Post # 79 - New York PSC Smart Grid Policy Statement Highlights the Need for Consumer "Engagement"

Last week, the New York State Public Service Commission issued its “Smart Grid Policy Statement," intended to establish regulatory policies and guidelines for utilities to following regarding the development of smart electric grid systems and associated efforts to modernize the electric grid. The NYPSC hopes that its guidelines will “creat[e] the conditions that will allow optimal technology solutions to flourish.” The policy statement also emphasizes the importance of consumer acceptance.

The NYPSC guidelines themselves, which include customer acceptance but of course cover a much broader area, provide as follows:

* In the short term, utilities are to pursue established and reliable technologies that can provide a relatively certain return on investment. In the longer term, the billions of dollars the federal government has provided for smart grid projects nationwide will generate a significant base of knowledge and experience which, along with further development of smart grid standards, will help identify those technologies that are most effective and efficient.

* Smart grid technologies will utilize a hybrid of both public and private networks. Utilities and communication providers should work together to ensure appropriate use of commercial facilities, and to limit utility capital investments in dedicated communications infrastructure.

* Utilities must provide basic information on smart grid to customers who are largely unaware of this technology. Utilities further must provide a thoughtful and comprehensive customer education plan before commencing with implementation of technologies that require extensive customer engagement.

* Smart grid projects must be able to show demonstrable benefits in excess of costs.

* For most smart grid projects, rate recovery will be addressed through traditional means. The Commission will consider risk-sharing mechanisms for novel or unproven technology.

* Utilities can start to develop smart grid plans and projects using the existing industry standards as building blocks.

* Utilities must develop the capability to build and maintain cyber security standards. Utilities will bear the responsibility to ensure that cost-effective protection and preparedness measures are employed to deter, detect, and respond to cyber attacks, and to mitigate and recover from their effects.

* Utilities and third-party providers must protect customer privacy when projects involve the collection and use of customer data.

With specific reference to customer education and “engagement,” the NYPSC policy statement notes that “a large number of customers do not know how the smart grid works.” Thus, the PSC concludes, one benefit of early customer education may be “to refocus the public dialogue about smart grid, which seems to be centered on smart meters. Some customer concerns may be alleviated if they understand that the smart grid is not just about meters.” The PSC calls on utilities to make customers more aware of the steps they have already taken to develop the smart grid in their transmission and distribution networks.

Before commencing with large customer-centered smart grid programs, utilities must lay the groundwork with comprehensive customer education programs. Such educational efforts can increase acceptance, improve utilization, and ease implementation issues, as well as allowing utilities an opportunity to learn more about the services their customers want and are likely to utilize.

The NYPSC adds that customers participating in such programs need to understand their roles and responsibilities, as well as the role of the utility and any third parties. “An important aspect of smart metering is its ability to enable active participation by customers, but customers must be equipped with the knowledge required to participate in a meaningful way.” Customers will need to be actively supported in getting the right information to make informed decisions on their participation, and in acquiring the necessary knowledge and skills to take advantage of smart meter-enabled programs.

The Policy Statement notes customer education programs must also deal candidly with the rate consequences of smart grid capital investments. The PSC believes that if implemented properly, the smart grid can mitigate cost increases, as well as offer customers more reliable and more environmentally responsible service. “[B]ut customers are wary of further rate increases and will have to be educated to have reasonable expectations regarding the potential of smart grid to lower electric bills.”
Ultimately, the PSC holds, the success of demand response depends on convincing people to change how and when they use electricity:

Clear, concise, and relevant information in advance of a project involving new customer tools, information or interfaces is required to ease customer concerns and improve adoption. Influencing customer behavior requires that utilities and third party providers explain and demonstrate to customers the benefits of a proposed smart grid program.

Thus, the statement concludes, “if a smart grid technology relies on customer involvement in order to provide all or some of the anticipated benefits, any utility proposal to deploy such technology must include a plan for how customers will be engaged and should include an analysis on the expected level of customer participation.”

Post # 78 - New Study Has Good and Bad News Regarding Consumers' Attitudes to the Smart Grid

A new study by Market Strategies International, a market research and consulting firm involved with communications, energy and technology issues, finds what it calls good and bad news when it comes to consumer awareness and support of smart grid technologies. In its release announcing the study's results, Market Strategies:

The good news is that a large majority of Americans -- after we give them basic information about smart grid and smart meters -- say it's a priority issue and strongly support the implementation of these technologies by utilities. The bad news is that 72 percent of consumers overall admit they know little about the technologies. Less than a quarter of respondents say they fully understand the concept.

These findings are from the first wave of Market Strategies' on-going 2011 E2 (Energy + Environment) Study. Conducted twice a year, the national survey is designed to gain an understanding of Americans' attitudes and opinions about energy and energy-related issues. The latest version represents the “tenth wave” of this on-going study. A total of 989 interviews were completed May 19 through June 2, 2011 with consumers nationwide. Respondents were recruited via an online panel to reflect key characteristics of the US population. The data were weighted by age, gender, and census region to match the demographics of the US population. (Market Strategies cautions that “due to its opt-in nature, an online panel does not yield a random probability sample of the target population. As such, it is not possible to compute a margin of error or to statistically quantify the accuracy of projections.”).

The updated study finds the level of Americans' smart grid/meter awareness hasn't increased noticeably during the past several years, despite the steady flow of information appearing in media and other outlets. On the other hand, while “general awareness still lags,” Market Strategies believes that “the ready endorsement so many consumers give smart grid/meter -- once it's explained -- speaks volumes about the viability and strong appeal of the technologies and their associated benefits.” Moreover, Market Strategies believes that “it’s important to note that four of the five consumer segments in the energy market support the idea of utilities working quickly towards implementing smart grid/meter technologies." Further, the study finds that “nearly unanimous support for smart grid/meter coming from most of the market's various segments. . . .”

The overall study apparently is not publicly available, beyond what Market Strategies put in its release. Nonetheless, the findings certainly are consistant with with the conclusions of many other studies:
consumer education -- and, more importantly, consumers' belief they will significantly benefit -- will be essential to the ultimate success (or failure) of smart grid development.

Post # 77 - California PUC Adopts New Smart Meter Privacy Rules

In late 2009. the California Public Utilities Commission (CPUC) ruled that the big three investor-owned utilities in California -- Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric -- would have to provide their customers with real-time residential usage data through smart meters by the end of 2011. Last spring, following extensive stakeholder debate, the CPUC released proposed smart meter privacy rules.

Now, in a decision issued last week, the CPUC issued final smart meter privacy rules. Among other things, the rules require the three utilities to:

1. Provide customers with detailed energy usage, bill-to-date, month-end bill forecast, and projected month-end energy price on their websites – updated daily. Moreover, the information must be available with hourly or 15-minute granularity -- matching the time granularity programmed into a smart meter.

2. Provide "tier alerts" via some form of rapid communication (email, tweets, etc.) when customers move from one price tier to the next.

3. Provide a website calculator to help consumers determine if they would save money by switching to a time-of-use rate

4. Allow consumers to authorize third parties to receive their backhauled smart meter data directly from the utility.

5. Set up a program to roll out home area networking devices to be directly connected with smart meters.

The CPUC said that data on energy consumption generated by smart meters and transmitted by the smart grid will prove critical to future conservation and grid management efforts. The CPUC asserts that enabling consumers and companies to assess and act on this information is key to advancing many of California's energy policies, such as promoting conservation, reducing demand in response to grid events and price signals, reducing summer peak demands, and efficiently incorporating renewable energy and electric vehicles into grid operations.

PG&E, SCE and SDG&E will now have six months to implement the requirements. In the meantime, the CPUC will be exploring whether the new rules should also apply to electric service providers (non-utility entities that offer electric service to customers within the service territory of an electric utility) and community choice aggregators (programs within the the service area of investor-owned utilities that allow cities and counties to buy and/or generate electricity for their residents and businesses).

Post # 76 - New Electric Industry Study Highlights Benefits of Smart Meters to Consumers--And Need for Consumer Education to Achieve Those Benefits

A new white paper by the Institute for Electric Efficiency (IEE), an organization representing about 70% of the U.S. electric industry—including investor-owned utilities, public power utilities, electric cooperatives, and foreign utilities—finds that for a wide variety of utilities under a range of assumptions, the customer and utility benefits of investing in digital ‘smart’ meters, or advanced smart metering technologies and associated energy management technologies will outweigh the costs.

Co-authored The Brattle Group, an economic, financial and regulatory consulting firm, the paper—The Costs and Benefits of Smart Meters for Residential Customers—quantifies three categories of benefits from smart meters: operational, customer, and societal.

In deriving its cost assumptions, IEE relied on smart meter business cases and equipment manufacturers’ prices, as well as projections and other sources. IEE then used a framework involving different types of utilities and customers to compare smart meter benefits and costs. The framework identified four kinds of utilities defined by real-world factors that influence the overall business case for smart meters, including current generation mix, renewable energy portfolio, regulatory environment, energy prices, and emphasis on efficiency and conservation.

In looking at utility customers, the IEE white paper factored in both how likely they were to be engaged in a utility’s energy programs, and how actively they would manage their energy use. Assuming a service area of one million households, IEE found that the total cost for a utility to invest in smart meters and associated home energy management technologies will vary from a low of $198 million to a high of $272 million.

In looking at benefits, the IEE study found that the smart meter investment will produce operational savings (resulting from avoided metering costs, automated outage detection, and remote connections) of between $77 million and $208 million, and customer-driven savings (resulting from energy pricing programs, in-home enabling technologies, and energy information) of between $100 million and $150 million. The net benefits from investing in smart meters ranged from between $21 million and $64 million for the four types of utilities.

With specific reference to consumer benefits, the IEE study calculates five benefits:

1. Avoided generation capacity costs: This is calculated as the change in peak demand times the avoided cost of generation capacity, and then scaled due to system line losses (assumed to be eight percent) and reserve margin (assumed to be 15 percent). The avoided cost of generation is $50 per kW-year and is based on Brattle’s experiences in this field.

2. Avoided transmission and distribution capacity costs: This is calculated as the change in peak demand times the avoided cost of transmission and distribution, and then scaled due to system line losses and reserve margin. The avoided transmission and distribution capacity cost is assumed to be $10 per kW-year and is based on Brattle’s previous experience.

3. Avoided energy costs: This is calculated as the change in energy in each time period (offpeak, peak, and critical peak) times the cost of energy in the respective time period, and then scaled due to system line losses. The avoided energy costs vary by region and are based on reviews of energy market data as well as Brattle’s prior experience.

4. Avoided carbon dioxide costs: This is calculated as the change in energy use in each time period (off-peak, peak, and critical peak) times the carbon dioxide emissions rate in the respective time period times the value of each ton of carbon dioxide emissions. The emissions rate for each utility differs based on the assumed fuel mix. Furthermore, the value of carbon dioxide emissions is the same for each utility but changes over time with a value of zero until 2016. The value of carbon dioxide emissions is $15 per metric ton in 2017 and increases linearly until 2030 when it reaches a price of $60 per metric ton. (This assumes no national carbon legislation will be in place until after the 2016 Presidential election).

5. Avoided gasoline costs: This is calculated as the change in gallons of gasoline consumed times the price of gasoline (assumed to be $3 per gallon [2011 dollars], a conservative approximation for the national average gas price). This benefit, of course, is only applicable to the customers with electric vehicles. But the authors assert that “the strategy with the potential to achieve the greatest financial impact is to focus on accelerating [electric vehicle] adoption. The benefits of [electric vehicles]. . . are disproportionately high, indicating that even modest increases in [electric vehicle] adoption will have a large impact on benefits.

The study concludes that “the customer-driven benefits could be much greater with more investment in and focus on customer education and engagement.” The IEE document states:

Over the 20 year horizon in this study, most customers migrate from passive engagement in energy management to much more active strategies. This holds true for all utilities types. Hence, a potential area for further study is how to accelerate this process so that a broad array of customers are ready, willing, and able to engage in energy management soon after smart meters are deployed.

In this regard, as in similar studies by other groups (see here, here and here), IEE recognizes the importance of consumer education to achieve consumer buy-in: “Given the high satisfaction ratings of dynamic pricing pilot participants where education is a key component, we believe the combination of program choice based on personal preferences (thereby avoiding opt-in, opt-out arguments) with comprehensive consumer education could yield tremendous financial and societal benefits.”

Post # 75 - FERC Holds Off on Smart Grid Rulemaking

In an action with some long-term significance for overall smart grid development, the Federal Energy Regulatory Commission (FERC) last week decided to suspend a rulemaking proceeding on the first group of proposed smart grid technical standards developed by the Commerce Department’s National Institute of Standards and Technology (NIST). FERC took this action based on what it saw as a lack of consensus among electric utilities, telecommunications companies, and equipment manufacturers. FERC thus sends the matter back to NIST), which is the lead federal agency for developing technical standards for the smart grid.

As I have previously discussed, the Energy Independence and Security Act of 2007 (EISA) directs NIST to coordinate the development of a framework to achieve interoperability of smart grid devices and systems, including protocols and model standards for information management. In turn, EISA directs FERC to conduct a rulemaking that would apply to the electricity industry and other stakeholders if it is satisfied that the NIST product has led to “sufficient consensus” on smart grid interoperability standards for the electricity grid.

In August 2009, NIST launched a plan to expedite the development of smart grid interoperability standards. NIST led smart grid stakeholders in a participatory public process to identify applicable standards, as well as priorities for additional standardization activities. In January 2010, NIST released its Framework and Roadmap for Smart Grid Interoperability Standards, Release 1.0, identifying a number of standards that are applicable to the ongoing development of the smart grid. NIST also oversaw the establishment of the Smart Grid Interoperability Panel (SGIP), a public-private partnership providing an ongoing process to support the evolution of the NIST interoperability framework process.

On October 6, 2010, NIST notified FERC that it had identified five “families” of standards as ready for FERC's consideration. FERC then opened a public docket for a possible rulemaking proceeding -- noting, however, that it had not yet made any determination regarding whether there is “sufficient consensus” for the standards. FERC then held a series of technical conferences in late 2010 and early 2011 and soliciting written comments from stakeholders.

FERC now believes that “there is insufficient consensus for the five families of standards under consideration.” In an order issued on July 19, 2011, FERC notes that the commenters were “nearly unanimous” that the agency should not adopt the NIST proposals at this time, citing concerns with cyber security efficiencies and potential unintended consequences from premature adoption of individual standards. FERC thus concludes that “the best vehicle for developing smart grid interoperability standards is the NIST interoperability framework process, including the work of the SGIP and its committees and working groups."

Post # 74 - Smart Meter Developments in the E.U.

Many European states are investing in smart metering in the drive to meet EU's energy targets to be achieved by 2020. Earlier this month, the European Commission released an Energy Efficiency Directive aiming to achieve the 2020 target of a 20 percent energy saving, with smart metering and billing set to play a key role. The Directive, which presents the legislative framework for putting into place binding measures on energy efficiency, expects that major energy savings for consumers will result from easy and free-of-charge access to data on real-time and historical energy consumption through more accurate individual metering and billing, hopefully to empower consumers to better manage their energy consumption. The Directive is driving member states for 80 percent smart meter penetration by that date.

However, according to Frost & Sullivan, a "a global growth consulting company," region-wise disparity exists due to the different regulatory challenges faced by each country, thus having a direct impact on implementation. The firm's study forecasts 26% growth in Europe, with the UK holding the highest growth potential amongst all the European countries. The British Government has in fact announced plans to install 53 million electricity and gas smart meters in homes and businesses by 2019, while the French energy regulator CRE (Commission de régulation de l'énergie) has set out guidelines with an objective for mandatory implementation requiring all electricity consumers to have smart meters by 2016. Meanwhile, Sweden attained 100% smart meter penetration in 2010 while Italy’s deployment is almost complete with 33.5 million smart meters installed till 2010. On the other hand, no mandatory roll out has been planned in Germany.

Frost & Sullivan predicts that the three hotspots in Europe will be France, UK and Spain, countries that the consulting firm expects to witness high level of growth in smart meter installations in the next 2-3 years. In particular, ‘’[w]ith the UK Government publishing its plans for a mass rollout in 2014, the UK smart metering market holds the highest growth potential amongst all the European countries. According to our research, the UK is expected to witness a 109% growth in smart electricity meter unit shipments from 2010 to 2017.’’

Post # 73 - New White House Report Identifies "Key Actions" to Empower Consumers in a Smart Grid World

The National Science and Technology Council, a cabinet-level council within the White House tasked with coordinating science and technology policy across the federal government, last week released a new series of smart grid recommendations.

The report, A Policy Framework for the 21st Century Grid: Enabling Our Secure Energy Future, outlines what the NSTC calls “four essential pillars that will enable the United States to transition to a smarter grid”:

1. Enable Cost-Effective Smart Grid Investments: Smart grid technology can drive improvements in system efficiency, resiliency, and reliability, and help enable a clean energy economy through cost-effective grid investments Many of these technologies promise to pay for them- selves in operational improvements, and energy savings The Federal Government’s research, development and demonstration projects, technical assistance, information sharing on technologies and programs, and evaluations provide valuable guidance for utilities, consumers, and regulators about what approaches are the most cost-effective, thereby paving the way for the effective, ongoing upgrade of the grid

2. Unlock the Potential of Innovation in the Electricity Sector: A modernized electric grid promises to be a powerful platform for new products and services that improve grid operations and deliver comfort, convenience, and savings to energy customers

3. Empower Consumers and Enable Informed Decision Making: The success of smart grid technologies and applications depends on engaging and empowering both residential and small business consumers New tools and programs promise to provide consumers personalized information and equip them to make informed energy choices, while ensuring their energy consumption data is accorded privacy protections

4. Secure the Grid: Protecting the electric system from cyber attacks and ensuring it can recover when attacked is vital to national security and prosperity Developing and maintaining threat awareness and rigorous cybersecurity guidelines and standards are keys to a more secure grid.

With respect to no. 3, empowering consumers, the NSTC report identifies a number of “key actions.” The report says that state and federal policymakers and regulators should evaluate the best means of ensuring that consumers receive meaningful information and education about smart grid technologies and options. “Ideally, these efforts will create a track record of transparency and responsiveness, address consumer concerns including data privacy, and clearly explain the opportunities and safeguards that characterize smart grid projects to help consumers make informed decisions.” State policymakers also should continue to consider how to develop policies and strategies “to ensure that consumers receive timely access to, and have control over, machine-readable information about their energy consumption in a standard format.”

Where a utility deploys the relevant infrastructure, the report says that state and federal regulators should consider means of ensuring that “consumer facing devices and applications make it easier for users to manage their energy consumption.” The NSTC notes that types of information and options that smart grid technologies can offer may not be familiar to all consumers, meaning that a simple and usable design may well be crucial to helping consumers realize the promised benefits.

The NSTC states that state and federal regulators should consider, as a starting point, methods to ensure that consumers’ detailed energy usage data are protected and develop, as appropriate, approaches to address particular issues unique to energy usage. The report argues that “consumer trust is essential to the success of smart grid technologies, and protecting the privacy of smart grid related data is one crucial component of strengthening this trust.”

Finally, the NSTC recommends that state and federal policymakers and regulators should consider appropriately updating and enhancing consumer protections for smart grid technologies. “Concerns about data-sharing, new rate structures, and involuntary remote disconnection—namely the impact on privacy, fairness, due process, and costs—raise policy challenges that consumer protection laws and policies may need to address.”

The report itself, of course, does not establish any policy, even for the federal government – and many of its prescriptions in the consumer area are in the regulatory domain of the states and their public service commissions. But it does reflect the thinking within the current administration and follows up on prior Obama administration initiatives designed to promote smart grid development.