The 2005 Energy Policy Act – What it Means for the Market


For electric utilities across the United States, one of the most far-reaching changes established by the Energy Policy Act of 2005 (EPACT), passed by Congress and signed into law in August last year, is the aggressive action required in the areas of advanced metering and demand response.

For state utility commissions, regulated and unregulated utilities, the new Energy Policy Act sets requirements for time-of-use and demand response capabilities that will lead to the implementation or upgrade of technologies at many utilities in the coming years.

While Section 1252 of the Electricity Title of EPACT 2005 is where the new Federal ratemaking standards reside, they are essentially amendments back to Section 111(d) of the Public Utility Regulatory Policies Act of 1978 (PURPA). Title 16 – Chapter 46 – Section 2621 of PURPA establishes that all state regulatory authorities and all non-regulated electric utilities are required to consider each ratemaking standard established and decide whether or not it would be appropriate to implement such standard.

Section 2612 of PURPA sets the bar for those utilities which must comply with these requirements. The PURPA standards apply to utilities with total sales of electric energy, for purposes other than resale, which exceeded 500 million kilowatt hours during any calendar year beginning after December 31, 1975.


The TS2 FOCUS meter


The Smart Metering Section of EPACT sets out six basic requirements:

National Metering Standard – a requirement that utilities offer and provide customers with time-based rates within 18 months of enactment (August 8, 2005), or in the case of large customers, with capacity credits. There is an accompanying requirement that the utility must provide a suitable meter to any customer requesting such rate, or demonstrate why compliance cannot be achieved. [1252(a)]

Competitive Retailers – customers of competitive retail marketers must receive the same treatment as regulated utility customers. [1252(a)] State Investigations of Advanced Metering and Demand Response – state utility commissions and nonregulated utilities must conduct an investigative proceeding into demand response and advanced metering, initiating it within one year and completing it within two years.[1252(b)]

State Investigations of Advanced Metering and Demand Response – state utility commissions and nonregulated utilities must conduct an investigative proceeding into demand response and advanced metering, initiating it within one year and completing it within two years. [1252(b)]

DOE Demand Response – The Department of Energy (DOE) must submit a report to Congress within 180 days that recommends how to achieve specific national levels of demand response by 2007. [1252(d)]

Annual Federal Assessments of Barriers to Advanced Metering and Demand Response – within one year of enactment, FERC must begin to conduct annual regional assessments of demand response resources and the penetration of advanced metering and other technologies, and identify any barriers to adoption. [1252(e)]

Official US Policy – the bill states that it is the official policy of the US to encourage demand response and adoption of devices which enable it, including advanced metering. [1252(f)]

 Smart Meter - 120V


According to Section 1252(a), each electric utility – including investor-owned utilities, municipal utilities and electric co-operatives, or third-party marketers selling energy to retail electric customers – must offer a timebased rate schedule to each of its customer classes, and all utilities must also provide a time-based meter to individual customers who request one. A time-based rate schedule is one in which the rate charged by the electric utility varies during different time periods and reflects any variance in the utility’s cost of generating and purchasing electricity at the wholesale level.

Time-based rates and meters must be offered within 18 months of enactment. Each state regulatory authority must investigate and decide whether it is appropriate for electric utilities to provide and install time-based meters and communication devices to enable customers to participate in time-based pricing rate schedules and other demand response programmes [Section 1252(b)]. Also, each municipal utility and every privately-held electric co-operative must perform the same investigation and decide upon the appropriateness of time-based meters and other devices that allow their customers to be able to choose from time-based pricing rate schedules.

The Act further charges the Secretary of Energy with the responsibility for educating consumers on the availability, advantages and benefits of advanced metering communications technologies, including funding of demonstration or pilot projects [Section 1252(d) & (e)]. The Secretary of Energy is directed to work with states, utilities, other energy providers and advanced metering and communications experts to identify and address barriers to the adoption of demand response programmes. The Secretary of Energy must provide technical assistance to states and regional organisations (formed by two or more states) to identify areas of potential demand response and develop plans to implement demand response programmes among consumers. 

Within one year of enactment of the Act, the Federal Energy Regulatory Commission (FERC) must prepare an annual report, by appropriate region, that assesses demand response resources, including the use of advanced meters and communications technologies; existing demand response and time-based rate programmes; the annual resource contribution of demand resources; the potential for demand response as a quantifiable, reliable resource for regional planning purposes; steps taken to ensure that in regional transmission planning and operations, demand resources are treated equitably as a resource relative to the resource obligations of any load-serving entity, transmission provider or transmitting party; and regulatory barriers to improved customer participation in demand response, peak reduction and critical period pricing programmes [Section 1252(e)].

Capitol buildings - Washington DC



The Act creates new standards and requirements for utilities and states to meet. These provisions provide flexibility to states regarding the details of interpretation and implementation. Typically with such federal law, the onus is on the state or utility to demonstrate why they should not have to meet the new standards, or why they are not aggressively interpreting them. The states are required to undertake a process that produces specific findings to support their decisions. This is particularly true of advanced metering, where a separate provision requires each state to conduct an investigation.

The Act establishes different requirements for FERC and DOE, including the areas of demand response and advanced metering. First, within six months, DOE must send a demand response report to Congress with national targets. Second, the annual assessments that FERC is required to perform could prove to be important drivers for getting each region to focus on the technologies that are in place or are needed to be able to increase demand response in that region. Put together, the subsections of the Smart Metering Section create a large body of new law and policy for demand response and its enabling technologies, including advanced metering.


There were several important activities that got underway towards the end of 2005 related to implementation of the smart metering requirements. The Department of Energy solicited recommendations by November 22 from the public on how regional entities, states, utilities, and consumers, as well as the federal government, can advance demand response within the next year and beyond. On December 5, comments were due to have been received by the FERC in response to their Notice of Proposed Voluntary Survey and Technical Conference dated November 3. On December 19, comments were due to FERC on their follow-up smart metering and demand response Comment Subject Areas, which was the focus of the January 25, 2006 Technical Conference held at the FERC headquarters.

State regulatory bodies are also moving forward. The California Public Utilities Commission continues its efforts to be at the forefront of smart metering and demand response by urging proceedings along in the three investor-owned utility advanced metering infrastructure (AMI) rulemaking cases. The Pacific Gas & Electric case in chief litigated in late February 2006 and the San Diego Gas & Electric and Southern California Edison cases have completed pre-deployment phases; their deployment cases will follow as well. The State of Oregon has started a rulemaking proceeding, as has the State of Texas and the State of New York. In addition, the State of Louisiana, in early December 2005, announced a rulemaking docket on smart metering.


States are given the significant responsibility to investigate and re-examine smart metering capabilities and standards. This is not a singular process that will reside only within the boundaries of the state public utility commissions. As the provision is meant to cover all electric utilities, this process should follow two paths simultaneously. For all investor-owned utilities, the state public utility commission will be host to a rulemaking or similar proceeding to address the Act directives and establish a forum for discussion, debate and an ultimate determination. If a state has already started a proceeding, it may attempt to show how that proceeding is in compliance with the federal Act. If a state has not begun a proceeding, then there is a process to start one.


For all those utilities not under PUC oversight, the process to review opportunities for time-variant pricing tariffs and smart meters, while similar to the IOUs, will be unique. The process of investigation will fall to whatever ‘oversight body’ exists for that utility. An oversight body could be a governing board of directors, a city council, or some other entity entrusted with the management of that non-regulated utility. However, just as in the case of the IOUs, the elements of the process to be undertaken are exactly the same. What makes this Act and its implementation unique is the fact that these oversight bodies will sit as pseudo ‘public utility commissions’ and will be responsible for accomplishing the same goals and objectives as the  commissions. This process will demand that each utility examines its operations and proceeds in an objective manner to fulfil the requirements of the Act.


Over the course of the next several months, it will most likely be up to the utilities, working in collaboration with the commissions, to come up with a process that works and that everyone can agree upon. There is also an opportunity for the technology community to participate in the pre-process activities, as well as the process itself, to help support a sound effort – one that will lead to better smart metering implementation.

The commission or governing body, either as a component of their smart metering rulemaking or as a stand-alone proceeding, must also make decisions about time-variant pricing tariffs and deployment of smart meters to support them. Again, this is a prime opportunity for the utilities and technology companies to work in partnership with the appropriate entity, and to make smart decisions that are in the best interest of the consumer, the utility, and the commission or governing body.

Finally, the Act presents opportunities for funding these policy changes. The Department of Energy has been directed to be a resource for the states that need or would like help to look into the benefits of advanced metering technology and support in the creation of demand response programmes that would be successful in those states. Utilities of any type can request federal support as well as utility commissions.

For those of us who have been working on smart metering and demand response issues for some time, the smart metering requirements in the Energy Policy Act of 2005 provide what we see as definitive, proactive language that directs parties as to what they ‘shall’ do.

To some, the new requirements have been read to create only options for electric utilities. I believe that as far as smart metering and demand response are concerned, the Act’s language shows uncharacteristic clarity. It speaks directly of a real process for utility commissions and oversight bodies to implement, in which utilities and other interested parties can participate.

While some of the nation’s electric utilities and utility commissions have certainly started the process of examining the smart metering requirements of the Energy Policy Act of 2005, the next few months will see a continued stream of substantial regulatory activity, as other utilities and public utility commissions determine what next steps to take.

The two meters on page 31 represent the old and the new – the Westinghouse Round Type 1897 and Landis+Gyr’s TS2 FOCUS meter are separated by over 100 years.