The Customer: Can You Hear Me Now?
Consumers - meaning the residential customer - must be engaged by their utility, right? That's intuitive. But let's spell it out.
First, the residential customer increasingly is being asked to accept a smart meter, in anticipation of receiving electricity usage information and price signals at a later date.
The ostensible purpose, apart from utility efficiencies, is to change consumer behavior to manage energy use in general and, in particular, shift load where possible to off-peak. That presumably constrains demand and prolongs the utility's ability to meet load while capital decisions are made on new generation, the integration of renewable resources and transmission upgrades to serve new supplies. Dynamic pricing's purpose is to have users pay for the cost of their usage on the 24-hour generation cycle.
(Debate: is that self-serving on the utility's part, or can it really serve the customer's needs? Are consumers permanently spoiled into thinking they play no role in the utility-customer compact?)
Second, the residential customer is also the ratepayer, the taxpayer and the voter. We pay (as do other categories of ratepayers, such as commercial and industrial users), one way or another, for the nation's infrastructure and for the commodities it conveys. That infrastructure requires upgrading for a wide variety of reasons, some of which we agree on, some of which drives divisive debate - but all of which are likely to be part of our reality going forward.
Thus, all citizens have a stake in becoming aware of and managing their personal energy habits, if only to mitigate cost increases and participate in the power equation. Same thing is true for water. Water utilities have done so well at being modest and invisible, no one cares about the infrastructure upgrade costs, you just turn on the spigot and if water doesn't flow, you just yell out the window, right? No, you get educated and participate in decisions that cost billions.
In the electricity sector, the possible big picture implications of the change in the model to active participation by the residential consumer will require outreach and education. The coming costs of upgrading the nation's infrastructure should be understood and supported, otherwise the nation risks losing its competitiveness and quality of life.
Of course, this back-of-the-napkin analysis ignores for the moment several difficult issues.
Will we all agree on the desirability or efficacy of the cost drivers? Improving transmission systems and automating distribution systems for reliability are no-brainers, until you get to siting towers and rights-of-way and allocate costs.
If integrating renewable energy is considered a national priority for energy independence and security, how do we equitably spread the costs?
Installing smart meters ahead of dynamic pricing programs and customer usage feedback information may be necessary, but the lag time sows confusion and pushback and endangers the mission.
Using federal stimulus dollars to jump-start the smart meter installation process may make sense by stimulating the economy, but did it exacerbate confusion and pushback?
Further, is the interest in carbon emissions pricing justified and driven by air pollution concerns and their long-documented, adverse effects on human health and the land? Or has that goal been obscured by the less certain proposition that reducing carbon emissions will slow anthropocentric climate change? If the concern remains pollution and adverse effects on human health and the land, as well as energy security, does that make global warming moot as a driver?
So there are practical, near-term communications with the residential consumer that must get out the door tomorrow and there are big picture issues that must somehow factor in as soon as possible.
Tomorrow: one thinker's ideas on how residential customers can and should be engaged.
Let me know your thoughts. Links below to some recent columns on consumers.
Phil Carson
Editor-in-chief
Intelligent Utility Daily
Pcarson@energycentral.com
303-228-4757
Comments
"Clean" Air at What Cost?
The benefits of Smart Meters accrue to the utility but at a cost to the taxpayer and the ratepayer. The result is a gift to utilities and higher prices for ratepayers (thanks to compliant PUCs). Sure, some ratepayers may figure out how to navigate dynamic pricing to claw back part of the increased cost but I submit that a lot of ratepayers will just surrender to higher pricing. Is it any wonder that people object?
With respect to educating customers, they already know much of what they need to know: literally every element under the Smart Grid initiative will result in higher electricity prices but no reciprocating bang-for-the-buck (except for the new-fangled display on the wall). The education theory seems to say that enlightened customers would be more receptive to....higher prices.
The root problem in all of this is that we have no mechanism through which to price the cost of cleaner air....and THAT question is at the center of the whole ball of wax. Some appear to see any-improvement-at-any-cost as acceptable. Others see no problem at all. Some (many?) claim we have an energy crisis. Others see an awful lot of conventional energy resources being bypassed (or artificially made more costly) for no good reason. In the end, it all goes back to the same question: how much should we spend for cleaner air? Is the answer the same in Seattle as it is in Tampa? Are the problems local, regional or national? What's the definition of "dirty air" vs. "clean air"?
I suspect these questions and all the ones that would follow are answerable within a respectable margin-of-error. Unfortunately, we're busted...broke...penniless...but for those funds we choose to rob from the yet-to-be-born. That fact does tend to be problematic....and deeply political. Worse (if that's possible) we have the raging debate over "climate change"...another nebulous monster.
One might hope for some sanity to appear one day but I suspect the Smart Grid Bubble will simply burst as soon as the "free money" runs out. Then what? What happens when credibility, trust AND money all evaporate?
Customer Engagement
First, I largely agree with Mr. McShane's points, though I also think operational efficiencies alone are not sufficient to justify interval meters (smart meters would imply some embedded intelligence, which today's interval meters lack).
Second, to the question posed early in your article ("is that self-serving on the utility's part, or can it really serve the customer's needs? Are consumers permanently spoiled into thinking they play no role in the utility-customer compact?").
So long as utilities are allowed to recover their prudently incurred costs and earn a "fair" return on their invested capital, I don't think they care one way or the other about dynamic pricing. Customers should care a lot, and for two reasons. First, as you point out, they pay for infrastructure. If dynamic pricing can help control the need for new infrastructure (and necessary price increases to pay for it) by making better use of existing infrastructure, then dynamic pricing is very much in the interest of customers. Second, as developers of generation and transmission infrastructure encounter increasingly intense opposition, it's going to be harder to build more transmission and more power plants. To the extent dynamic pricing encourages development of more localized and less obtrusive infrastructure (thermal storage at the residential level, or neighborhood district cooling plants, for example), it also works in the best interest of consumers.
This is not rocket science. Dynamic pricing of airline seats led to rapid growth for the air travel industry. Customers at all income levels learned to adapt and benefitted as a result. Sure, there was some pain in the transition, but no transformation is immune from at least some dislocation. The naysayers who claim dynamic pricing will hurt low income customers need to pay attention to the DC pilot and adoption rates for dynamic pricing in Illinois.
Jack Ellis, Tahoe City, CA
Timing Considerations
Phil,
you write that "Installing smart meters ahead of dynamic pricing programs and customer usage feedback information may be necessary, but the lag time sows confusion and pushback and endangers the mission".
I'm not sure that I agree. Utilities can justify Smart Meter installation solely on the basis of operational efficiencies that accrue to the utility in the form of reduced meter reading costs. The utility also benefits by using the more granular meter data to improve their ability to forecast demand, reducing their exposure to unexpected spot market costs.
I would argue that the utilities should approach this in phases, starting with Smart Meter implementation justified solely on its own merits.
The next phase would be to educate and inform consumers by providing feedback on their bills that show them how they are using energy and what their savings might be under alternative pricing plans.
Finally, through the enhanced awareness and trust developed through these feedback mechanisms, the utility should be able to encourage those consumers for whom dynamic pricing makes sense, to migrate to new rate plans based on their own sense of what's in it for them rather than feeling that they are being coerced by the utility.
Niall McShane
Arlington Heights, IL