A Friday policy forum in Washington, DC that explored electricity markets underscored the need for a smarter electricity grid and exposed many of the challenges that lie ahead for grid modernization. The event, “Beyond the Smart Grid: Challenges in the Electricity Markets,” hosted by the Brookings Institution – a D.C. think tank – featured professionals from several different perspectives. Two panels examined the transmission and distribution systems respectively and FERC Chairman Jon Wellinghoff provided keynote remarks. Contrary to the title of the event the panelists had a difficult time getting beyond the grid. 

True to its topic the transmission panel was more high-voltage and covered more ground than the distribution panel. Bill Gaines of Tacoma Power expressed wariness of calls for cost allocation in building new transmission lines, referring to it as “socializing” the lines. However, Peter Huber of the conservative Manhattan Institute argued, ironically, that realistically it was hard to get around that.

There was much talk of the role of federal authorities in transmission line siting. Charles Gray of NARUC, not surprisingly, noted that state and local authorities have worked hard to make the siting process very inclusive. Larry Mansueti of the Office of Electricity Delivery and Energy Reliability of DOE observed that there is a good record of collaboration on siting in the western interconnection and that coordination is easier because there are fewer states involved there. He said it has been more difficult in the east because there are more players and because of cultural - namely north vs. south - differences that have been hard to overcome.

The panelists also spent some time discussing the impact of restructuring on the electricity market, saying that it has had a mixed record at best. Huber contended that the ultimate goal should be a national market for electricity. He also called for a middle ground regarding the current separation of generation and lines, remarking that lines won’t be built without guaranteed generation and vice versa. He gave the example that skyscrapers don’t get built without anchor tenants already in place. He also opined that a meshed, dense grid would be the most resilient against disruption and that a more efficient grid was vital.

The topic of renewable portfolio standards was also discussed with most of the panelists expressing cynicism; though Mansueti did assert that RPSs were the main driver of transmission expansion in the west. However, when he suggested that recent natural gas discoveries may cause the west to revisit more gas-based generation, Gaines countered that RPSs would constrain gas’s growth. Gray also interjected that portfolio standards were a means of government picking favorites when it comes to energy sources.

On that subject the panel was in broad agreement that the government picking favorites was a big threat that should be avoided. Regions and localities should have flexibility in choosing the best options.

The panelists were also agreed that cybersecurity concerns, although real, were not insurmountable and were no reason to impede progress towards a smart grid.

After the panel concluded, a representative of the Rockefeller Foundation briefly described a new foundation initiative to promote an objective and transparent dialogue towards achieving a resilient and green backbone electricity grid. The foundation will reach out widely to stakeholders to get input and plans to have recommendations within six months.

The second panel on distribution was marked by broad agreement among the panelists. Cheryl Hindes of Baltimore Gas & Electric provided an overview of the smart energy pricing pilot project it conducted in the summer of 2008. She said 93% of participants were satisfied with the program and that it reduced peak demand significantly. BGE is in the process of expanding the program to all customers.

A clear theme of this discussion was that the way electricity is priced will have to dramatically change in order for grid modernization to be productive. All the presenters agreed with Richard Morgan of the D.C. Public Utilities Commission that that the pricing of electricity must change in order to get the full benefits of the smart grid. Smart rates will have to accompany smart meters. Morgan also noted that D.C. is looking into decoupling similar to what Maryland is doing. Lisa Wood of the Edison Foundation suggested that energy efficiency and demand response be bid in the wholesale electricity market.

Jeffrey Ross of GridPoint laid bare the essential issue when he stated the key question is how to devise rates that allow consumers to benefit from efficiency while permitting providers to make a return on their investments.

The ability of new technologies to provide better information to providers and customers was also widely discussed. Ross commented that AMI and associated advancements are providing utilities and consumers with helpful visibility into distribution. In a related vein moderator Lynne Kiesling of Northwestern University stated that dynamic pricing and metering will help to identify consumer preferences. Ross and Hindes also said that regulators need to provide providers with flexibility in devising innovative initiatives.

Distributed resources also received a good bit of attention. Morgan argued that distributed generation and microgrids were not a panacea; the size and location of such resources need to be matched with system needs. Ross maintained that the goal should be to attain “grid parity” for distributed generation, and that we are a long ways off from that. There was also much talk about how plug-in electric cars will transform the grid because they will not only take electricity from the grid, but will also store it and have the capacity to give back to the grid at key times. Ross thought that electric cars may become more widespread faster than many now predict because of that.

In his keynote remarks Chairman Wellinghoff touched on many subjects. One was that the need for renewable energy involved three imperatives: the economy, national security, and carbon reduction. In response to a question he also stated that he would like to see FERC receive additional authority to develop standards with utilities to protect the grid from cyber and physical threats.