Findings and Recommendations May 2009

Prepared by Tim Thompson President Thompson Smitch Consulting Group

United States Senator Maria Cantwell recently brought together close to 300 national leaders and innovators on Smart Grid technology in Spokane, Washington, to share ideas and develop recommendations to help guide the United States current $4.5 billion dollar Smart Grid investment1, make suggestions on developing a new national energy policy and provide ideas for national and regional Smart Grid applications. This National Smart Grid conference was designed to be different to encourage audience interaction with panels of experts, allowing an interchange focused on identifying gaps, areas of agreement and disagreement. More importantly it was designed to make specific substantive recommendations that can guide our national and regional efforts to build the Smart Grid. Two of our speakers clearly framed the challenges faced in developing the Smart Grid, Our challenge is to lay out the master plan for adding intelligence to our energy system. We need to show that there is a cost-effective path to move from 1950s analog technology to 21st century digital technology. We need to show that tapping the power of silicon and software will make our energy system more efficient and reliable. We need to show how making our electricity grid more intelligent will provide not just more choices but more benefits for ratepayers. - Senator Maria Cantwell, Washington The following morning another speaker called upon the conference participants, to determine their individual needs and desires for the Smart Grid but to remember the teachings of Aristotle and the need to develop a Smart Grid that meets the test of the common good which is essential to meeting the needs of the public. - Father Robert Spitzer, President of Gonzaga University It is in the spirit of the common good and on behalf of the Smart Grid conference participants that we present the following findings and recommendations of the conference.

Global Observations There is a need to start now, implementing existing technology to collect data needed to effectively understand Smart Grid potential and best practices. It is essential we move beyond small-scale support grid pilot projects and focus our innovative and intellectual forces on building a comprehensive local and national Smart Grid. However, we must come to an agreement as a nation and a region on the critical path forward. In many
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The American Recovery and Reinvestment Act of 2009 provided $4.5 billion dollars for Smart Grid investments.

respects, there is no better moment for the nation and the Northwest to embrace the significant challenge of building the Smart Grid. For the Northwest, this generational shift has the potential to position our region for the opportunity to truly transform our energy system, our economy and our environment. The opportunity is great, but the challenge is for us to come together and make critical decisions on the path forward. The Northwest must respond and respond quickly in a creative and reasoned manner to decide the direction of our Smart Grid initiatives. This must be a collective effort - we cannot rely solely on the government, private companies or citizen advocacy groups. The only path is forward and the first steps are up to us. In recent testimony before the House Energy and Commerce Committee, former Vice President Gore provided a clear and challenging definition of the "Smart Grid" concept, The phrase Smart Grid is ...[sometimes] used to describe the distribution of energy and the use of smart meters that give homeowners and business owners a better way to reduce the wasteful use of energy and use efficiency and conservation more effectively. But maybe we ought to call it the Super Grid ...because it essentially has two components. ... [First,] long-distance, low-loss transmission from areas that don't have a lot of people but do have a lot of renewable resources to the places where it can be used. The second feature of it involves the use of data processing, chips, very cheap but very powerful and effective information technologies, to empower the end users to use less and get more, and to sell electricity back into the grid if they put photovoltaic cells on their roof or use small wind or other forms of what's called distributed power generation. The consensus of conference participants confirmed the critical need to embrace this challenging Super Grid concept, particularly the second feature which emphasizes mobilization of data processing and computer applications to empower consumers and enable developers and entrepreneurs to build and market hardware and software that will effectively promote conservation, mine the demand side with better information, provide more control over power usage and achieve essential Smart Grid goals. It will be essential to gather environmental, social and economic data within the context of the triple net bottom line. The measurement of progress towards the environment and energy independence objectives must include: Real and understood metrics for consumers that includes utility cost recovery; Impacts and opportunities for existing and new industry; A roadmap that outlines course, direction, and incentives for technology developers that leads to a sustainable business model; Rate of deployment of new technologies and fuel switching that balances cost, benefit, and technology development; Analyze other economic incentive and market models utilized around the world to gather lessons learned.

There was also a broad consensus that the Northwest region is uniquely qualified to provide the necessary input and leadership for the fundamental changes in technology, industry, public institutions and structures that will be required to fully realize "smart" or "super" grid potential. The Northwest region benefits from low-cost power which provides a unique testbed to perform a true assessment of the costs and benefits of Smart Grid. This low-cost power will serve as the foundation to determine the optimal mix of generation resources, new technologies, and consumer conservation. It will require research and development of storage technologies, optimizing the existing power systems, integrating new renewable resources and leading indicators of consumer conservation preferences and expectations. Smart Grids relationship to energy conservation, power system optimization, and integration of new generation resources, has the potential to serve as the nations primary tool to reach energy independence and climate change objectives. Independent of what regulatory framework emerges, the scale and complexity of the bulk power system coupled with the electrification of the transportation sector all while transitioning to clean fuels will require adaptability and flexibility both of which are inherent to Smart Grid. With the Northwest already primarily fueled by a clean renewable resource (hydro), regional Smart Grid deployment is one step ahead of the rest of the nation and better positioned to test and realize the core attributes of a Smart Grid. Finally, there was general agreement on the following guiding principles: All Smart Grid investments must keep the consumer in mind. FERC Commissioner Phil Moeller focused on a core set of issues to be addressed, including cyber-security and intersystem communication of bulkpower systems with new emerging technologies. Commissioner Moeller also cautioned that consumers are going to have to get used to real-time retail pricing and regulators are concerned with that. In the end, consumer response is essential to the success of Smart Grid deployment and significant efforts must be made to both engage the consumer and determine awareness, interest and involvement as we deploy Smart Grid applications. We must start now, implementing existing technology to collect the data needed to effectively understand Smart Grid potentials and best practices. Over the long term, grid operational information must be more transparent and broadly available. The current system of non-disclosure agreements is too frequently used to hide poor operational performances, making it difficult for competing open access technologies, systems and providers to enter the market on a comparative basis. Smart Grid deployment projects must be supportive of local and national discovery. Reports and information developed through the projects should be rapidly and openly

distributed among all stakeholders nationally in order to advance mutual understanding, support the development of necessary standards and protocols, and develop and refine the business case for Smart Grid elements and establishing best practices. We should implement both a focused short-term strategy (0 5 years) and a longterm strategy (5 25 years) that creates as much policy and regulatory certainty as possible to encourage both public and private investment in the Smart Grid. It is essential the U.S. make a long-term commitment to Smart Grid implementation. We must examine modifying the public and private utility framework to encourage innovation and examine cost recovery options. We need a common and open platform in order to have Smart Grid elements scale appropriately to meet local, regional and national needs. The environmental permitting processes to modify or create physical infrastructure must be streamlined as technological advances are made to improve the grid. We must address interoperability, grid security, reliability and consumer involvement. We should develop a clear national and regional Pacific Northwest vision to guide Smart Grid development over the next 25 years, including exploring tax incentives for Smart Grid development. We need a metric or scorecard by which to measure our efforts, especially in the area of interoperability where products and systems are expected to gradually transition from the current paucity of interoperability to a robust interoperable ecosystem anticipated by all. We must develop industry standards that reflect the need for transparency and open access and promote innovation and market access. The group agreed that a national interoperability effort was currently underway -- The White House is engaged in an effort led by Secretary of Commerce Gary Locke and Secretary of Energy Steven Chu to bring together stakeholders for a discussion about developing industry-wide standards that will enable Smart Grid to become a reality. However, there was a clear understanding that open access concerns may not be addressed by interoperability considerations and the views of technology developers and innovators such as those at the conference need to be adequately and effectively represented in order to assure that we don't lock in the old and lock out the new. The conference-planning group agreed to put together a first draft of a Pacific Northwest roadmap, which is included at the end of this report.

The Pacific Northwest in particular must mobilize its special expertise in channeling, managing and developing the next generation of technology for the national Smart Grid. We must provide leadership empowered by our special expertise and capabilities.

Recommendations from the Breakout Sessions Research and Development Technological needs and the Role of Renewables Breakout Session Recommendations: Pacific Northwest applications of Smart Grid should lead the nation in demonstrating interoperability standards. The top near-term priority (next 12 months) is to aggressively install as much infrastructure (communications, smart meters, phasor measurement units, smart thermostats etc.) as is feasible to establish the underlying functionality needed to implement Smart Grid activities, recognizing that full build out of Smart Grid capabilities will be years in the making. Target a range of demonstrations on various Pacific Northwest feeders (from 4-8 regional utilities) to experiment with verifying innovative value streams that go beyond traditional demand response targets of peak management and reduced meter reading costs, to provide a rich data, analytical and experience platform that can be relied upon by utilities throughout the region in making judgments and decisions on Smart Grid investments and operational functions. Conduct economic and consumer behavior research to understand the response, user interface and educational needs that will positively engage consumers in Smart Grid. Frame experiments on a range of incentives for consumers to ensure positive outcomes across various regulatory footprints (IOUs, municipalities, co-operatives, etc.) and to demonstrate that we can incent constructive consumer behavior without necessarily deregulating markets or forcing real-time pricing on consumers in regions that are traditionally regulated. Explore innovative decision support tools to help grid operators make improved decisions for reliability, economic dispatch, etc., and to determine the value of resources such as pumped hydro. In addition, explore how to add emerging environmental objectives to the overall management objective of profit. Use the Pacific Intertie and Bonneville Powers leadership in phasor systems to advance a CA/OR/WA/BC implementation of real-time control functions to demonstrate enhanced reliability, system capacity, and asset utilization.

Demonstrate advanced smart charging concepts that mesh with demand response programs in terms of real-time pricing and billing. Examine the Department of Commerce National Telecommunications and Information Administration approach to the American Recovery and Reinvestment Act investment in broadband to ensure that such investments will be compatible with Smart Grid implementations. Examine options to demonstrate new ultra-high efficiency underground High Temperature Superconducting (HTS) transmission lines for transmitting renewable energy over long distances with minimal line losses and environmental impact. Target one or more distribution systems with substantial distribution automation investment to validate the Smart Grid benefits to distributions operations and energy efficiency. This could include new tools for real-time load forecasting and new approaches to settlement and billing. Take steps to assure that information collected by government-funded systems is made available to innovators and consumers on an open and real-time basis. The Business Case for a Smart Grid Breakout Session Recommendations: Key elements and agreements will drive solutions within two years and we should be able to achieve significant benefits that drive additional industry and policy actions on Smart Grid utilization over a longer period of time. Establish open standards and architecture. A national platform for Smart Grid technology programs should seek open standards and architecture. Open standards on security, transportability, access to data, equipment and interoperability should be sought to ensure all partners invest together toward a common implementation, risk and reward sharing for using Smart Grid technology (similar to the telecommunications industry). Transparency. Recognize that we are creating smarter consumers, so there must be transparency in pricing and operational signals to consumers and operators. Data should be generally available in order to facilitate innovation and technology development. Rate-making. Address rate-making changes that utilize decoupling, capitalizing efficiencies and demand response. Rate-making must also be transparent. Define essential foundational elements of Smart Grid. The definition must provide the foundation for making choices about what to do first. Seek an industry agreed upon definition of what Smart Grid encompasses.

Workforce development. The nation and Pacific Northwest region need to promote the development of expertise in critical areas such as power engineering, mechanical engineering and utility operations and maintenance. We need to update our engineering curriculum (example: Gonzaga University Engineering curriculum) and programs along with investing in worker recruiting and retraining programs. We must incentivize workforce development in order to create and fill the jobs that will implement these new technologies. The Role of Smart Grid in Improving Grid Efficiency, Security and Reliability Breakout Session Recommendations: A smarter energy ecosystem will enable improved consumer choices. Electric grid reliability (both at the transmission and distribution levels) is essential to ensure adequate penetration of new renewable generation sources (centrally dispatched and distributed generation) and to enable new consumer services and products (i.e., demand response, electric vehicles). We need to develop new Smart Grid business models for continued investment beyond the current stimulus. We must better define grid (transmission and distribution) reliability requirements through real-time metrics and deploy systems to address the challenges of the future today, including wide area situational awareness and synchrophasors. There may be a need to differentiate the available reliability of different electric grids based on consumer needs microgrids for reliability and security. There must be a continued effort to use existing standards and develop new standards, but this should not impede our progress in deploying the new ecosystem. We must build on what we already have focus on existing solutions including grid reliability solutions (energy and distribution management systems, situation awareness systems), advanced forecasting solutions, interoperability and standards, energy efficiency and smart devices. We must improve demand-forecasting methodologies to optimize new consumer needs (demand response, electric vehicles, etc.). We must address cyber-security issues to ensure that consumers and their data are protected, but we must not impede data transparency, which is key for consumer decision process and participation. We must deploy asset management systems to better utilize existing grid assets for real-time operations and condition-based monitoring for optimal asset performance.

We must address the aging engineer workforce through investment in university engineering programs and further research and development programs and facilities. Other options include advanced knowledge base solutions to capture existing know how for future generations. Energy storage technology development is essential to Smart Grid and will enable further penetration of renewable and distributed generation. The consumer is vital to the success of Smart Grid and we must ensure that electricity prices do not increase unduly or become an impediment to the deployment of a Smarter Grid. We must educate consumers (through scenario planning activities) on potential price increases in electricity due to load growth, fuel and generation scarcity situations. Consumers must be provided with incentives and data (electric price prediction, renewable energy generation patterns, etc.) to participate in energy conservation and improved electricity usage.

Pacific Northwest Smart Grid Road Map Recommendations The time for the Northwest to get started is now! It is essential that the Pacific Northwest come together to present a vision and propose a roadmap and timeline for the implementation of a smarter electric grid encompassing the states of Washington, Oregon, Montana and Idaho. Our unique geographic location, history, natural resources, industry and energy use make the Pacific Northwest an ideal test bed for the development of a next generation electric grid. The current environmental, economic and government impetus provide the necessary drivers towards achieving this objective. Existing state and proposed federal reliability performance standards along with a future greenhouse gas cap and trade regime form an ideal opportunity to develop a sustainable energy ecosystem with the right mix of energy resources to reduce emissions, water usage and foreign energy imports, while creating green jobs and a new green economy. In designing this sustainable energy ecosystem, we are advocating a dual approach from both the utility and consumer ends, with sufficient dialogue of all key stakeholders for convergence. The unique resources of the Pacific Northwest region, including our abundant access to hydro, wave and tidal power, forests, wind and solar for energy, and the Bonneville Power Administration, put us in a strong position to effectively implement a Smart Grid strategy. By applying our innovative Northwest spirit and taking advantage of our natural assets we can seize the opportunity to build a Northwest Smart Grid. However, we must rely on our National Laboratories and our leading industries to help innovate around interoperability standards, open energy platforms, smart metering, advanced weather

forecasting, transmission and distribution hardware, electric transportation and energy storage. To accomplish this vision will require a strong regional public-private partnership forum with involvement from both the state and federal government, and key consumer advocacy groups to develop the Northwest Smart Grid plan of action. We must ask ourselves what is needed in order to build a successful Northwest Smart Grid plan that moves beyond near term demonstration projects to Smart Grid development. The regional forum must be inclusive and create a vision for Smart Grid with broad buy-in from stakeholders. However, the primary role of the forum should be to pose hard questions, facilitate the development of a common vision and most importantly develop a plan of action. Educating all the stakeholders, especially the consumer, on potential benefits, risks and costs will be a vital component of this process. The following is a high-level proposed timeline for a Pacific Northwest Smart Grid deployment: Task Nominate key stakeholders and taskforce Determine key development areas for PNW Smart Grid Survey existing and proposed Smart Grid pilot programs Draft regional Smart Grid vision and strategy Define key metrics for success evaluation Develop regional Smart Grid business case For utilities, consumers and government Determine public-private partnership requirements Develop and deploy initial Smart Grid test beds Leverage Bonneville Powers regional program Assess test bed performance against key metrics Lessons learned and key modifications required Develop incentives and rate case for complete regional deployment Begin complete Pacific Northwest Smart Grid deployment Completion Date May 29th, 2009 June 15th, 2009 June 29th , 2009 July 29th, 2009 August 15th, 2009 August 29th, 2009 January 15th, 2010 July 15th, 2010 October 15th, 2010 January 15th, 2011

Conclusion This conference confirmed that a working group representing the diverse interests and capabilities of the Pacific Northwest Energy Intertie can make a unique and valuable contribution to the national effort to chart the future of the Smart Grid in a way that promotes innovation and achieves conservation, efficiency and energy independence goals, all while reducing the significant risk that federal funds might fail to achieve the fundamental changes necessary to realize Smart Grid's potential. Steve Wright, Administrator of the Bonneville Power Administration made our regional mission clear

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by stating the Northwest should continue leading the way with Smart Grid implementation. The U.S. Department of Energy, the Bonneville Power Administration and all of the Northwestern states need your ideas and recommendations to develop a realistic working public and private partnership and an ongoing forum to discuss issues, provide direction and implement a regional Smart Grid deployment that will serve generations to come. The nation and the Pacific Northwest would be wise to heed ITRON Executive Chairman of the Board LeRoy Nosbaums counsel: Think faster, work harder and there is no choice. We are not running out of time; we are out of time. The challenge and opportunity is before us. There is a clear call for leadership, innovation and action. The only way is forward.

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I want to acknowledge the following people for their vital contributions to this report:

Avnaesh Jayantilal, Areva T & D Terry Oliver, Bonneville Power Administration Gordon Arbuckle, Patton Boggs Carl Imhoff, Pacific Northwest National Laboratory Jesse Berst, Global Smart Energy Lee Coogan, GridWise Alliance Steve Hauser, GridPoint Dan Pfeiffer, Itron Anjan Bose, Washington State University

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