Follow the Money: Stimulus Funding Begins to Flow Into Smart Grid Sector
Author’s Note: This is the first of a two-part series covering how stimulus funding under the American Recovery and Reinvestment Act previously awarded are being used. This first article examines the process for awarding stimulus funding to smart grid projects. The second article, to be included in the February issue, will address how much of the stimulus funding is flowing outside of the United States.
In late October 2009, the Department of Energy (DOE) announced the recipients of the $3.4 billion in stimulus grants under the American Recovery and Reinvestment Act (ARRA). Award selections were announced for 100 smart grid projects that are intended to lead to the rollout of approximately 18 million smart meters, 1 million in-home energy management displays, and 170,000 smart thermostats, as well as numerous advanced transformers and load management devices. The award selections were organized by category: 1) Advanced Metering Infrastructure; 2) Customer Systems; 3) Electric Distribution Systems; 4) Electric Transmission Systems; 5) Equipment Manufacturing; and 6) Integrated and/or Crosscutting Systems. In its announcement, the DOE said the $3.4 billion represented the largest amount of ARRA funding ever made in a single day.
To qualify for the smart grid stimulus grants, applicants were required to at least match federal funding for their projects. With the inclusion of matching funds, public-private investment in smart grid projects should be well over $8 billion, and consumers in 49 states (all but Alaska, which did not have any related applications) stand to benefit. The largest part of the funding, $2 billion, is expected to fund the infrastructure required to support networks of smart meters. Another $400 million is to be used to modernize transmission lines, both to limit the losses during transmission and to allow greater long-distance transportation of power. An additional $25 million is earmarked for the development of smart device manufacturing capabilities.
Along with the $3.4 billion rollout of smart grid funding, the DOE subsequently announced $620 million in additional stimulus award selections for 32 demonstration projects involving new technologies, including large-scale energy storage, smart meters, and distribution and transmission system monitoring devices. Among the largest awardees of the demonstration funding was $75 million to Columbus Southern Power (AEP Ohio); $60 million to the Los Angeles Department of Water and Power; and $45 million to Con Edison.
Following these announcements, in December the DOE also announced $60 million in stimulus funding selections to six entities that will support transmission planning in the country's three electricity transmission interconnections. In the east, the Eastern Interconnection Planning Collaborative received $16 million for the regional transmission operator/utility-based effort, while the Eastern Interconnection States Planning Council (EISPC) received $14 million. Members of the EISPC also include the Organization of PJM States, the Organization of MISO States, and the National Governor's Association. In the west, the Western Electricity Coordinating Council received $14.5 million, while the Western Governors Association received $12 million. The Electric Reliability Council of Texas received $2.5 million and a separate $1 million to work with Texas to coordinate planning with state agencies.
Along with the (mostly) utility companies that received awards from the DOE, there are, of course, a number of technology vendors and other contractors that have either established or are pursuing partnerships with those utilities. While there are a number of leading-edge and interesting projects, just as interesting over the next year will be the attempts to track the money associated with less-obvious projects.
About 30 investor-owned utilities and the same number of municipals were selected as awardees under the $3.4 billion funding, while a few of the cooperative utility projects involved dozens of individual co-ops in different states. Many of the utility projects involve advanced meter installations, while installation of synchrophasor technologies at the transmission level by independent service operators and the Western Electricity Coordinating Council received funding as well.
Initial List of Awardees Selected
The DOE originally planned for three funding rounds in selecting its recipients for the $3.4 billion in available smart grid investment grants, but cancelled the second and third rounds after receiving 431 applications for projects totaling $24.6 billion in the first round.
When the award selections were made last fall, it became considerably clear that the DOE sought to allocate the funding across the entire country, as projects in all but one state received an award (as noted above, Alaska was the only state without a winning recipient). While the majority of the awardees were utility applicants, non-utility selections included the Navajo Tribal Utility Association in Arizona, Whirlpool, Honeywell, retail marketer Reliant Energy, and communications firms Intellon and M2M Communications.
Given that the DOE did not make the submitted applications available for public review, the number of other non-utility applicants is unknown, and details on the selected projects remain rather unclear. Details of the awarded projects are mostly based on public information voluntarily provided by utilities that received an award. In addition to the utilities themselves, dozens, if not hundreds of technology solution companies stand to gain by partnering with utilities for various elements of their smart grid projects. Many of these technology companies may have reached agreements with utilities already.
One observation is that, based on the larger projects selected for stimulus funding, the DOE appeared to focus on integrated smart grid systems and advanced metering infrastructure projects for its awards. However, as much as was learned by the award announcements, many questions remain about how and when the money will be spent. Further, how does the lack of federal funding impact those utilities that did not receive awards, let alone the 2,000 or so utilities that did not seek stimulus funding? The impact of the ARRA federal funding will undoubtedly continue to impact the smart grid sector for some time.
It is likely that awardees of federal funding, especially those pursuing large-scale projects, are presently being courted by hardware and software vendors promising a solution that would be integral to the planned smart grid project. Although the smart grid covers a range of digital devices and software, it is likely that the bulk of the smart grid stimulus grants will be spent on installing new hardware, including 18 million smart meters.
Along with the more traditional vendor solution companies that had previously and already been engaged in smart grid deployment efforts, other companies are now entering the sector as well. Google is a well-documented example of a company not typically associated with the energy sector that is now actively pursuing utility partnerships to incorporate its PowerMeter product, a software tool that can show consumers their home energy consumption data in near-real time. Google is working with smart meter-maker Itron and energy device-maker AlertMe, to ensure its service will work with equipment that utilities are actually installing on customer premises. It has been reported that about 10 utilities, in various stages of their smart grid rollouts, are also testing the service with Google. Certainly Google is not the only example. AT&T is reportedly exploring solutions that would enable consumers to utilize the data coming off their appliances, such as over a gateway or router in the home, which could alert the mobile device if an appliance stopped functioning. AT&T is marketing this functionality to utilities for inclusion in their smart grid projects.
The question of technology obsolescence is not a new concern for utilities pursuing a smart grid project, but it is perhaps accentuated for those who will receive a federal grant award and now need to make specific decisions on system architecture and technologies, sooner than later. What ultimately will be the stand-out smart grid application is still unknown, and awardees face the classic dilemma of what technologies should be installed immediately and which should be delayed for later deployment when the technology has further matured. In fact, some of the utilities pursuing federal funding put project decisions on hold for well over a year while they waited on the outcome of the DOE funding process. In that respect, the award of federal funds has put additional pressure on awardees to make decisions more quickly, so that reimbursement from the award can take place. For those utilities that did not receive these awards, they may ultimately choose a “go-slow” approach as they continue to evaluate and assess appropriate solution options and monitor results from other program efforts.
What Happens Next?
A distinction in DOE funding needs to be made between formula grants and contract grants. Awardees of ARRA stimulus funding typically fall into the category of contract grants, which are significantly more complicated to manage given the associated reporting requirements that the DOE has put into place. Formula grants are cash that go directly into a recipient's bank account, while contract grants must be negotiated with the DOE. Part of the negotiation associated with contract grants requires that the awardee and the DOE agree on milestones and timetables of a given project, and how the funds will be accessed. Typically, recipients bill the DOE for reimbursements over a period of time. As with any federal government interface, this negotiation can be a very lengthy process.
Because an applicant receives an award, it does not necessarily mean that it will actually receive the funds. First, there are certain stipulations that need to be met. For instance, the DOE's funding opportunity indicated that all costs for these awards must be invoiced and paid by September 30, 2015. The timing of that disbursement may or may not correlate with an awardee’s planned project deployment. In addition, there are numerous accounting and reporting requirements associated with the smart grid grant program, typical of a federal government engagement. Some awardees may ultimately decide that the contractual and reporting requirements may cause more complexity and higher program costs than the benefits the award may provide, and may choose to decline the award.
Preparation and submission of reports are required as a condition of smart grid investment grant (SGIG) funding. Federal reporting requirements for SGIG grants fall into three categories: ARRA quarterly progress reports, standard DOE federal assistance reports, and smart grid Programs reports. These three reporting streams are summarized in the Automation Insight newsletter available for download.
Quarterly progress reports submitted to the DOE’s Office of Management and Budget (OMB) are mandated in the ARRA, Section 1512. Quarterly reports will serve as the primary data sources for Recovery Act efforts to ensure transparency and accountability, and will ultimately be posted for public view on Recovery.gov. Not later than 10 days after the end of each calendar quarter, each recipient shall submit a report to the Contractor Officer, or to an address or website designated by the Contracting Officer that contains: the total amount of Recovery Act covered funds received from that agency; the amount of Recovery Act covered funds received that were expended or obligated to projects or activities; and a detailed list of all projects or activities for which Recovery Act covered funds were expended or obligated.
In addition, standard DOE federal assistance reports, which are standard requirements for DOE grant programs, are necessary for smart stimulus funding awardees. While the DOE continues to finalize an official checklist specific to SGIG, requirements are expected to include the following: annual progress report; final progress report; special status report; patent certification; property certification; and annual inventory of federally owned property.
Specific to smart grid deployment, smart grid program reports are required by the SGIG program, as detailed in DE-FOA-0000058. Recipients will be required to submit three specific smart grid program reports:
project reports, which are designed to communicate project status and assessment information to the DOE;
build metrics, which address whether the funded project is going forward as intended; and
impact metrics, which measure the degree to which a project improves grid performance and enables greater customer involvement in decisions about energy consumption.
Clearly, these reporting requirements represent an increase in complexity and resource commitments, which awardees will need to incorporate appropriately into their programs.
Other Factors
Regulatory, shareholder, and other appropriate, local and state governing approvals, will also be a major factor for utilities that receive DOE stimulus funding. Given that state approval may be necessary for cost recovery of the utility’s costs in order to proceed with a project, and the fact that the DOE intends to disburse awarded funds sooner than later, the timing of how some of the awarded projects will roll out remains uncertain, particularly if an awardee encounters delays in its cost-recovery approval proceedings. It should be noted, however, that some awardees (e.g., San Diego Gas & Electric) were able to obtain necessary state regulatory approval in advance of, or simultaneous to, receiving a federal grant selection.
Another concern is the DOE’s own ability to handle the disbursement of the stimulus awards. In an assessment report that was released in December, the DOE’s Inspector General, Gregory Friedman, warned that staffing shortages and other internal weaknesses increase the risk of fraud and could delay the agency's efforts to disburse economic stimulus funds. In his report examining the Energy Department's ability to manage stimulus dollars, Friedman said the agency has made "substantial progress" in identifying risks and strengthening oversight of projects, but it found department offices are still too short-staffed and undertrained to handle such a massive increase in funding authority. The department has obligated nearly half of the funding. The report also noted that cost overruns and schedule delays have been "a recurring problem" at the agency and suggests that more trouble may lie ahead if the agency goes too fast in spending stimulus money.
NEXT MONTH: How much of the stimulus funding is flowing outside of the United States.
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