Friday, October 29, 2010

Post # 46 - New British Smart Meter Study Shows Continued Consumer Skepticism

Significant smart meter roll-outs are starting in the United Kingdom as part of the Department of Energy and Climate Change's ambitious plan to install smart meters in over 27 million British homes and over 2 million British businesses by 2020. But, as I have noted before (see Post Nos. 41 and 18), significant questions of consumer acceptance and buy-in remain.

This is highlighted again by a recent report by, a UK-based price comparison and switching website that, since 2000, allows consumers to compare prices for a range of energy, personal finance, insurance and communications services. Last August, commissioned an on-line survey of over 5,000 British energy customers by YouGov, the internet-based market research firm. The findings are contained in a report released early this month

The report, “Brits in the Dark About Move to Smart Metering,” makes interesting reading. Among the findings:

  • Only 40% of British consumers know what a smart meter is. An additional 35% have heard the term but don’t really know what it means.
  • While the British government predicts that smart meters will lead to a net savings of £14 a year on energy bills by 2020 – approximately $22.40 – 42% of consumers say this is lower than expected, while 38% think the savings are too small to be of interest.
  • At the same time, 74% of households say they would used the information provided by smart meters to cut down on energy usage and be more efficient.
  • However, 40% have misgivings about the amount of information suppliers will be able to glean though smart meters – and 16% are concerned about how the information will be used.
  • Finally, and perhaps most importantly, just 15% presently welcome the move to smart meters!

The report asserts that while smart meters can create "a golden opportunity to put consumers in control of their energy usage and to allow them to understand the positive impact energy efficiency could have on their bills," those benefits will accrue "only. . .if consumers are on board." The report concludes that industry needs to "start talking to customers." Clearly explaining the role of smart meters will be "vital in securing consumer co-operation when the time comes for the meters to actually be installed."

In the meantime, consumer buy-in clearly has not yet been achieved in the U.K. And, as we know, not in the U.S., either.

Sunday, October 24, 2010

Post # 45 - A Regulatory Critique From a Smart Grid Proponent

This blog in the past has summarized many critiques by smart grid skeptics. In this post, we will discuss a detailed critique of both regulatory barriers and areas of opportunity for grid modernization by a smart grid proponent.

The Galvin Electricity Initiative is a non-profit organization founded by former Motorola CEO Robert W. Galvin to promote grid quality enhance through innovation on "microgrids" – modern, small-scale versions of the centralized electricity system (generally, low voltage distribution networks with distributed energy sources).

The Galvin organization is a smart grid proponent, believing that the smart grid promises to provide customers better and more timely information in order to influence more efficient behavior. At the same time, the organization is concerned that the country’s current regulatory structure, particularly at the state level, may create obstacles to the development of a fully effective smart grid. In that regard, this past week, the organization issued a new white paper, "Smart Grid Issues in State Law and Regulation," that examines electricity laws and regulations to identify both barriers and areas of opportunity for grid modernization.

The Galvin paper focuses on 11 states – California, Colorado, Connecticut, Florida, Illinois, Pennsylvania, Massachusetts, New Mexico, New York, Ohio and Texas – using the nation’s experience with state retail access initiatives as a lens through which the best regulatory practices can be viewed and, hopefully, pitfalls avoided. Looking back, the study concludes that many retail access states relied too heavily on the theoretical promise of free markets but often neglected to make that promise a reality. The states, according to the paper, need to do far more to educate customers and lower the barriers of entry to competitive suppliers.

More concretely, the paper puts forth the following recommendations for policymakers, regulators and other stakeholders:

  1. Customer price signals should reflect real-time costs at the time of actual energy use. Utility incentives should be neutralized between demand- and supply-side resource options by tying profits to energy services provided, not simply kWh sales.
  2. Smart grid investments before the meter should be recovered as fixed costs. The costs of meters and load-control equipment for customer-specific load control should be recovered on a variable basis, either as a variable cost or as part of an energy charge.
  3. The risks associated with the deployment of smart grid assets should be symmetrically allocated so that those best positioned to manage assets and with the most at stake financially have the greatest potential for gain or loss.
  4. All customer-specific data must belong to the customer for use as he/she determines. Aggregate system data should be considered public information.
  5. Smart meters should be installed on a universal basis in order to capture their optimal benefits.
  6. National standards are critical, and it is particularly important that meters and data systems are capable of bi-directional communication with customers and suppliers and can be transferred between suppliers.
  7. Customers must have a specifically enumerated set of rights, including (but not limited to) the right to: (1) confidentiality of personal information; (2) ownership of information; (3) choice of supplier and/or portfolio of supply options; (4) real-time price information; (5) appliance control; (6) install equipment to improve service quality; (7) net metering; (8) subscribe to aggregation of demand; (9) select meter and post-meter devices; (10) avoid asymmetric allocation of risk and reward; and (11) choose level of service quality.
  8. New smart grid products and programs must be evaluated to identify best and worst practices and cut losses for consumers when something has gone wrong.
  9. Utilities should receive appropriate incentives that link earnings to performance and ultimate value to customers, rather than to sales of kWh. These incentives will also induce utilities to innovate.

Wednesday, October 13, 2010

Post # 44 - DOE Weighs In On Smart Grid Privacy

In Post No. 7, I discussed aspects of the Federal Communication Commission's National Broadband Plan (NBP). Released last Spring at the direction of Congress, the NBP is the FCC's plan to improve broadband internet access in the United State. The NBP includes recommendations specifically addressing Smart Grid applications -- including recommendations directed to the U.S. Department of Energy. Among those recommendations are that (a) DOE evaluate consumer data accessibility policies when evaluating Smart Grid grant applications; (b) DOE report on the states’ progress toward enacting consumer data accessibility, and (c) DOE develop best practices guidance for the states.

Last week, in response to those particular NBP recommendations, DOE released “Data Access and Privacy Issues Related to Smart Grid Technologies.” In preparing this report, DOE surveyed industry, state and federal practices with respect to Smart Grid technologies, focusing on the issue of residential consumer data security and privacy. DOE says that smart meters became a "focal point" of the report due to their "ability to measure, record and transmit granular individual consumption.” But the report also notes that a truly effective smart grid will consist of "hundreds of technologies and thousands of components, most of which do not generate data relevant to consumer privacy."

Among the report’s findings:

  • There is considerable consensus that consumer education and flexibility regarding smart grid technologies, as well as the pace of deployment of such technologies, will be critical to their long-term success.
  • Many smart grid technologies generate granular or detailed consumer-specific energy-usage data (CEUD) that could reveal personal details about the lives of consumers, "such as their daily schedules (including times when they are at or away from home or asleep), whether their homes are equipped with alarm systems, whether they own expensive electronic equipment such as plasma TVs, and whether they use certain types of medical equipment." Because data of this nature is both valuable and sensitive, adequate privacy protections are necessary.
  • Utilities should continue to have access to CEUD and be able to use CEUD for utility-related business purposes.
  • There is “almost universal consensus” that consumers should be able to access their CEUD. Moreover, consumers should be able to decide whether and for what purposes, other than the provision of electrical power, any third-party should be authorized to access their CEUD.
  • Although the report focused on residential consumer data security and privacy, many commentators agree that the energy-usage data of commercial or organizational consumers of utilities should be treated as CEUD and commercial or organizational consumers should be able to protect the privacy of their energy-usage data.
  • The deployment of smart grid technologies should be flexible and take into consideration the special circumstances of rural, low-income, minority and elderly electric utility consumers.
  • States should focus on whether, or how, they should regulate the process through which consumer can authorize third-party access to their CEUD.
  • A central "clearinghouse" for available information about practices and information relating to the regulation of the privacy and data protection aspects of the Smart Grid technologies should be created.

DOE's privacy report was release in conjunction with a second report, “Communications Requirements of Smart Grid Technologies,” also issued in response to the NBP. The second report report examines how the communications needs of utilities and the electrical grid are likely to evolve as smart grid technologies become more widely used. This report recommends that to improve overall coordination, utilities and other smart grid constituents should be represented on key federal industry committees that address communications- and network-related security and reliability issues.

Thursday, October 7, 2010

Post # 43 - Blow to ComEd's Smart Grid Program in Illinois

In another potential check to smart grid development, an Illinois state appellate court last week placed a major economic hurdle in the path of Chicago-based Commonwealth Edison Company's smart meter program. Like similar cases before public utility commissions in other states (e.g., Maryland, Hawaii and Ohio), the issue was who should bear the initial cost of smart meter installation and implementation. In ComEd’s case, the utility actually won at the PUC level but lost (for now, at least) at the court house.

Last fall, ComEd received approval from the Illinois Commerce Commission for a one-year Advanced Metering (AMI) Infrastructure piloti.e., a smart meter pilot program. The pilot involved the installation of over 130,000 smart meters in nine towns in the Chicago metropolitan area between last November and last May. Moreover, the smart meter pilot is part of the ComEd’s broader "Smart Grid Innovation Corridor," one of the broadest collections of smart grid pilots in the country. ComEd's overall smart grid pilot involves new technology and implementation approaches in areas such as residential solar power, ComEd's first intelligent substation, distribution automation and electric vehicle charging stations.

To help pay the freight, ComEd asked the ICC to approve a "system modernization project" charge (or SMP rider) to retail customers that would immediately recoup these smart grid development costs. Under Illinois law, the ICC generally is precluded from engaging in so-called “single-issue rate making” – i.e., riders aimed at addressing particular costs elements in isolation from a utility’s overall costs. However, there is an exception for “exceptional circumstances.”

In this case, ComEd argued, the SMP rider was new and innovative and created a mechanism for funding discretionary projects that are not necessary for retail distribution service as such. Further, ComEd argued that the smart meter infrastructure -- the new meters and the necessary computer software and hardware to process the information collected from the smart meters -- were essential “building blocks” for smart grid development.

The ICC approved the SMP rider to the extent limited to smart meter installation costs. With respect to post-installation costs, the ICC ruled that ComEd could re-file the SMP rider to cover additional smart grid investment. However, Illinois Attorney General Lisa Madigan and the Citizens Utility Board, a nonprofit consumer advocacy group, sought judicial review, arguing that the ICC effectively had created precedent for allowing Illinois utilities to add “fees to consumers’ bills to cover costs, such as capital projects and improvements, which are solely in the [utilities’] control.”

On September 30, 2010, the Appellate Court of Illinois (Second District) overruled the ICC. In its opinion, the Court held that:

Rider SMP does not meet the criteria to warrant single-issue ratemaking. The expenses related to [smart meters] and the smart grid technologies. . . are not unexpected, volatile, or fluctuating, as ComEd alone dictates the program's scope and, therefore, its costs. The capital costs associated with [smart meters] and the smart grid technologies are not the result of legislative mandate, but rather are the result of ComEd's decision to innovate to reduce other costs. ComEd can cover the expenses by a fiscal and operational plan that is completely within the utility's control. The [ICC] heard no evidence that the system modernization costs might produce unacceptable financial outcomes if not afforded special treatment.

For ComEd's customers, the ruling means they could be in store for a possible rebate — upwards of $48 million, according to an October 4, 2010 ComEd filing with the SEC. In the meantime, ComEd must reevaluate how best to cover the costs of smart grid development and, according to press reports, the appellate court's decision places the smart meter pilot in jeopardy. ComEd has until November 4, 2010 to appeal the appellate court's decision to the Illinois Supreme Court.

It must be emphasized that the court's reasoning was based entirely on questions of Illinois retail rate making law and did not involve the long term benefits of smart meters or the smart grid. Thus, it could be a mistake to draw any global inferences regarding overall smart grid development. Nonetheless, the court's action highlights a recurring smart grid theme: the product may be great, but who pays?

Sunday, October 3, 2010

Post # 42 - Smart Meters in the Nation's Capital

(UPDATED, 10/23/10) The recently issued final report of a smart meter pilot in Washington, D.C. concludes that residential consumers in the nation’s capital consistently respond to variable electricity prices. But, at the same, a consumer watchdog agency in D.C. worries that a impending smart meter roll out is happening without the necessary consumer education.

The project, PowerCentsDC, ran from about mid-July, 2008 through October 2009, and involved approximate 900 D.C. customers of Potomac Electric and Gas Company – or Pepco – the utility service which delivers electricity to 778,000 homes and businesses in the District of Columbia and its Maryland suburbs. Project participants – who lived in all areas of the city, including low-income neighborhoods – received a smart meter, a smart thermostat (if desired and the residence qualified), and new energy price plans that allow savings for customers who reduce consumption during hours when wholesale electricity prices are high.

In fact, PowerCentsDC was the first pilot in the nation to test smart meters with three different pricing plans. Most participants chose a plan in which customers were charged five times the average price during "critical peak pricing" events, which occurred about 60 hours per year, and offered a slightly reduced rate for the remainder of the year. The second plan was an hourly pricing option that offered peak versus off-peak pricing based on the time of the day electricity was used. The third plan offered rebates to customers who voluntarily curbed their electricity use during peak events. For all three plans, consumers could choose to allow their smart meters to automatically adjust a home's electricity use when notified of a peak event. Consumers were able to find out ahead of time when peak hours might occur via an automated phone message, e-mail, or text, and choose to reduce consumption during those hours. Participants also received a chart illustrating their usage habits with each monthly electricity bill.

The pilot program’s final report, issued early last month, finds that most customers with access to smart meters reduced overall electricity use when presented with their habits and a financial incentive to save. Most would also rather curb usage or face high premiums a few times a year during extreme peak events than worry about keeping track of daily peak and off-peak usage hours. So-called peak reductions in summer were greater than those in winter and most of those peak summer events occurred when daily temperatures rose (according to the report, the fact that summer peak reductions were greater than winter “impl[ies] more discretionary load").

When asked to name the methods they used to reduce consumption during peak events, 60 percent of participants said turning off appliances, while 59 percent said they adjusted the air-conditioning. Only 25 percent said they adjusted their heating system (although it should be noted that 54 percent of the participants had a heating system powered by natural gas).

The results also indicate that people may be more willing to curb electricity use, or face paying an extremely hefty surcharge during peak events a few times a year, rather than curbing electricity on a daily basis during specified peak hours.

Perhaps most important for smart grid proponents, the report found that more than 90 percent of all PowerCentsDC participants ended up saving on their Pepco electricity bills, compared to non-smart meter customers. Further, 93 percent of participants said they preferred using a smart meter and a peak rate system than Pepco's current rate plan.

The PowerCentsDC report thus appears to bode will for Pepco’s D.C.-wide installation of smart meters, which is scheduled to begin this week. But at least on local agency is concerned that things may not be ready for prime-time.

On September 27, 2010, D.C.’s Office of the People's Counsel – an independent agency within the D.C. government charged with advocacy on behalf of consumers of natural gas, electric and telephone services in the Nation’s capital – filed a petition with the D.C. Public Service Commission seeking to suspend the smart meter rollout until the Pepco does more to educate consumers about the program.

The petition is noteworthy because along, with Pepco, the D.C. Peoples Counsel was a sponsor of PowerCentsDC and is not a smart grid opponent. Thus, on the one hand, the D.C. Peoples Counsel supports smart meters to the extent that the technology “empowers consumers to reduce their electric consumption, supports energy efficiency, reduces the District of Columbia's overall electric load capacity, and does not impose a financial burden on seniors, those on fixed incomes and lower income electric utility consumers.”

At the same time, the D.C. Peoples Counsel expresses concern about what it terms Pepco’s “lack of early consumer education about how the smart grid will be deployed, the benefits consumer can expect in the short term as well as any alerting them to potential problems that may occur.” The D.C. Peoples Counsel argues that “the ultimate success of the program is inextricably linked to comprehensive customer education on the front end.”

In a response filed filed with the Public Service Commission on October 1, 2010, Pepco argues that the Peoples Counsel's petition is premature. Noting the success of the PowerCentsDC pilot (and what Pepco describes as successful advance notifications to the project participants), the utility notes that its deployment of new meters commencing on October 4th "is, for now, no more than the exchange of old meters for new ones." The utility asserts that, since none of the "smart" capabilities of the meters will be activated at this time, "it would be imprudent to prematurely promote the advanced features that are not yet available." At the same time, Pepco states that customers are being notified in advance with a letter and fact-sheet. Moreover, "Pepco will interface customers at various community events, train [Peoples Counsel] and Commission staff to respond to Smart Meter questions, and provide educational materials through direct mail, the Pepco website, and various media outlets."

In an October 22, 2010 order, the Public Service Commission denied the Peoples Counsel's petition. The D.C. PSC stated that the D.C. City Counsel already had authorized Pepco's implementation once the company had established sufficient funding -- which it had, from a Depart of Energy stimulus grant. Further, the PSC noted that it already had granted a request by the Peoples Counsel to establish a collaborative Advance Metering Infrastructure (AMI) Consumer Education Task Force to develop a comprehensive educational program to educate D.C. consumers on smart meter implementation. While denying the Peoples Counsel's petition, the PSC directed the AMI Consumer Education Task Force to continue its efforts and to address any problems that may develop among stakeholders.