Momentum builds for smart meter-smart pricing energy strategy

:Energy security concerns have risen steadily since 2001. The 2003 Midwest blackout focused us on infrastructure reliability; since then economic growth worldwide has pushed up prices for all energy and has also increased the potential for shortfalls in our electric generation, transmission, and distribution systems. Now, with recognition of global warming and its relationship to energy use patterns, we have a ‘perfect storm’ of energy issues that can all be addressed, at least partially, with energy efficiency.

The electric utility industry increasingly recognises the vital role of technologies that increase the efficiency of how its customers use energy. A consensus of utility industry, regulators, and policy makers is forming that expects energy efficiency to ‘create’ up to half of the new energy supply needed over the next 20 years, in a manner that has inherently less risk and less lead time, and yet is more environmentally benign than any other resource.

The immediate opportunities to increase energy efficiency in homes as well as businesses are often large. New lighting options produce beautiful light with 75% less electricity. Some new refrigerators use 65% less electricity than those that are 15 years old. New air conditioning equipment (A/C) is 35% more efficient than 15 years ago. Further, the typical home central air system can save 10% to 20% (even in new homes) by simply having repaired leaky ducts and incorrect refrigerant levels. If all homes in the US did only that, 25 million kW would be reduced from peak demand – the equivalent of 25 new large (1,000 MW) power plants. High efficiency motors, windows and washing machines continue to be developed that save a third or more.

Smart technology initiatives

Beyond energy saving, a key objective of utility technology is to control peak demand requirements. With less than 50% average utilisation of the existing infrastructure of power plants and transmission and distribution systems, there is a great opportunity to reduce the cost of new system load growth by adjusting the pattern of electric usage. An efficient power grid requires that customers control AC and other electric loads sensibly, based on pricing signals and the ability to respond to them.

The new vision is of a smarter power grid, coupled to smarter appliances that are operated by customers who are more literate about managing their energy use. Evidence suggests that this new approach is a low cost way to meet at least 20% to 30% of the total peak electric requirements in the future, but to do this a new infrastructure is needed of metering and appliance control systems to support time-based rates and demand response initiatives.

  • Significant momentum now exists to consider the new meter technologies that measure electric use during critical peak periods as the proper ‘cash registers’ for the electric industry:The US Energy Policy Act of 2005 requires each state jurisdiction to evaluate advanced meters and control devices for the purpose of time-based rates and demand response programmes.
  • California has required smart meter installations and timebased rates.
  • Various states, including Massachusetts and New York, have promulgated energy policies calling for smart meters as a top priority in meeting future energy requirements.
  • The Edison Electric Institute (EEI) recently announced a task force of electric utility CEOs that is proposing that energy efficiency be increased using advanced distribution technologies including smart meters.
  • Policies favouring smart meters and time-based pricing are spreading rapidly, including in Ontario and Quebec in Canada, and in Victoria, Australia. Both have called for the installation of smart meters within the next few years.

These initiatives recognise that smart meters are part of an advanced energy delivery system that relies on improved quantity and quality of information to guide both operational and customer decisions. Operational benefits from smart meters include reduced meter reading costs, better load forecasting and control, and improved customer services, but increasingly the focus has been on the ability of these technologies to support time-differentiated rates, such as critical peak rates, which charge their highest rate for a few hours on a handful of days per year when loads are highest.

As an analogy to clarify the benefits of pricing signals, consider the economics of food in an alternative world where supermarkets don’t have cash registers, but instead charge by weighing shopping carts as they leave the store. The price per pound of food is used to charge supermarket customers, instead of the price of individual purchases. In this world, the price of a can of caviar is the same as a can of tuna of the same weight, even though it costs the store fifty times more. Customers without accurate price signals fill up their shopping carts inefficiently. Stores lose money on caviar which is passed on to all customers. Customers buy more caviar than they would if they understood the true cost. As a result, everyone pays more. Solution: install cash registers and itemise pricing.

Will customers respond?

A key question is, will electric customers understand these rates and manage their use in response to them? Some have argued that customers are unable or unwilling to comprehend and respond to these rates, and as a result the incremental costs of smart meters are not warranted. However, experiences from utility energy management programmes suggest the opposite: customers want the opportunity to manage their energy costs.

An evaluation of a recent statewide pricing pilot in California reported that over 90% of consumers surveyed understood time-based prices and felt they should be offered. Statewide, customers on the pilot reduced their peak demand by about 15%. How can households respond? Since the typical utility peak period is during hot summer midweek afternoons, homes are often more flexible in their ability to shift than businesses during this time. Demand response opportunities in an individual home may seem small, as compared with the opportunity for control systems in industry and offices, but these small loads add up:

  • Home central air conditioning systems in many homes when everyone is out can cut their contribution to utility peak by having the clock thermostat adjusted intelligently. Thermostats that are adjustable over the internet have become available, creating new web-based options.
  • Electric water heat can easily be shifted to off-peak. This could become more ubiquitous in the future using internet communications and intelligence built into the water heater.
  • Refrigerator defrost cycles occur randomly; in the future they may have built-in intelligence to respond to price.
  • Laundry appliance, dishwasher and pool pump usage can often be shifted by consumers who understand that prices vary by time-of-day, season and weather conditions.
  • Even on hot summer afternoons, it is not uncommon for the ubiquitous recessed ceiling lighting, with 75-100 W each, to be running in kitchens and family rooms in homes where families are home. In response to price signals, these can be turned off, or replaced with improving compact fluorescent replacement recessed fixtures.

Helping customers respond

One approach to lowering system peak demand is to install controls operated by the utility on customers’ air conditioning, water heaters, pool pumps and other equipment. Companies such as Florida Power and Light have shown great success with these load control programmes. Recently, several companies, including Kansas City Power and Light and Southern California Edison, have offered thermostats to their customers that can be controlled by the utility to increase temperatures during the ‘critical peak’ period.

These programmes have generally been acceptable to customers and cost-effective for the utility. With smart meters and time-based pricing, the objective is for the customer to decide how to run their appliances in addition to, or instead of, utility-operated controls. A recent focus on low-cost web-delivered analytic tools shows that they can help customers choose efficiency strategies and respond to price signals.

Several companies have rebuilt their web customer service and call centre systems to meet key customer needs to understand and manage their energy bills. Supported by advanced modelling, these bill analyses provide the customer with actionable information including benchmarks and personalised bill-reducing strategies. Over 15% of the customer base is using online tools each year at many utilities and these use rates are growing rapidly.

A survey conducted as part of the California statewide pricing pilot indicated that 70% of residential customers and 81% of commercial customers would benefit from additional information. Over 50% of residential customers were interested in a customised energy analysis by the utility to help them manage their costs. Rapid advances in utility-to-home networking make it increasingly easy for customers to intelligently cycle air conditioners, water heaters and pool pumps to work around utility system peaks. Utility web tools help customers set appliance controls automatically based on web-communicated price signals. Some utilities are also offering customers supplementary signals (paging, e-mails, or glowing energy Orbs), in addition to control devices, to assist customers.

Recently, advanced meter equipment has added real-time communication of meter reads directly to the home, using open standard protocols, as well as via power line or radio back to the utility. This allows the customer to view usage on their PC with a ZigBee communication device, or through a low-cost display that plugs into any home outlet. Further, the PC or display can act as a ‘gateway’ in assisting the consumer with control of thermostats and other endpoint devices as they choose. In the not-distant future, many appliance manufacturers will be selling internet addressable appliances that are also able to respond to web-posted pricing or critical peak signals.

California statewide pricing pilot

In 2004 through 2006, a statewide working group of utilities and government policy organisations conducted a pilot of critical peak rates for all customer groups, with a positive result leading to the decision for rollout of advanced meters and time-based rates for all customers. Notably, critical peak rates created an average 12.5% peak demand reduction, with as much as 34% seen with the assistance of supplemental information and controls. Similar results were seen in smaller pilots in Texas and Missouri.

Even at the 12.5% level, the technology ‘creates’ the equivalent of 0.5 kW coincident peak load reduction for the average residential household. Notably, when installed, the impact of smart meters exceeds the capability of all other individual ‘clean’ options for meeting future resource needs. Further, since the system achieves operating savings in meter reads as well as customer service, only 10-40% of the advanced metering system cost is left to be attributed to achieving energy resource needs.

Finally, the granular data created by such systems shows substantial benefits for utility system planning and forecasting, including better strategies for identifying weaknesses in distribution systems and upgrading transformers prior to failure.


Efficiency as a technology has a potential impact over the next 10 years that is likely to be larger, cheaper, and cleaner than any other alternative. Advanced electric meters, along with information delivered via networks to customers and control devices, will provide home and business electric consumers with what they need to respond to price signals, saving money at home while making the electric system more efficient and secure.

By bringing these new technological advances to all sectors of energy users, the nation can protect its supply of power, improve its economy, and protect the environment.