Tuesday, April 27, 2010

Post # 13 - California Dreamin'

Pacific Gas &Electric remains in the smart meter hot seat in California, coming in for strong public criticism this week at a hearing before the state Senate’s Select Committee on the Smart Grid. PG&E’s $2 billion smart meter program presently covers over 5 million households and is scheduled to expand to nearly 10 million in 2012. But the program has been dogged by complaints of over-billing based on allegedly inaccurate smart meter data. In response, the California Public Service Commission instituted an audit of the company, with results due in the late summer (see Post # 8)

But while the CPUC waits for the audit results, many PG&E customers remain unhappy – and their state legislators are hearing about it. During the Select Committee’s hearing on April 26th, State Senator Dean Florez (D-Shafter) said that many customers are still complaining of skyrocketing costs and bill estimates. He told PG&E that "this is a revolt. The tea party has nothing on smart meters in [California’s] Central Valley." Some consumer advocates, such as The Utility Reform Network, or TURN, are calling for a moratorium on PG&E’s smart meter program until the CPUC audit is complete. For its part, PG&E states that 99 percent of the installed meters have performed without problems. (For more on the state Senate hearing this week, see here and here).

As I’ve blogged before, the problems PG&E has experienced are unlikely to kill the smart meter concept in California – the long-term momentum appears just the reverse. For example, Southern California Edison today announced that it will start installing smart meters throughout communities in Orange County as part of that company’s “SmartConnect” program,” with about 5 million total installations scheduled throughout its service area by the end of 2012.

At the same time, the consumer anger referenced by Senator Florez should not be minimized. And this consumer push-back goes beyond the question of roll-out problems at a particular company. As last week’s Accenture study shows (see Post # 12), consumers around the world are by no means convinced that they will benefit from smart technology – though they may have to pay for it. And there is the further problem of what many consumers view as their lack of empowerment and exclusion from the process. For example, a notice from the local utility that someone is coming over to a customer’s house to install a smart meter may often be that customer’s first real exposure to the whole smart meter concept.

No matter the particular issue – the cost of smart appliances, utility recovery of smart grid costs, smart meter privacy – most smart technology discussions (whether before government agencies, at conferences, or on-line) have been among energy and IT insiders. As long as consumers view smart technology as a mandate effectively being imposed by an alliance of government agencies with their own agendas and private companies with their own profit motives, consumers will be in no mood to hear about overall societal benefits.

Friday, April 23, 2010

Post # 12 - Consumer Resistance to "Smart" Appliances? Accenture Study Suggests "Yes"

An important Smart Grid element is the development of “smart” appliances that would turn on or off automatically as the cost of electricity fluctuates and demand for power rises and falls. The concept is that smart appliances will provide utilities with a tool to manage peak demand (and perhaps lessen the need for new generation); help consumers save money on their electric bills by shifting electric use to lower demand (less expensive) time periods; and, by rationalizing consumer use, perhaps lower overall energy usage.

But will consumers accept smart appliance that effectively cede control over appliance usage to the utility? A report issued this week by Accenture, the global management consulting, technology services and outsourcing company, suggests that this may be a tough sell. Indeed, the report suggests strong consumer skepticism on the key question of whether smart appliances will lead to lower electric bills. The report also implicitly highlights a recurring feature of Smart Grid discussions: those discussions tend to take place in the relatively rarified community of experts, industry participants, investors, and bureaucrats. The general public (a) usually is not involved in these discussions, (b) may not have a full understanding of the concepts, but (c) may have a healthy (and justified) skepticism of how concepts like Smart Grid and demand management will work in reality.

Turning to Accenture's findings – based on a on a global survey of more than 9,000 consumers in 17 countries – the report concludes that consumers are not willing to allow electricity providers to remotely limit the use of their home appliances as part of electricity management plans without significant rate discounts. The report also found that almost half of consumers would be deterred from joining electricity management programs if their electricity bills were to increase as a result. Consumers also have major privacy concerns.

Thus, when asked what would discourage them from using electricity management programs, 46 percent of the consumers surveyed cited higher electricity bills — despite the fact that electricity management programs are designed to reduce usage during peak time rates and therefore lower costs. In addition, 41 percent of the respondents cited as a deterrent their energy provider’s selling, at a profit, the electricity they themselves saved. Thirty-two percent said they would be discouraged from using electricity management programs if it would give their electricity provider greater access to their personal electricity consumption data.

Moreover, only 16 percent of consumers said they would allow electricity providers to remotely limit their use of certain household appliances if they have no option to reverse the action taken by the provider and if no price discount were offered. But price discounts would increase that figure. Thus, 24 percent said they would give utilities such control when offered a price discount of 10 percent, while 35 percent said they would give utilities such control when offered a price discount of 20 percent.

The report also found that while 75 percent of consumers believe they understand the actions they need to take to optimize their electricity consumption, only 28 percent are aware of and understand programs offered by electricity providers to help them do so. Further, only 29 percent of consumers said they trust their electricity providers to advise them on actions they can take to optimize their electricity consumption.

Accenture’s summary of its report can be found here.

Tuesday, April 20, 2010

Post # 11 - Smart Meter Problems Down Under

I meant to blog on this earlier, but the consumer resistance to smart meters that has arisen in the United States (see Post ## 6, 8) also is cropping up in other countries. A notable example recently occurred in Australia, where the government of Victoria – the nation’s second most populous state – has scrapped an ambitious plan to install smart meters in all 2.5 million Victorian homes and small businesses over the next four years.

Late last month, the state’s Energy Minister, in response to concerns that low income groups would be hit hard by higher electricity prices, announced an indefinite moratorium on the rollout. Critics had argued that by facilitating “time of use” pricing, smart meter installation would disproportionately affect the unemployed and the elderly (people who spend a lot of time in their homes). Moreover, some Australian critics have argued that smart meters let local power company shift the cost of overcompensating for peak demand to their less informed and less affluent users. See here and here.

These concerns go considerably beyond the issues raised in Texas and California about smart meter accuracy and privacy, but they clearly are part of the broader question of “consumer versus utility” smart meter benefits. Again, the utility company’s benefit is immediate: once a smart meter is installed at any home or facility, the utility enjoys from day one the benefits of reduced labor costs (no more meter readers going to the facility) and real-time access to that smart meter’s data feed. Conversely, and even putting aside the problem of “bugs” and “gremlins” that can be expected during the initial “shake-down” process for any new and sophisticated technology, the consumers’ benefits appear largely potential and dependent on consumer access to technologies such as smart appliances and the ability of individual consumer to become (in effect) professional energy traders on a small scale.

Given the necessarily intrusive nature of a smart meter at someone’s home, consumer resistance, as reflected in the Victoria moratorium, will likely remain a major feature of the landscape – and not just in Australia.

Sunday, April 18, 2010

Post # 10 - Meanwhile, in Europe. . . .

In a recently posted Smart Grid “Roadmap,” the European Commission – the executive body of the European Union – states that it will consider establishing new smart grid initiatives after first reviewing the findings of a “Smart Grids Task Force.”

EU “Roadmaps” give a first description of a planned Commission initiative and set out the planned impact assessment work, see here. The new Smart Grids “Roadmap,” entitled “Legislative proposal for a regulatory framework on Smart Grids,” can be found on the Commission’s official web page.

The EU’s Smart Grids Task Force, organized last November, is charged with (1) analyzing smart grid functionality and the need for standards; (2) developing proposed regulation on data safety; and (3) preparing the framework for developing intelligent grids. The Task Force’s initial findings are due by June 2010. Pending the conclusions and recommendations, the Impact Assessment for this initiative is scheduled for no later than September 2010, with completion by June 2011.

The Smart Grids “Roadmap” contains four Commission options. First, after reviewing the Task Force’s report, the EU Executive could do nothing. In other words, the EU Executive could leave the specifics of Smart Grid development to the EU’s member states.

Second, the EU executive could issue a communication on the “roles of the actors involved in smart grids deployment” and table recommendations for them. This would also include a monitoring mechanism on deployment at both the national and European level.

The third and fourth options would see smart grids regulated directly under the framework of the EU’s “Third Energy Liberalisation Package.” The Liberalisation Package, published in 2007 and adopted by the EU’s Council of Ministers in 2009, contains proposals for the reform of EU electricity and gas regulatory frameworks. Under the Liberalisation Package’s framework, after reviewing the Task Force report, the Commission could either establish a set of guidelines and specific recommendations for member states on the implementation of smart grids (third option); or develop a new annex for the directives in the package to lay down a European legislative framework and timetable for the deployment of smart grids (fourth option).

The Liberalisation Package itself sets forth a goal that at least 80% of EU consumers should be equipped with intelligent metering systems by 2020. In the meantime, a new research report by Berg Insight says that 96.3 million European households will have smart meters by 2014. That number — and the rate of growth it represents — indicates that the EU-wide target of 80% smart meter penetration by 2020 is well within reach. This also suggests, at least at this point, greater consumer acceptance than in the United States.

Monday, April 12, 2010

Post # 9 - Commercial Smart Technology: Full $peed Ahead With Government $upport?

Who pays for smart technology? At the end of the day, funding likely may come from a combination of taxpayers and ratepayers (often, of course, one and the same). Certainly, industry is pushing in that direction.

Thus, the big smart technology story this month comes from the efforts of The Climate Group, an international coalition (spearheaded by Google) of private companies, governmental units, and environmental NGOs. On April 5th, the Group released an open letter to President Obama, calling on the Administration to adopt the goal of providing every household with real time information about their electricity use. The letter states that “[b]y giving people the ability to monitor and manage their energy consumption, for instance, via their computers, phones or other devices, we can unleash the forces of innovation in homes and businesses." The text can be found here.

The letter recommends that the Administration launch a White House-led research program to work out the best way of providing consumers and businesses with energy use information, while establishing effective privacy rules. The letter also calls for the Administration to direct federal agencies to ensure that the availability of energy data will be part of a wide range of existing low carbon and energy projects, such as home weatherization, energy efficiency grants, appliance standards, home and commercial building programs, and clean technology R&D funding programs.

In fact, the Administration already has signaled strong support for smart grid technologies, earmarking billions under last year's economic stimulus package for the roll-out of some 18 million smart meters. But the Administration has thus far declined to set a target date for the universal roll out of smart meters – or actually call for smart meters installation as a federal mandate.

At the same time, of the over 50 signatories to letter, many – notably, Google, AT&T, Intel, General Electric, Hewlett-Packard, Honeywell, and Verizon – are companies with a vested interest in the development of new smart meter and smart appliance technologies. For example, Google has heavily invested in its recently launched PowerMeter online toolset, a Google Gadget that can be installed on a home computer, providing a graph of how much electricity is being used throughout the day (see here).

This call for federal action, which can certainly be interpreted as a call for government support of commercial applications, highlights once again that, whatever the long-term consumer benefits of smart energy technology, that technology won’t come cheap. And its implementation may well take significant governmental action and expenditure, both here and abroad (e.g., a number of European have set target dates for the universal roll out of smart meters). The $64 question – will ratepayers and taxpayers be prepared to foot the bill? Will they see the consumer benefits, or view smart technology as something that benefits the utilities and large technology companies?

And a parallel question: will industry move forward without the promise of either government funding and/or (in the case of utilities) PUC authorization of recovery through rates of smart technology costs? Certainly, in the case of smart meters, that technology at least is only being installed where State PUCs are authorizing rate recovery.

In that regard, and following up on Post # 8, the California Public Utilities Commission (in a 3-2 vote) gave Southern California Gas the go ahead to bill consumers for installing radio-controlled smart gas meters on six million homes. The massive smart meter project for Southern California Gas, which spans from Fresno to the Mexican border, is expected to cost $1 billion.

Maybe these questions are being answered as we speak.

Monday, April 5, 2010

Post # 8 - The Smart Meter Wars: Consumer Concerns in California As Harbingers of the Future?

As I’ve said before, smart meters are the average consumers’ principal (and most visible) link to the Smart Grid. Creation of a fully operable Smart Grid may well hinge on consumer acceptance of smart meters in their homes. Consumer acceptance, in turn, has at least three elements: (1) information ownership/privacy; (2) consumer confidence that smart meters accurately reflect actual electric usage; and (3) consumer willingness to pay for smart meter installation.

I already have a number of posts up on data ownership/privacy (see Post ## 4 and 5). As for the related “pocketbook” issues of smart meter accuracy and the cost of installation, California is proving to be a major battleground. On the one hand, smart meter installation is probably more advanced in Californiathan in any other state. As of today, the California Public Utilities Commission (CPUC) has authorized the installation of approximately 5.3 million smart meters by Southern California Edison (SoCalEd), approximately 1.4 million electric smart meters and 900,000 natural gas smart meters by San Diego Gas and Electric Company (SDG&E), and approximately 5 million electric smart meters and 4.2 million natural gas smart meters by Pacific Gas and Electric (PG&E), see here.

But this has not come without controversy, particularly with respect to PG&E. To date, the CPUC has received complaints of over-billing – based on allegedly inaccurate smart meter data – from 600 PG&E customers (compared to 10 such complaints from SoCalEd customers and 15 from SDG&E customers), see here.

In response to those consumer complaints (and pressure from California legislators), the CPUC has hired the Structure Group, a utility-consulting firm based in Texas, to conduct an independent evaluation of PG&E’s meters. The contract to Structure is worth about $1.4 million, and will be funded by the CPUC.

At the same time, the cost of smart meter installation, and the question of who pays, may be coming to a head in response to plans of Southern California Gas Company (SoCalGas) to fund a $1 billion smart meter program for its customers. Last month the CPUC’s Division of Ratepayer Advocates (DRA), an independent consumer advocacy division within the agency, has urged the CPUC to reject SoCalGas' application. DRA asserts that the proposed program is not in the best interest of SoCalGas customers, who will allegedly receive only about 85 cents in benefits for every dollar spent on the project. DRA also asserts that the program would raise rates for SoCalGas customers over the next six years. Previously, in February, CPUC Administrative Law Judge Jessica Hecht, who conducted hearings on the company’s application, issued a “proposed decision” recommending that the SoCalGas proposal be rejected. Judge Hecht asserted that the proposal would result in costs exceeding benefits by more than $145 million. SoCalGas disputes the judge's findings, saying that the new project would be slightly in the black at the end of the technology's 30-year life span. Further, in a competing “alternate proposed decision, CPUC Commissioner Dian Grueneich recommended CPUC approval of the project with relatively minor changes (see here and here).

I believe that, in the long run, smart meter installation will roll on in California and many other jurisdictions. But I also think that the smart meter battles in California (and similar battles currently going on in Texas (see Post # 6 and here) are harbingers of rough going for the foreseeable future on the road to Smart Grid “nirvana.” Again, the retail consumer will be the key player, because the consumer is being asked to both foot the bill for smart meter installation and pay bills based on the data that smart meters generate. Retail customers are voters, and smart meter installation will require that the voters believe the benefits will outweigh the costs.