Gulliver got tied down because he was out of scale with the circumstances of Lilliput.  More and more frequently we see headlines like “Thrust of Power Shortages Generating New Urgency” in several regions of the nation.  Being tied down like Gulliver, as our power regulators are, seems like the inevitable consequence of being in a democracy with competing economic interest vying for favor.  Is this inevitable, or is there a way to think ourselves out of this problem? 

Being the right scale is a classical ideal.  But it’s not very American.  We may want change, but we sure don’t want diminution.  Double the latte, double the fun.  Proponents of “conservation” and “its ecological benefits” are often identified as critics of our way of life calling for uncomfortable, cramped life-styles.  At the same time, there is something of a paradox in this mindset because the hallmark of much of American’s economic success and progress in the last half century has been the result of miniaturization, massive multiplication of productivity, and consumption of resulting goods based on getting more “powerful,” “robust” product results for the buck.

In electric power business (as, by the way, in the surface transportation business), America is grappling with this dichotomy between our expansive mindset, based on 20^th century technologies and the corporate institutions they spawned, and the adaptive recognition of the potential 21^st century technologies and the disruptions in the breaking Business which they spawn.  Our 20^th century solutions all require building more and larger generating and transmission assets, at increasingly massive capital costs.  In some instances even certain proposals for renewable power sources reflect the same mindset:  if we have enough projects and they get bigger, and we invest in their massive transmission hook-up, the US can stay ahead of the ever upwardly increasing power curve, which reflects the disruptive new power demands of 21st century technology.

Approaching this problem in a 21^st century way, the challenge is not to put a cork in the bottle of growth, but to seek to retrofit as many aspects of the power system as possible to minimize the needs for ever more costly infrastructure, with ancillary environmental difficulties.  Thought about in this way, the goal should be not to supplant utilities with many competitors so that they will compete harder and prices will fall (been there, seen the results of this 19th century optimism).  The goal should be to goad systems planners (whether utilities or RTOs) into cost effective strategies which take advantage of emerging technologies whose use enhances net power availability. 

Some gestures in this direction were made by Congress in EPACT 2005 and were modestly built upon further in the language of the recently enacted Energy Act.  States were called upon though amendments to PURPA to assess demand response, advance metering, and smart grids in the light of a series of statutorily specified criteria.  While the outcome of its implementation is not likely to be the next QF revolution, it is instructive to policy makers, developers of products and services, and the utilities (collectively potentially the gatekeepers of change) to assimilate the lessons of FERC’s Demand Response and Advance Metering report, completed last September, as a means of crafting meaningful adaptive response to rising prices and concerns with power scarcity -- not to mention consumer anxiety with rising prices. 

It can be seen in the study that DOE has moved in its definition of “Demand Response” from one exclusively emphasizing a curtailment/austerity standpoint, i.e., changes in electric usage by end use customers from their normal consumption patterns in response to price changes or incentives, to one which recognizes the potential of “energy efficiency” to, in effect,  be a source of additional power available to overall grids.  One example is ISO New England which has adopted FERC-approved rules that allow energy efficiency proposals to be bid into forward capacity markets.  In addition to supporting reliability, New York ISO has demonstrated that operation of demand response can facilitate interstate sales as emergency energy to other regions.

FERC Order No. 890 specifically modified its Open Access Order (No. 888) to allow for the incorporation of demand response in local and regional planning processes, “if they are capable of providing the functions assessed in a transmission  planning process, and can be relied upon on a long term basis.”  The emergence of successful third party corporate aggregators providing demand response via contracts to utilities is an important longer term market development.  However, as the FERC study observed, “the need for greater real time coordination and real time sharing of demand response activities run by ISOs, utilities and unregulated providers” remains a barrier to demand response programmatic success.

That is why FERC is calling for increased attention to advanced metering infrastructure (“AMI”), including:  customer consumption monitoring, record collection, and frequent transmittal to a central collection point, utilizing digital electronic and fixed network communication technologies.  AMI is significant not only because of its potential to provide cost savings resulting from operating efficiencies, it is a key enabling technology for demand response programs.  AMI can also provide utilities and grid operators with the capability to monitor electric usage by an individual or group of customers and thereby perform load control and distribution system operation and maintenance.  Moreover, AMI and smart grids can be expanded to multiple in-home appliances connected together as part of a home-area network (“HAN”), and there is significant utility movement toward AMI systems.  A major debate continues regarding the configuration of HAN-to-AMI systems connections.  Reduced to its basics, that debate whether deploying AMI with connection to HAN switches should make those gateways part of the utility-provided metering solution, or ought to be an activity for competitive third party players. 

This debate leads us back to the core question:  the on-going role of utilities’ adopting the optimal energy use of  their available 20^th century infrastructure to 21st century requirements.  There are, of course, advocates on both sides of the business issue.  A few things are clear.  Because of the intimate linkage of system planning, new capacity sourcing, carbon footprint shrinkage, and the immediate problems of power price and power availability, the nation cannot afford to leave the matter to the extended working of the administrative process over a long period of time.  In particular, the resolution of issues related to the integration of renewables into the existing utility grid should not be allowed to defer or confuse the pressing need so many regions face to deploy energy efficiency solutions.  The issues are complementary:  the right scale for renewables is facilitated by the right scale operation for AMI deployment in utility systems.  Unless as much attention and incentives are given to energy efficiency purveyors as to renewables, inevitably there will be, by default, an influx of non-renewable based central stations with questionable environmental characteristics.  Gulliver will nevertheless be tied down by all of the consequences, and the problem-solving potential of Lilliput will be passed over.

---

ROGER FELDMAN, Co-Chair of Andrews Kurth LLP Climate Change and Carbon Markets Group has practiced law related to the finance of environmental and energy projects and companies for 40 years.  In particular, he has analyzed and executed a wide variety and substantial value of project financings.  He chairs the American Bar Association’s Committee on Carbon Trading and Finance, serves on the Board of the American Council for Renewable Energy, and has been a senior official in the Federal Energy Administration.  He is a graduate of Brown University, Yale Law School and Harvard Business School.