Learning Conservation From Smart Meters

 | Aug 27, 2012 | 6:00 PM EDT  | Comments
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Usually consumers are the decision makers. But in today's utility world, state regulators are analyzing their choices and making decisions that deploy millions of smart meters for uninformed and wary consumers. When they learn what is planned, many consumers become concerned; others are enraged.

Up to now, most understood that smart meters helped utilities lower cost of services by eliminating labor-intensive meter readers and improving the reliability. It was part of the so-called "smart grid" program and, most thought had little direct impact on the residential consumer.

During this multi-year process, residential and small consumers were largely unaware of the changes and disengaged from the public process. But the end game always involved the small consumers. They had to wait until the smart systems were designed, state regulations were changed, meters were installed and new rates published. Only when everything was completed would small consumers learn what was in store.

What they learned was smart meters punish stupid consumers. After the meters were installed, consumers who left air conditioners on while they were at work were greeted with huge utility bills. After a few billing cycles, consumers learned their new smart meters were intended to motivate smart consumers to shift their energy consumption from pricy daily peak hours to the cost-effective slow periods.

Most states believe consumers need to be motivated. Many states no longer have the ability to build new transmission lines or large power plants. Instead, states and their utilities are using smart meters and energy efficiency incentives as their new tools to motivate consumers to be smarter about their energy consumption. If successful, consumers will respond by reducing energy consumption during peak periods and shifting their consumption to off-peak hours. If the consumers respond, states will need fewer power plants and transmission lines.

From the state governments' perspective, energy efficiency is a winner. Not only do they avoid the costs associated with constructing additional infrastructure, they also can keep power prices relatively low. They keep average prices low by reshaping regional demand, which shaves market-clearing prices.

States also win by reducing pollutants from power plants. Reshaping and lower peak demand sidelines inefficient and dirtier plants. With fewer emissions, states can meet their Renewable Portfolio Standards.

States are not the only winners. Smart meters shift energy consumption to off-peak hours, which traditionally have been periods of low margins. With more consumption moved to the back hours, independent power companies such as NRG Energy (NRG), GenOn Energy (GEN), Calpine (CPN) and Atlantic Power (AT) achieve higher capacity factors without having to make additional capital investments. Plus, these companies will be able to book higher off-peak margins, which offset losses from peak shaving activities.

Transmission line owners, such as ITC Holdings (ITC), American Electric Power (AEP), American Transmission Company and Trans-Elect will also see better capacity factors. However, their opportunities to grow by building new transmission lines could diminish.

In a perfect world, power companies and regulators prefer to see even consumption throughout the day. Smart meters are one tool that helps states and local utilities introduce consumers to this perfect world.

But the utility world is far from perfect and not all consumers accept the change. Ignoring lessons learned from the 1960s and 1970s when states and utilities forced new power plants in unwilling regions, it appears state regulators and local utilities are forcing smart meters on uninformed consumers without first seeking consensus. The result is some consumer blowback.

The Associated Press (AP) reports growing consumer resistance toward smart meters. In Texas, "where there is a general suspicion of government and fear of electronic snooping, the smart meter has become the center of a politically charged showdown over personal liberty." But Texas is short power generation in a grid that has poor interconnections. The state needs options, and energy efficiency seems readily achievable.

Other states face similar challenges. AP reports that California, Vermont, Maine and Nevada have also come under pressure from their consumers and regulators are now allowing residents to opt out of smart meter installations. However, this option comes at a price: Reluctant consumers must pay extra to have utility read their old meter.

Smart meters do not affect commercial, industrial or large power users. These consumers have been using smart meters for decades. They also have been paying for seemingly obscure services such as demand and power factor correction.

Residential and small consumers are the last customers to use smart meters. For now, these customers need not worry about obscure utility services. As of today, they remain free of charge. Tomorrow is another matter.

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