Grid Boom? The Impact of EPAct

Good news can be as dangerous as bad news.

If you’re not prepared for good times, they can overwhelm you and leave you worse off than before. The Energy Policy Act of 2005 (EPAct) may create a new era of grid renewal. That’s good news for the country, but bad news for vendors and utilities who are unprepared.

Vendors that aren’t ready will have to stand by as competitors grab market share. Utilities that aren’t prepared may be unable to satisfy demands from customers for new services and demands from regulators for new reliability standards. They may also be unable to find qualified employees. With a growing demand and a shrinking supply of talent, late-comers will go begging.

Ironically, the first person to predict a U.S. grid boom was an executive from a Chinese company. He had asked our firm for help in entering the U.S. market. He had studied EPAct and he was convinced the country was going to see a boom in both transmission and distribution.

Now I’m hearing similar sentiments from U.S. colleagues as well. Indeed, if all the transmission projects now proposed are approved, new construction will jump nearly 100% over previous levels.

The Impact of EPAct

Like many of you, I greeted EPAct with a sigh of disappointment. It seemed a mish-mash of random clauses with no coherent framework. I continue to think the U.S. needs a bold, unified national energy policy. But I’m beginning to believe that some of EPAct’s measures may be enough to tip the teetering grid modernization snowball down the hill, especially in concert with all the other forces in favor of growth.

Which measures are most important? Not necessarily the ones you would first expect. In fact, the two most important clauses don’t directly reference grid renewal or construction. And some of the clauses that do address transmission directly may prove to have relatively little impact.

On the next page, I’ve listed six EPAct areas with brief comments on their relevance to the Smart Grid. (Plus a link to a good overview of EPAct from the National Electrical Manufacturer’s Association.) I urge you skim them and to see if you agree they may tip the scales toward rapid expansion. And then to think carefully what that will mean to your company and to your own career. If we are entering an era of growth and change, you will need new strategies, new skills, new priorities and new people. And you need to start right now to have them in place in time.

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EPAct 2005 contains numerous provisions that relate to the grid in one way or another. I listed six of the most important below. I ranked them in order of their ability to stimulate grid modernization and construction.

Electric Reliability Organization (ERO). Creates an organization to monitor and enforce mandatory reliability standards. Stringent new regulations – and big fines for those who don’t follow them – will spur a decade of investment in grid monitoring and automation, not to mention back office systems for recording and reporting.

Smart Metering and Demand Response. Asks utilities to offer time-based rates and time-based meters. Also asks for reports on the national benefits of demand response and the barriers to its adoption. Mandates advanced metering for all federal buildings by 2012. As utilities investigate smart meters and demand response, they discover that the same infrastructure can support grid automation. This triple use makes it much easier to cost-justify. In other words, by obeying the smart metering/DR provisions, utilities gain both information and infrastructure that can be repurposed for grid automation.

Accounting Changes. Reduces the depreciable life of transmission lines by five years, increasing the amount that is deductible each year. Extends a tax deferral provision for companies selling transmission assets to transmission organizations. Requires FERC to provide transmission investment incentives and cost recovery. Although the incentives are not yet fully in place, these changes, when combined with the repeal of PUHCA, will bring more capital and easier funding of new transmission.

Repeal of PUHCA. Does away with the Public Utility Holding Company Act. Will broaden the pool of investors to include private equity groups, financial institutions, and foreign utilities. Will also lower the barriers to creating regional transmission companies.

Transmission Siting. Grants FERC the authority to create “national interest electric transmission corridors.” Also designates FERC the lead agency for siting on federal lands, mandates that federal land agencies expedite approvals, and lets FERC exercise its authority to facilitate transmission to satisfy the needs of distribution utilities. It is still uncertain how many corridors FERC will designate and how willing it will be to push through projects against Not-In-My-Backyard opposition.

Studies and Research. Requires a study of transmission congestion. Requires a five-year program to guide R&D for transmission and distribution. Asks for research and commercial application programs for distributed energy and grid reliability. Asks for a report on the benefits of mobile substations and transformers to restore service in blackouts. Although unlikely to have a short-term impact, these measures should raise the visibility of current chokepoints and problem areas, leading to faster resolution.

   NEMA EPAct Assessment report (PDF)

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