U.S. utilities scramble for smart-grid stimulus cash

HOUSTON Fri Sep 18, 2009 1:35pm EDT

A tree and power lines are silhouetted as the sun sets in Los Angeles on January 19, 2009. REUTERS/Mario Anzuoni

A tree and power lines are silhouetted as the sun sets in Los Angeles on January 19, 2009.

Credit: Reuters/Mario Anzuoni

HOUSTON (Reuters) - With more requests than money, the U.S. Department of Energy faces the tough task of allocating more than $4 billion among hundreds of utilities that want to modernize the country's aging electricity grid.

Like bees to honey, utilities of all sizes are swarming a DOE program offering stimulus money to create a "smart grid" with systems offering consumers control over energy use, utilities an ability to shorten power outages and wind and solar power generators more access to power-hungry cities.

As the contest for the federal grants heats up, utilities are left guessing how the DOE will prioritize the requests. Many worry that if the funds are spread too thinly, the program may do little to meet its ambitious goal.

"Shovel-readiness may be the No. 1, No. 2 and No. 3 criteria for the DOE," said Steve Mitnick, a partner with Oliver Wyman's energy and utility consulting practice.

"There is so much political pressure on the administration to demonstrate that stimulus money is being spent for a good purpose," he said.

Smart-grid technology includes a variety of initiatives, from advanced meters that allow two-way communication between utilities, customers and -- eventually -- household appliances, to substation and power line devices that automatically isolate transmission faults and increase power flow.

Talk of the benefits emerged after the massive August 2003 blackout that left millions of people in the U.S. Midwest, Northeast and Canada in the dark for several days.

Utilities aim to invest billions of dollars in smart-grid projects and the Obama administration hopes to accelerate this activity to create jobs sooner with stimulus money from the American Recovery and Reinvestment Act.

But many utilities may wind up empty handed.

Roughly 565 applications are competing for $4.5 billion in smart-grid money, DOE spokeswoman Jen Stutsman said.

The bulk of the grants -- $3.3 billion -- to be awarded under the Smart Grid Investment Grant program will go to utilities for meters and grid upgrades, while $615 million will go to demonstration projects to identify new technology.

About 430 applications are competing for the investment grants and 135 for the demonstration grants, DOE said.

A dozen large U.S. utilities, including American Electric Power, CenterPoint Energy and Consolidated Edison, are asking for more than $2.6 billion.

That exceeds the $2 billion earmarked for "big" grants of $20 million to $200 million. Utilities seeking less than $20 million will share $1.3 billion. Applicants can request up to 50 percent of their cost, Stutsman said.

DOWNPAYMENT ON MODERNIZATION

The DOE views the grants as a down payment on grid modernization, she said.

"The key role is in spurring private-sector investment in smart grid technologies that can increase the reliability, efficiency and security of the country's electric system," Stutsman said.

Mitnick said the DOE "is looking for projects where the stimulus money made the difference between nothing happening or going slow versus something big."

However, the ability to create jobs quickly varies greatly among the applicants, he said.

Some utilities have begun smart meter installations after getting state approval while others are just studying their options and may not be ready to order equipment.

On the flip side, some applicants may be "too ready" to qualify for a grant, Mitnick warned.

"If you have a project that is being funded locally and it's not clear that the stimulus money made a difference, I think that could be subject to tremendous criticism," he said.

Given the overwhelming response, the DOE is likely to award grants to a mix of large, small, public and investor-owned utilities showcasing a variety of advantages the smart grid can offer, said David Owens, executive vice president of Edison Electric Institute, a utility trade group.

But since most worthy applicants face rejection, EEI hopes Washington will extend the program with additional cash.

"We think there's a legitimate argument that the government should look at this program not as a one-time event, but sustainable over time," Owens said.

Consumers will also need to be brought up to speed, Owens said. "This is going to be evolutionary; people won't see immediate benefits overnight," he said.

(Additional reporting by Scott Disavino in New York; Editing by Jeffrey Jones)

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