Consumer issues in 'grid modernization'

Have utilities, regulators, consumer advocates found common ground?

Phil Carson | Sep 15, 2011


An acquaintance recently told me she'd like to talk with consumer advocates to see where the gaps are between their positions and her findings on consumers' positive  responses to dynamic pricing programs.

Point being, there must be gaps that, once identified, can be bridged. And bridges can be crossed to achieve progress on grid modernization.

In fact, an endeavor of  this kind has been underway for the past ten months, as a series of four meetings between investor-owned utilities (IOUs), consumer advocates and state regulators took place in Atlanta (November 2010), Phoenix (March 2011), New Orleans (April 2011) and Baltimore (May 2011). This effort was made under the aegis of the Critical Consumer Issues Forum (CCIF), an idea sponsored by the Edison Electric Institute (EEI), the trade association that represents IOUs.

The result, "Grid Modernization Issues with a Focus on Consumers," is a matter-of-fact presentation of five areas in which these sometimes disparate interests found a degree of consensus through those meetings. The report was presented earlier this week at GridWeek in Washington, D.C.

"We hope this report provides value to each of the three groups," CCIF Executive Director Katrina McMurrian told me. "Here are some areas of consensus and areas that need follow-up. It shows outsiders that these three groups do talk and that they can find areas of consensus."

You should know the CCIF effort was funded by EEI. Whether that sponsorship affected the outcome is for you to decide. I'd argue that it reflected that utilities badly need consensus with consumers and regulators to achieve their business objectives. To a degree, whether and how utilities achieve their business objectives affects the rest of us. So, fair enough.

I'd also say that the process may be more important than the specific outcome. Much of what you'll read in this report, composed mostly of bulleted statements, will be familiar to you from the past year of industry discussions. It would be enlightening to know whether the "consensus" holds up in the state-level arenas to which participants returned after this exercise.

First, because it's a vastly shorter list, here are a few areas for which no consensus was reached: opt-in versus opt-out for dynamic pricing programs, liability with respect to third party access to consumer energy usage data, consumer concerns with possible health effects of smart meters and preservation of federal funding for grid modernization.

The big issue here, to me, is opt-in versus opt-out. The heritage of how opt-out has been used with consumers is not encouraging. Often that option is buried in the fine print. If the company solicited you to opt-in, it would put that proposition at the top in large, bold print to ensure you saw it.

That said, I understand from my acquaintance, cited above, that opt-in might get you 10 percent to perhaps 20 percent participation, while opt-out garners closer to 80 percent. So I understand the obvious attraction of opt-out for those who'd like to achieve high participation in, say, a dynamic pricing program. But utilities, regulators and consumer advocates will have to weigh the merits of potentially high participation that may mask a lack of fully informed choice. I'd like to hear from consumer advocates or state regulators on how they see this issue.

The areas of consensus touched on:

  • The term "grid modernization" over "smart grid"
  • Benefits, costs and risks of grid modernization
  • Consumer protection
  • Privacy and security
  • Consumer education and communication
  • Federal/state relations

The first item may be underestimated in importance but long overdue. I have used the two terms interchangeably, but when you write online, "smart grid" gets more than 1,000 times the traffic that "grid modernization" does. It'll take some work to reverse that exponential disadvantage for the more descriptive term.

Readers, you'll have to call up the report, which contains four pages packed with bulleted statements. Look them over and let me know your thoughts. My impression is that consensus can produce bland statements that may allow widely disparate interpretations by the various groups. This could not have been an easy process to translate into consensus statements.

I'd be very interested to know what our readers think: was this an exercise in singing "Kumbaya" or is this document a blueprint for engagement by stakeholders?

Phil Carson
Intelligent Utility Daily


Related Topics


What about the utility brand?

It would be interesting to consider these gaps across different utilities.  Some utilities have large gaps and have had a very difficult time implementing their smart meters.  Other utilities have had very few issues.  This split is due largely to brand equity, which in the utility industry is built on trust, because of the power imbalance between the customer and the utility. 

Thus, those utilities that have frequently used heavy  handed tactics in the past have created trust issues with their customers.  The cost of these utility centered (as opposed to customer centered) decisions is the cost of having to spend all this time, money, and effort, telling customers that all is well.  I would love to know how much utilities have had to spend on smart meter damage control.  To put it bluntly the chickens have come home to roost.

Moving onto the opt-in vs. opt-out issue, Opt-out is not really an option, particularly for utilities that are already in the consumer dog house.  People want the same level of service and experience from their utility as they receive from Apple, Best Buy, Target, etc.  How many times has someone had to opt-out of an Apple product or service?  You don't because customer's who opt out are usually going to a competitor.  Utilities must begin thinking this way because the next "chicken roosting" maybe when there is actual competition.  With techology and changing  legislative/regulatory positions, consumers may have options sooner than we anticipate.

The research is clear that opt-out is the preferred short term solution.  Many more people will be on the dynamic pricing rate because the default option often wins big.  But in the long term the benefit is not as clear.  And for those utilities that have wielded the hammer in the past, the opt-out option could be particularly costly.  A trusted utility with strong equity may be able to get away with opt-out because when they tell their consumers dynamic pricing is good for all, they will first listen and second possibly believe what is being said.  For a utility with a poor record and little trust, it is difficult to get people to listen and even more difficult to get them to believe.  

This is at the core of branding and utilities must embrace and understand long term relationship building.  If not, consumers will exercise their options when the opportunity arises.

too much of a good thing...

I've long been a proponent of dynamic rates, but I can't agree with the statement "Dynamic rate adoption must be accepted in an across-the-board manner in order for any benefit to accrue to either the customer base and/or the utility." Research shows that peak response to dynamic rate events without automation technology (manual response) is around 15%. With automation (e.g. responsive thermostats) impacts are upwards of 30-50% of peak load. If this response were "across-the-board", events would just shift the peak to a different time of the day - and maybe even make it higher.

Every utility will have their own specific load management objectives, but it seems unlikely that any utilities are looking for a peak load drop that high. With good technology and motivated customers opting into or not opting out of voluntary rates, a 10-20% participation would provide a 3-10% load drop during events, which is more than enough for most utilities.

As for opt-in vs. opt-out, I'd say it depends on the participation rate a utility feels they need to meet their load shape objectives. (Ironically, I don't hear many complaining about opt-out or mandatory inclining block rates, despite the fact that they have never been proven effective - while dynamic rates have been proven effective over and over again.) No matter what the circumstances, customers must be provided with clear information on how the new rate affects them, and what other rate options they have - if any.

- Karen Herter

An excellent start

Thanks for this articulation of the potential for opt-out to work. My point, obviously, is that this option has been misused in the majority of cases with which I'm familiar as a consumer. That is not to negate your point -- that if this option is used honestly, transparently and responsibly, it can serve both parties.

So, the discussion now shifts to mutually acceptable procedures for using opt-out as the means to enact needed utility programs among the parties cited in this column. Certainly, this development would seem to light a fire under utilities' efforts to move from metering-up to meaningful programs that will align wholesale and retail prices, provide utilities with the needed hedge against system constraints and give consumers price signals that help them manage their energy use.

I'm all for it. But the procedures and educational outreach around opt-out had better be transparent and sensible to consumers. Not because I say so in a column, but because the success of grid modernization and a new paradigm for consumer-utility interaction depends on it.

Regards, Phil Carson

Opt-in vs. Opt-out

I believe it is predjudicial to state that if utilities utilize an opt-out process that the notification, statements of exclusion and outcomes will be "buried" in small print and obscured.  Time and again, the use of opt-out has significantly increased participation, especially in light of the fact that it is simply easier to not opt-in than to have to understand an issue.  Dynamic rate adoption must be accepted in a wide across-the-board manner in order for any benefit to accrue to either the customer base and/or the utility.  Utilities have a vested interest in making certain customers understand the ramifications of their actions in this technically changing world and opt-out creates that incentive for customers to "pay attention."  For those that ignore the call to become informed, they will have the option to opt-out after they experience the effect of the do-nothing strategy.  Having this experience also provides the utility an opportunity for conversation and improved customer satisfaction by explaining the dynamic pricing to the affected customer and perhaps reverse the bill impact if the customer agrees to remain in the plan and not opt-out.  The primary message that should be heard is to not assume that using an opt-out process is an attempt to bypass the customer decision - instead, with proper communication it is an opportunity to properly test and implement dynamic pricing models.