On March 19, 2009, the Federal Energy Regulatory Commission (“FERC”) issued a proposed Policy Statement and Action Plan concerning the development of a Smart Grid to modernize and update the U.S.’ electric transmission system. Receiving a big boost in attention and funding from the recently passed American Recovery and Reinvestment Act, the Smart Grid advancements use digital technologies and enable real-time coordination of information from generation supply resources, demand resources, and distributed energy resources. The focus of FERC’s proposed Policy Statement and Action Plan is on the development of key standards for the interoperability of Smart Grid devices and systems. In addition, FERC has proposed a special rate policy for Smart Grid investments in the interim period before interoperability standards are adopted. FERC is soliciting comments on these proposals, which are due 45 days from publication of this Action Plan in the Federal Register.

Interim Rate Policy

FERC states that the deployment of Smart Grid technologies should not wait until all of the interoperability standards are developed. In the interim period when these standards are being developed and adopted, FERC has proposed that the costs of Smart Grid deployments that demonstrate specific criteria could be recovered in single issue rate filings of jurisdictional entities. Generally, FERC only provides for rate filings that consider all of the utility’s costs when setting rates. In contrast, single issue rate filings allow FERC to reward Smart Grid investments without requiring utilities to open up all their costs to evaluation. The criteria to be used in judging these Smart Grid investments would include: the reliability and security of the bulk-power system not being adversely affected, the possibility of stranded investments being minimized, and information being shared with the Department of Energy Smart Grid Clearinghouse. Smart Grid devices would be considered “used and useful” for purposes of cost recovery in rate filings submitted under Federal Power Act section 205. In addition, FERC would permit entities to file for recovery of the stranded costs of legacy systems that are to be replaced by Smart Grid equipment. Once the interoperability standards have been adopted, FERC will consider making compliance with those standards a mandatory prerequisite for rate recovery of jurisdictional Smart Grid investments.

Interoperability Standards

The Energy Independence and Security Act of 2007 (121 Stat. 1492 – EISA) requires FERC to adopt the interoperability standards and protocols that are necessary to ensure smart-grid functionality and interoperability in the interstate transmission of electric power and in regional and wholesale electricity markets. According to the GridWise Architecture Council, “interoperability” is defined as the ability to: (a) exchange meaningful, actionable information between two or more systems across organizational boundaries; (b) assure a shared meaning of the exchange of information; (c) achieve an agreed expectation for the response to the information exchange; and (d) maintain the requisite quality of service in information exchange (i.e., reliability, accuracy, security). The National Institute of Standards and Technology (the “Institute”) is meant to coordinate and develop a sufficient consensus among the stakeholders on interoperability standards and then refer the matters to FERC for rulemaking proceedings. But, FERC feels there is a growing sense of urgency within industry and government calling for the development of certain Smart Grid standards. In this Action Plan, FERC proposes to prioritize the development of standards for two cross-cutting issues and four key grid functionalities and has released its proposals.

Cross-Cutting Issues

  • 1. System Security: Under FERC’s proposal, a company subject to FERC-approved reliability standards, such as the Critical Infrastructure Protection Reliability Standards, must maintain compliance with those standards during and after the installation of Smart Grid technologies. If they could affect the reliability of the bulk-power system, Smart Grid technologies must address: (a) the integrity of the data communicated; (b) the authentications of the communications; (c) the prevention of unauthorized modifications to Smart Grid devices and the logging of all modifications made; (d) the physical protection of Smart Grid devices; and (e) the potential impact of unauthorized use on the bulk-power system.
  • 2. Communication: In FERC’s view, there is a need for a common semantic framework and software models in order for there to be effective communication and coordination across inter-system interfaces (i.e., the point where two systems need to exchange data with each other). The Electric Power Research Institute has already initiated the development of a group of standards which can serve as a foundation for the development of a complete set of communication standards.

Grid Functionalities

  • 1. Wide-Area Situational Awareness: Wide-area situational awareness involves the visual display of interconnection-wide system conditions in near real time at the reliability coordinator level and above. According to FERC, increased deployment of Smart Grid technology like advanced sensors will give bulk-power system operators access to large volumes of high-quality information concerning the state of the electric system and will lead to more efficient use of the grid. Advanced software and systems are needed to process this data into a form suitable for human operators and automated control systems. Under FERC’s proposal, the Institute should work to identify the core requirements for such software and systems that would be the most useful to system operators in addressing transmission congestion and reliability.
  • 2. Demand Response: In FERC’s view, Smart Grid-enabled dispatchable demand response can help the bulk-power system by load reductions to address loss or unavailability of variable resources and the potential to increase power consumption during over-generation situations. Under FERC’s proposal, to achieve needed standardization, a series of demand response “use cases” (i.e., a developer attempts to identify all of the functional requirements of a system in order to describe how a user will interact with a system to achieve a specific goal) should be developed in these above-mentioned areas. The Institute has already done considerable work on developing demand response standards on the standardization of interfaces between systems on the customers’ premises and utility systems.
  • 3. Electric Storage: According to FERC, even though pumped storage hydroelectric technology is currently the only significant bulk electricity storage technology, new types of storage technologies are under development, such as fly wheels, and it is important to encourage the identification and standardization of all possible electricity storage use cases at this early stage.
  • 4. Electric Transportation: As electric cars appear to be poised to become more widespread in the near future, maintaining the reliability of the bulk-power system will require some control over when and how electric cars draw electricity off the system. FERC therefore wants the Institute to focus on the development of appropriate standards on minimum communications and interoperability requirements for distribution utilities to facilitate vehicle charging during off-peak load periods. Furthermore, the automobile industry and the Society of Automotive Engineers are urged to plan upgradeable data communications systems between electric vehicles and the grid.


As the Obama Administration focuses on upgrading our nation’s energy infrastructure, Smart Grid technologies are poised to play a key role in this modernization effort. To maximize efficiencies, much guidance and standardization is needed. FERC’s proposed Policy Statement and Action Plan is intended to encourage collaborative efforts towards the development of critical interoperability standards that are necessary for the productive growth of the Smart Grid.

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