[Federal Register Volume 74, Number 57 (Thursday, March 26, 2009)]
[Proposed Rules]
[Pages 13152-13161]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-6471]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Chapter I

[Docket No. PL09-4-000]


Smart Grid Policy

Issued March 19, 2009.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Proposed policy statement and action plan.

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SUMMARY: This proposed policy statement and action plan provides 
guidance to inform the development of a smarter grid for the Nation's 
electric transmission system focusing on the development of key 
standards to achieve interoperability of smart grid devices and 
systems. The Commission also proposes a rate policy for the interim 
period until interoperability standards are adopted. Smart grid 
investments that demonstrate system security and compliance with 
Commission-approved Reliability Standards, the ability to be upgraded, 
and other specified criteria will be eligible for timely rate recovery 
and other rate treatments. This rate policy will encourage development 
of smart grid systems.

DATES: Comments on the proposed policy statement and action plan are 
due May 11, 2009.

FOR FURTHER INFORMATION CONTACT:

David Andrejcak, Office of Electric Reliability, 888 First Street, NE., 
Washington, DC 20426 (202) 502-6721, [email protected].
Elizabeth H. Arnold, Office of General Counsel, 888 First Street, NE., 
Washington, DC 20426, (202) 502-8818, [email protected].
Ray Palmer, Office of Energy Market Regulation, 888 First Street, NE., 
Washington, DC 20426, (202) 502-6569, [email protected].

SUPPLEMENTARY INFORMATION:

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

Proposed Policy Statement and Action Plan

Issued March 19, 2009.

    1. The Commission is issuing this proposed policy statement to 
articulate its policies and near-term priorities to help achieve the 
modernization of the Nation's electric transmission system, one aspect 
of which is ``Smart Grid'' development. Smart Grid advancements will 
apply digital technologies to the grid, and enable real-time 
coordination of information from generation supply resources, demand 
resources,\1\ and distributed energy resources (DER).\2\ This will 
bring new efficiencies to the electric system through improved 
communication and coordination between utilities and with the grid, 
which will translate into savings in the provision of electric service. 
Ultimately the smart grid will facilitate consumer transactions and 
allow consumers to better manage their electric energy costs. These 
technologies will also enhance the ability to ensure the reliability of 
the bulk-power system. The Commission's interest and responsibilities 
in this area derive from its authority over the rates, terms and 
conditions of transmission and wholesale sales in interstate commerce, 
its responsibility for approving and enforcing mandatory reliability 
standards for the bulk-power system in the United States, and a 
recently enacted law \3\ requiring the Commission to adopt 
interoperability standards and protocols necessary to ensure smart-grid 
functionality and interoperability in the interstate transmission of 
electric power and in regional and wholesale electricity markets. The 
development and implementation of these interoperability standards is a 
challenging task, which requires the efforts of industry, the states 
and other federal agencies, in addition to the Commission. The 
Commission intends to use its authority, in coordination and 
cooperation with other governmental entities, to help achieve 
interoperability in a timely manner. Achievement of interoperability 
will not only increase the efficiency of the bulk-power system, with 
the goal of achieving long-term consumer savings, but will also enable 
demand response and other consumer transactions and activities that 
give consumers the tools to better control their electric energy costs. 
Reaching this goal will also help promote the integration of 
significant new renewable power into the transmission system and help 
state and federal initiatives to promote greater reliance on renewable 
power and meet future demand growth to satisfy the Nation's energy 
needs.
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    \1\ For purposes of this proposed policy statement, ``demand 
resources'' refers to the set of demand response resources and 
energy efficiency resources and programs that can be used to reduce 
demand or reduce electricity demand growth.
    \2\ DER comprises dispersed generation devices and dispersed 
storage devices, including reciprocating engines, fuel cells, 
microturbines, photovoltaics, combined heat and power, and energy 
storage. See International Electrotechnical Commission, 
International Standards IEC 61850-7-420.
    \3\ Energy Independence and Security Act of 2007, Public Law No. 
110-140, 121 Stat. 1492 (2007) (EISA).
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    2. The purpose of the policy statement the Commission ultimately 
adopts will be to prioritize the development of key interoperability 
standards, provide guidance to the electric industry regarding the need 
for full cybersecurity for Smart Grid projects, and provide an interim 
rate policy under which jurisdictional public utilities may seek to 
recover the costs of Smart Grid deployments before relevant standards 
are adopted through a Commission rulemaking. Specifically, development 
of interoperability standards for inter-system communication, system 
security, wide-area situational awareness, demand response, electric 
storage, and electric transportation should be prioritized and 
accelerated. The work done on certain standards will provide a 
foundation for development of many other standards.
    3. In addition, as further explained below, for the near term we 
propose certain rate treatments to encourage investment in Smart Grid 
technologies that advance efficiency, security, reliability and 
interoperability in order to address potential challenges to the

[[Page 13153]]

bulk-power system. We recognize that a key consideration of public 
utilities in deciding whether to invest in Smart Grid technologies may 
involve the potential for stranded costs associated with legacy systems 
that are replaced by Smart Grid equipment. Additionally, as the 
electric system may require several of the new capabilities of the 
Smart Grid before interoperability standards have been developed, we 
recognize the need for guidance for jurisdictional entities. Thus, to 
offer some rate certainty and guidance regarding cost recovery issues, 
the Commission is proposing a rate policy for the interim period until 
final interoperability standards are adopted. The Commission also 
proposes that smart grid investments that demonstrate system security 
and compliance with Commission-approved Reliability Standards, the 
ability to be upgraded, and other specified criteria will be eligible 
for timely rate recovery and other rate treatments. For now, we propose 
as an interim rate policy to accept single-issue rate filings submitted 
under FPA section 205 by public utilities to recover the costs of Smart 
Grid deployments involving jurisdictional facilities provided that 
certain showings are made. In other words, we propose to consider Smart 
Grid devices and equipment, including those used in a Smart Grid pilot 
program or demonstration project, to be used and useful for purposes of 
cost recovery if an applicant makes the certain showings, as described 
below.
    4. We seek comments from the industry on these and other steps the 
Commission can take to encourage and expedite the development of 
interoperability standards and implementation of Smart Grid projects. 
In the near future, we may convene a technical conference for further 
public input on these issues.

I. Background

    5. Under the Federal Power Act (FPA), the Commission has 
jurisdiction over the transmission of electric energy in interstate 
commerce by public utilities, and over the reliable operation of the 
bulk-power system in most of the Nation.\4\ The Commission also was 
given a new responsibility under the EISA, discussed further below, to 
issue a rulemaking to adopt standards and protocols to ensure Smart 
Grid functionality and interoperability in interstate transmission of 
electric power and in regional and wholesale electric markets.
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    \4\ 16 U.S.C. 824, 824o.
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    6. Section 1301 of the EISA states that it is the policy of the 
United States to support the modernization of the Nation's electricity 
transmission and distribution system to maintain a reliable and secure 
electricity infrastructure that can meet future demand growth and to 
achieve each of several goals and characteristics, which together 
characterize a Smart Grid.\5\ These goals and characteristics are:
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    \5\ EISA sec. 1301, to be codified at 15 U.S.C. 17381.

    (1) Increased use of digital information and controls technology 
to improve reliability, security, and efficiency of the electric 
grid. (2) Dynamic optimization of grid operations and resources, 
with full cyber-security. (3) Deployment and integration of 
distributed resources and generation, including renewable resources. 
(4) Development and incorporation of demand response, demand-side 
resources, and energy efficiency resources. (5) Deployment of 
``smart'' technologies (real-time, automated, interactive 
technologies that optimize the physical operation of appliances and 
consumer devices) for metering, communications concerning grid 
operations and status, and distribution automation. (6) Integration 
of ``smart'' appliances and consumer devices. (7) Deployment and 
integration of advanced electricity storage and peak-shaving 
technologies, including plug-in electric and hybrid electric 
vehicles, and thermal storage air conditioning. (8) Provision to 
consumers of timely information and control options. (9) Development 
of standards for communication and interoperability of appliances 
and equipment connected to the electric grid, including the 
infrastructure serving the grid. (10) Identification and lowering of 
unreasonable or unnecessary barriers to adoption of smart grid 
technologies, practices, and services.[\6\]
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    \6\ Id.

    7. Section 1305(a) of EISA directs the National Institute of 
Standards and Technology (the Institute) ``* * * to coordinate the 
development of a framework that includes protocols and model standards 
for information management to achieve interoperability of smart grid 
devices and systems.'' \7\ A helpful description of interoperability is 
``the ability of a system or a product to work with other systems or 
products without special effort on the part of the customer * * *'' \8\ 
In order to achieve the Smart Grid characteristics and functions listed 
in EISA section 1301, interoperability of Smart Grid equipment will be 
essential.
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    \7\ EISA sec. 1305(a), to be codified at 15 U.S.C. 17385(a).
    \8\ Testimony of Patrick D. Gallagher, PhD, Deputy Director, 
National Institute of Standards and Technology, before the Committee 
on Energy and Natural Resources, United States Senate, March 3, 
2009, available at: http://www.nist.gov/director/ocla/nist%20pgallagher%20smart%20grid%20testimony%20senate%20e&nr%203-3-09.pdf. According to the GridWise Architecture Council, the term 
``interoperability'' refers to the ability to: (1) Exchange 
meaningful, actionable information between two or more systems 
across organizational boundaries; (2) assure a shared meaning of the 
exchanged information; (3) achieve an agreed expectation for the 
response to the information exchange; and (4) maintain the requisite 
quality of service in information exchange (i.e., reliability, 
accuracy, security). See GridWise Architecture Council, 
Interoperability Path Forward Whitepaper at 1-2, 2005, available at: 
http://www.gridwiseac.org/pdfs/interoperability_path_whitepaper_v1_0.pdf. The GridWise Architecture Council was formed by the U.S. 
Department of Energy to promote and enable interoperability among 
the many entities that interact with the Nation's electric power 
system. See http://www.gridwiseac.org/about/mission.aspx.
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    8. Finally, pursuant to the EISA, once the Commission is satisfied 
that the Institute's work has led to ``sufficient consensus'' on 
interoperability standards, we are directed to ``institute a rulemaking 
proceeding to adopt such standards and protocols as may be necessary to 
insure smart-grid functionality and interoperability in interstate 
transmission of electric power, and regional and wholesale electricity 
markets.'' \9\
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    \9\ EISA sec. 1305(d), to be codified at 15 U.S.C. 17385(d).
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    9. The Commission appreciates the Institute's work to assess 
current Smart Grid standards and infrastructure to identify gaps, and 
is aware of its plans to create a knowledge base to enable effective 
communication among stakeholders and a roadmap to lay out a recommended 
course toward a highly interoperable grid.\10\ In general, we expect 
that the Institute will recommend standards to the Commission that have 
resulted from the Institute's coordination with standards development 
organizations and technical experts. The Commission will initiate 
rulemakings as individual or suites of standards \11\ achieve 
sufficient consensus. The Commission will consider the most effective 
and efficient ways to interact with the Institute and standards 
development organizations between the issuance of a notice of proposed 
rulemaking on submitted standards and a final rule adopting standards. 
We invite comment on this proposed approach.
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    \10\ See Testimony of Patrick D. Gallagher, PhD, infra n.8.
    \11\ A suite of standards would consist of a group of related 
standards.
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    10. The Commission will continue to take an active role in helping 
to ensure that the participants in the Institute's process effectively 
prioritize and sequence future standards development efforts. We invite 
comments on what factors the Commission should consider in determining 
when the Institute's work has led to ``sufficient consensus'' on 
interoperability standards to warrant instituting a rulemaking 
proceeding. We

[[Page 13154]]

also seek comment and ideas on how to identify and stage the adoption 
of successive waves of interoperability standards. Finally, we seek 
comment as to whether there should be some formal process for parties 
to seek Commission guidance if negotiations on certain interoperability 
standards reach an impasse.

II. Discussion

A. Urgency of Achieving Certain Smart Grid Functionalities

    11. As noted above, rather than directing the Institute to develop 
interoperability standards of its own, Congress charged the Institute 
with coordinating such development. The EISA specifically requires the 
Institute to solicit input from, among others, a range of existing 
standards development organizations that rely on extensive negotiation 
in order to achieve broad industry consensus on proposed standards.\12\
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    \12\ The EISA specifically names the IEEE (formerly known as the 
Institute of Electrical and Electronics Engineers), and the National 
Electrical Manufacturers Association. Other relevant existing 
standards development organizations could include the International 
Electrotechnical Commission (IEC), the American National Standards 
Institute (ANSI), the German Standards Institute (actually Deutsches 
Institut f[uuml]r Normung), the International Organization for 
Standardization, and the International Telecommunication Union.
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    12. The EISA contains no specific deadline for the creation of 
interoperability standards; instead, it provides for a consensus-based 
process. However, there is a sense of urgency within industry and 
government for the development of standards for and deployment of smart 
grid technologies generally. The Commission is particularly interested 
in the development of Smart Grid functions and characteristics that can 
help address challenges to the Commission-jurisdictional bulk-power 
system. These include the cross cutting issues of cybersecurity and the 
further development of common information models to allow useful 
exchange of electric system information (e.g., standard definitions). 
Broad policy goals also need to be addressed such as optimizing the 
transmission system to reduce congestion and improve reliability, 
security and efficiency; encouraging increased reliance on demand 
response; state and possibly national climate change initiatives such 
as Renewable Portfolio Standards and other efforts that result in 
increased reliance on variable renewable resources; and the potential 
for increased and variable electricity loads from the transportation 
sector. We discuss in turn the importance of each of these in driving 
the need for Smart Grid capabilities and the standards to achieve 
interoperability of smart grid devices with the electric grid and its 
associated users and infrastructure.
Cybersecurity and Reliability
    13. Absent any consideration of the Smart Grid concept, other 
activities and events currently taking place in various regions raise 
physical and cybersecurity concerns for the electric industry. For 
example, utilities have already taken advantage of the existing 
communications infrastructure and capabilities of the Internet to aid 
their marketing operations. While typically not connecting their more 
sensitive control center systems directly to the Internet, many 
entities have nevertheless upgraded those systems to use Internet-based 
protocols and technologies. This, coupled with the fact that the non-
Internet-connected control center operations may be connected to the 
same corporate network as the Internet-connected marketing systems, 
means that there may be an indirect Internet vulnerability to those 
sensitive control systems. Accordingly, without adequate protections, 
these preexisting utility efforts potentially increase the exposure of 
the bulk-power system to cybersecurity threats. Cybersecurity and 
physical security have been ongoing concerns for the Commission and the 
electric industry with the advent of the mandatory and enforceable 
federal bulk-power system reliability regime in place in most of the 
United States under the oversight of the Commission pursuant to FPA 
section 215.\13\ Pursuant to this section 215 authority, the Commission 
recently approved eight cyber and physical protection related 
reliability standards.\14\
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    \13\ 16 U.S.C. 824o.
    \14\ See Mandatory Reliability Standards for Critical 
Infrastructure Protection, Order No. 706, 73 FR 7368 (Feb. 7, 2008), 
122 FERC ] 61,040, reh'g denied and clarification granted, Order No. 
706-A, 123 FERC ] 61,174 (2008). Notably, section 215(a) of the FPA, 
16 U.S.C. 824o(a), defines the terms ``reliability standard,'' 
``reliable operation,'' and ``cybersecurity incident.''
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    14. The fact that a smarter grid would permit two-way communication 
between the electric system and a much larger number of devices located 
outside of controlled utility environments commands that even more 
attention be given to the development of cybersecurity standards. 
Therefore, the Commission proposes to advise the Institute to undertake 
the necessary steps to assure that each standard and protocol that is 
developed as part of the Institute's interoperability framework is 
consistent with the overarching cybersecurity and reliability mandates 
of the EISA as well as existing reliability standards approved by the 
Commission pursuant to section 215 of the FPA. The Commission proposes 
to make consistency with cybersecurity and reliability standards a 
precondition to its adoption of Smart Grid standards. We seek comment 
on these proposals.
    15. In order to fully incorporate measures to protect against cyber 
and physical security threats, we also propose to advise the Institute 
to take the necessary steps to assure that its process for the 
development of any interoperability standards and protocols leaves no 
gaps in cyber or physical security unfilled. We are concerned that this 
could be a particular problem where separate groups of interested 
industry members independently develop and advocate select standards or 
protocols for the Institute's consideration. We seek comment on this 
proposal.
Inter-System Communication and Coordination
    16. There is an urgent need to further develop a common semantic 
framework (i.e., agreement as to meaning) and software models for 
enabling effective communication and coordination across inter-system 
interfaces. Such standards could play an important role in the movement 
to a smarter grid that is capable of addressing challenges to the 
operation of the bulk-power system. The bulk-power system can be 
thought of as a system of systems.\15\ In order to enable a smarter 
grid, particularly one capable of addressing the bulk-power system 
challenges discussed below, effective interfaces must be developed 
between and among all of these systems (i.e., inter-system interfaces) 
and common information model standards appear to be powerful tools to 
enable such inter-system interfaces. The Commission proposes to 
identify standards for common information models for inter-system 
interfaces as a high priority for accelerated development. We seek 
comment on this proposal.
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    \15\ See Appendix A for a graphic representation of the various 
systems.
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Integrating Renewable Resources Into the Electric Grid
    17. Several groups of states have been working on aggressive 
regional carbon control measures,\16\ and one regional effort has 
already begun operation in the

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form of the Regional Greenhouse Gas Initiative.\17\ Federal legislation 
addressing carbon control and other environmental and climate related 
matters may follow. These initiatives point toward a shift in the mix 
of fuels that will be used to generate electricity, and an associated 
shift in where new generation resources are located. Additional 
transmission capacity to ensure deliverability of those new generating 
resources will be needed in the form of new transmission lines and more 
efficient use of existing infrastructure. Also, additional demand 
resources, generation resources, and DER will be needed to reliably 
integrate variable generation into the electric grid. Efforts to 
address these challenges could benefit from the enhanced capabilities 
associated with certain aspects of the Smart Grid; among them, the 
ability to maximize the capability and use of existing and new 
transmission capacity,\18\ and foster the deployment and integration of 
demand resources, generation resources and DER.
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    \16\ See, e.g., the Western Climate Initiative (http://www.westernclimateinitiative.org/) and the Midwestern Greenhouse Gas 
Reduction Accord (http://www.midwesternaccord.org/).
    \17\ See http://www.rggi.org/home.
    \18\ For example, a smarter grid could enable an increase in 
transmission capacity through a switch from static to dynamic 
transmission line ratings enabled by the advanced sensor, 
communications, and information technology capabilities associated 
with a smarter grid.
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    18. As of December 2008, the Nation had 25,170 MW of wind 
generation based on nameplate capacity.\19\ According to the 2008 Long-
Term Reliability Assessment by the North American Electric Reliability 
Corporation (NERC), an additional 145,000 MW of wind power projects are 
planned or proposed over the next ten years.\20\ Accordingly, it is 
evident that in a relatively short period of time, some parts of the 
bulk-power system may face the need to effectively integrate 
unprecedented amounts of variable generation resources. This is 
significant because operators of variable generation have less control 
over when the resource is available to produce electricity, in contrast 
with more conventional fossil and nuclear generation.
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    \19\ Source, American Wind Energy Association's Web site: http://www.awea.org/projects/.
    \20\ North American Electric Reliability Corporation, 2008 Long-
Term Reliability Assessment at 12.
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    19. Large amounts of variable generation raise several important 
operational and planning issues, including: (1) Resource adequacy 
(potential loss and unavailability of variable resources at peak 
periods and other critical times such as loss of other generators or 
transmission lines); (2) resource management (potential for over-
generation by variable resources during off-peak periods when there is 
insufficient load to accommodate such generation); and (3) reduced 
system inertia (potential loss of system stability due to the high 
penetration of variable resources with low inertia properties).\21\ 
Given sufficient time and resources, a variety of solutions to these 
concerns may be feasible. For example, investment in large amounts of 
electricity storage could ultimately address both the resource adequacy 
and resource management concerns,\22\ although technical and economic 
issues remain to be addressed before such investment is likely to 
become significant. In the meantime, Smart Grid-enabled demand response 
capabilities \23\ could add important new tools to deal with both 
resource adequacy and resource management concerns.\24\ Demand response 
reductions in load can help address the resource adequacy concerns 
surrounding unexpected loss of variable generation, and EISA envisions, 
among other things, the development of large new pools of demand 
response resources.\25\
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    \21\ Inertia is the physical property which allows an object in 
motion to continue to stay in motion, absent other forces. 
Traditional dispatchable generating units (such as thermal and hydro 
power plants) utilize large rotary generators which have large 
amounts of inertia. This property has a tendency to stabilize the 
bulk-power system with an output response in the event of a 
disturbance. Variable resources, such as wind and solar, have less 
or no inertia and, as such, cut back more quickly in response to 
disturbances (e.g., frequency excursions), which may contribute to 
power system instabilities.
    \22\ The Electricity Advisory Committee, which was formed by the 
Department of Energy to provide it with advice on a number of 
electricity issues, recently issued a report, Bottling Electricity: 
Storage as a Strategic Tool for Managing Variability and Capacity 
Concerns in the Modern Grid, December 2008. This report asserts that 
there are many benefits to deploying energy storage technologies 
into the Nation's grid: (1) A means to improve grid optimization for 
bulk power production; (2) a way to facilitate power system 
balancing in systems that have variable renewable energy sources; 
(3) facilitation of integration of plug-in hybrid electric vehicle 
power demands with the grid; (4) a way to defer investments in 
transmission and distribution infrastructure to meet peak loads 
(especially during outage conditions) for a time; and (5) a resource 
providing ancillary services directly to grid/market operators.
    \23\ The Smart Grid concept envisions a power system 
architecture that permits two-way communication between the grid and 
essentially all devices that connect to it, ultimately all the way 
down to large consumer appliances. Efforts at realizing this concept 
focus on standardization to enable all of this new equipment to be 
manufactured economically in support of widespread adoption by 
consumers. Once that is achieved, a significant proportion of 
electric load could become an important resource to the electric 
system, able to respond automatically to customer-selected price or 
dispatch signals delivered over the Smart Grid infrastructure 
without significant degradation of service quality. For purposes of 
this proposed policy statement we will refer to such new demand 
response capability as Smart Grid-enabled demand response 
capability.
    \24\ A recent NERC Draft Special Report recognizes that 
``[d]emand response has already been shown in some balancing areas 
to be a flexible tool for operators to use with wind generation 
[footnote omitted] and is a potential source of flexibility equal to 
supply-side options.'' NERC, Special Report Accommodating High 
Levels of Variable Generation at 45; available at http://www.nerc.com/docs/pc/ivgtf/IVGTF_Reporta_17Nov08.pdf.
    \25\ See, e.g., EISA sec. 1301(4), (5), (6), (8), and (9), to be 
codified at 15 U.S.C. 17381(4), (5), (6), (8), and (9).
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    20. With respect to the resource management concerns surrounding 
potential over-generation, this situation tends to arise during off-
peak periods when load is at its lowest and system operators have 
already turned off all traditional generation except their large 
conventional units that, for primarily operational reasons, must be 
operated in a nearly steady state around the clock.\26\ If large 
amounts of variable generation begin producing power during such 
periods, then the supply of electricity would exceed the demand for 
electricity and risk unbalancing the bulk-power system. In order to 
bring the system back into balance in a situation where easily 
dispatchable generation or demand resources are not available, system 
operators may have to require variable generation to reduce output. 
However, at such times this variable generation may be producing the 
lowest priced energy on the system, so reducing or eliminating its 
output would not be economically efficient. If a system existed whereby 
entities \27\ could receive a timely signal to temporarily shift their 
demand from peak to off-peak, and if such load shifts could be 
controlled by the system operator, then such ``dispatchable'' demand 
response could alleviate to some degree the resource management 
concerns associated with over-generation from the other side of the 
supply/demand equation. Again, the urgency to develop and implement 
those aspects of a smarter grid that can enable such demand response 
capability is clear.\28\
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    \26\ There can also be an economic justification for around-the-
clock operation because large conventional units tend to have 
relatively higher capital costs and lower running costs. However, 
their generally slow and difficult start-up and cool-down sequences 
are the main reason why they cannot be started and stopped easily to 
address over-generation situations.
    \27\ Such entities would need to have invested in the equipment 
necessary to reliably measure and control either their own load or 
the load of clients that they manage under contract.
    \28\ See, e.g., EISA sec. 1301(4), (5), (6), (8), and (9).
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    21. The future potential for a large and variable new class of 
electric load, specifically electricity-powered vehicles, also presents 
challenges that

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may deserve special attention and priority in the consensus-based 
interoperability process being coordinated by the Institute. In 
addition to the plans of major automobile manufacturers to roll out 
plug-in hybrid vehicles starting in 2010, it is possible that large 
numbers of pure electric vehicles, sometimes known as neighborhood 
electric vehicles, could be purchased as second cars for short-haul 
daily commuting or for other purposes.\29\ Judging by the observed 
intensity of electric utility and state government interest in this 
area,\30\ the potential for a significant shift in personal 
transportation technology to electric power in the near future cannot 
be discounted.
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    \29\ See, e.g., Kris Osborn, Services Plan to Buy Electric Cars, 
Federal Times, November 17, 2008, at 3 (noting that Army, Navy, and 
Air Force plan to purchase a total of 30,000 neighborhood electric 
vehicles for use on military bases).
    \30\ See, e.g., John S. Adams, Bill benefits `medium-speed' 
electric cars, Great Falls Tribune, January 9, 2009 (reporting on 
efforts in the Montana legislature to ease restrictions and 
ownership and use requirements on ``medium speed'' electric 
vehicles, which could include electric vehicles of up to 5,000 
pounds gross vehicle weight), available at http://www.greatfallstribune.com/article/20090109/NEWS01/901090337.
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    22. The timing of vehicle charging activities is an illustration of 
the effect electric vehicles can have on the operation of the electric 
grid. If charging takes place during peak periods it could require a 
large investment in new generation, demand response resources and/or 
transmission capacity to meet the resulting higher peak loads. However, 
charging off-peak could actually improve the operation of the electric 
system, for example by improving existing generation asset utilization 
or by providing an electricity storage solution to address the 
potential for over-generation by variable resources in off-peak 
periods. Ultimately, large numbers of plug-in electric vehicles have 
the potential to provide some ancillary services like distributed 
energy storage or, when aggregated, regulation service. In all cases, 
however, the enhanced information processing and high-speed 
communications and control capabilities of the Smart Grid would be 
extremely helpful, perhaps necessary, in dealing with the challenges 
and opportunities associated with large numbers of new electric 
vehicles on the bulk-power system.
    23. Additionally, these and other changing patterns of electricity 
generation and use are increasing the frequency with which congestion 
on transmission facilities becomes binding and raises costs for 
consumers. The Smart Grid concept includes the deployment of advanced 
sensors and controls throughout the electric system that should 
maximize the capability and use of existing and new transmission 
capacity.
    24. For all of the reasons discussed above, which may represent 
direct challenges to the reliable operation of the bulk-power system 
and wholesale power markets, the fact that many utilities are already 
beginning to deploy Smart Grid related systems, and the substantial 
funding for Smart Grid in the American Recovery and Reinvestment 
Act,\31\ the Commission herein proposes a targeted acceleration of 
certain aspects of the interoperability standards process as described 
further below.\32\
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    \31\ See American Recovery and Reinvestment Act, Public Law No. 
111-5, Title IV, Subpart A, ---- Stat. ----, ----(2009) (ARRA).
    \32\ This is consistent with the Institute's approach of 
prioritizing standards and functionalities that may impact 
reliability. See NIST Smart Grid Issues Summary, March 10, 2009, 
available at: http://www.nist.gov/smartgrid/ (in case link is 
temporarily unavailable at this Web site, please request it via e-
mail at: [email protected]).
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B. Development of Key Interoperability Standards

    25. As discussed above, several important trends indicate a strong 
national interest in expediting the development and deployment of the 
types of technologies and capabilities associated with a smarter grid. 
To achieve these types of capabilities, Smart Grid technologies must be 
interoperable.\33\ The Commission understands that a consensus-based 
interoperability standards development process typically requires time 
to reach consensus, but also recognizes that recent efforts by the 
Institute and several industry groups, including the OpenSG 
Subcommittee of the Utility Communication Architecture International 
User Group (OpenSG Subcommittee) and the GridWise Architecture Council, 
have developed concepts to prioritize the large set of potential 
standards, and have suggested principles for expediting development of 
a set of transmission and distribution systems standards that will 
facilitate many other important standards development activities. The 
Commission is committed to identifying these key transmission and 
distribution standards and working with the Institute to expedite their 
adoption. The Commission believes that focusing on the priorities 
identified below will help to remove uncertainty for developers of 
standards applicable to all levels of the grid.
---------------------------------------------------------------------------

    \33\ See Gridwise Architecture Council, Interoperability Path 
Forward Whitepaper, infra n.8.
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    26. The Institute has issued for comment a ``Smart Grid Issues 
Summary'' that will act as an interim roadmap, starting with high 
priority standards that are largely based on existing broadly accepted 
standards.\34\ Leveraging existing standards to the greatest extent 
practical should shorten the time required to finalize needed 
interoperability standards.
---------------------------------------------------------------------------

    \34\ See infra n.32.
---------------------------------------------------------------------------

    27. The Commission proposes to prioritize the development of 
standards for two cross-cutting issues and four key grid 
functionalities involving interfaces between utilities (e.g., regional 
transmission organizations (RTO) to utilities outside the RTO), 
utilities and customers, and utilities and other systems (e.g., energy 
management systems). These cross-cutting issues and key functionalities 
are proposed as the first level of work to be accomplished in the 
interoperability standards-setting process. Swift progress on adopting 
standards for these cross-cutting issues and key functionalities is 
necessary for the transmission operator/RTO to address the bulk-power 
system challenges identified above.
    28. The two cross cutting issues are first, cybersecurity (and 
physical security to protect equipment that can give access to Smart 
Grid operations) and second, a common semantic framework and software 
models for enabling effective communication and coordination at the 
boundaries of utility systems where these interface with customer and 
other systems (and hence provide ``inter-system'' functionality).\35\ 
The four key grid functionalities are wide-area situational awareness, 
demand response, electric storage, and electric transportation.
---------------------------------------------------------------------------

    \35\ The concept of the Smart Grid as a ``system of systems'' 
and the importance of the need of first focusing on the inter-system 
interfaces are presented in a paper by the OpenSG Subcommittee and 
Smart Grid Executive Working Group entitled Smart Grid Standards 
Adoption: Utility Industry Perspective (Utility Perspective Paper), 
available at: http://osgug.ucaiug.org/Shared%20Documents/Forms/AllItems.aspx. A graphic that illustrates these concepts is found in 
Appendix A.
---------------------------------------------------------------------------

System Security
    29. We propose two initial overarching principles regarding 
security that Smart Grid applications must address in order to comply 
with the need for full cybersecurity and with the Commission's bulk-
power system concerns, consistent with our authority under section 215 
of the FPA.\36\ First, we believe that a responsible entity subject to 
Commission-approved

[[Page 13157]]

reliability standards, such as the Critical Infrastructure Protection 
Reliability Standards, must ensure that it maintains compliance with 
those standards during and after the installation of Smart Grid 
technologies. Indeed, many Smart Grid installations will need to be 
included on a responsible entity's list of critical assets to be 
protected under the Commission-approved NERC Critical Infrastructure 
Protection Reliability Standards.
---------------------------------------------------------------------------

    \36\ 16 U.S.C 824o.
---------------------------------------------------------------------------

    30. Second, to the extent that they could affect the reliability of 
the bulk-power system, Smart Grid technologies must address, the 
following considerations: (1) The integrity of data communicated 
(whether the data is correct); (2) the authentication of the 
communications (whether the communication is between the intended Smart 
Grid device and an authorized device or person); (3) the prevention of 
unauthorized modifications to Smart Grid devices and the logging of all 
modifications made; (4) the physical protection of Smart Grid devices; 
and (5) the potential impact of unauthorized use of these Smart Grid 
devices on the bulk-power system.
    31. To the extent that any of the new Smart Grid standards or 
extensions to relevant existing standards require adaptation or 
extension in order to address these security-related concerns, such 
considerations should be given the highest priority. The Institute has 
suggested that beyond the NERC Critical Infrastructure Protection 
Reliability Standards, additional security standards to be investigated 
include ISA99/IEC 62443, NIST Special Publication (SP) 800-53, and the 
work of AMI-SEC.\37\ The Institute also suggests examining 
harmonization of several of these standards in order to provide 
additional protection to the bulk-power system. Commission staff will 
monitor Institute activities with respect to Smart Grid cybersecurity 
and physical security in order to fully coordinate the Commission's 
regulatory objectives and responsibilities in this arena. The 
Commission seeks comments on this proposed approach to maintaining 
bulk-power system reliability and security as smart grid technologies 
are deployed and integrated.
---------------------------------------------------------------------------

    \37\ ISA99/IEC 62443 represents a suite of standards for 
industrial automation and control system security. NIST Special 
Publication (SP) 800-53 involves security controls for federal 
agencies, including those who are part of the bulk-power system 
(e.g., Tennessee Valley Authority, Bonneville Power Authority). The 
Advanced Metering Infrastructure (AMI) Security Task Force (AMI-
SEC), is defining common requirements and standardized 
specifications for securing AMI system elements.
---------------------------------------------------------------------------

Communication
    32. The second cross-cutting issue is the need for a common 
semantic framework (i.e., agreement as to meaning) and software models 
for enabling effective communication and coordination across inter-
system interfaces. An interface is a point where two systems need to 
exchange data with each other; effective communication and coordination 
occurs when each of the systems understands and can respond to the data 
provided by the other system, even if the internal workings of each 
system are quite different. A core group of standards initiated by the 
Electric Power Research Institute provide the basis for addressing this 
issue--these standards are IEC 61970 and IEC 61968 (together often 
referred to as the ``Common Information Model'' standards) and IEC 
61850. These standards have been cited by both the Utility Perspective 
Paper, as well as the Institute's recent Smart Grid Issues Summary.\38\ 
This group of standards was designed to allow different systems to talk 
to one another as well as to provide software development tools for 
more efficient system integration. This suite of standards is already 
in use by a number of utilities for enterprise system integration 
(enabling integration across ``intra-system'' interfaces). Indeed, 
while additional work on these standards will also help intra-system 
communication and coordination, we agree with the OpenSG Subcommittee 
and the Institute that inter-system interfaces should be a priority.
---------------------------------------------------------------------------

    \38\ See infra n.32.
---------------------------------------------------------------------------

    33. The Commission is not mandating that these particular standards 
be further developed. Rather, we identify them here to establish 
priorities for further development by the Institute and industry. The 
group of standards initiated by the Electric Power Research Institute 
serves as a foundation for developing a complete set of communications 
standards. These standards require some level of harmonization with one 
another and other standards, and extensions to these standards will be 
required for additional interoperability and functionality. Efforts to 
coordinate and/or harmonize these standards with others intended to 
promote interoperability should be encouraged. For example, ongoing 
efforts to coordinate IEC 61968 with ``MultiSpeak'' developed by the 
National Rural Electrical Cooperative Association should be continued. 
But these standards represent the best work to date and will be an 
essential building block in realizing the most significant early 
benefits for the bulk-power system. These standards are also key to the 
attainment of renewable power and climate policy goals and can help 
enable customers to manage their energy usage and cost. The Commission 
seeks comments on this proposed approach.
Four Priority Functionalities
    34. In addition to the cross-cutting issues discussed above, the 
Commission seeks comments on the four Smart Grid functionalities that 
the Commission's preliminary analysis indicates will be most helpful in 
addressing the bulk-power system challenges and should be given 
priority in the standards development process.
Wide-Area Situational Awareness
    35. Wide-area situational awareness is the visual display of 
interconnection-wide system conditions in near real time at the 
reliability coordinator level and above. The wide-area situational 
awareness efforts, with appropriate cybersecurity protections, can rely 
on the NASPInet work undertaken by the North American SynchroPhasor 
Initiative (NASPI) and will require substantial communications and 
coordination across the RTO and utility interfaces. We encourage the 
RTOs to take a leadership role in coordinating the NASPI work with the 
member transmission operators.
    36. Regarding the potential Smart Grid role in addressing 
transmission congestion and optimization of the system, increased 
deployment of advanced sensors like Phasor Measurement Units will give 
bulk-power system operators access to large volumes of high-quality 
information about the actual state of the electric system that should 
enable a more efficient use of the electric grid, for example through a 
switch from static to dynamic line ratings. However, such large volumes 
of data present challenges in the form of information processing and 
management. Advanced software and systems will be needed to manage, 
process, and render this data into a form suitable for human operators 
and automated control systems. The Institute's process should strive to 
identify the core requirements for such software and systems that would 
be most useful to system operators in addressing transmission 
congestion and reliability.
Demand Response
    37. Smart Grid-enabled demand response is a priority because of its 
potential to help address several of the bulk-power system challenges 
identified

[[Page 13158]]

above. Further development of key standards would enhance 
interoperability and communications between system operators, demand 
response resources, and the systems that support them. In order to 
achieve an appropriate level of standardizations, a series of demand 
response ``use cases'' should be developed using readily available 
tools.\39\ In this regard, we encourage a particular focus on use cases 
for the key demand response activities discussed earlier: dispatchable 
demand response load reductions to address loss or unavailability of 
variable resources and the potential for dispatchable demand response 
to increase power consumption during over-generation situations.
---------------------------------------------------------------------------

    \39\ The ``use case'' is a concept from the software and systems 
engineering communities whereby a developer, usually in concert with 
the end user, attempts to identify all of the functional 
requirements of a system. Each ``use case'' essentially describes 
how a user will interact with a system to achieve a specific goal.
---------------------------------------------------------------------------

    38. It also appears that achieving such demand response 
capabilities will require additional standardization of the interfaces 
between systems on the customer premises and utility systems, including 
addressing data confidentiality issues. The Institute notes that 
considerable work has been done to develop demand response standards. 
One standard, Open Automated Demand Response (OpenADR) (developed for 
the interface between the utility and large commercial customers) has 
already been referred to the Organization for the Advancement of 
Structured Information Systems (OASIS). OpenADR has been developed by 
the Lawrence Berkeley National Laboratory, and is now going through a 
formal standards development process being coordinated between OASIS 
and the Utility Communication Architecture International User 
Group.\40\ Accordingly, we would encourage a focus in this area as 
well.
---------------------------------------------------------------------------

    \40\ The Utility Communication Architecture International User 
Group has also been developing OpenHAN, a specification for the 
energy services interface between the home area network (HAN) and 
the utility. Both OpenHan and OpenADR will benefit from the planned 
extensions of IEC 61850 and the common information model standards 
described above.
---------------------------------------------------------------------------

    39. Specifications for customer meters are within the jurisdiction 
of the States, but it is clear that communication and coordination 
across the interfaces between the utility and its customers can have a 
significant impact on the bulk-power system, particularly as new 
renewable power and climate policy initiatives introduce the need for 
more flexibility in the electricity grid, which creates the need for 
increased reliance on demand response and electricity storage. A large 
portion of electricity storage may ultimately be located on customer 
premises. As noted in the Institute's Smart Grid Issues Summary, an 
appropriate starting point for further standards development would be 
the harmonization of IEC Standard 61850 and several meter standards, 
namely ANSI C12.19 and C12.22, and we encourage the Institute and 
industry to work together on this suggestion. The Commission seeks 
comment from States and other parties on the optimal approach to 
develop standards in this area, and we will pursue direct 
communications with the States on this topic through the NARUC-FERC 
Smart Grid Collaborative and other NARUC Committees.
Electric Storage
    40. The third key grid functionality is electric storage. If 
electricity storage technologies could be more widely deployed, they 
would present another important means of addressing some of the 
difficult issues facing the electric industry. To date, the only 
significant bulk electricity storage technology has been pumped storage 
hydroelectric technology. However, we are aware that new types of 
storage technologies are under development and in some cases are being 
deployed, and could also potentially provide substantial value to the 
electric grid. While further research and development appears necessary 
before any widespread deployment of such newer technologies can take 
place, it may nevertheless be appropriate to encourage the 
identification and standardization of all possible electricity storage 
use cases at an early stage. There are existing standards that can be 
the starting point for interoperability standards development for DER. 
IEC 61850 addresses communications for DER, and IEEE 1547 has been 
designated as a federal standard for interconnection.\41\
---------------------------------------------------------------------------

    \41\ See Energy Policy Act of 2005, Public Law No. 109-58, sec. 
1254, 110 Stat. 594, 970 (2005), adding a new subsection 111(d)(15) 
to the Public Utility Regulatory Policies Act of 1978 (16 U.S.C. 
2621(d)).
---------------------------------------------------------------------------

Electric Transportation
    41. The fourth key grid functionality is electric transportation. 
As indicated above, to the extent that new electric transportation 
options become widely adopted in the near future, maintaining the 
reliable operation of the bulk-power system will require some level of 
control over when and how electric cars draw electricity off of the 
system. At the most basic level, this could be accomplished by 
providing an ability for distribution utilities to facilitate vehicle 
charging during off-peak periods so that this new electric load would 
not increase peak loads and require the development of new peak 
generation, demand response and/or more transmission to urban load 
centers that are being targeted for these vehicles. A more advanced 
implementation could offer vehicle owners the option to voluntarily 
limit their charging to times when variable renewable generation is 
producing power or to permit utilities the limited use of the 
aggregated capabilities of these vehicles for various grid-related 
purposes such as bulk power storage or ancillary services.
    42. Ultimately we would hope for a smarter grid to accommodate a 
wide array of advanced options for electric vehicle interaction with 
the grid, including full vehicle-to-grid capabilities. However, 
assuming full vehicle-to-grid capabilities cannot be achieved 
immediately, we would encourage the Institute's process to focus on the 
development of appropriate standards, or extensions to relevant 
existing standards, to provide at least the minimum communications and 
interoperability requirements that are necessary to permit some ability 
for distribution utilities to facilitate vehicle charging during off-
peak load periods. The Institute's Smart Grid Issues Summary notes that 
the Society of Automotive Engineers (SAE) has developed two draft 
standards, SAE J2836 and SAE J2847, which address communications and 
price signals/demand response respectively. These standards are on the 
SAE 2009 Ballot. Looking forward to the potential provision of 
ancillary services to the grid by electric vehicles, electrical 
interconnection issues must be dealt with along with potential 
expansion of communications ability. To this end, we urge the SAE and 
the automobile industry to plan data communications systems between 
electric vehicles and the grid that are able to be upgraded. We also 
urge the Institute to include electric vehicles in its DER standards 
development.
    43. Several of the preceding paragraphs discuss the development of 
use cases or other standards that appear similar to business practice 
standards development, in order to help shape and identify the 
functional needs that the Institute's technical interoperability 
standards development process will address. Since the North American 
Energy Standards Board (NAESB) has a great deal of experience in 
helping the electric and natural gas industries successfully negotiate 
business practice standards, it may be helpful to the

[[Page 13159]]

Institute to engage NAESB resources in the development of these use 
cases and other business practice-like standards. We seek comment as to 
whether the Institute would be helped by the incorporation of resources 
from other organizations such as NAESB into the development of these 
various business practice-like standards.
    44. The Commission seeks comment on whether the priorities and 
reliability principles articulated above are appropriate, and whether 
there are other priorities or reliability principles that should be 
included in order to address potential challenges to the operation of 
the bulk-power system.

C. Interim Rate Policy: Guidance for Smart Grid-Related Filings by 
Jurisdictional Entities

    45. Given the trends discussed above, Smart Grid policies should 
encourage utilities to deploy systems in the near term that advance 
efficiency, security, and interoperability in order to address 
potential challenges to the bulk-power system. A key consideration for 
utilities when determining whether to adopt such systems will be 
whether they are able to recover the costs of these deployments in 
regulated rates. Another key consideration may involve the potential 
for stranded costs associated with legacy systems that are replaced by 
Smart Grid equipment. Additionally, as the electric system may require 
several of the new capabilities of the Smart Grid before 
interoperability standards have been developed, we recognize the need 
for guidance for jurisdictional entities. Thus, to offer some rate 
certainty and guidance regarding cost recovery issues, the Commission 
is proposing a rate policy for the interim period until final 
interoperability standards are adopted.
    46. FPA section 205 requires that all rates for the transmission or 
sale of electric energy subject to the Commission's jurisdiction be 
just and reasonable.\42\ In evaluating expenses for which cost recovery 
is appropriate, one of the criteria the Commission relies on is whether 
the facilities are ``used and useful.'' \43\ Once interoperability 
standards are completed, the Commission will consider making compliance 
with those standards a mandatory condition for rate recovery of 
jurisdictional Smart Grid investments. For now, we propose as an 
interim rate policy to accept rate filings, including single issue rate 
filings, submitted under FPA section 205 by public utilities to recover 
the costs of Smart Grid deployments involving jurisdictional facilities 
provided that certain showings are made. In other words, we propose to 
consider Smart Grid devices and equipment, including those used in a 
Smart Grid pilot program or demonstration project, to be used and 
useful for purposes of cost recovery if an applicant makes the 
following showings.
---------------------------------------------------------------------------

    \42\ 16 U.S.C. 824d.
    \43\ The general rate-making principle is that expenditures for 
an item may be included in a public utility's rate base only when 
the item is ``used and useful'' in providing service. See NEPCO 
Municipal Rate Committee v. FERC, 668 F.2d 1327, 1333 (DC Cir. 
1981).
---------------------------------------------------------------------------

    47. We propose that an applicant must show that the reliability and 
security of the bulk-power system will not be adversely affected by the 
deployment at issue. Second, the filing must show that the applicant 
has minimized the possibility of stranded investment in Smart Grid 
equipment by designing for the ability to be upgraded, in light of the 
fact that such filings will predate adoption of interoperability 
standards. Finally because it will be important for early Smart Grid 
deployments, particularly pilot and demonstration projects, to provide 
feedback useful to the interoperability standards development process, 
we propose to direct the applicant to share information with the 
Department of Energy Smart Grid Clearinghouse, provided for in the 
ARRA.\44\
---------------------------------------------------------------------------

    \44\ ARRA sec. 405(3).
---------------------------------------------------------------------------

    48. In order to satisfy our first concern about reliability and 
security, we propose that applicants will be required to address the 
security concerns discussed in the previous section on the development 
of key standards. Accordingly, an applicant must show how its proposed 
deployment of Smart Grid equipment will maintain compliance with 
Commission-approved reliability standards, such as the Critical 
Infrastructure Protection Reliability Standards, during and after the 
installation and activation of Smart Grid technologies so the 
reliability and security of the bulk-power system will not be 
jeopardized. An applicant must also address: (1) The integrity of data 
communicated (whether the data is correct); (2) the authentication of 
the communications (whether the communication is between the intended 
Smart Grid device and an authorized device or person); (3) the 
prevention of unauthorized modifications to Smart Grid devices and the 
logging of all modifications made; (4) the physical protection of Smart 
Grid devices; and (5) the potential impact of unauthorized use of these 
Smart Grid devices on the bulk-power system.
    49. Regarding the second concern about stranded Smart Grid 
investment, we propose to require a showing that the applicants have 
made good faith efforts to adhere to the vision of a Smart Grid 
described in Title XIII of the EISA, including optimizing asset 
utilization and operating efficiency. In general, applicants should 
attempt to adhere to the principles of the Gridwise Architecture 
Council Decision-Maker's Interoperability Checklist.\45\ In practice, 
we will place the most weight on an applicant's adherence to the 
following principles: (1) Reliance to the greatest extent practical on 
existing, widely adopted and open \46\ interoperability standards; and 
(2) where feasible, reliance on systems and firmware that can be 
securely upgraded readily and quickly. Adherence to these two key 
principles should minimize the possibility of stranded smart grid 
investment by making it less likely that equipment replacement will be 
required once final standards are approved.
---------------------------------------------------------------------------

    \45\ See Gridwise Architecture Council Decision-Maker's 
Interoperability Checklist Draft Version 1.0, available at http://www.gridwiseac.org/pdfs/gwac_decisionmakerchecklist.pdf 
(Interoperability Checklist).
    \46\ An open architecture is publicly known, so any and all 
vendors can build hardware or software that fits within that 
architecture, and the architecture stands outside the control of any 
single individual or group of vendors. In contrast, a closed 
architecture is vendor-specific and proprietary, and blocks other 
vendors from adoption. An open architecture encourages multi-vendor 
competition because every vendor has the opportunity to build 
interchangeable hardware or software that works with other elements 
within the system. See Gridwise Architecture Council Decision-
Maker's Interoperability Checklist Draft Version 1.0, available at 
http://www.gridwiseac.org/pdfs/gwac_decisionmakerchecklist.pdf. We 
note that Congress recently made utilization of open protocols and 
standards, if available and appropriate, a condition of receiving 
funding from the Department of Energy for demonstration projects and 
grants pursuant to EISA sections 1304 and 1306. See American 
Recovery and Reinvestment Act, Public Law No. 111-5, sec. 405(3) and 
405(8),----Stat.----,----(2009).
---------------------------------------------------------------------------

    50. Regarding the information sharing concern, the following 
information should be shared with the Department of Energy Smart Grid 
Clearinghouse: (1) Any internal or third party evaluations, ratings, 
and/or reviews including all primary source material used in the 
evaluation; (2) detailed data and documentation explaining any 
improvement in the accurate measurement of demand response resources; 
(3) detailed data and documentation explaining the expansion of the 
quantity of demand response resources that resulted from the project 
and the resulting economic effects; (4) detailed data and documentation 
for any improvements in the ability to integrate variable renewable 
generation resources; (5) detailed data and documentation that

[[Page 13160]]

shows any achievement of greater system efficiency through a reduction 
of transmission congestion and loop flow; (6) detailed data and 
documentation showing how the information infrastructure supports DER 
such as plug-in electric vehicles; and (7) detailed data and 
documentation that shows how the project resulted in enhanced 
utilization of energy storage. To the extent that the Department of 
Energy specifies additional criteria for making grants under the ARRA 
for Smart Grid demonstration and pilot projects, the Applicant should 
agree to share information relevant to those criteria as well.
    51. Finally, consistent with the policy of supporting the 
modernization of the Nation's electric system announced in EISA section 
1301, the Commission also proposes to permit applicants to file for 
recovery of the otherwise stranded costs of legacy systems that are to 
be replaced by smart grid equipment. However, an appropriate plan for 
the staged deployment of smart grid equipment, which could include 
appropriate upgrades to legacy systems where technically feasible and 
cost-effective, could help minimize the stranding of unamortized costs 
of legacy systems. Accordingly, we propose that any filing for the 
recovery of stranded legacy system costs must demonstrate that such a 
migration plan has been developed.
    52. The Commission will also entertain requests for rate treatments 
such as accelerated depreciation and abandonment authority (whereby an 
applicant is assured of recovery of abandoned plant costs if the 
project is abandoned for reasons outside the control of the public 
utility) specifically tied to Smart Grid deployments under our FPA 
section 205 authority. Any requests for such rate treatments for Smart 
Grid deployments will need to address all of the concerns discussed 
above for rate recovery and make the same showings described in that 
section. We would also consider applying these rate treatments to the 
portion of a smart grid pilot or demonstration project's cost that is 
not already paid for by Department of Energy funds, such as those 
authorized by EISA sections 1304 and 1306.\47\ To the extent that such 
showings are made, we propose to consider permitting abandonment 
authority to apply to any Smart Grid investments that, despite 
reasonable efforts, could not be made upgradeable and must ultimately 
be replaced if found to conflict with the final standards to be 
approved under the Institute's standards development process.
---------------------------------------------------------------------------

    \47\ To be codified at 42 U.S.C. 17384, 17386.
---------------------------------------------------------------------------

    53. The Commission invites comments on all aspects of this proposed 
interim rate policy.

III. Comment Procedures

    54. The Commission invites comments on this proposed policy 
statement May 11, 2009.

IV. Document Availability

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

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

Appendix A

[[Page 13161]]

[GRAPHIC] [TIFF OMITTED] TP26MR09.000

    Adapted from: Smart Grid Standards Adoption: Utility Industry 
Perspective, OpenSG Subcommittee of the Utility Communication 
Architecture International User Group, and Smart Grid Executive 
Working Group.

[FR Doc. E9-6471 Filed 3-25-09; 8:45 am]
BILLING CODE 6717-01-P