Editor's note: Paul Alvarez, a consultant with deep experience evaluating smart grid performance, recently told us why we should switch to performance-based regulation and then suggested a better way to do smart grid cost recovery. In this final installment of his series, Paul addresses some of the more common smart grid performance metrics regulators are requesting and offers interesting perspectives for Smart Grid News readers.

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By Paul Alvarez

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In previous contributions to Smart Grid News, I’ve made the case for performance-based recovery of IOUs’ smart grid investments. I've suggested they incorporate both rewards (incentives) and risks (penalties) for shareholders. My premise was that capital investment does not make a grid smart; the value comes from the way utilities make use of the resulting new data and capabilities.

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In short, I’ve argued that regulated utilities should be rewarded not for simply making smart grid investments but for maximizing smart grid value (by completing difficult organizational, operational, data utilization and customer-facing changes). I’ve also described some of the more desirable characteristics of performance-based recovery of smart grid costs, including risk/reward symmetry and the appropriate sizing of risks and rewards relative to the size of investments. I also described the approaches that Ohio, Oklahoma, Maryland, and Illinois were using to introduce performance-based cost recovery risks and rewards for IOUs.

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A discussion on performance-based cost recovery leads logically into a conversation about how performance should be measured. Though only a few states are dabbling in performance-based cost recovery so far, several states are requiring IOUs to report on specific deployment and performance metrics. In this final installment in my three-part series I’ll characterize and review some of the more common metrics regulators are requiring of IOUs making large smart grid investments.

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Deployment metrics

Some of the most common types of metrics relate to deployment, including cost and schedule. Perhaps the single most common metric measures deployment costs relative to capital budgets or business plans. In many cases, regulators have set caps on smart grid deployment cost, placing utilities at risk for any cost overruns. However, as such caps do not specify associated minimum capabilities, it may be possible for a utility to simply cut back on planned functionality if cost overruns are encountered during the course of a deployment.

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Other regulators are understandably interested in the status of deployments relative to planned schedules. Schedule metrics provide a reference point by which to evaluate deployment costs incurred to date, but are also being used by a few wise regulators to help them anticipate (and perhaps help accelerate) the point in time when smart grid investments can be expected to begin delivering economic, reliability, and customer service benefits. These regulators recognize that customer payback periods can be affected by delays in the delivery of economic benefits as well as by more common concerns about the size of such benefits. The Maryland PSC requires the utilities it regulates to report on almost 90 deployment metrics.

Ongoing (post-deployment) performance metrics

Regulators in California (Rulemaking 08-12-009), Maryland (Cases 9207 and 9208), and Ohio (Case 10-2326-GE-RDR), and legislators in Illinois (Public Act 097-0616), have established ongoing performance metrics for large smart grid deployments by IOUs in their states.  (In California the priorities were established through a multi-stakeholder rulemaking process.) In Illinois, these metrics were not necessarily established to impact utility cost recovery.  Instead, regulators appear to be embracing performance metrics to focus IOUs on certain capabilities regulators deem important. In Ohio, the metrics are in addition to performance-based cost recovery mechanisms related to operational cost savings.  (The Oklahoma Corporations Commission also established performance-based cost recovery based on operational cost savings and was the first in the US to do so.)  The number of ongoing performance metrics required by these states’ regulators in each of a variety of commonly-identified smart grid capabilities is summarized in the nearby table.

Table: Post-deployment performance metrics by state and smart grid-related capability

*”Other” examples:

·   California:  PEV rate participation; Distributed Generation MW/MWh; Storage MW/MWh; HAN penetration; Load Factors by customer class; Percentage of circuits with automated or remote controls; Demand Response program impact; Direct Load Control program impact; Percent of customers accessing/authorizing access to usage data.

·   Illinois:  Uncollectible expense; Percent of spending with minority-/women-owned businesses.

·   Maryland:  Customer Awareness (4); Community outreach (6); Customer Satisfaction (2); O&M savings (4).

·   Ohio:  Distribution headcount (3); Manual Meter Reads/Routes/DCs (4); Vehicle Management Costs (2).