Consumer response a lingering riddle for backers of 'smart grid'

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

Tammy Yeakel is an admitted scold about turning off the lights and TV when her family leaves a room in their home near Allentown, Pa. When it's hot, she closes the blinds. "When it's chilly -- suck it up and use sweaters and slippers. I am a bit of a miser when it comes to electricity," she says. "I was always like that."

That made her a perfect candidate for an ongoing experiment by her utility, PPL Corp., to see how much electricity consumers might save if they knew the real price of electricity during the day.

Consumer response is crucial to the success of smart grid deployment, and remains a riddle for utilities across the United States. Tests taken across the country support the premise that consumers will choose to save substantial amounts of power if given information and incentives about its true costs. But the jury is still out on how long that might last, says Rob Pratt, program manager at the Pacific Northwest National Laboratory in Richland, Wash.

His laboratory conducted one of the first tests of consumer response to smart grid strategies two years ago on Washington's Olympic Peninsula. The results, he explained, looked promising, but they raised bigger questions. "The experiments that have been run have always been short-term. People have a new toy. They've also volunteered for the program, so they've volunteered to play with the new toy. The question is, 10 years later, what's the effect? Is it gone, or have they internalized it?"

The stakes for power companies and consumers are huge. Yeakel's neighbors, like most Americans, pay an average retail price for electricity that doesn't track real wholesale electricity prices -- prices that change constantly with the push and pull of supply and demand.

Hidden within consumers' electricity bills are the costs of maintaining and operating aged and often dirty generating plants called "peakers." They may run 400 hours a year or less just to meet peak electricity demand when summer temperatures are highest. One out of every 10 generating plants is in that standby category, says Pratt, and they cost consumers billions of dollars in unnecessary utility bills annually.


An obsolete coal or diesel-fired "peaker" that is called on for a few hours a day in a heat wave may charge prices 10 times or more above the average wholesale price.

As much as a quarter of household electric power usage is squandered because families leave lights, appliances or heating and cooling systems on full blast when no one is home, says GE Energy executive Bob Gilligan. "The hot water heater is on, the AC working, but nobody is using that power. It's wasted."

Turning off unneeded appliances makes sense to Yeakel, whose home computer is linked to a data analyzer that tracks how much power she is taking, and when, and how prices are changing hourly. After she filled in a questionnaire about her house and her appliances, the computer site could tell her how much she was paying at any moment for power, and how she compared with average customers. "The site is very exciting," she says. Yeakel has improved her home's insulation and minded electricity use, dropping her monthly bill $80 to $100 below her neighbors'.

Baltimore Gas and Electric Co. (BG&E) ran a smart energy pricing pilot for three months in 2008, testing three "dynamic pricing" models that set power prices higher when power demand climbed. In one model, prices during afternoon and evening peak periods on weekdays were 14 cents per kilowatt-hour. The off-peak price dropped to 9 cents. During "critical" periods when shortages loomed, the price soared to $1.30 per kilowatt-hour, the Institute for Electric Efficiency reported.

Red lights make savings 'a piece of cake'

Another version of Baltimore's program offered customers a bonus of between $1.16 and $1.75 per kilowatt-hour at "critical" times if they kept their electricity demands below their typical baseline usage. Customers were told by phone or e-mail when high prices were due, and some customers got a plug-in "Energy Orb" light for their homes that glowed red to signal high prices.

The minimum reduction in peak usage was 18 percent. Consumers with the light signals saved between 23 and 27 percent of their peak use.

BG&E reports that in addition to reducing peak consumption, conservation-minded customers cut overall energy usage. Customers saved an average of $100 over the summer, and one household cut its electric bill by $200. In a video prepared by the company, one pleased participant said, "All we had to do was turn back the thermostat, turn down the hot water heater, turn off the humidifier and maybe take a trip away from home. It was a piece of cake."

"We did it on our terms," said another. "We could control our participation."

The Pacific Northwest National Laboratory's test on the Olympic peninsula in 2006-2007 also produced savings and pleased customers. Jerry and Pat Brosus said they reduced their electricity usage by 15 percent overall and relished the new control they gained thanks to communications linkages that permit them, or the utility, to manage their appliances remotely to conserve electricity.

It was "great fun to sit at a picnic table in an RV park and jump online through a Wi-Fi connection and tell the water heater and heat pump in our house to wake up and get to work, 'We're coming home early,'" they told the laboratory staff.

They said some of their neighbors got the bug after seeing their system and asked to join the program. Yeakel's experience with her system was more mixed. "I don't know if that many people are that interested. My neighbors don't ever look at it." PPL officials mention studies that find that well-off customers can get used to a higher peak price and stop responding to it.

PPL, in Pennsylvania, says about 75 percent of the customers participating in the test reduced their electricity bill. The rest spent more, either because they didn't change their habits, or perhaps because they added new appliances, televisions or computers at home.

'It has to be painful'

Michael Godorov, PPL's manager of smart meter operations, said that a real-time pricing strategy requires a big differential between peak and off-peak prices to be effective. "It has to be painful enough for a customer to want to save money," he said. "If you leave it to the consumer, you definitely have to put in enough incentives. The market has to make it imperative for customers to manage their use."

"How do we get people to care enough about this?" asked David Mohler, chief technology officer of Duke Energy, at a conference in Washington last month.

If millions of motorists with plug-in hybrids were to arrive home at 5 p.m. on the hottest day of the year and want to do a quick recharge on a 220-volt appliance circuit, the electricity grid would have severe problems handling the load, Mohler said.

"We should have an ability to differentially price that," he said. The fast-charge price could be equivalent to $20 for a gallon of gasoline, he suggested. Motorists content to charge overnight, when power prices are lowest, might have to pay the equivalent of 75 cents a gallon -- a bargain price. "Until we can give them a way to painlessly respond to that price signal, I don't know how we get to where we need to go," he said.

Companies like Dallas-based Oncor that have committed to smart grid and dynamic pricing strategies believe most consumers will come along. Oncor has outfitted a truck trailer with a mini-classroom to show customers how its smart grid would work, and more than 22,000 people have taken a look since last year.

"We've had some people say, 'Wait a minute, I don't want this meter.' They don't understand it," said Oncor CEO Bob Shapard. "They don't like people coming in their backyard to change it. 'What's the matter with the meter I've already got?'" they say. "You get some of that pushback. The lion's share of our customers, though, takes the other approach. Virtually all the customers that have been coming through the education center are asking, 'When can I get my meter?'"

Consumers pay, one way or another

Houston's CenterPoint Energy was trying to persuade utility commissioners and legislators to approve rate increases for a smart grid system whose meters alone would cost $640 million. Then Hurricane Ike struck, in September 2008. "The cost of the outages was over $5 billion," said Donald Cortez, the company's vice president of distribution support.

In the new smart grid systems with wireless communications links, household meters notify the utility when local lines go down. This capability would cut recovery time by 40 percent, CenterPoint told authorities. "Savings from one hurricane alone would pay for the smart grid," Cortez said. The company got the green light to proceed.

Itron, a leading smart meter manufacturer, says its prices have dropped to $100. Oncor expects that smart meter deployment will cost a total of $290 per customer over 11 years, including interest, or $2.19 a month. If customers can save at least 10 percent on their bills -- as studies predict -- that would cut the average utility bills by $18 a month. The payback would take about 16 months from installation, the company says.

But the price shocks that have accompanied electricity "deregulation" in some states stirred public aversion to volatile energy prices, and political officials are keenly aware of that.

"Sometimes we forget that at the end of the day, the customer has to pay for this," said Paul De Martini of Southern California Edison.

Some consumer advocates warn that smart grid deployment and real-time pricing programs could wind up hurting the poor. "Low-income people aren't big [electricity] users," agreed Gerry Waldron, majority staff director of the House Select Committee on Energy Independence and Global Warming. If they don't have air conditioning and major appliances, they may not have good opportunities to conserve power, he said.

How can the poor save?

Federal and state home weatherization programs can help them, and electricity rates can be set on a progressive scale, with the lowest charges for minimum usage, he told a recent conference in Washington. "We have to be thoughtful about how we do this ... but there are solutions."

There are other risks, said Stanford University economist Frank Wolak, writing for the Center for the Study of Energy Markets in Berkeley, Calif. Some demand response programs propose to pay consumers when they reduce their electricity use below a historical baseline amount. Regulators must guard against conniving consumers who inflate their kilowatt-hours when the base is being calculated, and then collect money simply for running households in a customary, business-as-usual way, he said.

PPL's Godorov says a simpler path is for utilities and manufacturers is to develop "smart" heating and air conditioning systems, refrigerators, and other major appliances equipped with communications chips that can be switched off and on at the utility's direction -- with the customer's permission. The resulting home area network could also give consumers many options for scheduling their own electricity usage to take advantage of lower off-peak prices. But that approach adds expense and comes with its own risks.

Whirlpool Corp. supported the Olympia, Wash., trial program, creating special displays for dryers that could receive signals from power providers to alert customers. The dryer console flashed "Pr" when prices were unusually high and "En" for grid emergencies, coupled with an audible alarm. To avoid irritating customers, they were told how to override the alarm.

Whirlpool noted that control systems would have to deal with sophisticated situations. A system permitting utilities to cycle a refrigerator off briefly would have to come with a safety override that would keep temperatures cold enough to prevent food from spoiling. "As long as the appliance has the right to say, 'Sorry, not now,' more appliances can be designed to participate," said Whirlpool project lead engineer Gale Horst, in a critique of the Washington experiment.

'Hell, yeah, I'd like to know'

The seminal questions that businesses must ask, he said, include: "What will induce a consumer to want to own a product" like that? "Sometimes, Whirlpool has to remind its friends in the utility industry that appliance manufacturers operate in the free market," said Horst.

Mark Rose, CEO of Bluebonnet Electric Cooperative near Austin, Texas, said the best hope for winning costumer support is to frame the discussion in terms of consumer empowerment. "The question will not be about customer choice. It's going to shift to customer control."

His company, a pioneer in smart meter use, polls its members -- the customers -- every year. "We've been surprised by the number of folks who do say -- whether they mean it or not -- that they want to conserve and want to look at strategies to lower their bills.

"There are some who are even scared. You are putting a device in their house. You know their [electrical] load. What are you also going to know?

"But we can bring them into the control room and show what we're doing and what it could mean for them, and it changes their perspective. "We ask, 'Are you tired of surprises in your electric bill? Would you like to know on the 18th of the month that you've already used 1,800 kilowatt-hours and your current bill is up to $190? Then they go, 'Hell, yeah, I'd like to know.' That's what we're talking about."

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