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Issued March 19, the Federal Energy Regulatory Commission's proposed smart grid policy statement and action plan is designed to provide "guidance to inform the development of a smarter grid for the Nation's electric transmission system focusing on the development of key standards to achieve interoperability of smart grid devices and systems."

As well, the policy statement proposes an interim rate policy until interoperability standards are adopted. "Smart grid investments that demonstrate system security and compliance with Commission-approved Reliability Standards, the ability to be upgraded, and other specified criteria will be eligible for timely rate recovery and other rate treatments." It is hoped that the proposed new rate policy will further encourage development of smart grid systems.

According to the policy statement: "The Commission's interest and responsibilities in this area derive from its authority over the rates, terms and conditions of transmission and wholesale sales in interstate commerce, its responsibility for approving and enforcing mandatory reliability standards for the bulk-power system in the United States, and a recently enacted law requiring the Commission to adopt interoperability standards and protocols necessary to ensure smart-grid functionality and interoperability in the interstate transmission of electric power and in regional and wholesale electricity markets... The Commission intends to use its authority, in coordination and cooperation with other governmental entities, to help achieve interoperability in a timely manner."

There is keen interest in prioritizing the development of key interoperability standards, and in a timely fashion. With the rush to integrate renewable resources into the grid, FERC felt it imperative to propose a targeted acceleration of certain aspects of the interoperability standards process. "The purpose of the policy statement the Commission ultimately adopts will be to prioritize the development of key interoperability standards, provide guidance to the electric industry regarding the need for full cybersecurity for Smart Grid projects, and provide an interim rate policy under which jurisdictional public utilities may seek to recover the costs of Smart Grid deployments before relevant standards are adopted through a Commission rulemaking.

"Specifically, development of interoperability standards for inter-system communication, system security, wide-area situational awareness, demand response, electric storage, and electric transportation should be prioritized and accelerated."

Further, FERC said, it recognizes that a key consideration of public utilities in deciding whether or not to invest in smart grid technologies may lie in the stranded costs associated with legacy systems that are replaced by smart grid equipment. It proposes, therefore, to set a rate policy for the interim period until final interoperability standards are adopted, in order to offer some rate certainty to public utilities going ahead with implementation, and guidance for jurisdictional entities.

Specifically, comments are being sought from the industry in the following areas, as well as "other steps the Commission can take to encourage and expedite the development of interoperability standards and implementation of Smart Grid projects":

• Determining "sufficient concensus". Section 1305(a) of the Energy Independence and Security Act of 2007 (EISA) directs the National Institute of Standards and Technology (NIST) to coordinate the development of a framework that includes protocols and model standards for information management to achieve interoperability of smart grid devices and systems. When FERC is satisfied that NIST's work has led to "sufficient consensus" on interoperability standards, it is then directed by EISA to institute a rulemaking proceeding to "adopt such standards and protocols as may be necessary to insure smart-grid functionality and interoperability in interstate transmission of electric power, and regional and wholesale electricity markets." This may take the form of a number of rulemakings, as individual or suites of standards achieve sufficient consensus.

  FERC, therefore, is looking for comments on what factors it should consider in determining when NIST's work has led to "sufficient consensus", as well as comments and ideas on how to identify and state the adoption of successive waves of interoperability standards. Finally, it also seeks comment as to whether there should be a formal process for parties to seek FERC guidance "if negotiations on certain interoperability standards reach an impasse."

• Cross-cutting issues of cybersecurity and the further development of common information models. While the EISA contains no specific deadline for the creation of interoperability standards, but simply provides for a consensus-based process, there is an increasing sense of urgency both within the government and within industry for a) the development of standards for, and b) the deployment of smart grid technologies generally. With billions of dollars set aside in the American Recovery and Reinvestment Act of 2009 (ARRA) for upgraded, smart transmission lines and smart grid projects, the ticking clock on spending makes the need for standards all that more urgent.

  The fact that a smarter grid would allow two-way communication between the electric system and a much larger number of devices located outside of controlled utility environments commands that even more attention be given to the development of cybersecurity standards," FERC notes in its proposed policy. "Therefore, the Commission proposes to advise the Institute to undertake the necessary steps to assure that each standard and protocol that is developed as part of the Institute's interoperability framework is consistent with the overarching cybersecurity and reliability standards approved by the Commission pursuant to section 215 of the FPA. The Commission proposes to make consistency with cybersecurity and reliability standards a precondition to its adoption of Smart Grid standards. We seek comment on these proposals."

  Further, it notes: "In order to fully incorporate measures to protect against cyber and physical security threats, we also propose to advise the Institute to take the necessary steps to assure that its process for the development of any interoperability standards and protocols leaves no gaps in cyber or physical security unfilled. We are concerned that this could be a particular problem where separate groups of interested industry members independently develop and advocate select standards or protocols for the Institute's consideration. We seek comment on this proposal."

  Finally, FERC also seeks comment on inter-system communication and coordination standards and issues, in order to move forward with a targeted acceleration of certain aspects of the interoperability standards process.

Specifically, FERC proposes to prioritize the development of standards for two cross-cutting issues and four key grid functionalities involving interfaces between utilities [e.g., regional transmission organizations (RTOs) to utilities outside the RTO], utilities and customers, and utilities and other systems (e.g., energy management systems). "These cross-cutting issues and key functionalities are proposed as the first level of work to be accomplished in the interoperability standards-setting process," it says. "The two cross-cutting issues are first, cybersecurity (and physical security to protect equipment that can give access to Smart Grid operations) and second, a common semantic framework and software models for enabling effective communication and coordination at the boundaries of utility systems where these interface with customer and other systems (and hence provide 'inter-system' functionality). The four key grid functionalities are wide-area situational awareness, demand response, electric storage, and electric transportation."

The entire proposed policy statement and action plan has been published on the FERC website, and in the Federal Register. Comments are due by May 10. FERC has also noted it may convene a technical conference for further public input on these issues.