of price signals to 
customers, then they could become active participants in the 
market, and while we are talking at the wholesale level, if we 
do it with our retail providers, they can work with their 
residential customers and the customers then, we have a 
conversion from electricity being a commodity to a service and 
where customers will be able to dictate how much they want to 
buy, at what price, from whom, during what hours. For us, that 
is the way of the future.
    Again, thank you and I would be happy to answer any 
questions
    [The prepared statement of Ms. Zibelman follows:]

                      Testimony of Audrey Zibelman

     I wish to thank Chairman Boucher and the Sub-Committee on 
Energy and Air Quality for inviting PJM Interconnection, L.L.C. 
(PJM) to address you on this very important subject. We are 
encouraged that the subcommittee recognizes the importance of 
gathering information on the need to transform our Nation's 
transmission infrastructure into the Smart Grid of the 21st 
Century as a key element of ensuring the country's energy 
independent future.
     PJM is responsible for ensuring the reliable and non-
discriminatory planning and operations of the transmission grid 
and the fair and efficient administration of the real-time 
wholesale electric market that serves 51 million people in an 
area that includes 13 States plus the District of Columbia. PJM 
operates the high voltage electric power grid in all or parts 
of New Jersey, Pennsylvania, Delaware, Maryland, the District 
of Columbia, Virginia, North Carolina, West Virginia, Kentucky, 
Ohio, Michigan, Indiana, Illinois and Tennessee. It is an area 
of the Nation that, standing alone, represents approximately 19 
percent of the Nation's Gross Domestic Product. The power 
system under PJM's control is the largest in North America and 
one of the largest and most complex in the world. The PJM 
region incorporates 56,000 miles of transmission lines, 1,250 
generating plants and 6,000 substations. PJM has 250 intertie 
points with adjacent systems in the Eastern Interconnection. 
This means that along with managing the PJM system, our 
operators manage the seams between PJM and seven adjacent 
electric systems. To put this in perspective, the next most 
extensively interconnected power grid in the world is the 
transmission system that serves France, which has 41 interties. 
To maintain reliability of the system, PJM has identified 
approximately $10 billion in new transmission investments that 
will be required over the next 15-year planning period. When 
built, we believe this transmission will help reduce current 
congestion on the system at a value that will approximate $1 
billion a year in savings.
     The wholesale markets that PJM operates represent the 
largest competitive organized wholesale markets for electricity 
in the world. The PJM spot markets were started in 1997 and in 
the last 10 years grew from $450 million to $23 billion in 
annual revenues. Today, there are more than 450 members of PJM 
representing all segments of the industry as well as financial 
and trading institutions that add liquidity to the marketplace. 
The buyers and sellers into and from the PJM Markets also 
include many generators and load serving entities from adjacent 
regions, all of whom benefit from the transparency and 
robustness of the marketplace.
     The installed generation capacity in the PJM region 
currently exceeds 165,000 MW while the peak demand for the PJM 
region reached a record 144,644 MW in August of 2006. This peak 
demand exceeded the peak achieved in 2005 by 10.627 MW. In 
short, in one year we saw an increase in peak load that is 
equal to the level of generation that is required to serve a 
large American city. Although we do not anticipate that 
sizeable an increase in peak demand each year, we do anticipate 
load growth in the region to remain in the range of 1.5 percent 
annually over the next 10 to 15 years. During this same period, 
we envision retirements of older, less efficient generating 
units, which necessitates further development of new more 
efficient generation. Indeed, the pattern of retirement of 
older generating plants affected by environmental laws as well 
as the region's increasing demand for electricity has created 
new challenges. If we tried to meet this increased demand for 
electricity solely by building new generating plants, over the 
next 15 years this combination of factors could require as much 
as 55,000 MW of new generation investment, an amount equivalent 
to four large nuclear plants or coal plants being constructed 
every year.
     To summarize, the industry challenges confronting the PJM 
community are reflective of those we are experiencing 
throughout the Nation. We are an electricity-dependent economy. 
The demand for electricity continues to rise reflecting a 
growing digital age economy. Yet, we have an aging 
infrastructure that will require significant new investment in 
all segments of the industry, from the fuel input to the 
customer meter. We also must actively consider how we can help 
achieve the energy independence that the country demands, while 
continuing to focus on maintaining fair and affordable electric 
prices and reducing our carbon footprint. We are in a period 
when we cannot afford to ignore the contributions of any 
segment of the industry to our energy policy objectives. In 
fact, based on PJM's perspectives as a grid operator and market 
administrator, we believe that the transformation of the bulk 
power transmission system to a Smart Grid of the 21st century 
should be considered part of the foundation of meeting 
America's energy policy and climate change objectives. I am 
attaching a brochure which was part of PJM's recently released 
Strategic Report. It is designed to explain the Smart Grid in 
understandable terms for the general public.
     With this in mind, my remaining testimony will focus on 
four primary areas:

     1. The PJM vision of the Smart Grid;
     2. How Smart Grid implementation can increase reliable, 
secure and efficient system operations;
     3. How a Smart Grid will enable true consumer 
participation in the electric marketplace as a means of gaining 
greater environmental benefit and affordable electric prices; 
and
     4. The actions and public policy efforts we should focus 
on today to establish the right platforms for a 21st century 
electric power system.

                  1. The PJM Vision of the Smart Grid

     There are many industry definitions and descriptions of 
the Smart Grid. For PJM, where we are required to keep the grid 
in balance 24 hours a day, 365 days a year, the Smart Grid is 
not a theoretical concept or a ``gee, it would be nice'' item. 
PJM's perspective derives from its dual focus on continuously 
looking for ways to improve secure, reliable and efficient grid 
operations, while assuring a robust competitive wholesale 
electric market that supports Federal and state energy 
policies. PJM's vision of a Smart Grid encompasses the 
transformation of the interconnected electric system in three 
critical ways:
        Ensuring a Multi-Directional Grid: The industry 
needs to transition from today's radial system linking 
generation to load to a true network with full connectivity and 
interoperability. The goal of this change will be to allow 
horizontal interconnectivity all the way through the energy 
value chain--from fuel management through to the end customer 
energy use. We have achieved much of this connectivity goal in 
telecommunications, yet are only beginning to work on this in 
the electricity sector;
        Moving to a Digital Grid: We will need to 
convert from today's electro-mechanical grid to a digital 
system that supports information and automation-enabled grid 
assets. The objective of this conversion is to allow for more 
efficient, cost-effective and secure system operations;
        Moving to an Interactive Grid: The grid of the 
future will require two-way communication between the system 
operator and the end-user. The objective of two-way 
communication is to convert end-users from passive to active 
participants in the marketplace.
    Each of these elements will be a necessary component of 
implementing Federal and state energy policies.
     2. Developing a grid that promotes a more reliable, secure 
and cost effective electric transmission system
     The interconnected electric system is often alternatively 
described as either a single complex engine comprised of 
generators, transmission and distribution systems and end-user 
devices or an ecosystem with many interdependent elements. In 
either case, there are four fundamental attributes of the 
interconnected system that help explain the value of a 
transformation to a Smart Grid. First, is the fact that the 
system is interconnected. As the Nation learned again on August 
14, 2003, an uncontrolled disturbance on one part of the system 
can cascade and impact large segments of the grid. A second 
attribute reflects that electricity is a speed of light 
product. Operators today must always operate the system in 
anticipation of what might happen next. Third, electricity is 
the only commodity that is consumed at the same time it is 
produced. At least at this time, large scale storage of 
electricity is not practical or economical. Fourth, the 
information environment required to operate and control the 
system is extraordinarily sophisticated. The information 
requirements of the grid continues to grow. Today, PJM employs 
an energy management system that processes about 88,000 bits of 
information every two to three seconds. This information need 
will grow in magnitude as we add more diverse demand side and 
generation resources on the system. The challenge for grid 
owners and operators is to make certain that we maintain the 
sophistication to be able to instantaneously translate this 
data into the information operators will need to perform their 
jobs.
     PJM's Smart Grid vision contemplates transitioning the 
system from one which is highly dependent on human interaction 
to a system that is highly monitored and provides human 
operators with the best of current and future computing 
technology. Advanced transmission technologies such as super 
conducting and other devices that are also considered part of 
the Smart Grid will further produce a system that is capable of 
moving energy more efficiently than the current system allows.
     There are several direct benefits of this transformation. 
First, having a highly monitored transmission system will 
enable the grid itself to better optimize the performance of 
the system than can be accomplished today. Voltage and current 
can be monitored continuously and the system will be able to 
automatically adjust performance of the component parts. This 
will in turn allow operators the ability to manage the 
throughput on the system more accurately and efficiently. The 
societal benefits will include a more secure and efficient 
system from both an economic and environmental perspective. 
These objectives will be accomplished through the reduction of 
unaccounted-for energy, the reduction of transmission 
congestion since the grid assets will be operated at higher and 
more accurate limits, and the more efficient use of generation 
resources. In other words, to use our engine analogy, consumer 
demands will be met by a better running and operated machine.
     The presence of monitoring devices will also increase the 
asset management capabilities of owners. By deploying a Smart 
Grid, owners will not be required to send employees in the 
field to identify potential problems on the system. Rather, 
they will have better information about the state of the system 
and be able to better target employees' repair and restoral 
efforts. This will in turn allow owners and operators improved 
capability to assure the reliability of the system at lower 
costs.
     A Smart Grid also provides operators a better and more 
rapid opportunity to anticipate disturbances on the system. 
Today, operators have limited control over the entirety of the 
grid (which includes the distribution system as well as the 
high voltage transmission grid) and still make many emergency 
decisions over the telephone. The grid of the future will have 
pervasive control systems and rely on secure computers to help 
identify the best step to take if there is a potential 
disturbance created by a failed generator or transformer or 
line outage on the system. System operators will also be able 
to rely on secure and distributed computing capabilities to 
develop sophisticated decision support analyses so that they 
can select the best solution to either optimize the system or 
to reduce the risk of system failure. We call this a fast look-
ahead simulation. The benefits are to provide greater 
predictability and security. This again allows operators to 
optimize the operations and secure the system at a much greater 
level of granularity and certainty.
     The third advantage of a Smart Grid becomes readily 
apparent when there is in fact a significant disturbance. One 
critical goal of the Smart Grid is known as ``islanding'' or 
grid-sectionalization. This occurs when there is a disturbance. 
In these circumstances, pre-identified solutions will cause the 
affected part of the grid to ``island'' itself into defined 
self-sustaining regions. This avoids the type of cascading 
failures we witnessed in 2003 and also, when there is a 
failure, allows for much quicker and easier restoration. In 
turn, our economy and society as a whole realizes the direct 
benefit of a reduction in the risk and costs of widespread 
blackouts.
     3. The Smart Grid will help reduce electric prices and 
produce environmental benefit by promoting a customer-centric 
electric energy marketplace
     One of the primary lessons that PJM has learned repeatedly 
over the last ten years is that the information ubiquity 
provided by organized markets is the single most important 
factor differentiating well-functioning markets. With accurate 
and timely market information about the value of their 
generating asset to the marketplace, owners of generation 
operate their generating assets more efficiently which, in 
turn, makes electricity available at lower costs to consumers. 
With timely and accurate pricing information, the grid works 
better. PJM operators are able to find ways to optimize the 
system continuously by dispatching the lowest priced generator 
among a broad diversity of resources. Information availability 
and markets also allows greater diversity of resources and 
innovation. Wind generators and other forms of interruptible 
resources can compete more efficiently in the marketplace by 
participating on their own terms--not terms dictated by 
traditional utility operations. Finally, and most importantly, 
we have also learned in the last several years, that with real 
time information ubiquity provided by markets, end-use 
customers have the opportunity to participate in the 
electricity market and as a result save money and contribute to 
a cleaner environment.
     As I mentioned, one of the chief attributes that 
contributes to the complexity of the electric power system is 
that electricity is not able to be stored in large quantities. 
To keep the lights on, the operator must keep the system in 
balance--which on a real-time basis means continuously 
increasing or decreasing the output of generators to meet the 
electric demands of customers and the economy as a whole. In a 
competitive market, we accomplish this objective by selecting 
the generators based on their price--and in the absence of 
reliability requirements--the generator payment is based on the 
lowest incremental price offered for that time period.
     Until the last several years, competition in the electric 
industry has largely been characterized by the ability of 
customers to choose among generators at the wholesale level 
and, in certain states, suppliers at the retail level. However, 
several years ago, PJM and its members changed the 
characteristic of the wholesale market by starting to match 
every source of revenues provided to generators that sell their 
energy and capacity into the market to a similar revenue source 
for load customers who are willing to sell their demand into 
the market.
     As I stated, as a reliability operator, PJM's 
responsibility is to make certain that generation and load are 
in balance. As an independent market administrator, we are 
indifferent whether that next megawatt of change occurs because 
we are increasing generation or decreasing load. When operating 
the grid in real time, PJM is also indifferent to the next 
megawatt of supply or demand that is produced or saved due to 
the operations of a central station power plant, a wind 
generator, a roof-top solar device, a stand-by combined cycle 
turbine at a manufacturing plant, a restaurant dimming its 
lighting or a family turning down the air conditioner. For the 
market and the system, that next megawatt has the same value. 
For customers however, there is a clear difference--since the 
price of electricity varies depending on the level of load on 
the system, reducing load by controlling demand allows us to 
run less expensive generation which ultimately saves customers 
money.
     The benefit, of course, is a more efficient economic 
marketplace, both in terms of the economy and the environment. 
For example, during the week of extreme peak conditions last 
August, PJM calculated that it paid demand providers 
approximately $5 million to participate in reducing demand in 
the wholesale market. As a consequence, reducing that demand 
reduced the incremental price of electricity by approximately 
$650 million. On the assumption that during this period, PJM 
would have been dispatching coal or oil plants, the savings 
could also be seen as a reduction of 1,367 tons of coal or 
15,855 barrels of oil. Similarly, a study prepared by the 
Brattle Group for PJM and a coalition of Mid-Atlantic State 
Commissions showed that a modest reduction in electricity usage 
by 3% through demand response could save consumers, on an 
extremely conservative basis, up to $182 million annually. I 
would note that this calculation only involved a portion of the 
PJM region. However, for demand response to work most 
effectively, we must have the ability to know with certainty 
that the load on the system is reducing in response to the 
price, similar to what now occurs when generating units produce 
more or less electricity.
     For PJM then the issue is a truly a no-brainer. We have an 
opportunity and, I would suggest from a societal standpoint, an 
obligation to continue to promote demand response as a critical 
component of our electric market. The future as we would like 
to see it requires transforming wholesale competition, which 
today is almost exclusively among generators of power, to a new 
form of competition where customers are empowered, through 
interactive technology, to be able to select how much 
electricity they want to purchase, at what price, from what 
vendor and at what time. In other words, a truly customer-
focused market that enables new technologies such as advanced 
metering, plug-in cars and distributed generation and storage, 
will result in innovative new ways of providing electric 
service at a net benefit to the economy and the environment.
     To achieve this vision, we will need certain key elements 
in place. First, and most important, customers, whether 
directly or through an automatic metering device, need to 
receive timely price information so that they know the value of 
reducing or altering usage and can respond accordingly. Second, 
as the system operator, PJM has to have accurate information 
that the load is responding to price--otherwise we cannot 
guarantee reliability. Depending on the size of the customer 
load, this information can be provided directly or through the 
local utility. Third, since we are now talking about numerous 
devices on the system working in concert (a true network), we 
will need to make sure that these devices are interoperable. 
The PJM energy management system, the brains of our network, 
must be able to use the same communication protocol whether 
that information is coming from a large central station 
generator or an individual ``smart'' appliance in the home. 
Fourth, PJM and third parties will need to develop the 
computing capability to optimize this system. Today, PJM 
processes approximately 88,000 bits of information every two to 
three seconds. In the future, as we operate the system as a 
complex network of centralized and dispersed generators--in 
essence, an intelligent grid with active consumer 
participation--the information needs and the ability of 
computers to process that information will increase 
significantly.
     4. The actions and pubic policy efforts that will support 
Smart Grid development
     PJM has identified several actions that we believe should 
be taken today to support development of the Smart Grid. There 
is no one government or business organization that can make the 
Smart Grid happen all at once. Rather, from our perspective 
there are activities that have to be taken at the Federal and 
state levels and among all segments of the industry for the 
transformation to occur. With that said, however, we believe 
that there are some first steps that Congress can and should 
support:
        Development of a regional technology plan--
Today PJM and its members and stakeholders develop long-term 
regional transmission plans that are designed to identify the 
transmission infrastructure required to assure reliability and 
economic efficiency. We believe that for the Smart Grid to 
develop we should work with our asset owners to develop a 
living technology plan to ensure that we have a coordinated, 
deliberate and realistic plan to make this transformation. In 
our view, this collaboration is essential to make sure that, in 
the end, the installations that are being made throughout the 
system will work together to achieve our common goals.
        Promotion of horizontal network systems, 
including standard communication protocol and service oriented 
architecture--Industry and policy makers must support the 
development of a web-based communications network that uses 
service oriented architecture to enable the Smart Grid network. 
In other words, industry and government must insist on the goal 
of interoperability to ensure that all devices on the system 
are able to communicate. This is the same sort of common 
information protocol that enabled the Internet. We believe that 
Congress can help ``jump-start'' this effort through 
encouraging the industry to develop uniform interoperability 
protocols, the equivalent of open network architecture that 
guided the development of today's telecommunications network. 
Today, there are a plethora of agencies with jurisdiction over 
some part of the Smart Grid--ranging from state PUCs, to the 
Departments of Energy and Homeland Security to the Federal 
Energy Regulatory Commission. We believe that a coordinated 
effort among these agencies can help to reinforce industry 
efforts at developing common protocols.
        Regulatory reform at multiple levels--We need 
to look at the current methods in place to regulate retail and 
wholesale utilities and identify any and all impediments to 
Smart Grid implementation. For example, industry and regulators 
must examine whether the timing and mechanisms currently used 
to recover capital assets are impediments to investment in new 
infrastructure and technology. We believe it is incumbent on 
regulators to examine methods for regulating retail utilities 
which might inadvertently be serving as impediments to 
advancing energy efficiency and demand response. If utilities 
are only economically rewarded for increasing throughput and 
making new investment in traditional generation, transmission 
and distribution plant, it will be difficult for them to 
embrace a regime where the goal is less throughput and 
increased consumption efficiencies.
     In closing, we are on the precipice of requiring billions 
of dollars of investment in the electric industry, including 
billions of dollars in transmission infrastructure. This 
investment is necessary to ensure the continuing reliability of 
our electric infrastructure and hence, the well being of our 
Nation's economy. The challenge and opportunity before us must 
be to ensure that investments in technology and infrastructure 
are transformational and will allow us to secure a reliable, 
economically efficient and environmentally-responsible industry 
future.
                              ----------                              

    Mr. Boucher. Thank you, Ms. Zibelman, and thank you to each 
of the witnesses for what has been a very informative series of 
presentations on your part. We have two votes pending on the 
Floor of the House of Representatives and all of us are 
required to respond to that. It is sometimes the most 
disagreeable thing I have to do all day because I wind up 
leaving very interesting conversations such as this in order to 
do it. But we will be going to the House floor, and my 
intention is to recess the subcommittee pending these two 
votes. We should be back in about a half-hour, and so stay 
where you are, if you will. Leave the room if you like, just 
come back in about a half-hour. And as soon as the last vote is 
over, perhaps 5 minutes following that we will reconvene this 
hearing. Thank you.
    [Recess.]
    Mr. Boucher. The subcommittee will come to order, and 
thanks for everyone's indulgence while we completed our 
business on the House floor, at least for this period of the 
day, and I am going to recognize myself for 8 minutes in order 
to propound a series of questions to our witnesses.
    Mr. Delurey, let me begin with you. We worked very closely 
with you as we were placing in EPAct 2005, the energy bill that 
was signed in August of that year, provisions relating to smart 
meters and real-time pricing, and as you described in your 
testimony, that provision required the States to at least 
consider putting in place a regulation that would require real-
time pricing and facilitate the introduction of smart meters. 
In your testimony today, you indicated that the States have 
made some efforts to follow through on those proceedings and 
consider rules, and I think you also said that of the States 
that have done so, most have decided not to adopt rules
    Mr. Delurey. That is correct.
    Mr. Boucher. And I was somewhat concerned to hear that. Let 
me get you, if you will, to tell us how many States have 
followed the direction of EPAct 2005 and decided to undertake 
at least an examination of whether or not a rule is necessary 
and how many States are in that category, and among those that 
have started such a proceeding, how many have decided to adopt 
rules and how many have decided not to, and then finally, what 
is the reason that the States have given for not adopting rules 
and what I take are the very large number of instances where 
they have not?
    Mr. Delurey. Thank you, Mr. Chairman. The provisions that 
you speak of indeed established a requirement for all States as 
well as jurisdictional bodies with respect to co-opportunities 
and municipal utilities and so on to conduct an investigation 
but also importantly to make a finding as to whether or not 
utilities under their jurisdiction should be required to offer 
not just real-time rates but time-based rates and the smart 
meters that are needed to go along with them. The legislation 
gave them until August 2007 to complete their work and to make 
a finding so there are still a large number of proceedings 
underway. By our count, approximately 14 States have completed 
their proceeding. Only one State has made a definitive 
adoption, a clear adoption of the standards, but not all the 
other States are complete rejection, at least I wouldn't want 
to characterize them, and this is what I referred to in my 
testimony where I think these provisions have had a big impact 
in terms of building awareness and visibility for this entire 
area and it has had States looking into this that have clearly 
never looked into it before but most have rejected it. Some 
have rejected it in a formal way but they have requested that 
their utilities move forward in certain directions so I want to 
be fair and state that.
    In terms of why they haven't done it, in some cases they 
have stated, and this is factual, that they have had these 
types of rates ``on the books'' for a number of years and that 
customers don't seem to be interested in them. But again, I 
think that is looking backwards and not forwards. The type of 
metering technology we are talking about today is what is 
available over the years and it was very expensive to put a 
customer on these types of rates. So I think those States 
incorrectly looked backwards to cast forward instead of really 
assessing the current situation.
    Mr. Boucher. Well, it is not a very encouraging report but 
I appreciate your making it nonetheless.
    So let me ask the obvious question. What do we need to do 
now in order to improve the situation and address the 
shortcomings that exist and encourage both the time of use and 
real-time pricing methodologies at the State level, and also 
encourage the greater deployment of the smart meters? What is 
our role in helping to narrow that gap and move all of this 
forward?
    I would ask that question of everyone, not just one.
    Mr. Delurey. One of the things I would say, and this also 
perhaps is an additional answer to the question of why it 
hasn't happened to a greater extent than it has, and that is, 
your average State utility commission, I think the challenges 
of trying to put all this together, the many moving parts of 
demand response and the smart grid, the technologies, the 
prices and all of that, that can be a challenging endeavor and 
I know from having witnessed some of these proceedings that 
they haven't necessarily had the resources, the training, the 
technical assistance, the tools and so on to be able to maybe 
do the best job that they would otherwise could have.
    Mr. Boucher. So the State commissions need better resources 
in order to carry this forward?
    Mr. Delurey. I believe so and I think that is an area where 
the Congress could be of assistance.
    Mr. Boucher. Do you have concrete recommendations for us on 
that?
    Mr. Delurey. Well, again, as I noted in my oral remarks 
today and in my testimony, I think there are vehicles by which 
you can create that type of supportive infrastructure, if you 
will, to be able to do that. I think whether it be through the 
establishment of a new temporary commission and a national 
action plan in this area, I think that is one way to do it. 
There are probably other ways as well.
    Mr. Boucher. All right. Would other witnesses care to 
comment? Ms. Zibelman.
    Ms. Zibelman. A couple things that come to mind that we 
have been talking about. One is this whole issue is just 
education and I think with adding to it, as I was indicating, 
we measure the impact of demand response on the markets because 
we actually have that price information. I think something that 
we would look forward to working with DOE and FERC and our 
States on is, how do we get a consistent way of measuring it 
because if the States could see the cost benefit, that would 
enable them to answer to their constituents, why are we putting 
this new investment in, what is the benefit back to us, so I 
think having a consistent way of measuring it so everybody 
understands how to do it and then the RTOs or the utilities can 
come up with these measuring devices. We are already doing this 
with renewables when we measure emissions and I think adding 
this type of information would be helpful. I think the second 
piece that we have identified is actually technological 
obsolescence. One of the problems, as you are well aware from 
the telecommunications industry, of moving from copper wire to 
fiber optics is how do you deal with old technology that is not 
depreciated. So rather than actually tax incentives, I would 
think that looking at the rules of depreciation and encouraging 
utilities to invest more in technologies which will depreciate 
faster and having the structures that support that would also 
be another way of moving forward.
    Mr. Boucher. Is there any need for national uniform 
standard setting with regard to smart grid technologies?
    Ms. Zibelman. Absolutely. The other issue is, I think 
looking at the national standard setting and the various 
agencies that are going to be interested in that like Homeland 
Security, DOE and FERC and coordinating that. We think it is 
going to be very important. Our issue, as the witness from IBM 
said, is going to be interoperability. It makes no sense for a 
retail utility to put a meter on and that the device of that 
meter can't communicate back to the brains of the energy 
management system and vice versa. And so we need to move to an 
open architecture system, very much like we have seen in 
telecommunications, and we need to make sure, insist on 
interoperability among all these devices, which is a common 
information protocol and something this Congress can do is 
insist on that as the first stage of developing the smart grid.
    Mr. Boucher. Should we designate a lead agency, the FERC, 
for example?
    Ms. Zibelman. I think that looking at the national 
institute standards, maybe with coordination of the DOE. The 
challenge with the FERC is that they don't regulate all the 
potential providers, namely municipals and co-ops, so I think 
if you have a broader-based energy working with the FERC as 
well as Homeland Security would be a good way to go.
    Mr. Boucher. OK. Thank you.
    Yes, Mr. Yeager, we will hear from you.
    Mr. Yeager. Based on my own experience, I would underscore 
the fact that you have a cultural issue in the regulatory 
community to deal with. The regulators and their staffs view 
themselves in effect as the agent of the customer and the 
customers are commoditized, if you will, behind that. So any 
time you talk about reducing that role and being the 
representative, you run into resistance. So I think what you 
have to recognize is that is part of the culture. I saw it in 
California and I have seen it in other States as well.
    Mr. Boucher. OK. Dr. Howard.
    Mr. Howard. Let me just reinforce a couple of comments that 
have already been made. From what we are seeing, there is not a 
uniform standard and it is something that is certainly needed. 
I spoke last week at Grid Week that was here in Washington 
about the importance of a uniform standard so that you could 
have plug and play, whether it is the meter or it is an air 
conditioner or something else. If we didn't have that in the 
computer industry, just imagine what it would be like on a USB 
port. We wouldn't have one. And so we must move in that 
direction on the smart grid, and part of what we are doing with 
our IntelliGrid Initiative is to help reinforce that and lay 
out the blueprint that would help develop some of these 
standards, and I know that Mr. Bryson, his utility is certainly 
leading that by looking at what they are doing on their 
advanced meter and trying to standardize some of these so that 
they are interoperable, they communicate together and they tie 
with all the other devices that fit on the grid so that you can 
truly have millions of sensors that work together, communicate 
together to optimize the whole system.
    Mr. Boucher. From my work in telecommunications, I am aware 
of the IEEE and the outstanding job it does just on the private 
side in national standard setting for new technologies. Is 
there a role for IEEE or some parallel organization to help 
with this?
    Mr. Howard. Absolutely. In fact, we have been heavily 
involved in several of those activities and working with other 
government agencies and utilities but we all have to come 
together to develop the right standard and----
    Mr. Boucher. You are saying it is not happening fast 
enough?
    Mr. Howard. It is not happening fast enough. That is 
correct.
    Mr. Boucher. And so government has a role to play in order 
to facilitate it moving forward more quickly?
    Mr. Howard. Well, there is a role that the government would 
play along with the utilities. Even manufacturers of equipment 
have to come together and focus on a standard being 
implemented, and that was a big part of my statement last week 
at Grid Week.
    Mr. Boucher. All right. I think we understand that. I am 
trespassing on other members' time here.
    Mr. Gammons, can you be very brief?
    Mr. Gammons. Just one comment. Most of the times that 
standards are adopted, it is driven by the industry itself so 
it is really implicitly needed that the utilities, the 
consumers of these products demand the standards. There are a 
lot of standards, both international standards and U.S.-based 
standards that are out there and working very well. The real 
key is for the industry to demand those standards and the 
interoperability and that will drive the standards change. That 
has been key in every industry.
    Mr. Boucher. Thank you all very much.
    The gentleman from Illinois, Mr. Shimkus, is recognized for 
5 minutes.
    Mr. Shimkus. Thank you, Mr. Chairman.
    It is great to have you all here. I would concur based upon 
the years here that we have to have national uniform standards, 
especially if we move to hopefully a distributed system. 
Otherwise that inhibits all the advancements and I think that 
is something that we will work on with the chairman to ensure 
that. I have got some questions that my staff didn't feed me. 
There is a debate. On the next panel I have got one individual 
from the Illinois Commerce Commission and of course Illinois is 
going through some interesting electricity issues so let me 
just pose this question. I am a competitive market guy and I 
like wholesale wielding of power, retail folks, but the 
question I pose is, are we best to get to this new era with the 
investment required through a regulated monopoly or is the 
competitive market system the best way to get to this next 
generation of how we I think produce power because that is on 
one end but also consume it and manage it on the other. And if 
you can be real brief because the chairman only gave me 5 
minutes, and anyone who wants to address that issue. 
Monopolistic system or a competitive market model? Mr. Yeager?
    Mr. Yeager. Thank you, sir. The Galvin Electricity 
Initiative started by Bob Galvin, one of the leaders in your 
State, is really based on opening up the system to 
entrepreneurial competition just as was done with 
telecommunications and computing, and it is in fact the last 
network industry that is in this closed monopoly position. 
There is a great deal of private money out there that can 
increase the quality and reliability of service with the 
creation of microgrids that connect the bulk power grid to the 
consumer, bringing in all the technologies that my colleagues 
here at the table have talked about but applying them in a 
private sector environment that really raises the quality bar 
on electricity. It uses the bulk power grid as the primary 
energy source but does not be constrained by the reliability 
and quality--there are tremendous numbers of very large 
entities in the private sector who both need and are prepared 
to provide and help in that whole effort.
    Mr. Shimkus. Anyone else? And please be quick if you can. 
Go ahead. Just go left to right.
    Mr. Delurey. I will just quickly say that with demand 
response and smart metering, in one sense it doesn't matter in 
terms of making it happen. You can do it under a traditional 
vertically regulated system or you can do it in a competitive 
system. One note of history----
    Mr. Shimkus. But the real question is capital formation. 
How do you get the money and is that through a regulated price 
increase set by the commission or by a market response on a 
return on investment?
    Mr. Bryson. We have competitive power generation in 
Illinois there. We have the regulated utility in California. I 
think California has taken a reasonably good approach to this 
mix of competition where there are competitive advantages. 
There are opportunities with a competitive system to introduce 
new products and drive costs and innovation, and having a 
regulated distributed system so they can work effectively 
together, it is a question of thinking hard about which works 
best and which model so fundamentally the distribution system 
as a system that serves universally everybody is driven by 
forces that innovation bring I think are working well in 
California. Certainly that has contributed to our leadership on 
all the smart grid technology.
    Mr. Shimkus. Great.
    Ms. Zibelman.
    Ms. Zibelman. I would echo. The way we look at it is, the 
distribution system will remain regulated but unless you have 
the competitive markets that support the prices to the devices, 
you won't get the customer response and so you do need to 
continue on the march towards competition and true innovation.
    Mr. Shimkus. And innovation, it is easy when you build a 
new home to put in the new technology and the wiring stuff but 
it is folks like me who have a home, want to stay there and 
then rewiring, reconnecting and stuff to get to a smart system 
and that is where we come in with maybe tax incentives and how 
we do that.
    Ms. Zibelman. And I think though that is where you can 
change the model because if you have competition, it may not be 
that the homeowner actually makes the investment but that 
somebody else looks at your load and realizes that is valuable 
in the market and actually pays you for your load, which is as 
valuable to the market as generation. And so you are changing 
the model of the industry from a commodity model to a service 
model and that is really where the true innovation I think will 
occur.
    Mr. Shimkus. And Mr. Chairman, if I may, with one last 
question. I also serve on the Telecommunications Subcommittee. 
We see a convergence obviously in all this stuff in the digital 
age. There is a lot of debate about high-speed Internet access 
over electric wires. That is all part of this, isn't it? Or 
could it be? Because if you are able to send digital 
information over the current distribution and transmission 
system, then that will help us in the interactivity that has to 
be done with the metering systems and the individual 
appliances. Is that a correct analysis?
    Mr. Delurey. I would say that is correct. There is a number 
of different communications technologies that all compete 
today--power line technologies, wireless radio frequency--and 
in terms of your own home, your existing home, there is a lot 
of work that has been done for in-home wireless devices that 
allow the meter to talk to other devices in the home as well as 
through the existing power lines within your home.
    Mr. Shimkus. Thank you, Mr. Chairman. I yield back.
    Mr. Boucher. Thank you, Mr. Shimkus.
    The gentlewoman from California, Ms. Harman, is recognized 
for 5 minutes.
    Ms. Harman. Thank you, Mr. Chairman. I think the testimony 
of our witnesses exceeded expectations. This is a fascinating 
subject and I continue to believe that if we only do one thing, 
this is what we should do. But if course we should do more than 
one thing.
    Mr. Kamen, you have charmed us all and all of us want to 
learn more about what you do. I just had a thought that maybe 
one of your little black boxes ought to be used to power 
Congress. We generate a lot of wasted heat here and some would 
even say we can produce cow dung, and what we need here is some 
light. So I would just like you to think about this. It might 
be a project that would be worthy.
    I have lots of questions but limited time and I do want to 
direct a question to John Bryson. I hosted an energy expo in 
California a couple of weeks ago at the large green industrial 
facility that Toyota has and I think it is the largest green 
industrial building in America and I commend Toyota for that. 
Edison was one of the exhibitors and participated in panels on 
what individuals can do and what are the big policy issues on 
climate change. But there was a guy outside with his plug-in 
hybrid and he showed how he had improved the engine of what was 
a hybrid car to add the electric feature and he said that his 
total energy costs per year for his car and his house, which 
had solar panels on the roof, was $44. So in 3 minutes and 18 
seconds, I would love to hear what these smart technologies 
could do to move us all along to plus-in hybrids and other car 
engines that would eliminate our dependence on oil and give us 
clean and abundant energy.
    Mr. Bryson. I appreciate the question and I will try to do 
it within 3 minutes. This is an enormously exciting period of 
time for those of us that love this field. We see electric 
transportation as transforming. It can't take place unless it 
is enabled by a smart grid. It just won't happen. So we have to 
have the capacity as soon as possible to price to customers in 
ways that reflect our true cost, and since our true costs are 
so very low through the night, the plug-in electric vehicle is 
a natural complement to an electric system. And by the way, the 
electric system is so much more controlled environmentally 
than, for example, the existing or future generations of 
conventional gasoline-powered automobiles.
     It doesn't matter what section of the country you are 
talking about, even let us say it is coal-fired power 
generation, the controls are sufficient that generating 
electricity as a transportation fuel has huge environmental 
benefits even with the dirtiest source of traditional fuels for 
electricity.
     But what can happen, wait for 15 years, have this lack of 
transportation work in California? Now Ford Motors says it will 
come forth by 2010 with a plug-in electric vehicle. General 
Motors has a similar time frame. Toyota doesn't announce but 
you know Toyota is doing a lot in this area so there has been a 
kind of monopoly on gasoline and petroleum as fuels for 
vehicles. That will change. The U.S. Department of Energy 
itself did this study. It is an amazing study that said we had 
this fundamentally wasted resource in the electric grid because 
so much of it is built to serve only those needle-peak times 
like California in the summertime when it is so strikingly hot. 
In the inland we demand all the electricity. The rest of it 
goes to waste. The electric vehicles could tie into that, 
reflect the low cost of adding service to them with overnight 
in the garage, simple plug-in. We could empower, the Department 
of Energy says, over 70 percent. It just won't happen but it is 
an image, over 70 percent of the vehicles existing today could 
be transformed into electric vehicles and no additional demand 
on the infrastructure of the electric system. So high 
productivity, you bring in the additional revenues, you bring 
down costs for everybody, so it would be economical, it would 
be environmentally beneficial and it would provide 
transportation alternatives.
     Finally, as you know, Congresswoman Harman, it is not just 
vehicles. There has to be electrification of transportation in 
Los Angeles simply to meet air quality standards. The ports 
have to change. Idling trucks in truck stops have to change. So 
electrification with a smart grid can make a huge difference. 
Oh, by the way, the last point, on the sell back, we have at 
Southern California Edison a new program that would allow, for 
example, plug-in electric vehicles, solar on rooftops, to sell 
back into our system and reduce their net bill.
    Mr. Boucher. Thank you very much, Ms. Harman.
    The ranking member of the full committee, the gentleman 
from Texas, Mr. Barton, is recognized for 5 minutes.
    Mr. Barton. Thank you, Mr. Chairman. I am not going to take 
that much time. I have got to go to the Texas delegation lunch 
so I will just make a few comments more than a question. I 
think this is an excellent area that we can work together on 
with the stakeholders because it has such potential. The only 
problem I see is the perennial problem, do we preempt the 
States as we do this, but it is obvious that there is emerging 
technology and technologies that are about to emerge that would 
make our grid much more efficient and market sensitive, time 
sensitive in terms of pricing and things like this. So you have 
got three panels. I will try to get back for one of the other 
panels later this afternoon but this is a very informative, 
fact-based hearing and it is the kind of thing that we need to 
be doing, and I want to commend our witnesses for being here, 
especially Mr. Kamen, who I have worked with before on some of 
his innovations for handicapped folks. I think we have got a 
winner in this hearing today.
    With that, Mr. Chairman, I yield back.
    Mr. Boucher. Thank you very much, Mr. Barton.
    The gentleman from Pennsylvania, Mr. Doyle, is recognized 
for 8 minutes.
    Mr. Doyle. Thank you, Mr. Chairman.
    It is a fascinating hearing, and thank you to all our 
panelists. I was just telling my good friend Jane Harman here 
that Mr. Kamen, I would like to have one of your little boxes 
in my home in Pittsburgh but I can't figure out where to put 
the cow. I guess that is a technology issue.
    Actually, we are delighted to have you here. I co-chair the 
Distributed Generation Caucus with my good friend Lee Terry 
from Nebraska and like you, I believe that distributed 
generation technology can, should and must play an important 
role here, and you know, when you look at some of the barriers 
to widespread deployment of distributed generation, it 
includes, No. 1, just a lack of public understanding about the 
benefits of distributed generation, the higher cost up front to 
the consumer and the lack of ability to sell excess generation 
back into the electric market. I just want to get your 
thoughts. What do you think we can do as a Congress to address 
some of the barriers that exist to widespread deployment, and 
in an ideal world, what role would you see distributed 
generation technology playing?
    Mr. Kamen. The first thing I can tell you is you don't need 
the cow.
    Mr. Doyle. We don't have a lot of them in Pittsburgh.
    Mr. Kamen. Well, the great thing about that little engine 
is, it is omnivorous. It likes hydrogen, methane, propane, 
natural gas, diesel fuel, gasoline. It is external combustion. 
It literally doesn't care. The cow worked just fine but you can 
use whatever is in your house, which we think is critically 
valuable and important and maybe to answer your question about 
what you could do, I could tell you a short story. While we did 
develop that thing for the world that has no grid, here where 
we do have a grid I don't think it should be seen as a 
competitor. Where you already have a grid, I think it is a 
perfect complement, and I was very nervous this morning that I 
would hear people saying quite the contrary but since everybody 
recognizes the fundamental issue here, I would say one of the 
great things about a little box like ours or anybody's that can 
do combined heat and power since every home I know of needs a 
kilowatt or 2 of electricity and at least 3 or 4 or 5 kilowatts 
of heat and if you could use at least the fuel whatever is your 
cheapest fuel, your gasoline, your heating oil, few people 
would use electricity to make heat, until you run out of the 
need for heat, you essentially used every unit of your energy 
to first turn 20 percent of it into the electricity and then 
the heat, you would have a system which is better for 
everybody, not just the environment. It would be cheaper for 
every homeowner and that is a good thing. You are not asking 
anybody to do anything except save money here. That is good.
    I took that story to someone who will remain nameless, a 
CEO of another company, probably near the scale of Mr. 
Bryson's, and said why don't we put this thing in people's 
homes, why don't we try distributed power, and they are a 
massive, massive organization that burns a lot of coal, and he 
literally said to me, if I could put that thing in the rate 
base, I would buy 10,000 of them right now. He had a lot of his 
experts in the room with him. They started explaining the rules 
to me including ones, and I may get this wrong, well, since we 
are a power producer, of course we can't own the transmission, 
something about regulation and deregulation, and all I am 
literally thinking if this is like telling a doctor he can't 
own a stethoscope.
    And then he goes on telling me and his experts more and 
more about the incentives or disincentives, the regulations, 
the rules or barriers, but it all came down to what I think is 
the good news, that these guys are saying look, if I could 
incrementally add when I need generating capacity instead of 10 
years later I got to add a gigawatt so in the meantime I spend 
a few years with undercapacity, then I build it and it is 
overcapacity and these days it takes 10 years to--for all sorts 
of reasons he said for the billion dollars, if I could buy a 
million machines, put them in a million homes, he ticked 
through the same things I said. It would be way more convenient 
for me. I could build my capacity incrementally. I could know 
that I could put critical load capability and control in every 
home, and we have heard, people are more and more concerned 
about reliability. You are already at 99.96. You are only off 
by 0.04. That is 200 minutes a year. You are not going to be 
able to get those 200 minutes by even hundreds of billions of 
dollars of spending because you are too close to perfect now. 
But if you could put little boxes everywhere so that during 
that 200 minutes your critical stuff wasn't the problem, you 
turned a potential catastrophe into an inconvenience.
     So all the issues that I thought I would have to sell him 
on looking at the 21st century with the 21st century in mind 
instead of a 19th century infrastructure, I thought he would 
buy. He did but he ended up saying maybe this is what you guys 
have to fix, I don't know how, your problem. He literally said 
it is not clear whether a utility company could own such a box. 
It is not clear how they would account for it. He had a load of 
issues, and by the way, we are one of those few companies that 
does do electricity and gas and heat but there is a lot of 
places in the country that are different than that and they 
have different vested interests, keeping them separate, and 
your box sits at the nexus. You plug your cow, your natural 
gas, your heating oil into one side, your electric into the 
other. You are a hermaphrodite. We wouldn't know what to do 
with it. And in the end, I left there thinking it is 
interesting that once again technology got ahead of an old 
system but what I would say and what I would hope you would 
agree with is, we are not only not competitive to the utility 
companies at this point but seeing what this country wants, 
what people need, what costs are, what the global issues are, 
we could help them extend the life of an aging grid that could 
use a little support out there. We could solve a lot of these 
other issues of reliability. And I personally think that even, 
and I was saying that a few minutes ago, why I think this would 
be so great for a utility company if you guys can encourage 
them or at least not prevent them or discourage them from doing 
it is, I think we have a society that has grown up with a grid. 
In Bangladesh, everybody will be pure distributed. In the 
developing world, there are more cell phones per capita than 
here because the enemy of great is good. We have a pretty good 
grid so the rest of the world is going to leapfrog, we stay 
here.
    But as I was saying, where does the grid fit, where does 
the utility company fit. How do we make this work? If I knocked 
on a door in this town or any town where you live and said to 
Grandma who opens the door, I got this box, I am going to put 
it in your basement, it will sit in that dark corner next to 
the thing that makes hot water or the things that make 
electricity and you never go down there and you don't worry 
about it, I will give it to you free and it will save you money 
on your electric bill and on your oil bill, I am pretty sure if 
I could walk around giving them away free, I couldn't do it 
because the average homeowner has grown up in a society where I 
don't worry about that magical stuff down there but I really 
care that my house stays warm and my lights stay on and that 
big utilities, whatever it costs, they do this for me and that 
is what I need. Even if I put these in production or any 
private industry other than maybe the really, really big guys, 
I don't think you could do it, but if I could give those boxes 
to the utility company or those utility companies could go to 
Grandma and say last month you spent $70 on electricity and $50 
on oil, if I put this box down next to the other boxes you have 
down there which you may own or I may own and she doesn't even 
know, I am going to lower your monthly aggregate bill, I will 
give you more reliable electricity and more heat and I will 
take care of all of this and you don't have to pay for the box, 
if a utility company was encouraged to do that, I think the 
rate of adoption of distributed power because they could 
control it, they would win, they get past the problem of who is 
connecting to who because they are on both sides of that 
connection, it would be simple and straightforward. You ought 
to figure out how to do it.
    Mr. Doyle. Ms. Zibelman, with 5 seconds left on my question 
time, you operate a pretty big grid. What do you think about 
what he just said?
    Ms. Zibelman. I think that is the lead-in in terms of where 
we need to go. We have a rule, we talk about it in terms of 
behind-the-meter generation, which is what distributed 
generation is, and I think one of the things that we can do 
which is actually something within the congressional and 
Federal arena is to make sure that the rules that are in place, 
particularly where we have markets, is that behind-the-meter 
generation is treated fairly in the markets both in terms of 
maintaining reliability standards as well as the ability for 
load to sell into the markets. If we do that so again from a 
perspective is from a market administrator, we don't care if 
that next megawatt of generation comes from a central station, 
power plant or a distributed generator. We are just going to 
optimize and then where the role of FERC can come in is making 
sure that the rules around demand response in the organized 
markets are fair and treat demand response as well as central 
station generation and distributed generation in a way that 
would eliminate any impediments to market participation.
    Mr. Doyle. Fascinating stuff. Thank you, Mr. Chairman.
    Mr. Boucher. Thank you very much, Mr. Doyle.
    The gentleman from Utah, Mr. Matheson, is recognized for 5 
minutes.
    Mr. Matheson. Thank you, Mr. Chairman, and it has been a 
fascinating hearing.
    Mr. Bryson, in your testimony you noted some customers will 
program their appliances to respond to smart meters and 
automatically reduce usage when power costs rise. We have also 
heard talk about we can have appliances that will automatically 
do that and customers don't need to program it but of course 
everyone already owns their appliances now and you are not 
going to see everyone go out and buy the automatic ones right 
away. I assume that is what you are talking about in terms of 
customers who respond.
    Mr. Bryson. Slightly different. What we see and I think 
will evolve quite rapidly in California is customers that want 
to have remotely controlled or automated appliances will have 
these communicating appliances. Thermostats exist today, air 
conditioners, dishwashers, electric dryers. But we will offer a 
program in which a customer on a voluntary basis says to the 
utility, will you please manage that at least cost for us, give 
us some parameters, we will do it remotely with the aid of the 
advance meter and the communication systems associated with it 
or the computer, the individual homeowner's computer or 
business owner's computer can do it without us being involved.
    Mr. Matheson. As I look at the issue of smart meters and 
sending price signals to consumers to affect behavior, one of 
the impediments that I am trying to figure out and maybe the 
panel can help us with this, is that right now we have time-of-
day metering and time-of-day rates for large industrial users 
but at least where I live as a residential customer, I don't, 
and I have no incentive to get a smart meter or any of this 
until my utility adopts a rate structure that sends me those 
price signals, and Congress isn't going to go out and tell all 
the utilities to do this. It is up to the State regulators, as 
I understand it, and I know this is probably a good topic for 
the next panel actually. But isn't that really the impediment 
to getting people, one of the impediments to having consumers 
go out and embrace the notion of getting smart meters in their 
home?
    Mr. Delurey. That is part of the conundrum. You can't have 
a smart meter and not do the pricing. You can't have the 
pricing if you don't have a smart meter. And so a lot of that 
does come down to the State regulator having to decide and many 
of them have been politically concerned about changing what 
have been decades of flat rates that customers are used to. 
Even when presented with options where it would be voluntary 
for those customers to be on those rates, there has still been 
reluctance, and I think part of the remedy is what I talked 
about before, we need more support in many different ways 
provided to State regulators but also the State regulator as 
the watchdog for how the money is spent in a State. Anything we 
can do to buy down the cost of these technologies to get them 
in more quickly would be useful as well.
    Mr. Matheson. But when you talk about a conundrum, in my 
mind this is not one of those which came first, the chicken or 
the egg. I think you have to have the rates and the price 
signals in place before people are going to get the meters. 
Would you agree with that?
    Mr. Delurey. Well, you actually can't do it that way 
though. If you don't have a meter in place that measures on a 
time basis, you can't bill on a time basis.
    Mr. Matheson. Understood, but I am not going to go buy a 
meter if the rate is not in place. Maybe I am missing something 
here, but to me, the utilities have to indicate to me what a 
cost is at 2 o'clock in the afternoon versus 2 o'clock in the 
morning, and once I know that as a consumer, I can make an 
informed decision and go out and buy one of these meters but I 
am sure as heck not going to go buy a meter when the utility 
says yes, some day we will tell you what the price is and we 
will give you those price signals later, go out and buy your 
meter now.
    Mr. Bryson. The model needs to be that the utilities go 
forth and put the smart meters and smart grid in, and I guess I 
am at least cautiously optimistic about that. With what we put 
out, we put out this, as I indicated, challenge to the market 
and they have come forth. We are doing this on an open 
architectural model. We have eight manufacturers in the last 
year that have come up with this. We have utilities all over 
the country, all over the world coming to our offices in 
southern California to see how this is going. A Canadian 
utility is moving with one part of this. So I don't want to be 
overly Pollyannaish about this but I think this is coming and 
coming fast.
    Ms. Zibelman. If I could just add, you are absolutely 
right. The only way you are going to have customers see the 
value of participating is if they get the price information, 
and then they become partners, and plus from the standpoint of 
the operator, the operator needs to see the customer respond as 
well because that is the only way we know that the system is 
going to remain reliable so we need the price signal to get the 
customer and then we need the signal back to the operator to 
preserve reliability.
    Mr. Matheson. Thank you, Mr. Chairman.
    Mr. Boucher. Very good, Mr. Matheson. Thank you.
    The gentleman from Washington State, Mr. Inslee, is 
recognized for 5 minutes.
    Mr. Inslee. Thank you. I really appreciate your ideas. One 
of the reasons I appreciate your testimony is, you have 
confirmed my prejudice, which is always comforting. I just 
spent a year writing a book about clean energy and looked at 
the great things people are doing right now in energy 
efficiency, both business-wise and consumer-wise, and you are 
sort of confirming this potential. I sort of hear you say there 
is somewhere between a 5 and 20 percent reduction of electrical 
usage while still enjoying our lifestyle that we now enjoy and 
that is a huge number when you start looking at the challenges 
we face on global warming and everything else. I really 
appreciate your testimony.
    I wanted to ask you if any of you had comments about the 
idea of decoupling utilities to inspire them to start to make 
investments in the smart grid or otherwise take actions to 
really move to a more efficient system. Some of us have looked 
at some other models where decoupling would suggest it would 
help utilities move in that direction where there would be an 
economic incentive to sell less product rather than more. The 
current situation in most utilities is, the way the rate 
structure is set up, there is an economic incentive to sell 
more product and the more electricity you sell, the more money 
you make, whereas our need in global warming is to quit wasting 
energy and particularly that created by CO\2\-emitting 
generating facilities. So it seems to me that is an 
opportunity. I just wonder if any of you have any comments 
about that. And I am sorry if you have talked about this 
already. I was at a global warming hearing the rest of this 
morning.
    Mr. Bryson. I would be pleased, in fact excited to respond 
to what I think is an incredibly important issue and question, 
and I will give you just a little personal--California has 
decoupled so there is no linkage between the opportunity for 
revenues or more importantly for net income for investor-owned 
utilities in California associated with additional sales of 
electricity. That goes all the way back to the second oil price 
spikes of 1979. Just a personal note, I was made chairman of 
the California Public Utilities Commission at the time. I had 
this environmental background. But we did that in 1981 and it 
has been true with a short lapse ever since. That I think in 
turn has enabled a lot of the programs that we have in 
California so it is in my testimony but our company was very 
pleased that the Department of Energy has given us this 
recognition. We, through what I think have been cost-effective 
programs of energy efficiency and energy conservation, support 
from the utility had much higher level of energy conservation 
and efficiency associated with our programs than any utility in 
the United States but that delinkage is essential because 
otherwise we have these conflicting incentives. That is the 
reason it was changed in 1981 and the California Public 
Utilities Commission is now looking at a proceeding as 
indicated. It will not only make it neutral with the decoupling 
so it is neutral to the opportunity for a utility to earn but 
will affirmatively incentivize it so as of something like 
August of this year, it is anticipated that the State of 
California for investor-owned utilities will provide an 
affirmative earnings opportunity for efficiency programs.
    Mr. Inslee. Does anyone else want to comment on that? Yes?
    Mr. Yeager. I would just observe that I think we are 
entering into a period that is going to force considerable 
change at the regulatory level and introduce the kind of smart 
technology we are talking about, and it is basically that rate 
cases are a political third rail for regulators and usually for 
the governments in the State. We have frozen rates for years, 
decades. They cannot be frozen any longer and I think if the 
commissions go to their communities and say we are going to 
double your rates but we are not going to give you any better 
service and we are not going to give you any control over your 
bill, I hope there is considerable pushback. In fact, I have 
seen that here in Maryland recently. I think you are going to 
see that all over and basically this is an offer that can't be 
refused. We can offer you much better service, we can offer you 
the ability to control your bill and we can also fundamentally 
reduce the cost of the infrastructure we have to put in because 
we are going to effectively have the customer build some of 
that infrastructure and also reduce the demand. So I think 
there is a window of opportunity here but I think that the 
commissions really have to be, I don't want to use the word 
educated but I think that their consciousness and they have to 
be encouraged to move in this direction.
    Mr. Inslee. Thank you. The witnesses have all been helpful. 
I want to leave you with some optimism today. Things are 
happening here in Congress and you are helping that. I have 
introduced several bills that I think would advance this 
agenda, a net metering bill which I have been trying to pass 
for 4 years, we now have a good chance of passing that to help 
the smart grid develop, a plug-in hybrid bill to incentivize 
the creation of plug-in hybrids which will give us a large 
battery to use our generating capacity. It is incredible. This 
study came out saying we got enough capacity, idle capacity at 
night if we have a storage facility for all that energy, we 
don't have to build any more plants. In the western United 
States, we have got existing infrastructure built that we just 
need a storage capacity. The Low Carbon Fuels Act, which will 
create a standard for low-carbon fuels which will incentivize, 
making the grid more efficient, so I appreciate your testimony. 
I think we are going to get some things done here, and thank 
you for your work.
    Mr. Boucher. Thank you very much, Mr. Inslee.
    I would like to again express the committee's appreciation 
to this panel for your excellent presentations here today. This 
is one of the more interesting panels we have had the privilege 
to hear from, and we are grateful for your taking time to join 
us here. There probably will be some additional questions that 
other members would like to propound to you. That will be done 
in writing. And when you receive a letter, if you could respond 
to it promptly within a matter of a week to 10 days, that would 
be much appreciated. And the record shall remain open for the 
purpose of those questions and answers. With the committee's 
thanks, this panel is excused.
    We now welcome our second panel of witnesses consisting of 
three witnesses. The Honorable Jon Wellinghoff is a 
commissioner of the Federal Energy Regulatory Commission who 
has been very active on the issue of advanced metering and 
smart grid development. The Honorable Robert F. Lieberman is a 
commissioner with the Illinois Commerce Commission. Mr. Kevin 
Kolevar is the director of the Office of Energy Delivery and 
Electricity Reliability at the U.S. Department of Energy. I 
want to say welcome to each of our three government 
representatives today. We appreciate your taking time to 
testify before us. Your prepared written statements will be 
made a part of the record and we would welcome your oral 
summaries hopefully kept to approximately 3 minutes.
    We will be pleased to begin with Commissioner Wellinghoff 
from the FERC.

  STATEMENT OF JON WELLINGHOFF, COMMISSIONER, FEDERAL ENERGY 
             REGULATORY COMMISSION, WASHINGTON, DC

    Mr. Wellinghoff. Thank you, Chairman Boucher and members of 
the committee. I first want to indicate that I am testifying 
here today on my own behalf and not on behalf of the Commission 
but I would like to thank you all for inviting me here to 
testify before you on this very important issue, the smart 
grid. I actually found the last panel fascinating. I am going 
to send all my remarks right out the window. I know you are 
going to put them in the record. I am going to sort of shoot 
from the hip here a little bit with respect to a few comments 
that I have on the last panel and some of the things that were 
said.
    As you are all I am sure aware, the FERC does regulate 
wholesale rates and the wholesale electric markets. We are very 
interested in ensuring that those markets work effectively and 
work on behalf of consumers. We think we can do that with 
competition but we think competition has to be on both sides of 
the meter. We have to have competition on the supply side and 
we have to have competition on the demand side. With respect to 
demand response, we heard earlier Mr. Delurey talk about it. I 
think that it is important that demand response have an equal 
place to play in those competitive markets and I think by doing 
that, we can enable the smart grid. We need to give consumers 
the opportunity and the tools to respond to a smart grid. As 
you heard from the earlier panel, we do need to have price 
signals correct but consumers have to have means to respond to 
those price signals, and the way they can respond to those 
price signals best is, No. 1, have regulatory tariffs in place 
that allow them for economic benefits for responding to them 
and No. 2, have the technology in place to be able to respond. 
We heard about some of the technologies that I think are very 
important to recognize. One that Mr. Gammons talked about that 
the Pacific Northwest National Labs is doing, the Olympic 
Peninsula experiment that they have done, very interesting work 
by embedding in appliances in homes certain types of chips that 
can respond to the grid and frequencies in the grid and price 
signals from the grid. Those things need to be enabled so that 
consumers have opportunities to respond.
    Mr. Kamen's box I think is fascinating and I think it is 
complementary to the grid. We need to figure out how to enable 
distributed generation and look at choices between capital 
flows between centralized generating plants and more 
distributed generation. I think distributed generation in fact 
can be an enabler for the smart grid because when consumers in 
fact put distributed generation in their facilities both their 
commercial and residential facilities ultimately will allow 
more smart grid technology to be pulled in.
    And then finally, I would like to mention plug-in hybrid 
electric vehicles. I think those vehicles also can be an 
enabler for the smart grid because we can use them not only to 
charge from off-peak times and also do things like integrate 
better in wind technology and other renewables into the grid 
but we can also use them to provide power back to the grid, do 
things like regulation and spending reserve. In fact, there was 
a recent study that came out by the National Renewable Energy 
Lab that indicated that payments could be provided back to an 
individual owner of a plug-in hybrid electric vehicle as much 
as $2,000 to $4,000 per year per vehicle for spending reserve 
and regulation services. This could in fact allow consumers to 
buy these vehicles at cost that would be similar to a gasoline 
vehicle and also provide for efficiency of the grid. If we can 
make the grid just 5 percent more efficient, we can ultimately 
reduce the need for 85 large coal plants. That is power we 
don't have to use, emissions we don't have to make.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Wellinghoff follows:]

                      Testimony of Jon Wellinghoff

     Good morning, Mr. Chairman, Ranking Member Hastert, and 
members of the subcommittee. My name is Jon Wellinghoff, and I 
am currently serving as a Commissioner on the Federal Energy 
Regulatory Commission
     I would like to thank you for inviting me to appear before 
you to discuss a vitally important issue: the potential of a 
smart electric transmission grid that employs advanced 
communications and control technologies to enable and utilize 
bidirectional flows of information. Before addressing that 
issue, however, I wish to indicate that I am speaking only on 
my own behalf and not on behalf of the Commission. By way of 
background, I have 32 years of experience in the field of 
electric utility regulation and electric system analysis and 
oversight. I authored the Nation's first comprehensive 
integrated resource planning statute for electric utilities 
(enacted in Nevada in 1983), as well as one of the Nation's 
first electric utility portfolio standards that combines 
renewable energy and energy efficiency in a single portfolio 
(enacted in Nevada in 2005). A copy of my biography is attached 
to my testimony.
     The electric transmission grid in the United States is one 
of the largest and most complex machines in the world, capable 
of carrying over 850 gigawatts of energy. Unfortunately, a 
decades-long decline in transmission investment and a 
precipitous decline in investment in demand response, primarily 
in the last decade, now threaten to impair the reliability of 
that machine and cause billions of dollars in congestion costs.
     This large and complex machine and our associated energy 
infrastructure are in desperate need of improvement. However, 
it is essential to recognize that we cannot simply build our 
way out of these problems. The primary impetus of change in the 
past, and no doubt, of change that we will see in the future, 
is technology. Therefore, as we invest in new energy 
infrastructure, we must spend smartly. We must spend 
efficiently. We must promote investment in efficient 
transmission facilities and state-of-the-art transmission 
technologies, as well as facilitate demand response and 
distributed generation, in order to address the Nation's energy 
challenges and ensure the greatest benefits for consumers. As 
an example, if we could make the electric grid even 5 percent 
more efficient, we would save more than 42 gigawatts of energy: 
the equivalent of production from 42 large coal-fired power 
plants. Those are plants that we would not need to build and 
emissions that we would not produce.
     In the Energy Policy Act of 2005 (EPAct 2005), the 
Congress emphasized many of these same principles. In 
particular, the Congress required the Commission to promote 
reliable and economically efficient transmission and bulk power 
markets by, among other things, encouraging deployment of 
advanced technologies. Indeed, in section 1223 of EPAct 2005, 
the Congress provided the Commission with guidance as to types 
of technologies to encourage, including, among others, 
controllable load such as demand response; distributed 
generation, including fuel cells, microturbines, and 
photovoltaic energy systems (like the one now under 
construction at Nellis Air Force Base in Nevada); energy 
storage devices; and enhanced power device monitoring.
     The Congress recognized the benefits of these technologies 
and emphasized the need for their wider deployment. These types 
of distributed resources can discipline peak market prices, 
provide a hedge against volatile fuel prices, alleviate 
congestion, improve reliability, and potentially be a cost-
effective means to complement or defer transmission expansion 
or improve the efficiency of transmission upgrades.

                      Benefits of Demand Response

     I would like to focus first on demand response, which the 
U.S. Department of Energy defined as follows in a February 2006 
report to the Congress:
    Changes in electric usage by end-use customers from their 
normal consumption patterns in response to changes in the price 
of electricity over time, or to incentive payments designed to 
induce lower electricity use at times of high wholesale market 
prices or when system reliability is jeopardized.
     The Commission's Staff has reported that the total level 
of demand response reductions achieved by independent system 
operators (ISO) nationwide on peak days during the summer of 
2006 was approximately 8,800 megawatts. These reductions 
represented between 1.4 and 4 percent of ISO system peaks, with 
reductions in load pockets such as Southwest Connecticut 
approaching 6 percent. The corresponding reductions in 
wholesale market clearing prices were between $100 and $300 per 
megawatt hour. These price reductions mean that consumers saved 
hundreds of millions of dollars last summer alone due to the 
use of demand response by the ISOs in these wholesale markets. 
The benefits of demand response are also the subject of a study 
that Dr. Ahmad Faruqui of The Brattle Group presented at last 
week's National Town Meeting on Demand Response, which found 
that just a 5 percent reduction in U.S. peak demand is worth 
$31 billion (NPV) over a 20-year period, based only on avoided 
costs.
     We should not underestimate the power of consumers to 
drive smart-grid technologies. The more that consumers see 
economic benefits of demand response, the more they will want 
demand response opportunities and the more they will support 
investments in the smart electric grid that makes more demand 
response possible. Thus, not only does a smart grid enable 
wider use of demand response, but demonstrating the benefits of 
demand response to consumers also brings us more rapid 
implementation of the technologies necessary to enable a smart 
grid.

  Commission Action on Demand Response and Other Advanced Technologies

     The Commission has taken to heart the Congress's directive 
to encourage wider deployment of demand response and other 
advanced transmission technologies. Over just the past eight 
months, the Commission has taken several steps to develop a 
platform to support a smart electric grid. For example, in 
February of this year, the Commission reformed its open access 
transmission policies to, for the first time, put demand 
response and other distributed resources on equal footing with 
other resources in directly contributing to the reliability and 
efficient operation and expansion of the electric transmission 
system. The Commission's Order No. 890 provides that demand 
response and distributed generation may provide a variety of 
ancillary services when they are capable of doing so. The 
Commission also found that when such resources are capable of 
performing needed functions, they should be permitted to 
participate on a comparable basis in open, transparent 
transmission planning processes, and that stakeholders should 
have a forum to come forward with demand response project 
proposals that they wish to have considered in development of a 
regional transmission plan.
     The Commission has also taken steps to integrate demand 
response into new mandatory electric reliability standards, the 
development of which is one of the most important 
responsibilities that the Congress placed on the Commission in 
EPAct 2005 (section 1211). In March, the Commission issued a 
Final Rule that found that demand response should be allowed to 
be used to comply with reliability standards governing 
contingency reserves, reactive power, emergencies, and planning 
the reliable bulk power system. The Final Rule also makes clear 
that demand response must be technically capable of providing 
the function required by a reliability standard. The Electric 
Reliability Organization (ERO) will develop the process for 
determining such technical capability through its standards 
development process.
     Last fall, the Commission and the National Association of 
Regulatory Utility Commissioners (NARUC) jointly launched a 
Demand Response Collaborative to explore how to better 
coordinate approaches to demand response policies and 
practices. The Collaborative has laid a solid foundation in its 
initial meetings, and I look forward to further discussions 
this summer. Initiatives are also underway at the Commission 
and several ISOs and regional transmission organizations (RTO) 
under our review to integrate demand response into energy and 
capacity markets. In addition, the Commission is conducting a 
series of conferences to examine the state of competition in 
wholesale electric markets and to explore the role of demand 
response in those markets. The Commission is also developing a 
plan for a new staff unit that will focus on demand response in 
order to create additional expertise within the Commission on 
such innovative technologies.
     On a related matter, the Congress directed the Commission 
in section 1241 of EPAct 2005 to provide incentives for 
transmission investment that promotes reliable and economically 
efficient transmission and generation of electricity and to 
encourage deployment of transmission technologies and other 
measures to increase the capacity and efficiency of existing 
transmission facilities. In its rule implementing that 
directive, the Commission highlighted the importance of 
investment in economically and technologically efficient 
transmission infrastructure. I have emphasized in a number of 
subsequent cases that the Commission should target incentives 
that increase an applicant's return on equity to investments 
that provide incremental benefits, such as gains that result 
from the deployment of best available technologies that 
increase operational and energy efficiency. Targeting 
incentives in this manner would encourage the deployment of 
smart grid technologies.

               Further Steps toward a Smart Electric Grid

     Thus, the Commission is moving forward in developing a 
regulatory framework to enable an efficiently designed, smart 
electric grid. It is my hope that States will examine how their 
consumers can benefit most from that framework, including the 
opportunities for demand response to participate in wholesale 
electric markets.
     There is much more work to do, however, if we are to 
achieve the full potential of a smart electric grid. For 
example, widespread deployment of advanced metering technology 
will empower more consumers to take advantage of opportunities 
that are available for demand response in the wholesale 
electric markets under the Commission's jurisdiction. It is my 
understanding that other witnesses will discuss in greater 
detail the provisions of EPAct 2005 that address advanced 
meters, including provisions related to the responsibilities of 
State regulatory authorities. I would like to highlight briefly 
an August 2006 report that the Commission's Staff prepared in 
response to a directive in section 1252(e)(3) of EPAct 2005. In 
preparing that report, the Commission's Staff developed a 
comprehensive national survey on demand response and advanced 
metering. The report concludes that demand response has an 
important role to play in both wholesale and retail electric 
markets, and that the potential immediate reduction in peak 
electric demand that could be achieved from existing demand 
response resources is between 3 and 7 percent of peak electric 
demand in most regions. Unfortunately, the report also found 
that technologies such as advancing metering that are needed to 
support significant deployment of demand response resources 
have little market penetration.
     I agree with the conclusion reached by the Commission's 
Staff that demand response has an important role to play in 
both wholesale and retail electric markets. I also see that 
conclusion as reinforcing the need for coordination of Federal 
and state approaches to this issue. The Demand Response 
Collaborative launched by the Commission and NARUC marks a 
promising step toward that goal. It also would be valuable to 
more formally establish this coordination. I encourage the 
Congress to establish a Federal-state working group through 
which the Commission and interested state representatives would 
be tasked with identifying best practices and developing 
consistent standards for demand response.
     Lastly, I would like to highlight two recent projects and 
an emerging technology that illustrate how a smart electric 
grid can benefit a wide range of consumers. The two projects 
are initiatives pursued by Pacific Northwest National 
Laboratory (PNNL), which I had the opportunity to visit earlier 
this year. First, the Olympic Peninsula Distributed Resources 
Demonstration showed that residential, municipal, and 
commercial consumers equipped with automated control technology 
took advantage of a virtual real-time market in which they 
could see real monetary benefits to adjusting their consumption 
during times of peak demand. These demand response adjustments 
not only provided economic benefits to particular consumers, 
but also created wider benefits by relieving congestion. 
Second, the Grid Friendly Appliance Demonstration showed that 
smart appliances improved reliability by detecting fluctuations 
in frequency when the grid was under stress and responding 
automatically within seconds by turning off some functions for 
short periods. That automation increases the appeal and the 
benefits of demand response. These projects, which PNNL 
conducted with support from DOE and other partners, hint at the 
full potential that could be achieved through wider deployment 
of demand response enabled by a smart grid.
     The emerging technology I would like to highlight is a 
plug-in hybrid electric vehicle with vehicle-to-grid (V2G) 
capability. Substantial research has been conducted on this 
technology, and important issues remain to be resolved before 
these vehicles will be ready for large-scale commercial 
availability. Nonetheless, the potential of this technology is 
enormous. Plug-in hybrid electric vehicles could create 
widespread demand response opportunities and offer emergency 
power supply through energy storage, as well as smoothing the 
integration into the grid of renewable resources such as wind 
generation. With V2G capability, plug-in hybrid electric 
vehicles would improve efficient grid management by providing a 
variety of ancillary services and thereby improve power plant 
efficiency. Because these additional services could also create 
payment streams to individual vehicle owners that would 
significantly offset the incremental first costs associated 
with these vehicles, V2G capability could be an enabler of both 
plug-in hybrid electric vehicles themselves and the smart 
electric grid.
     In these ways, plug-in hybrid electric vehicles with V2G 
capability exemplify the benefits of demand response and a 
smart electric grid. We have only begun to capture those 
benefits, and doing so is essential to making the complex 
machine that is our electric grid function in the efficient 
manner that will bring the greatest benefits to American 
consumers and address our Nation's energy challenges.
                              ----------                              

    Mr. Boucher. Thank you very much, Mr. Wellinghoff.
    Mr. Lieberman, we will be happy to hear from you.

   STATEMENT OF ROBERT F. LIEBERMAN, COMMISSIONER, ILLINOIS 
               COMMERCE COMMISSION, OAK PARK, IL

    Mr. Lieberman. Thank you, Mr. Chairman. I have to say, 
after the sort of spanking that State commissions got from the 
other panel, I ought to be clear that I am here representing 
only myself. I as well am going to throw out my written remarks 
because the panel this morning was really quite good and 
covered a lot of what I was going to say.
    I do want to say a couple of things quickly though. In 
anticipation of this discussion, I actually went and looked at 
half a dozen of the EPAct smart metering dockets sort of from 
around the Midwest and I want to sort of follow up on your 
questions this morning. The three things that come across 
pretty clear when you read those dockets, and again, they are 
not all done and they may end up differently but at least the 
stuff that is in the record to this point, there is really 
three things and I think these three things represent from the 
State perspective the barriers and I think lead to 
opportunities that the Federal Government could take advantage 
of.
    The three things are, there is really sticker shock. If you 
look at the dockets, people go, ``man, these are expensive.'' 
These new shiny gizmos that we want to install, they are really 
expensive. Even if they lead to better price signals, all of 
the things that people said, I think the first response that 
you get out of the EPAct dockets is man, this is expensive to 
do, and this is in the context of course of rising energy 
prices and it would take a brave commission to throw additional 
costs on in light of that. Second, I think the issue of what 
are the benefits, how do we measure them, is absolutely 
critical. In all of the dockets that I looked at, people said 
we don't know how to measure these benefits. We don't know what 
the value of doing this is. Commissions are used to thinking in 
a sort of deterministic way. They are used to thinking about we 
can measure what the benefits are if we can measure the costs 
and in a sense what we are doing here is, we are saying we can 
measure the cost but the benefits could be huge, they are 
great, everybody thinks they are wonderful, and I think until 
we come up with some systemic way to talk about the benefits, 
it is going to be difficult to do. The third, and I thought 
this was pretty interesting. The third was kind of across the 
board. In these dockets people are saying no one is asking us 
for this, no one is asking us for these, there is no demand for 
these meters, which reminds me a little bit of 1979, the what 
would I do with a computer on my desk problem but the dilemma 
is that we don't really know, there is no demand for this. In 
many States there has been a demand for wind power and so 
people have started to think about how to provide wind power, 
but this is very geeky and no one is going damn, I want one of 
those meters.
    So I think those are the three problems. Let me suggest 
three approaches to getting to them. Without seeming hopelessly 
naive, I would suggest that if putting in the smart grid and 
smart meter was a serious Federal priority, I would think about 
a subsidy to utilities, a subsidy in some way that Congress was 
recently very generous to the nuclear industry and to the wind 
industry and I think if we were actually serious about a cost-
effective energy policy that provided energy independence and 
environmental benefits, we would seriously think about 
subsidizing, getting over the sticker shock, helping States to 
get over the sticker shock. Short of a direct Federal subsidy, 
we are not proud, we will take an indirect Federal subsidy. I 
think the depreciation question that was raised earlier is an 
excellent idea. The question of the benefits, I have done a lot 
of work with Kevin Kolevar's division at DOE and I have a lot 
of respect for them. I think that if they could provide 
additional resources to help States understand what the 
benefits are, develop models, I think that would be 
extraordinarily useful. We don't have the resources to do this 
and I think until those resources are provided, it is going to 
be very difficult.
    Let me close by saying we are all real smart and we know 
that energy prices vary by the hour and we know that most of 
the hours out of the day, the price of electricity is really 
low in the wholesale markets. I will go out on a limb and say 
that 98 percent of the people in Illinois don't know that. 
Ninety-eight percent of the people in Illinois think the price 
of electricity is what they pay the utility and I think that 
until people understand that there is a lot of inexpensive 
electricity out in that market that they can't get because the 
technology is not installed, I think you have to create a 
demand for the meter, and the way you create that demand for 
the meter is, you start making that transparent and you start 
educating people about the value that would be available to 
them. The reality is, their prices would be lower if they could 
get hourly prices. But they can't because those aren't 
available. Just as an example, and I say this only half 
facetiously, which means I guess the other half is not 
facetious, but imagine if DOE were to purchase time on the 
Weather Channel so that every time they gave the weather for 
Chicago or Pittsburgh or Montpelier they told you what the 
hourly electricity price was. You start driving the fact that 
the low-cost power up there to people--right now people have no 
idea that that is available. I think that using mechanisms to 
make those prices transparent and to get people saying why 
can't I have that, I am interested in that, and I think that 
would be a public education campaign that if DOE had the 
resources to run in conjunction with the States to identify the 
opportunities to get people interested would motivate 
commissions in ways that we haven't seen up to this point. When 
people don't see any demand, they don't see any reason to take 
the regulatory risk.
    Thank you. I am happy to take any questions.
    [The prepared statement of Mr. Lieberman follows:]

                       Testimony of Bob Lieberman

    My name is Bob Lieberman and I have been a utility 
regulator in Illinois since February 2005. I am currently the 
Chairman of the Midwest Demand Response Initiative, a 
collaborative effort of 14 Midwest state regulatory 
commissions, utilities and other stakeholders trying to educate 
and learn from each other about how to implement regional price 
responsive retail demand. I am also on the executive committee 
of the Organization of MISO States (OMS), a Regional State 
Committee working together to ensure that the regional RTO--the 
Midwestern ISO--works in the interests of customers as well as 
suppliers.
    Before that, for nearly ten years, I ran a Chicago-based 
not-for-profit called the Center for Neighborhood Technology 
where we created and managed community-based demand response 
and energy efficiency programs in partnership with Commonwealth 
Edison, the local Chicago utility. As part of that effort, we 
introduced the first in the Nation hourly pricing pilot for 
residential customers, the success of which prompted the 
Illinois General Assembly to recently mandate that electric 
utilities offer such a program to all residential customers in 
the state. Prior to that, among other things, in the mid-1980's 
I worked with then-State Representative Hastert on re-writing 
the Illinois Public Utility Act, a generally thankless if 
necessary task.
    In testifying before you today, I do not represent the 
views of the Illinois Commerce Commission, the Organization of 
MISO States nor the National Association of Regulatory 
Commissioners. My perspectives today are mine alone.
    The question I was asked to address relates to possible 
actions that the Federal Government might take to create 
incentives for state public utility commissions to move more 
rapidly to upgrade retail electricity distribution information 
systems from their current state of the art 1920's technology 
to something that more closely resembles early 21st century 
technology, i.e. systems that are digital rather than analog, 
two way rather than one way, open rather than closed and 
network-based rather than hierarchical.
    Unfortunately, I have no easy answers. This is, in fact, a 
very difficult question to answer as it goes right to the heart 
of the well-documented legal and institutional eccentricities 
of our current regulatory and governance system for electricity 
markets.
    In anticipation of this conversation and in order to more 
precisely underscore some of the barriers to implementation, I 
have recently reviewed a few of the docketed cases from Midwest 
states that were initiated to address the Epact smart metering 
standard. To be fair, many of these dockets have not been 
completed, but I think there is enough in the record at this 
point to be able to summarize what some of the major issues 
are.
    In short, most of the dockets express--roughly--the 
following concerns.
     These new gizmos are really expensive; We have no way to 
measure the benefits, or alternatively--in some of the dockets, 
there is no discussion of benefits at all; There is no demand - 
no one is asking us for these meters;
    Let me examine these barriers one at a time.
    Expensive gizmos: I think it is fair to say that in many 
cases state commissions and their staffs--when seeing the 
initial cost of a ``smart grid'' deployment--suffer from 
sticker shock. The subtext, of course, is that in an era of 
rising energy prices, it takes a brave Commission to pile more 
costs on, particularly given the indeterminacy and uncertainty 
of the benefits, even in the name of possible lower system 
costs and more accurate customer incentives in the long run. 
Despite the fact that the costs of deployment have fallen 
dramatically over the past ten years, and are likely to 
continue to fall, the initial costs still seem high.
    Unknown or unknowable benefits: The benefits are uncertain 
and hard to calculate. Most public utility regulatory 
commissions are--largely by history, design and culture--what I 
will call ``practical and practicing incrementalists.'' Vision 
and imagination are not our strong suit. We can only decide on 
the basis of the record before us, and we generally react to 
the petitions of others. Future calculated benefits have to be 
greater than real visible costs. Rates have to be deemed just 
and reasonable.
    In the old days, before restructuring, state commissions' 
assumed away the future uncertainty implicit in their decisions 
and pretended to know what the costs and benefits would be in 
the future. It was never a particularly good assumption, but at 
least it allowed decisions to be made within the static 
analytic tools and existing legal frameworks that were 
available. After restructuring, however, along with the rise of 
organized regional wholesale markets, the ability to simply 
assume away the uncertainty disappeared. Also, some state 
commissions may be more willing to shift the uncertainty to 
some vague market mechanism to deliver benefits or costs, 
rather than take the explicit responsibility for waving 
significant new costs into rates. In either case, state 
commissions can no longer assume that we know what the future 
looks like. The condition of indeterminacy--a constant reality 
of the world outside of the regulatory process -is not the 
regulator's friend. The inability to predict the behavior of 
some critical variable vastly complicates the regulator's job 
and in large measure stymies the analytic tools regulators and 
their staff's have at their disposal.
    Lack of demand: One gets a sense that regulators are 
reluctant to take the initiative because they don't perceive 
much of a demand from end-users for the increased capacity and 
functionality that a wide-spread smart grid and smart meter 
deployment would provide. Why should they impose costs on 
customers when the customers aren't asking for functionalities 
that the costs would support. Doesn't this remind you of the 
early days of telephone deregulation when you heard such things 
as ``plain old telephone service'' and no one wanted to pay for 
network upgrades to digital technologies?
    For all these reasons--and given the context in which state 
regulators function--a ``transformational'' technology 
innovation that requires a significant up-front investment to 
achieve an uncertain level of future benefits like ``smart 
meters'' or ``smart grids'' is viewed with some perhaps not 
unreasonable skepticism and trepidation.
    So what is to be done?
    First, I would suggest that--if possible - you deal with 
the sticker shock problem. I don't want to pretend that I 
understand the intricacies of the Federal budget process nor do 
I want to be seen as utterly naive, but if achieving a more 
rapid deployment of smart grid technologies was a high Federal 
priority, nothing would get it to move faster than some kind of 
Federal subsidy. I have no idea what the likelihood of such a 
policy might be, but it occurs to me that the Congress was 
recently quite generous--in the name of increased energy 
security and environmental improvement--to various electricity 
production technologies, including nuclear, coal and wind 
power. If we were really interested in a policy of cost-
effective energy security and environmental improvement--we 
should be at least as generous with ``smart grid'' deployment 
as we are with nuclear and wind. Giving consumers the 
information and tools that they need to consume energy more 
efficiently and smarter is by far the most cost-effective 
energy production, security and environmental improvement 
policy we could adopt. As far as I'm concerned, the ``smart'' 
in smart grid and smart meters applies not only to the 
technology but to consumers as well. Consumers, themselves, are 
a grid resource, just like a peaking turbine. What we need are 
smart and efficient consumers--``smart'' grids and ``smart'' 
meters are--in part - a tool to achieving that end.
    In addition, a Federal subsidy could help to ensure 
interoperability and other important national criteria through 
the establishment of outcome-based performance standards for 
the receipt of the subsidy.
    However, we are not proud. Short of a direct Federal 
subsidy, we will take indirect Federal subsidies. One of the 
problems often cited as a barrier to rapid deployment is the 
fact that existing investments in traditional metering and 
distribution information technologies are still in service and 
have not been fully depreciated. To remedy this so-called 
stranded cost barrier, for example, Congress could tell the IRS 
to allow accelerated depreciation for old transmission and 
distribution assets if they are replaced with new ``smart 
grid'' assets.
    State public utility commissions may be encouraged by this 
action to follow suit and approve rate treatment that 
accelerates removing these antique meters from the utility rate 
base.
    Second, we need to deal with the uncertainty about the 
level of benefits that will be achieved. Frankly, state 
regulatory commissions have limited staff and extremely limited 
resources to take on new ideas and to develop new tools and 
methods. In Illinois, we are so overwhelmed with our current 
assignments that the idea of trying to develop the extensive 
knowledge base to adequately address these new technologies and 
new ideas is simply outside the realm of our current reality. 
In my conversations with other regulators, this is the case in 
many other states, as well. It is my sense that when Congress 
simply tells the states to study this or study that, the result 
is an effort commensurate with the State's staffing and budget 
resources, which--all other things being equal - usually 
provides for a less than satisfactory outcome.
    So we need help. We simply don't have the resources to 
develop the knowledge or the expertise on our own. We need help 
in developing the tools, analytic methods and models that would 
allow us to understand how to manage uncertainty instead of 
being overwhelmed by it, and how to estimate the benefits of a 
rapid deployment of smart grid technology on a probabilistic 
basis. We need access to the best thinking from around the 
country in this regard.
    To this end, I want to note that I have great regard for 
Kevin Kolevar, and the staff at the Office of Energy Delivery 
and Electricity Reliability for the excellent work they have 
done to educate stakeholders on the intricacies of these 
difficult issues and to support regional efforts like the Mid-
Atlantic Distributed Resources Initiative and the Midwest 
Demand Response Initiative. In the future, it would be 
enormously helpful if they had the additional resources to 
provide state commissions with the kind of on-going technical 
assistance I mentioned above.
    Finally, and maybe most importantly, we need to deal with 
the problem of the lack of demand for the new functionalities 
provided by the new technologies. It really is no surprise to 
me that there is not a rising clamor among the population for 
smart meters. For eighty years, we have lived--and prospered--
with a dumb network and dumb meters. Other than the geeks among 
us, why would we even know enough to want to change?
    In this context, one of the real successes of the organized 
wholesale electricity markets over the last decade--and a 
success that I think has been largely under-appreciated--is the 
development of a visible and transparent hourly price. If you 
know where to look, you can determine the value of electricity 
at any hour. If you look at those hourly prices over time, you 
know that as much as 98% of the hours, the prices are really 
low--in fact, often lower than the hedged same-price every hour 
electricity product offered at retail by the distribution 
utilities. And if you take the average of the hourly prices 
over the course of almost any year, they are almost universally 
lower than the hedged same-price-every-hour retail price.
    But I would argue--based on my experience in Illinois--that 
95% of all customers--residential, small commercial, 
municipal--have absolutely no idea that the price of 
electricity varies by the hour and that the average of the 
hourly prices is likely to be significantly lower than the 
hedged retail price they have traditionally seen. And until 
they know that, they won't realize that there is something in 
it directly for them; that investing in smart meters will give 
them access to lower cost electricity. Unless they are informed 
of these benefits, why would they be willing to start asking, 
and more importantly, start paying for the technologies that 
would allow that to occur?
    In many ways, therefore, it seems to me that the single 
most cost-effective way to move state commissions to more rapid 
deployment is to increase the demand for these technologies, 
and the most direct way to increase the demand is to explain to 
consumers what they are missing. What we need is an independent 
third party to make consumers aware of what the hourly prices 
are, to make them aware that there are lower prices available 
and that they can't have access to them because the technology 
to give them access to those lower prices is not in place. 
State commissions or state energy offices are perfectly suited 
to this educational role with DOE providing resources and 
technical assistance
    I say this only half facetiously--I guess the other half is 
serious--but imagine the RTO or DOE buying time on the Weather 
Channel so that every hour--when they give the weather for 
Chicago, or for Cleveland, or for Philadelphia or for 
Washington DC, they also told you what the local wholesale 
price of electricity was for that hour. Or every time you 
checked the weather for your hometown on Yahoo, you also got 
the hourly electricity price?
    Until we make these markets transparent and the wholesale 
prices visible to retail customers--until we educate customers 
so that they understand what's in it for them to invest in 
these new technologies--we are unlikely to get a national 
deployment any time soon. We will continue to talk about 
actions needed rather than seeing a smart grid implemented.
    Thank you for your attention. I will be happy to answer any 
questions.
                              ----------                              

    Mr. Boucher. Thank you very much, Mr. Lieberman.
    Mr. Kolevar.

STATEMENT OF KEVIN KOLEVAR, DIRECTOR, OFFICE OF ENERGY DELIVERY 
    AND ELECTRICITY RELIABILITY, U.S. DEPARTMENT OF ENERGY, 
                         WASHINGTON, DC

    Mr. Kolevar. Thank you, Mr. Chairman and members of the 
committee for the opportunity to testify before you today. I 
will also truncate my remarks as the first panel covered a lot 
of ground in a particularly effective fashion.
    The Department of Energy embraces its role as helping to 
lead national efforts to modernize the electric grid by 
researching, developing and demonstrating next generation 
technologies for the grid. To advance grid modernization, our 
approach is to assess the grid from a systems perspective, 
taking into account electricity supply, to electricity delivery 
and incorporating energy efficiency measures throughout the 
system including demand response to produce peak loads. We 
recognize that a change at one point in the system will affect 
the whole system.
    In the Office of Electricity, we sponsor a range of 
research and development for grid modernization in areas such 
as advanced communications, energy storage, grid visualization 
and control technologies. For example, our office has helped 
develop an autonomous storm detection system that adjusts 
system default levels during thunderstorms and automatically 
resets them after the storm is past. So how do we transition to 
a smart grid? First we need to recognize that grid 
modernization is a major undertaking for our Nation and that it 
will only be realized through the dedicated involvement and 
cooperation of Federal and State governments, industry 
partners, academia and investment communities. Historically, 
the Federal Government has had few tools available to help with 
the transition to the smart grid as compared to those certainly 
in the 50 States and the District of Columbia. Notwithstanding 
this historical State primacy in regulating electricity 
distribution, the Federal Government should be active in 
encouraging the needed transition to a 21st century grid. 
Consider for a moment the implications of 51 different 
jurisdictions taking separate action. Put simply, the Federal 
and State governments need to work together to address the 
challenges before us.
    I am pleased to report that we already see positive 
movement toward collaboration. Some State regulatory 
commissions are engaging in a smart grid issue, in part as a 
result of provisions such as EPAct section 1252 on smart 
metering. In addition, a handful of States are or will be 
considering deploying smart and advanced electric meters in 
residential and small commercial sectors. The FERC and the 
National Association of Regulated Utility Commissioners have 
jointly established a collaborative informal working group to 
consider all aspects of integrating demand respond between 
retail and wholesale markets. This effort is co-chaired by 
Commissioner Wellinghoff of the FERC and Commissioners Irvin 
and Reha of North Carolina and Minnesota, respectively. Jon is 
too modest to mention this effort. I hope you will give him the 
opportunity to address it in Q&A. It is a very effective forum. 
Commissioner Lieberman has also played a role, a key role in 
evaluating what is improved demand response through the new 
Midwest Demand Response Initiative. This kind of activity needs 
to continue and grow if we are to effectively identify the 
types of practices to be undertaken by the State and Federal 
Governments that will complement one another to facilitate the 
development of an intelligent, resilient and reliable grid.
    I would also like to announce that on April 26, the 
Department released a competitive solicitation to work with 
utilities to implement smart grid technologies that achieve a 
15 percent peak load reduction on a feeder system.
    So Mr. Chairman, I will conclude my statement by reflecting 
on an event that amply demonstrated the growing momentum behind 
the development of a smart grid. Last week the DOE was a 
partner in hosting a 4-day national conference dedicated to 
advancing grid modernization entitled Grid Week. This event 
provided a forum for the individuals and organizations that are 
already working on various aspects of the smart grid concept to 
network and catapult the electricity grid into the 21st 
century. We thank you for your participation in this event, 
sir, and we believe it is extremely promising that these key 
participants are now united in the vision of bringing about the 
smart grid. It is now incumbent upon all levels of government 
to work together to develop and implement this vision.
    This concludes my statement, Mr. Chairman. Thank you.
    [The prepared statement of Mr. Kolevar follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Boucher. Thank you to each of the witnesses.
    Mr. Kolevar, let begin with you and ask if your department 
has any legislative recommendations for us with respect to what 
we might do in order to facilitate advancement of the smart 
grid.
    Mr. Kolevar. Sir, at this time we do not. There are 
discussions within the administration on this matter but I do 
not have anything for the committee today.
    Mr. Boucher. Do you think you might have something in the 
near time frame or is this something that has a longer 
incubation period for you?
    Mr. Kolevar. I think the decision to forward 
recommendations to the Congress will be made by others above me 
so I would hesitate to jump to conclusions about the 
availability of recommendations, sir.
    Mr. Boucher. A very cautious and wise answer.
    Mr. Kolevar. Thank you, Mr. Chairman.
    Mr. Boucher. Mr. Lieberman, you and Congressman Matheson 
touched on what I think is a very key point and that is that in 
the absence of real-time pricing and a price signal sent to 
consumers, there is going to be essentially no demand for smart 
meters, and I listened carefully to your explanation of the 
kind of commentary coming out of the various commissions that 
reflect their concerns. You indicated that smart meters are 
expensive and they don't want to impose a cost in the absence 
perhaps of a demand or greater knowledge about the benefits 
that could be derived. You indicated that they can't really 
measure those benefits and then you focused on the fact that 
there really is no demand at the present time. But it seems to 
me that all of this has to start with a regulatory regime that 
says that utilities need to make electricity available at 
variable prices at different times of the day depending upon 
what the real cost of electricity is at that hour as determined 
by whether it is high peak time or low peak time, and why can't 
there be a bifurcation of the approach so that you get the 
regulation in place first without having to incur any cost at 
all with regard to smart meters? I think the regulation writing 
exercise perhaps for the State would not be particularly costly 
or burdensome, a little controversial perhaps but maybe not 
costly and burdensome, so why not take that step first and once 
that price signal is there and can be sent, the demand will 
begin to grow for the smart meters and then people are less 
concerned about taking the next steps in order to make them 
available? What is wrong with that kind of step-by-step 
approach?
    Mr. Lieberman. I think the idea of price transparency, the 
idea that these prices exist in the world and you don't see 
them and you can't have them, which is really the circumstance 
we are in today. Not only can't you have them, you don't even 
know they are there. And I think that is really the first step 
in sort of generating a reason for customers, a reason for 
consumers to say why can't we have this. Before I got the 
regulator's job, I ran a not-for-profit in Chicago where we put 
in place the first real-time pricing program for residential 
customers in the country as a pilot in conjunction with 
Commonwealth Edison, a program that was so successful, I say 
modestly, that the Illinois General Assembly recently mandated 
that utilities offer this to all residential customers. But the 
key point that I took away from that experience was that people 
had no way to know that there was value for them given the 
information systems that we have today. They didn't know that 
prices in the summer in the afternoons in July were high and 
that the rest of the time that they were low. And once you 
started telling people about that, once you started talking to 
that and once you started explaining to people how they could 
manage that, they became very interested. The pilot we ran had 
98, 96 percent sign-up rate. People kept signing up. And so I 
think the price transparency question, and this was an issue 
perhaps for FERC or DOE or the RTOs because they really are 
the--the prices--one of the successes of the wholesale markets, 
of the organized wholesale markets has been the development of 
this hourly price.
    Mr. Boucher. Let me come back to maybe a more precise 
formulation of the question. You don't have to get, if you are 
a State commission, to the question of how expensive the meter 
is or the fact that there is no demand for it until you have 
addressed the question of making sure that the real-time 
pricing is made available and that it is advertised 
sufficiently so the consumer knows about it, and once you have 
done that, then you can perhaps expect to see the demand 
develop and then the consumer can make a choice about whether 
or not he wants to incur costs in order to purchase this meter, 
and I am going to ask you also basically how much this meter 
costs. We don't have that information. But don't you agree that 
that step-by-step approach makes sense and that commissions at 
the State level could be encouraged and should be perhaps not 
required but we are a little reluctant to take that step here 
for jurisdictional reasons but at least encouraged to put the 
real-time pricing regulation in effect and to make sure that 
that price signal gets sent and that customers are made aware 
of the fact that it is available on that variable price basis?
    Mr. Lieberman. I go into this in some more detail in my 
written testimony. I think we are essentially saying the same 
thing. Until people can see what the value is, they are not 
going to do it, whether you call it actually developing a rate 
or publicizing the hourly price. One way or another, you have 
to make it transparent. You have to give people an opportunity 
to see what they are getting into.
    Mr. Boucher. Well, I think we all agree with that, but I am 
asking a process question.
    Mr. Lieberman. Without the meters in place, developing the 
rate, I suppose we could. Well, in Illinois' case, we do have 
the rate and people who ask for I can get a meter and we will 
see over the next few years what the level of demand for that 
is and I guess----
    Mr. Boucher. So how long have you had that in place?
    Mr. Lieberman. Since January 1.
    Mr. Boucher. OK. So that is really very new.
    Mr. Lieberman. It is very new.
    Mr. Boucher. And you don't have any experience yet----
    Mr. Lieberman. It is very new, and as Congressman Shimkus 
pointed out----
    Mr. Boucher. How many States have done what you have done? 
How many States have put it in place that way?
    Mr. Lieberman. I actually don't know. Not very many.
    Mr. Boucher. Well, I think maybe I should call on my 
colleague. All right. This is helpful and I thank you.
    Mr. Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman.
    The premise of these hearings is getting to an energy 
security bill which as the panel before and EPRI would talk 
about CO\2\ and these wedges, so energy efficiency issues like 
smart grid technologies, these things help us on that 
efficiency slice. That is why it is important and that is why 
we are pursuing it I think somewhat aggressively in trying to 
pin down good responses, and there are a lot of distributed 
issues on generation which there are a lot of things that 
happened in Illinois recently that have caused great interest 
and consternation and problems but we experienced over the last 
year two major power outages that lasted over a period of 7 to 
10 days, and I personally was affected in the first one for 
about a week and my parents, who live about a mile way from me, 
were. Mine was in the hottest part of the summer and hers was 
the coldest part of the winter. So there is for distributed 
generation issues, there is a signal being sent when you fall 
under catastrophic outages and I know that people are looking 
at, solar panels, battery ability to at least have a minimal 
capability of power and I think that would transmit into 
distributed if we got to that point or whether that generation 
hooked up to natural gas for electricity much like Mr. Kamen's 
own power plant but this is a separate power plant. So there 
are other signals than just price if you experience them. We 
hope people don't experience catastrophic outages, but when you 
do, you start thinking about other aspects of this debate which 
I think are helpful in a full picture. I was going to continue 
on the line, Mr. Lieberman, on this smart metering thing but I 
think the chairman really kind of cleared that out as far as we 
are relatively new and we will see how the response--I think it 
is going to be very positive. In Illinois, we are in difficult 
straits because we moved to deregulation. We required the 
utilities to cut retail consumer costs 20 percent and then we 
froze those rates for 10 years. Eventually that ends. And we 
have had astronomical price increases and we have had, 
especially homes that were incentivized to go all electric, it 
is sad and there is a lot of pressure on the State legislators 
to freeze that even further, and if you don't have a capital 
investment to expand or do even this new technology, you are 
always going to be behind the eight ball so it is always 
capital formation. That is why I asked the question earlier of 
what is the best way. I believe the capital markets through a 
competitive system but you have got to have the price signals 
to allow that to occur. So I don't really have much more. I was 
going to highlight the net metering and issues, Mr. Chairman, 
but I just wanted to make those points that there is, 
especially in my part of the State where we have had 
catastrophic power losses over multiple days, there is a new 
variable in distributor power or net metering or battery power 
or solar or other generation that somehow, I don't know how you 
throw in a price signal but we should at least recognize that 
and put that in maybe in report language or just as an 
important aspect of energy security so that if there is--even 
in the terroristic aspect. We talked about it during September 
11, if someone takes down transmission lines, distributor power 
is going to be pretty important.
    So I am waxing philosophically, Mr. Chairman, and I will 
just yield back my time. Thanks to the panel for being here.
    Mr. Boucher. You are welcome to wax on for at least another 
30 seconds. Well, thank you very much, Mr. Shimkus.
    Mr. Lieberman, let me come back to you and I am so glad we 
have you here today because Illinois does in fact have the kind 
of program now in place since January that we had hoped to see 
other States put in place and I understand about seven States 
have done something comparable to what Illinois has done. Is 
that correct?
    Mr. Lieberman. I can't really respond to that. I know that 
there are a number of States that are experimenting with time 
use and real-time rates but there are some pilots going on.
    Mr. Boucher. OK. How expensive are these smart meters? You 
mentioned cost, and we don't have that number.
    Mr. Lieberman. It really depends who you talk to and it 
depends what functionalities you want in the meter and it 
depends how you frame them. The ones that we have been looking 
at in Illinois are in the $100 to $150 range, and I think it is 
important to note that meters with far less functionality 5 
years ago cost $750 and that in a way these devices are falling 
in price rapidly and--but $150, if you don't know what you are 
getting it for seems like a lot of money.
    Mr. Boucher. True, and so what is the deployment 
methodology for these meters? Do the utilities take the 
responsibility for making them available to their customers on 
an optional basis so that a customer who wants to take 
advantage of real-time price can acquire from the utility for 
this $150, the meter, and then I guess that cost is built into 
rates until it is paid off or something like that?
    Mr. Lieberman. Two things. The utility is responsible for 
the meter and the utilities remain the monopoly distribution 
company so that there are no sort of free market meters. The 
meters are all owned by the utility. They put it in. We had to 
demonstrate in Illinois that there was value for everyone in 
the customers--that the whole rate base, all the customers 
benefited from a reduction in peak and that therefore we could 
spread some of the costs across the whole rate base so in a 
recent case before the Illinois Commission the proponents 
demonstrated that everybody was better off if we cut the peak 
and therefore their cost would not go up if they in a sense 
spread the cost of the meter around. So basically the way it is 
structured in Illinois today is that the person taking the 
real-time price pays for half the cost of the meter and the 
other half is spread over the rate base. And I think that the 
issue, the methodology to show that is critically important and 
one of the things in terms of benefits that I was trying to 
talk about earlier is I think that that is a tool that needs, 
that DOE could help develop and give to States because the 
States don't have the capacity to do that, in part.
    Mr. Boucher. I am sorry. What is the ``that'' in that 
sentence?
    Mr. Lieberman. It is measuring the tool, the methodology 
actually, the model to sort of demonstrate that there is a 
value to this.
    Mr. Boucher. Mr. Kolevar, are you listening?
    Mr. Kolevar. Yes, sir.
    Mr. Boucher. OK.
    Mr. Lieberman. Mr. Kolevar's office and his staff----
    Mr. Boucher. I didn't mean that in a scolding way.
    Mr. Lieberman. No, they have been very helpful. They have 
been remarkably helpful in sort of building whatever capacity 
is out there but I think that significant more capacity is 
needed. I know in our case they have been very helpful in 
giving us access to people at Lawrence Berkeley who know about 
this stuff in ways that you can't really find. So I think that 
the next step for me, if I were king would be to say we need 
these methodologies so that it is easier for the State 
commissions to understand and to develop what the values are. 
Because that is one of the big things that holds this is up is, 
nobody knows how to estimate what the value is.
    Mr. Boucher. I have one other question and that relates to 
some national standard for smart meter technology and for other 
equipment that would help facilitate the smart grid, and I 
would like to have the comments of each of the three witnesses 
concerning the value of that, the extent to which the Federal 
Government already is involved in encouraging this or other 
ways facilitating it, and what in the future you might be 
considering doing with regard to a Federal role to help 
establish a national standard for this. So who would like to 
begin and comment on that process? Mr. Wellinghoff.
    Mr. Wellinghoff. Yes. Thank you, Mr. Chairman. In my 
testimony that was submitted to the committee, I did recommend 
with respect to this working group that Mr. Kolevar referenced, 
it is an informal group that FERC and NARUC have put together 
to collaborate on demand response issues and I would indicate 
that I think it would be helpful for Congress to further 
encourage and focus that work by establishing a Federal-State 
working group through which the commission and State 
representatives would be tasked with identifying best practices 
in developing consistent standards for demand response. I think 
that would be helpful in encouraging that industry overall 
because certainly if we have these demand response aggregators 
operating one region of the country, one RTO, they want to know 
if they can go to other regions of the country, in essentially 
operate utilizing the same communication protocols and the same 
standards to be able to aggregate customers to participate in 
demand response in the wholesale market. So I think that could 
be very helpful, very useful, and we would appreciate that 
assistance.
    Mr. Boucher. OK. Mr. Kolevar.
    Mr. Kolevar. Mr. Chairman, I think the Department could 
play a very useful role in working with the innovators who are 
developing these technologies, who have developed a lot of 
these technologies today. I hesitate to say that development of 
standards, performance standards, metric standards would be the 
best way to go. My initial concern with that would be that we 
might be unintentionally inhibiting innovative development and 
future generations of smart grid technologies. Of course, the 
Department assists with this kind of development right now. We 
do do a great deal of testing with respect to some technologies 
to determine what their level of performance is versus standard 
equipment and infrastructure today. I think that there will be 
an ongoing role for the Department in that respect.
    Mr. Boucher. Well, that is the classic tension of course 
between the need to have uniformity on the one hand and to 
encourage continued innovation on the other. The previous panel 
testified I thought rather generally that having some national 
standards would be helpful and appropriate in terms of 
facilitating the introduction of smart grid applications.
    Mr. Kolevar. Mr. Chairman?
    Mr. Boucher. Yes, Mr. Kolevar.
    Mr. Kolevar. Mr. Chairman, if I could mention one point.
    Mr. Boucher. Certainly.
    Mr. Kolevar. I think we would be interested in seeing work 
go on at the State level and in cooperation with the Federal 
Government to try and establish methodologies for incentivizing 
greater and greater and greater performance. That might be one 
of the better tools. And then certainly if ether are questions 
about whether or not technologies are capable of meeting some 
specific levels of performance, I think the Department of 
Energy would play a role in helping that kind of test.
    Mr. Boucher. All right. Thank you very much.
    Mr. Markey is recognized for 5 minutes.
    Mr. Markey. Thank you, Mr. Chairman.
    Mr. Wellinghoff, on the question of smart grid technology 
to facilitate the use of plug-in hybrid vehicles technologies 
to store electric energy, you say that these vehicles would 
help smooth the integration into the electric grid of renewable 
generation resources such as wind generation. Can you explain 
to us how that would occur?
    Mr. Wellinghoff. Yes. Ultimately when wind generation would 
be providing into the grid at an amount that might be excess, 
in some instances they might have to dump that wind generation 
or it may not be able to fully integrate into the grid because 
of the low loads on the grid. These smart plug-in hybrid 
electric vehicles could be used as storage devices in essence 
to help integrate it better into the grid. There has been a 
number of papers written by Dr. Willet Kempton of Delaware and 
I would commend you to Dr. Kempton's papers. In fact, I will be 
happy to provide them to the committee. In fact, he explains 
exactly how this integration could better work and better 
integrate in renewables using the plug-in hybrid smart vehicle.
    Mr. Markey. Would this type of innovation allow us to 
reduce the number of very large, new central power stations 
that we have to build and allow us to avoid the cost and the 
pollution that would be associated with such plans?
    Mr. Wellinghoff. In my opinion, yes, it would. And I 
mentioned earlier, to the extent we can make the grid more 
efficient, if we could make an 850-gigawatt grid just 5 percent 
more efficient, we could in fact save the output of 42 large 
central plants.
    Mr. Markey. Wow. Are there any estimates that you have seen 
about the potential scale of the demand response and power 
storage opportunities that widespread deployment or plug-in 
hybrids could lead to?
    Mr. Wellinghoff. Well, we know that plug-in hybrids, if you 
took all the automobiles on the road today and you converted 
them into kilowatts instead of horsepower, I think it is like 
eight to 10 times the total energy capacity we currently have 
on our grid. So you can see the opportunity there is vast if 
you converted them into storage vehicles in essence for the 
grid.
    Mr. Markey. So you wouldn't have to build a single new 
power plant? Is that what you are saying?
    Mr. Wellinghoff. I am not saying that but I am certainly 
saying that between distributed generation and large amounts of 
storage through plug-in hybrid electric vehicles, you would----
    Mr. Markey. Could you cut it in half, the number of plants?
    Mr. Wellinghoff. I don't have an exact number, Congressman 
Markey, but I can tell you it would be substantial.
    Mr. Markey. You are making me feel good. That is good 
enough. You also suggested plug-in hybrids could provide a 
variety of ancillary services and thereby improve power 
efficiency. Can you be more specific? What are the ancillary 
services that these plug-in vehicles could provide?
    Mr. Wellinghoff. I can. The two primary ancillary services 
are spinning reserve and regulation which are the services that 
are required now by generators to provide the grid to maintain 
a very narrow frequency level so the grid can remain stable. 
Generators now have to ramp up and down to provide spinning 
reserve and regulation services. These services, and I think it 
was indicated by Mr. Gammons earlier, PNNL has demonstrated 
that appliances in essence can in part provide these services 
through microprocessors that PNNL has demonstrated on the 
Olympic Peninsula. But going beyond that, a plug-in hybrid 
electric vehicle could in fact do these services, provide them 
to the grid and that way obviate the need of generators have to 
ramp up and down, ultimately making those generators run more 
efficiently so ultimately make the grid more efficient by 
putting in these plug-in hybrids to substitute for them, for 
these----
    Mr. Markey. How would the owner of one of these hybrid 
vehicles be compensated for services that their vehicle would 
be providing back to the grid?
    Mr. Wellinghoff. I think somebody this morning talked about 
millions of sensors and massive amounts of data. We have 
millions of sensors and massive amounts of data right here. It 
would be similar to how a cell phone operator keeps track of 
your length of calls and how much the call costs.
    Mr. Markey. And by the way, do you think we need more 
privacy laws if we are going to allow that kind of information 
about the personal habits of Americans be gathered?
    Mr. Wellinghoff. Certainly the data would have to be 
encrypted and there would have to be privacy issues that are 
addressed. There is no question about that, but ultimately----
    Mr. Markey. Do you think the Federal Trade Commission 
should implement the rulemaking that does provide the 
protections that they are already required to do?
    Mr. Wellinghoff. I couldn't speak to the Federal Trade 
Commission, Congressman.
    Mr. Markey. Do we need more protections?
    Mr. Wellinghoff. We may, yes.
    Mr. Markey. You are not sure we do? OK. What regulatory 
obstacles do you see to widespread commercial deployment of 
such vehicles?
    Mr. Wellinghoff. The regulatory obstacles are ensuring that 
we have the tariffs in place so these vehicles can in fact get 
the payments that would be necessary to provide these services 
and we starting to do that already in the organized markets in 
the RTOs and ISOs through allowing demand response in fact to 
participate in spinning reserve regulation, other types of 
services. So the regulatory tariffs have to be place so that 
the consumers in fact can get the payments and the settlement 
processes have to be set up in the wholesale market so in fact 
they can have those payments provided back to them.
    Mr. Markey. I thank you. I see my time is expired. I am 
going to point out that the Federal Trade Commission, when I 
contacted them recently, indicated that they are not going to 
issue any implementing regulations whatsoever to protect the 
privacy of consumers' electricity bills or to combat slamming 
and cramming. They have that authority, and what I am going to 
do is, I am going to organize an effort to put the pressure on 
the Federal Trade Commission to build these privacy protections 
into the law because concomitant with the development of a 
capacity to gather all of this information which gives a 
detailed profile of who Americans are and their use of 
electricity, when they are home or not, very interesting for a 
crook to know what your electricity habits are. They would be 
able to figure out when you are home or not, and I just think 
that the Federal Trade Commission has a responsibility to act 
in that fashion.
    I thank the chairman.
    Mr. Boucher. Thank you, Mr. Markey.
    We want to thank this panel of witnesses. We very much 
appreciate your sharing information with us today and thank you 
for your patience. It has taken a while to get to you this 
afternoon, and you have been very helpful in your answers to 
questions. There are potentially other questions members may 
want to submit to you in writing, and if so, we would 
appreciate your prompt response.
    So with the thanks of the committee to this panel, this 
hearing is adjourned.
    [Whereupon, at 1:10 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

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