Idea of the Day: Develop a Strategy for Cost Recovery for a National Clean-Energy Smart Grid

February 24, 2009

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Because the benefits of a national clean-energy smart grid are hard to assign to any single group of customers or region, and because beneficiaries are often remote from the site of new transmission, allocating costs widely across all electricity ratepayers within each electrical interconnection will be the most equitable approach and will minimize the cost burden on any single region or segment of the population. This approach is not now available without legislative change.

While the recently passed recovery package included significant investment in smart grid and transmission construction, with $4.5 billion and $6.5 billion in spending respectively, this was a down payment on a change that will require new legislation. Transmission policy enacted by Congress should provide a new mechanism for cost recovery specifically for use in building national clean-energy smart-grid projects, distributing costs to ratepayers throughout an entire interconnection. Also, payments from taxpayers (as distinct from ratepayers) toward building national clean-energy smart-grid projects will help share the costs still more broadly.

Federal incentives for new renewable energy transmission projects should be strengthened— through accelerated depreciation schedules, increasing Private Activity Bond authority for states, or other federal tax incentives—directly involving taxpayers in the fulfillment of the clean-energy, reliability, and national-security benefits of an updated grid. Smart distribution investments warrant public investment due to their broad public benefits. While in most cases transmission projects will be financed by the private sector, some lines will also need public financing or incentives to ensure they are built.

For more on this topic, please see:

• Wired for Progress: Building a National Clean-Energy Smart Grid by Bracken Hendricks