A national 'smart grid' remains a vision with many gaps

This is the third part of a series on the electric grid.

Like a complex jigsaw puzzle with lots of missing pieces, the picture of a smart electric power grid is slowly beginning to take shape in the United States, along with predictions of big energy savings and emission reductions that could come with it.

The scattered placement of the pieces is a work in progress, with much of the action controlled by states. Some have embraced a clear vision of this revolution in the way electric power can be delivered, used and priced. In many more states, the picture is cloudy or incomplete, restrained by the historic caution of state regulators and the self-interest of some utilities.

Power companies have begun installing millions of advanced electric meters -- the basic building block of the smart grid. Coupled with communications links between customers and control rooms, information management systems in utility offices, and flexible electricity rate programs, the systems will empower consumers and producers to conserve electricity use, particularly on summer days when temperatures and electricity prices are soaring.


These systems have the potential to affect nearly everyone's life. They could change energy-using habits that have become ingrained over generations. A few examples: They can make it possible for millions of plug-in hybrid vehicles' batteries to be recharged with cheaper, nighttime electricity. They can tie rooftop solar units on homes and businesses into the power grid, making owners energy sellers as well as buyers. And they can give consumers meaningful influence over their electric bills for the first time.

But so far, only a small fraction of these capabilities have been deployed. Less than 5 percent of the nation's 144 million electric meters were being used for smart grid functions in 2008, the Federal Energy Regulatory Commission (FERC) reported. Utilities are using them mainly to control costs by replacing meter readers, pinpointing damage from storm outages and removing or adding customers to the grid remotely.

Big potential, tiny reality

Only about 1 percent of the new meters were providing some kind of time-based electricity rates to customers -- an essential component of the smart grid vision -- FERC reported. Thus, while the 'smart grid' rhetoric is running strong, its slow, piecemeal deployment creates a pattern that is still hard for most consumers to see.

But many of the experts see it: "There is a huge economic and environmental payoff from the dynamic management of the grid," explained Thomas Casey, CEO of CURRENT Group LLC, a company that makes devices for the smart grid.

"This is really going to transform the way we do business," Don Cortez, a vice president of CenterPoint Energy in Houston, told the national GridWeek conference held in Washington, D.C., in September.

A FERC study in June, headed by the Brattle Group, concluded that a nationwide rollout of smart meters with hourly or inter-hour rates could reduce the nation's peak demand for electricity in 2019 by 10 percent below current levels.

Summer peak demand, when high temperatures strain power systems to the limit, occurs only 400 hours a year or less. But Brattle's Ryan Hledik said that the nation's overall electricity usage could be cut by 4 to 5 percent annually if the smart grid kindles a new consumer conservation ethic.

Bob Shapard, CEO of Dallas-based Oncor, which operates the largest transmission system in Texas, estimates that the savings for consumers from a nationwide smart grid system could reach $20 billion a year and could substantially slow the growth of carbon emissions from the nation's power industry.

But there are major reasons for the scattered implementation of these grand visions. The projected electricity savings, the avoided costs of new generating plants, and the reduction in carbon emissions won't be achieved in the United States unless a political and regulatory revolution accompanies the technological one, experts agree. And the politics of the grid tend to be dominated by state regulators, some of whom are slowly feeling their way toward the difficult decisions they will have to make.

Overhauling Edison-era equipment

The prospective changes mean that Americans will have to turn away from a century-old regime of cheap energy and static retail electricity rates averaged across all of a utility's customers. Instead, they must be lured to embrace a system of "dynamic," or time-based, rates that will vary during the day, depending on the balance of supply and demand and on each customer's choices, experts say. Power used during peak periods of the day will be more expensive. Electricity tapped during the night will be cheaper.

Companies that make appliances or components to be used by smart grid are among the most bullish about its prospects.

Top 12 states with advanced meter installations -- 2008
Ranking State Advanced meter penetration*
1 Pennsylvania 23.9%
2 Idaho 13.8%
3 Arkansas 11.3%
4 North Dakota 8.9%
5 South Dakota 8.7%
6 Oklahoma 8.6%
7 Texas 8%
8 Florida 8%
9 Georgia 7.6%
10 Missouri 6.6%
11 Vermont 5.5%
12 Alabama 5.5%

States with 2 to 5 percent advanced meter penetration: Kentucky, South Carolina, Kansas, Wisconsin, Wyoming, Arizona, North Carolina, Iowa, Washington, New Mexico, Oregon, Louisiana, Indiana and Illinois.

States with less than 2 percent advanced meter penetration: Tennessee, Colorado, Montana, Hawaii, Minnesota, Michigan, California, Nebraska, Nevada, Ohio, Connecticut, New Jersey, New York, Virginia, Massachusetts, Maine, New Hampshire, Rhode Island, Alaska, Utah, West Virginia, Maryland, Mississippi and Delaware. (The District of Columbia also has less than 2 percent advanced meter penetration.)

* Number of advanced meters as a percentage of all electric meters.

Source: "2008 Assessment of Demand Response and Advanced Metering," Federal Energy Regulatory Commission.

Itron Inc.'s Oconee factory in South Carolina's Blue Ridge foothills has completed a new $10 million automated assembly line to turn out smart electric meters. It can produce up to 3 million meters a year, and most are targeted for California.

In Texas, Oncor has begun deploying 3 million meters in its system, with 350,000 in place since last fall.

"The technology works," said Richard Mora, executive vice president for the North American operations of Landis + Gyr, Oncor's meter manufacturer. "The cost-benefit analyses are positive. The regulators are willing to allow utilities to put this into the base rate. All three stars are now aligned."

There is some evidence of that. Thirty states have begun or are considering system-wide installations of smart meters, the Institute for Electric Efficiency reported in June.

An emerging electric patchwork quilt

Utilities have announced plans to deploy 52 million of the devices in the next five to seven years, replacing more than one-third of the 145 million meters in place nationwide, according to a FERC report last year. The $4.5 billion targeted for smart grid technology in the 2009 economic stimulus bill will dramatically speed up this deployment, industry officials predict.

But so far, smart meter deployment is led by a relatively few states where legislatures or regulators have mandated it or allowed utilities to charge consumers for the system. California and Texas head the list. Several rural states are in the front, as well, because electrical cooperatives have turned to the new systems to help them manage sprawling, sparsely settled service areas.

Arkansas, North and South Dakota and Oklahoma have high rates of smart meter installations, all at over 8 percent, thanks to support from cooperatives and municipal electricity companies, where decision-making can be streamlined. Why has Austin Energy moved so fast with its "Pecan Street" smart grid project in the Texas capital? "First and foremost, we own our electric utility," said the company's former chairman, Will Wynn.

By contrast, though, in 13 states, 0.2 percent of customers or less were using advanced meters in 2008, among them Delaware, Mississippi, West Virginia, New Hampshire and New York.

"We see some of the state commissions coming to this party with great enthusiasm, and others with great reluctance," said Bob Gilligan, vice president at GE Energy, a leading power industry equipment provider.

"State public utility commissions and legislatures have been at best indifferent and at worst openly hostile" to dynamic electricity pricing, said Frank Wolak, a Stanford University professor and electricity market monitor in California, in a recent paper he co-authored. "The capability exists today. It's just that some regulators won't allow it," Wolak added in an interview.

"The benefits of the smart grid are obvious," said Frederick Butler, president of the National Association of Regulatory Utility Commissioners, in March, but he added, "we must be sure that we move deliberately and in stages so that the costs of rolling out the necessary infrastructure are borne by those who will benefit." Start with the transmission and distribution systems, he said, and proceed carefully to go inside consumers' homes.

Va. opts for a 'prudent' pace

Virginia was among the states with the lowest penetration of smart meters, according to FERC's survey last year. Dominion, Virginia's largest utility, moved at a glacial pace initially, compared to smart grid first movers. In 2007, it proposed a series of pilot studies on energy conservation and demand response programs to determine whether it could reduce electricity consumption 10 percent by 2022. Only 4,000 residential customers would participate, and one pilot study was scheduled to continue through 2014.

Environmental groups complained that Dominion was testing things that had been proven elsewhere. Staff at the Virginia State Corporation Commission -- Dominion's regulator -- said it "does not disagree" with those concerns, but it approved Dominion's plan as "prudent."

Recently, Dominion has picked up the pace. This year, it began installation of 53,000 smart meters in Charlottesville and Midlothian as a test, and it is seeking stimulus funds to help deploy 2.6 million of the devices statewide by 2013. It has not proposed a dynamic pricing plan.

Dominion says smart grid technologies are a key objective. Cale Jaffe, senior attorney with the Southern Environmental Law Center in Charlottesville, and other critics contend that the company's top priority remains the same: to expand its generation capacity and increase its energy exports beyond its borders. "Absolutely. They still see themselves that way," he said.

California stands at the opposite extreme. Paul De Martini, Southern California Edison's vice president for advanced technology, reminded an audience at a meeting in Washington last month of the state's daunting mandates, including a renewable energy target of 33 percent in 2020, 1 million solar roofs and a statewide smart meter rollout.

No federal plan in sight

In his state, the political die is cast. "It's not about pilots per se," he said. "We're essentially on critical path to meet every one of these objectives. You don't see anything on this chart actually about smart metering, because that's a given."

Some other states are following suit. Pennsylvania's Legislature has directed utilities to reduce overall electricity consumption in 2013 by 3 percent below 2007-2008 levels, and to cut peak demand by 4.5 percent by then. Smart meter deployment and dynamic pricing are a requirement in Ohio, which aims to reduce current levels of energy use by 22 percent by 2025.

Paul Centolella, a member of the Ohio Public Utilities Commission, says state-by-state differences are inevitable. Smart grid systems make more sense in some regions of the country than others, analysts say. The Sun Belt, with its heavy air conditioning loads, is prime territory. So are states regularly hit by ice storms and hurricanes. So far, neither Congress nor FERC is seeking to impose a national smart grid mandate.

"But if you look across the country, we have now almost half the states with a renewable [energy] portfolio standard. You look at the very strong interest in efficiency programs across the states. The economic incentives for doing this will be so telling, it will very difficult for states to resist for very long. I think the momentum will be very great," Centolella said.

While it was intended, in part, to spur this along, the 2009 federal stimulus bill has temporarily slowed advanced meter rollouts. Companies across the country have queued up with 570 applications seeking as much as $14 billion for the $4.5 billion smart grid grants program.

Not a destination, but a journey

"We've had a dramatic oversubscription of applications," said Matthew Rogers, a special adviser at the Energy Department to expedite stimulus awards. First decisions are due next month. "We'll have to turn down a lot of good projects," he added. DOE expects all of the project proposals to go forward with or without funding.

The awards should produce a big surge for advanced meters next year, company officials agree. "We're going to do this whether we get the grant or not," said Mark Rose, president of tiny Bluebonnet Electric Cooperative in central Texas, which has applied for $18 million in stimulus funds that it would match. The grant would shorten the project to three years instead of eight, he said.

Duke Energy Senior Vice President Todd Arnold said the $200 million grant it seeks would halve the time needed to install a planned 1.5 million meters in Ohio and Indiana.

Still, overhauling the nation's electricity delivery system, one that is based primarily on technology and habits nurtured a century ago, will not take place overnight, Southern California Edison's De Martini cautioned. "We expect this to be 20-plus years in the making. It is not a destination; it is a journey."

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