Overview of : Issues for Regulators

Chuck Goldman, Staff Scientist Electricity Markets and Policy Group Lawrence Berkeley National Laboratory

Thailand Energy Regulatory Commission Workshop

Lawrence Berkeley National Laboratory 1 Overview of Presentation

• Defining a “Smart Grid” • Identify potential benefits of Smart Grid • Establish a vision of smart grid • Discuss several key Regulatory Issues 1) Metering choices and roll-out 2) Empowering the Customer a) b) Rates and Pricing Policy

3) Smart Grid Implementation Strategy: Pilot programs or Transition Plan

3/5/2012 2 Smart Grid: Overview

Smart Grid is System Integration

The Smart Grid is a system of information and communication applications integrated with electric generation, transmission, distribution, and end use technologies which will :

Promote [1] enable consumers to manage their usage and chose Customer Choice the most economically efficient offerings

Improve [2] use automation and alternative resources to maintain Reliability delivery system reliability and stability, and

Integrate [3] utilize the most environmentally gentle renewable, Renewables storage, and generation alternatives.

3/5/2012 3 Service Provider Defining SmartGrid Bulk Power Bulk Power Generation    Periodic billing Power flows from the Centralized generation Transmission Bulk Power Bulk Power Cumulative Usage The ExistingUtility Grid utility tothecustomer //024 3/5/2012 Distribution Power Power Customer Devices Energy Bill Service Provider Bulk Power Bulk Power Generation Defining SmartGrid Alternatives Generation     Customers enabledwithsmartappliances T&D system instrumented with Power flows bothdirections b Power Generation alternativesaddedthroughoutthesystem Smart Grid – Adding Generation and Sensors and Generation Adding Smart Grid– Transmission Bulk Power Bulk Power Sensors Cumulative Usage Alternatives Generation etween the utility andcustomer sensors and switches //025 3/5/2012 Distribution Power Power Sensors Sensors Alternatives Generation Customer Devices Energy Bill Service Provider    Bulk Power Bulk Power Generation Defining SmartGrid mr rd–Adding Communicationsand Information Smart Grid – Alternatives Demand-side responserequiresautom Expert systems monitor/reactto power Information flowslinkallsystemelements Generation Price, Reliability,Histor Event Signals, Interval readings, voltage, Interval readings, Customer Authorized Usage and Billing Information Transmission Bulk Power Bulk Power Sensors Alternatives Generation outage and otherinformation outage //026 3/5/2012 ical Usage, Information Alerts, Other ated transactions andcoordination. flows, balance supply anddemand Distribution Power Power Sensors Sensors Alternatives Generation Customer Devices Energy Bill Defining Smart Grid

Current Utility Utility in future Feature System with Smart Grid • Utility obligation to • Utility Obligation to connect all customers Obligation to Serve serve and serve some loads

• Centralized • Resources • Thermal dominates • Renewable emphasis

Transmission / Two Way Power Flows One Way Power Flow Distribution Micro Grids

Metering- Accumulated Usage Interval Measurement Measurement

Rates (Pricing) Rates not Pricing Actionable Prices

Customer Role Passive Active

3/5/2012 7 There are many visions *

Regulator Utility Customer

Cost Effectiveness, Cost Recovery Value, Privacy Economic Harmony, Equity  ..expand the infrastructure for moving electricity from where it is generated to where it is needed  ..accommodate distributed energy from local areas and,  Make the grid ‘smart’ so that it can monitor and balance the load,  ..capitalize on a massive national fleet of clean plug-in cars.

* 's 'Unified Smart Grid' vision for the USA - will it happen?, November 8, 2008, http://blogs.zdnet.com/collaboration/?p=160

3/5/2012 8 Smart Grid Vision: High Level Questions?

1. What problem(s) are you trying to solve: manage future costs, improve reliability, or integrate renewables ?

2. Which customer(s) are you trying to serve: society, end-user (rate payer), or the utility ?

3. How is the “Smart Grid” different from what you’ve already been doing ? 4. What are the smart grid costs and benefits of implementing Smart Grid?

5. Where do you start and what information do you need to proceed: [1] Pilot programs or [2] a Transition Plan ?

3/5/2012 9 Societal Benefits ?

Claimed Societal Benefits Attribute Realistic ? 1 Dramatic reduction in tailpipe emissions 1-6 ? 2 Reduction in imports of >50% 1-5 ? 3 Reduction in peak loads – lowering prices for consumers 2, 3, 5 ? 4 Improved grid reliability 4-6 ? 5 Increased grid security 4-6 ? 6 Positive environmental impact 1-7 ? 7 Enable new products, services and competitive retail markets 3? 8 Anticipate and respond to system disturbances (self-heal) 4-6 ? 9 Perform continuous self-assessment, respond faster by 4-6 ? supplementing human operators. 10 Operate resiliently against attack and be less vulnerable to 4-6 ? natural disaster 1. PHEV’s 2. Advanced Metering 3. Dynamic Rates 4. Sensing 5. Automation 6. Expert Systems 7. New Technology

Sources: Industry presentations and publications, see Slide #9.

* Smart Grid Technical Advisory Project, Lawrence Berkeley National Laboratory 10 Consumer Benefits?

Claimed Consumer Benefits Attribute Realistic ? 1 Equivalent of $1.00 per gallon for gasoline 1? Provide prices and opportunity to buy when KWh prices are low 2 2-7 ? and sell when high 3 Home back-up power and mobile resource 1, 2-7 ? Protecting against power losses and avoiding costly interruptions 4 2-7 ? and spoilage 5 Reducing the cost of electricity during peak power periods, 2-3 ?

6 Customer choice from products to services 2, 3 ? 7 Enhanced system reliability 2, 3 ?

8 Enable active participation by consumers 2, 3, 5, 7 ? 9 Power quality at different prices 2, 3, 5 ? Consumers access to information, control and options that allow 10 2, 3, 5, 7 ? them to better manage energy and environmental costs 1. PHEV’s 2. Advanced Metering 3. Dynamic Rates 4. Sensing 5. Automation 6. Expert Systems 7. New Technology

Sources: Industry presentations and publications, see Slide #9.

* Smart Grid Technical Advisory Project, Lawrence Berkeley National Laboratory 11 Utility Benefits?

Claimed Utility System Benefits Attribute Realistic ? 1 Minimizing energy transmission losses 7? 2 Improving the efficiency of the electricity grid. 2-7 ? 3 Increased efficiency of power delivery 2-7 ?

4 Extended asset life ??

5 Seamlessly integrate generation and storage options [2,3,5] [4-7] ? 6 Operate efficiently to improve load factors, lower system [2,3,5] [4-7] ? losses, and improve maintenance. Grid operators have new resource options to provide energy, 7 [2,3,5] [4-7] ? capacity and ancillary services

1. PHEV’s 2. Advanced Metering 3. Dynamic Rates 4. Sensing 5. Automation 6. Expert Systems 7. New Technology

Sources 1. The Smart Grid – Benefits and Challenges, EEI Annual Convention, J.Miller – Modern Grid Strategy Team, June 16, 2008 2. What will the Smart Grid Look Like ?, A Vision for the Smart Grid., DOE Office of and Energy Reliability, June 2008. 3. Miscellaneous public reports, press releases, presentations, and private sources.

* Smart Grid Technical Advisory Project, Lawrence Berkeley National Laboratory 12 Key Smart Grid Regulatory Issues ?

1) Metering choices and roll-out 2) Empowering the Customer a) Demand Response b) Rates and Pricing Policy c) Interoperability 3) Smart Grid Implementation Strategy: Pilot programs or Transition Plans 4) Improving System Reliability? 5) Standards – Security and Privacy

* Smart Grid Technical Advisory Project, Lawrence Berkeley National Laboratory 13 Why is metering important to Smart Grid ?

1. Electric meters provide an information link between the utility system (supply) and customer (demand) 2. Meters with integrated communication capabilities are expected to provide essential smart grid functions, including:  More timely usage and status information to the utility to support customer service inquiries, expedite outage detection and restoration, and supplement distribution system volt/VAR management  More timely usage information to the customer  Support more informative rates, pricing, and demand response

3/5/2012 14 Smart Grid metering choices?

Advanced Metering Traditional Meters Infrastructure

1 2 Standard kWh Remote Metering Advanced Meters Smart Meters Electromechanical [AMR] kWh Cumulative kWh Cumulative kW Interval kW Interval or TOU

Enhanced Communication Communication Network Network

HAN Gateway

Remote Service Switch Remote Service Switch [connect / disconnect] [connect / disconnect]

Meter Data Enhanced Meter Data Management Management

3/5/2012 15 Metering

What is so smart about a “”?

IEC Meters ANSI Meters

3/5/2012 16 Metering

E. Service D. HAN Gateway Switch Transceiver (s)

C. Utility Network A. Metrology Transceiver (measurement) B. Computing & Memory

3/5/2012 17 Differences Between Advanced and Smart Metering

 Advanced Meters: a utility-owned or leased communication system that links interval meters at each customer site with back-office meter data management, billing, and other utility application software.  Smart Meters: Advanced meters with an integrated service switch, HAN gateway, enhanced two-way communications network, and enhanced back office Meter Data Management, Demand Response and Price signaling software.

. HAN [ home area network ] - communication system(s) within the customer facility that link consumer-owned communicating devices including thermostats, pool pumps, appliances, distributed generation sources, gateways, routers, entertainment devices, health monitors, fire, security and other applications.

. Service Switch: a switch that allows the utility to remotely: (a) disconnect and reconnect the customer’s electric service and (b) establish a demand limit, which if exceeded will disconnect the customer’s electric service.

3/5/2012 18 Meter-related Policy Issues

1. Establishing a business case [costs and benefits] 2. Advanced vs. Smart Meters? 3. Targeted vs. system-wide implementation 4. Health issues: EMF radiation 5. Privacy – who owns the data ?

* Smart Grid Technical Advisory Project, Lawrence Berkeley National Laboratory 19 Defining Demand Response

Demand Response: Changes in electric use by demand-side resources from their normal consumption patterns in response to changes in the price of electricity, or to incentive payments designed to induce lower electricity use at times of high wholesale market prices or when system reliability is jeopardized.

• Who does it?  System operators  Distribution utilities  Governments

3/5/2012 20 Demand Response Typology

• Incentive‐based DR Programs • Time‐based, dynamic rates – Direct Load Control (DLC) – Time‐of‐use (TOU) – Interruptible/curtailable (I/C) rates – Critical peak pricing (CPP) – Demand bidding/Buy‐back – Peak time rebates (PTR) programs (DB) – Real‐time pricing (RTP) – Emergency Demand Response Programs (EDRP) – Capacity displacement Programs (CAP) – Ancillary Services (A/S) market

21 Interruptible Tariffs

• Large customers (e.g. commercial, industrial, institutional) • System operator informs the customer to reduce load by fixed quantity or to a fixed level, customer achieves load reduction • Incentive – Capacity payment ($/kW‐month) * committed load reduction – Energy payment ($/kWh) * actual energy consumption reduced – Reduction in demand charges, bill discounts • Requirements: Interval meter necessary to measure load reduction • Examples: – ~6,600 MW of potential load reductions available in the U.S. from ~25,000 customers – 432 Interruptible tariffs offered by 218 utilities in the U.S. for over ~3 decades How DR Products Align with Electricity Markets

Energy Time of Day‐ahead CPP Efficiency Use Rates RTP PTR

Capacity Markets Energy Markets Ancillary Services

Years Months Day- •System In-day Planning •Operational Ahead Planning •Dispatch Real- •Scheduling < 15 minutes time Time Frame and System Functions Frame and Time

Capacity Energy Bidding Emergency Ancillary Displacement Programs Services

23 Existing DR Resource Potential in the U.S.

Estimated potential as % of 2010 summer 3% 7% 24% 11% 10% 5% 8% 4% N/A Performance of Emergency DR Programs: Summer 2006 Capacity Market

1500 Enrolled Curtailed 1200

900

600 Load (MW) Load

300

0 2 Aug. 18 Jul. 19 Jul. 1 Aug. 2 Aug. 3 Aug. 2 Aug. 3 Aug. 24 Jul.

Zonal Region-wide Zonal PJM CA IOUs ISO-NE NYISO

25 Impact of DR Programs on California ISO System Load

56,000 July 24, 2006 day-ahead forecast 52,000 projected load (without DR) actual load 48,000

44,000 maximum load reduction: 1,191 MW; 2.3% of 1200 system demand 40,000 84%

900 Enrolled 36,000 Actual

32,000 600 CAISO System Load (MW) Load System CAISO 28,000 300 14% 83% Demand Reduct i on (MW)

56% 24,000 0 Demand Bidding Critical Peak Demand Reserves Interruptible Rates Pricing Partnership 0 2:00 4:00 6:00 8:00 10:00 12:00 14:00 16:00 18:00 20:00 22:00 0:00 Time (hour ending) Transitioning DRtoSmartGrid Conventional DR • • • Utility Options Utility Control Technology Incentives Programs Bundled //0227 3/5/2012 Approach toSmartGrid DR Price, Reliability, and Price, Reliabilityand Control Strategies Customer Owned Customer Technologies and Event DataModel Customer Infrastructure Event Signals

Automation Demand Response in a Smart Grid

Static Pricing Dynamic Pricing

Rate Design Flat ‐Tiered Time of Use Critical Peak Pricing Real Time Pricing

Requires Automation

Impacts on End 1 Users

System and Customer 2 Capability to Respond Metering and 3 Communication Needs

3/5/2012 28 Rates and Pricing

• Rate designs and pricing are the integrating link between the physical utility transmission- distribution system and customer

• Rate designs influence the efficiency, demand response, and potential

* Smart Grid Technical Advisory Project, Lawrence Berkeley National Laboratory 29 Rate Design

Defining Dynamic Pricing Six Basic Structures for Firm or Default Service

 Flat energy rates  Flat demand/energy rates Firm  Tiered rates (inclining or declining blocks) Service  Time of use (TOU) rates  Variable peak pricing (VPP) rates  Real time pricing (RTP) rates * Product Overlays

*Most rate structures also include a customer or access charge.

3/5/2012 30 Rate Design

Time-Varying Rate Structures (typical designs)

 Time of Use . Prices for peak, shoulder and off-peak periods established a year in advance  Variable Peak Pricing (VPP)* . A hybrid of TOU and RTP . The on-peak period (hours and seasons) is defined in advance . Peak period prices for the next day are established based on the day-ahead forecast of wholesale market prices  Real-time Pricing (RTP) . Hourly prices change based on system or market conditions on a day-ahead, hour-ahead or real-time basis

*There is also a product overlay known as variable peak pricing which is a variant of critical peak pricing.

3/5/2012 31 Dynamic pricing can be packaged in many ways

Source: California Energy Commission Rate Design

Dynamic Pricing: Product Overlays

 A product overlay can simply be layered on top of the existing firm rate under specified conditions, with no (or minimal) adjustments to the underlying basic firm rate.  Examples: . Interruptible/curtailable (I/C) rates . Direct load control (DLC) . Critical peak pricing (CPP) . Peak time rebate (PTR) . 2-part real time pricing (2-Part RTP)

3/5/2012 33 Rate Design

Are “Smart Rates” Necessary to Achieve Benefits of Smart Grid

 Yes, especially to achieve the potential benefits for consumers: . Rate structures provide price signals. . Price signals link the utility system and customer. . Price establishes the customer value function. . Price enables the benefits of smart grid to be achieved.  Rate design for regulated service is the domain of regulatory commissions

*NIST = National Institute of Standards and Technology

3/5/2012 34 Rates [Pricing] - Issues

Customer Acceptance, Bill Impacts

Dynamic Pricing Default or Voluntary

Integrated Incentives

Customer Understanding Rate Design Facilitate Dispatchable DR Simplification Open vs. Closed Market

Time Differentiated Fixed Costs Wholesale Retail Integration Reliability vs. Congestion DR

* Smart Grid Technical Advisory Project, Lawrence Berkeley National Laboratory 35 Rates and Pricing - Tradeoffs

Interval & f. Cumulative a Communication Metering

TOU, Flat, Tiered Rate Form

DR typically limited to: • Utility programs a • Targeted end-uses • Voluntary participation  Interval metering provides data to support all • Participation payments rate forms. • Utility owned equipment  Communication supports dynamic rate, outage • Utility control strategies management, and customer information options. Direct Control

3/5/2012 Smart Grid Technical Advisory Project, Lawrence Berkeley National Laboratory 36 Rates and Pricing - Tradeoffs

g  Dynamic rates (CPP, RTP) reflect Static Rate b system costs and support DR TOU, Flat, Form Tiered b Dynamic  Default, opt-out rates create a larger market for DR among customers and Rate encourages competitive equipment h Participation c Voluntary, providers to develop enabling opt-in technologies, products and services c Default, opt-out

DR limited to: • Utility programs g  Static rates do not reflect electric power • Targeted end-uses system costs • Voluntary participation • Participation payments • Utility owned equipment and control  Voluntary, opt-in rates can significantly strategies h Who increase utility marketing and Controls transaction costs to enroll customers

3/5/2012 Smart Grid Technical Advisory Project, Lawrence Berkeley National Laboratory 37 Rate Design

Transitioning to a Smart Grid What are the Issues?

How do we transition customers from existing flat and 1 tiered rates to a dynamic rate?

How do we inform and educate customers regarding 2 both the opportunities and risks?

Will technologies be available so customers can 3 automate their response?

What can we do to identify and mitigate potential 4 adverse bill impacts before they create problems?

3/5/2012 38 Rate Design

How do we transition customers from existing 1 flat and tiered rates to a dynamic rate?

 Time Frame Issues: . Education: [Virtual Participation] familiarize customers with rate structure and prices before rate introduction – minimum 6-12 months. . Education: need to provide continuing information on adaptation methods and technologies – ongoing. . Technologies: 3-5 year minimum acquisition cycle for low cost adaptation options and 4-9 years for major appliance and infrastructure options  Rate Design considerations / options . Phase in dynamic rate price differentials over a 3-5 year period. . Opt-out options to hedged flat or TOU rate.

3/5/2012 39 Rate Design

How do we educate customers regarding both 2 the opportunities and risks?

 Pre-Rate Introduction - Shadow Bills [Virtual Participation] . Provides customers with side-by-side comparison of potential bill impacts . Can be supplemented with adaptation and technology information to address opportunities and mitigation  Post-Rate Introduction (ongoing) . Web-based tools and information . Case studies to illustrate adaptation . Technology reviews, case studies, incentives . Shadow bills, cumulative accruing impacts to provide post implementation (purchase) confirmation

3/5/2012 40 Rate Design

Will technologies be available so customers can 3 automate their response?

 Utility provided programs . Can be implemented in 1-2 years . Limits technology options, customer choice, cost . May require subsidies, incentives on top of rate  Non-utility competitive market options . Will require 3-5 years to seed the market . Will encourage multiple technology, service, cost, and customer choice options . May require subsidies or incentives to facilitate implementation and accelerate customer purchase

3/5/2012 41 Smart Grid Implementation Strategy: Pilots or Transition

Pilot Programs – considered “experiments” for testing or gauging short- term customer issues, rates, incentives, or technology options that may or may not lead to deployment.

Transition Programs - staged “implementations” or core deployments that begins with a “base” system and plan for systematic testing, acceptance and expansion with additional components over time.

1. What do you know ? 2. What are you trying to learn or test ? a) Customer acceptance b) Technology / Engineering Performance c) Market / system operation

* Smart Grid Technical Advisory Project, Lawrence Berkeley National Laboratory 42 Smart Grid Implementation Strategy

Attributes Pilots Transition Plans Objective Test and Evaluate Systematic Implementation 1. Tech evaluation 1. Tech implementation Scope 2. Customer acceptance 2. Customer education 3. Cost effectiveness 3. Operational effectiveness Sampling Yes – focus on representation No – focus on operational integration Customer Education Restricted – avoid bias Required – manage response

Duration < 2 years 5 or more years

Back Office Integration No – separate systems Yes – integration objectives

System Operations Separate systems Integrated systems

Regulatory Approach Voluntary participation Default participation or opt-out

Equipment Ownership Utility Utility or customer

Customer Choice Restricted Open

* Smart Grid Technical Advisory Project, Lawrence Berkeley National Laboratory 43 Smart Grid Resources

National Association of Regulatory Utility Commissioners Smart Response Collaborative :* . Smart Grid Introduction [PowerPoint, PDF] Chapter 1. Define Smart Grid Chapter 2. A Smart Grid Vision Chapter 3. Reliability . Customer Interface Issues Chapter 4. Metering [PowerPoint, PDF] Chapter 5. Rate Design [PowerPoint, PDF] Chapter 6. Demand Response [PowerPoint, PDF] . Customer Response Chapter 7. Customer Automation Technologies [PowerPoint, PDF] Chapter 8. Customer Data Access [March 2012] . Security, Privacy, and Standards Chapter 9. Privacy [PowerPoint, PDF] Chapter 10. Cyber Security [Spring 2012] Chapter 11. Standards [Spring 2012] . Transmission and Distribution Chapter 12. Transmission and Distribution [Spring 2012] . Smart Grid Implementation Chapter 13. Transmission [PowerPoint, PDF]

* Chapters include PowerPoint presentations with notes, located on the NARUC web site at: http://www.naruc.org/Ferc/default.cfm?c=3 Smart Grid Resources

National Association of Regulatory Utility Commissioners Smart Response Collaborative :*

Webinars given by Lawrence Berkley National Lab to support State Commission awareness and engagement in the NIST Smart Grid Standards Process:

. Smart Grid Implementation Transition Planning (November 30, 2011: Webinar #7)

. Privacy (June 10, 2011: Webinar #6

. Demand Response (May 4, 2011: Webinar #5) )

. Customer Automation Technology (March 30, 2011: Webinar #4)

. Dynamic Pricing in a Smart Grid World (January 26, 2011: Webinar #3)

. Engaging the Customer (December 16, 2010: Webinar #2)

. Overview of the NIST Standards and Priority Action Plan Activity (December 1, 2010: Webinar #1)

* Recordings of Webinars can be accessed at: http://www.naruc.org/Ferc/default.cfm?c=3 Smart Grid Resources

. Lawrence Berkeley National Laboratory Electricity Markets and Policy http://eetd.lbl.gov/ea/ems/sg.html . Lawrence Berkeley National Laboratory Demand Response Research Center http://drrc.lbl.gov/ . DOE Smart Grid Investment Grant Consumer Behavior Pilots http://www.smartgrid.gov/recovery_act/program_impacts/consumer_behavior_studies . Edison Electric Institute Advanced Metering Infrastructure / Smart Grid http://www.eei.org/ourissues/electricitydistribution/Pages/AdvancedMetering.aspx . National Institute for Science and Technology (NIST) Smart Grid Home Page http://www.nist.gov/smartgrid/ Comparison of TOU and Variable Peak Pricing

Proposed 3-Part TOU

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Wkdy

Wknd Under traditional TOU, the peak, shoulder and off‐peak price would typically be established a year in advance. Proposed VPP

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Wkdy Avg. DA LMP

Wknd Under VPP, the on peak price is set equal to the average day‐ahead wholesale market price for the on‐peak hours

Off-Peak Shoulder Peak Avg. DA LMP

LBNL Smart Grid Technical Advisory Project 47 Pricing Product Overlays: CPP & PTR (Typical Designs)

Design Feature Critical Peak Pricing Peak Time Rebate Resource goal Peak load reductions Same Critical Peak Typically defined in advance Same Period Definitions Event Price Typically defined in advance Same Firm rate + CPP rate designed to PTR not designed to be Revenue be revenue neutral revenue neutral (requires initial Neutrality . Can create windfall gains & losses rate increase to cover rebates) (relative to base . May need revenue adjustments if . Can create windfall gains due to case) all events are not called in order how the CBL is defined to recover required revenue . Can be called only as needed Customer‐specific Required –a major baseline load Not required implementation issue (CBL)

48