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Business and Regulatory Drivers for the Smart Grid

With emerging requirements for renewable portfolio standards (RPS), limits on greenhouse 

gases (GHG), and DR and energy conservation measures, environmental issues have moved 

to the forefront of the utility business. The RPS mechanism generally places an obligation on 

electricity supply companies to provide a minimum percentage of their electricity from ap-

proved renewable energy sources. According to the U.S. Environmental Protection Agency, as 

of August 2008, 32 states plus the District of Columbia had established RPS targets. Together, 

these states account for almost half of the electricity sales in the United States. The RPS 

targets currently range from a low of 2% to a high of 25% of electricity generation, with Cali-

fornia leading the pact that requires 20% of the energy supply come from renewable resources 

by 2010 and 33% by 2020. According to a Congressional Research Service report, RPS non-

compliance penalties imposed by states range from $10 to $55 per megawatt-hour. 

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Regional initiatives to cap greenhouse 

gases are also being formalized in the 

West, and in the Northeast,  carbon dioxide 

 cap-and-trade capability has been rolled out. 

Compliance with these environmental poli-

cies will require  signifi cant changes in utility 

operations and considerably greater degrees 

of information management and control.

Many state regulatory commissions have 

initiated proceedings or adopted policies 

for the implementation of advanced meter-

ing infrastructures (AMI) to enable DR. In 

its ruling on October 17, 2008, the Federal 

Energy  Regulatory  Commission  (FERC) 

established a policy aimed at eliminating 

barriers to the participation of DR in the 

organized power markets (independent ser-

vice operators (ISOs) and regional transmis-

sion organizations (RTOs)) by ensuring the 

comparable  treatment  of  resources.  In  this 

ruling, FERC states: “Demand response 

can provide competitive pressure to reduce 

wholesale power prices; increases awareness 

of energy usage; provides for more effi cient 

operation of markets; mitigates market pow-

er; enhances reliability; and in combination 

with certain new technologies, can support 

the use of renewable energy resources, dis-

tributed generation, and advanced metering. 

Thus, enabling demand-side resources, as 

well as supply-side resources, improves the 

economic operation of electric power mar-

kets by aligning prices more closely with the 

value customers place on electric power.”

 

Among other things, the order directs RTOs 

and ISOs to accept bids from DR resources 

for energy and ancillary services, eliminate 

penalties for taking less energy than sched-

uled, and permit aggregators to bid DR on 

behalf of retail customers. 

The  reliable  supply  of  electric  power 

is a critical element of our economy. The 

new operating strategies for environmental 

compliance, when combined with our aging 

 transmission and distribution infrastructure, 

challenge the security, reliability, and quali-

ty of the electric power supply. When imple-

mented throughout the system, intermittent 

energy resources, such as wind, will greatly 

stress transmission grid operation. The dis-

tribution  grid  will  be  stressed  with  the  in-

troduction and, perhaps, rapid adaptation of 

on-site solar generation as well as PHEVs 

and plug-in electric vehicles (PEVs). Plug-

in vehicles could signifi cantly  increase the