"Smart" Metering Questioned

Rebecca Smith’s April 27 Wall Street Journal Article, Smart Meter, Dumb Idea?, surfaces utility consumer issues that have been percolating below the surface of the “smart meter” wave that is heavily promoted by utilities, deregulation advocates, and some environmental groups. The opportunity to sink billions into universally deployed new electric meters may be very attractive to utilities in states like New York where the PSC discourages utilities from investing in power production facilities. Having failed to achieve hoped for returns in their less-regulated holding company affiliates, utilities may want to sink capital into meters so as to earn a regulated return of 10% or so from ratepayers that they have not come close to achieving in their Enronian subsidiaries they were allowed by the PSC to form as a trade-off for getting out of the power generation business.

Deregulation enthusiasts, including Jon Wellinghoff, Chairman of FERC, tout smart meters as a market based solution to correct manipulated markets.See, e.g., Wellinghoff and Morenoff, Recognizing the Importance of Demand Response: the Second Half of the Wholesale Electric Market Equation. The notion is that high prices in wholesale spot markets will be moderated if customers reduce their demand for electricity in response to spiking prices at hours of peak pricing (typically summer afternoons and evenings when air conditioning is used). The “smart” , meters allow a pass through of hourly price spikes intended to cause customers to reduce usage or shift it to non-peak hours, and thereby tame the spot market price spikes. Assumptions that raising prices so high consumers will resist by not using air conditioning when they need it, and that this will fix the fundamentally flawed wholesale spot markets, lower costs and avoid the need for regulators to establish reasonable rates, are naive at best. This “demand response” theory — in vogue as a substitute for traditional regulation — implicitly incorporates questionable assumptions

• that the wholesale spot markets, essentially deregulated by FERC, set the “right” price for all electricity not matter what it costs or how it is bought,
• that the spot markets operate competitively, without gaming and without the exercise of market power, and
• that spot market prices are determined by supply and demand.

The promoters of smart meters and demand response antidotes to market manipulation also the plight of people who need electricity at peak times who cannot afford to pay sky-high prices without enduring hardship.

Smart meters may also have environmental downsides. In some areas and situations, shifting electric usage from peak times, when more natural gas is burned to meet incremental needs, to off-peak times when more coal may be burned, could backfire for those who want cleaner air.

Many consumers cannot adjust their usage. More than half the households in the country have someone at home all day and many of them, particularly the elderly and those with respiratory problems, will need air conditioning on hot days for health reasons. Many households lack the ability to pay more for electricity. See Not so Smart? High Tech Metering May Harm Low Income Electricity Customers. Other concerns include the potential for remote shutoffs as a collection measure (not possible in New York because of HEFPA requirements), privacy, and cost effectiveness in comparison with other investments. Barbara Alexander’s paper on “smart metering” emphasizes the lack of evidence to justify widespread, costly investments in universal residential real time metering, and flags many important consumer issues:

The push to install more expensive smart meters (and their associated communication and data storage systems) and consider more “real time” or volatile electricity prices for residential electric customers has the potential for significant harm to many residential customers and particularly to limited income and payment troubled customers. Almost no jurisdiction has acknowledged the potential adverse impacts on these vulnerable customers who must have essential electricity service to assure household health and safety. Nor has any jurisdiction specifically ordered an analysis of proposals for dramatic changes in the pricing of electricity on limited income or payment troubled customers. * * * *

It would be unfair and poor public policy to leap into new metering technology and new methods of pricing essential electricity service to residential customers without a careful analysis and access to factual information on the impacts of such proposals on customer bills and usage patterns. The lack of such information is particularly glaring for low income customers. * * * *

Wholesale market structure and pricing mechanisms are still being vigorously debated and to rely entirely on such immature and potentially “wrong” price signals to customers who rely on essential electricity services for minimum health and safety standards should raise red flags and longer term analysis prior to embarking on expensive new metering and rate design programs.

Fortunately, the New York Public Service Law protects New York’s residential customers by making real time pricing and time of use pricing strictly voluntary. See New York Residential Real Time Pricing Experiments Must be Voluntary.

The cost effectiveness of major investment in smart metering, compared to other measures, such as adoption of inclining block rates, or energy efficiency measures to reduce usage, needs to be closely examined. See PSC Requires More Study Before Allowing Major Investment in “Smart Meters”. According to a recent PSC Press Release,

More than half of the costs of installing AMI can be offset by a reduction in traditional
utility costs of operations or improved services, such as avoided meter-reading costs, faster outage detection and improved customer service. A projection of benefits from the demand response enabled by the AMI system must be included to bridge the benefit/cost gap based on what is recoverable from AMI-operational savings alone.

To address the lack of cost effectiveness, the PSC now wants to use federal stimulus money to support massive replacement of utility meters – many of them already digital and capable of remote reading – with new, more expensive “smart” meters. The PSC invited utilities again to submit new proposals to subsidize the meter installationsto with federal stimulus money. The utilities are happily responding. See National Grid Responds to New York State Public Service Commission Request for Projects Suitable for Federal Stimulus Funding – Potential Projects Bring Smart Grid Technology and Enhanced Reliability to Upstate New York; National Grid seeks $240 million in stimulus funds to build advanced grid in, near Syracuse. Many details of the proposals have not been made public by the utilities in their recent filings with the PSC. See Utility wants to keep plan secret.

Update
See the Comments and Reply Comments of NASUCA to U.S. Department of Energy requests for information regarding “Smart Grid” initiatives. In their Reply Comments, NASUCA stated:

“First, the consumers are the ultimate owners of their energy consumption data. The establishment of privacy protections for personal energy information is critical, and the issue must be resolved in favor of the highest degree of consumer protection.

Second, consumers should have the choice to participate in any advanced metering program or in any dynamic pricing schedule that may involve data sharing arrangements.

Third, there are unique differences among electric consumers that must be considered for any Smart Grid deployment.

Fourth, investments made in Smart Grid technologies must be supported by a detailed cost-benefit analysis and subject to evidentiary proceedings and prudence review before costs are passed on to utility consumers.”