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California Taps High-Tech Meters In New Bid to Rein In Energy Use By REBECCA SMITH
Staff Reporter of THE WALL STREET JOURNAL
May 11, 2005; Page B1
Still smarting from its disastrous fling with electricity deregulation four years ago, California is pursuing another ambitious energy program that ultimately could set an example -- or serve as a warning -- for other states. Three big utilities -- Pacific Gas & Electric Co., Southern California Edison and San Diego Gas & Electric Co. -- plan to eventually replace millions of conventional electricity and gas meters with as many as 15 million high-tech "time of use" devices at a cost of some $3.6 billion. Behind the program is the state's perennial need to curb growing energy use and a desire to boost utilities' efficiency. The new gear would give utilities up-to-the-minute information about how and when homes and small businesses use energy. Armed with that data, the utilities could raise prices during peak periods -- say, a hot summer afternoon -- to drive down energy use. The initiative, which the California Public Utilities Commission has encouraged, has major policy and political implications. Historically, utilities have been regarded as enablers of a growing economy, obliged to meet demand and keep supplies plentiful and cheap. With the meter proposal, utilities and state regulators would instead use their control over pricing to allocate a scarce resource. The technology -- which already is being used in a few other states -- eventually could give the utilities some remote control over home appliances such as air conditioners, which raises privacy questions. And there already is friction over the anticipated elimination of hundreds of meter-reader jobs, which could be rendered superfluous by the new network-connected meters. Pacific Gas & Electric, a unit of PG&E Corp., and San Diego Gas & Electric, a unit of Sempra Energy, which together cover more than half of California's energy market, are in the process of selecting equipment makers for pilot programs that would initial y involve a few thousand meters. If successful, the two companies would launch broader rollouts beginning late this year or in 2006. Southern California Edison, a unit of Edison International, proposes to design its own meters under a $1.2 billion program. The utilities plan to pay for the devices through cost savings and, in some cases, higher rates. California tried to use rebates to curb power consumption during the energy crisis of 2000-01, but the effort revealed a fundamental weakness in the setup. Under deregulation, the state had a wholesale market in which electricity prices could fluctuate from one hour to the next, but retail prices could not. State officials offered special discounts to certain consumers, which resulted in them cutting their energy use and thus reducing overall demand. But the incentives weren't effective at concentrating energy conservation during crucial periods like heat waves, when supplies shrank and wholesale prices soared. For that, the utilities need hardware more sophisticated than today's meters, most of which can't report a consumer's energy use on a particular day, let alone by the hour. The time-of-use meters would solve that problem with something called "dynamic pricing." Backed by data from the meters, rates could be adjusted according to several market variables, including demand, supply, wholesale prices and individual use. Utilities in some other states have installed the high-tech meters but on a much smaller scale. In Pennsylvania, PPL Corp. and PECO, a unit of Exelon Corp., have installed advanced meters for all their customers. But they are using them primarily for doing meter-reading automatical y, not to manipulate prices and demand. Gulf Power Co. in Pensacola, Fla., a unit of Southern Co., has given small-use customers the option of participating in a program that involves variable pricing and new meters for $4.95 a month. They pay lower-than-normal rates 87% of the time. For the remaining time, prices are higher than normal, but consumers can cut energy use with special thermostats and other devices. On average, consumers are saving about 15%. In California, the state and utilities together have conducted a test to gauge customer response to variable pricing. About 2,500 small-scale users across the state were given new meters and put on different pricing plans. In one plan, consumers were charged 13 cents a kilowatt hour for most hours except for 2 p.m. to 7 p.m. on weekdays, when the price went to 25 cents. On a few occasions the price was jacked up to 66 cents a kilowatt hour to mimic a period of special system needs. Researchers said the program reduced peak demand by about 13%. But one consumer in the pilot program wasn't impressed. Dawn Seden, an office manager in San Diego, was initially enthusiastic about getting an advanced meter and programmable thermostat to control her home's central air conditioning and heat. But her electricity bills jumped about 15% under the variable pricing scheme. And she found dealing with the price fluctuations to be a bother, even though the setup allowed her to adjust the thermostat via the Internet. "To be honest, if you're at work, it isn't very convenient to have to log on" and change the settings every time prices spike, she said. Before all the gizmos, she simply turned the climate control off when she left for work in the morning and turned things back on at night. "In some ways, it was easier." Advanced meters, with a two-way communications capability, also
could let utilities remotely control energy-sapping appliances like air
conditioners and pool pumps
. But some people fear a privacy problem, especially if energy-use data are sold or made available to police officers who, say, are looking for high energy usage that could signal marijuana grow lights. "The technology has benefits but the question is how we can enjoy it without creating Big Brother," says Chris Hoofnagle, director of the Electronic Privacy Information Center's West Coast office in San Francisco. He believes privacy protections should extend to utility-usage data. The California Public Utilities Commission has yet to rule on any of the utility proposals, although they have been filed at its behest. The project's cost is certain to be a big issue at the commission. Collectively, the three utilities estimate they will need to spend more than $3.6 bil ion, including the expense of integrating the advanced meters with other utility billing- and outage-information systems. The utilities think some of the cost could be offset by reducing peak demand; by cutting the expense of reading meters, which Pacific Gas & Electric estimates could save $700 million over a 16-year period for the company; and by improving outage detection and repair systems. But rate increases also likely would be needed to fund the program. "Any rate impacts will be very small," said Tom Bottorff, senior vice president of customer service at PG&E. Reducing power demand hinges on rate structures that motivate people to change their habits but are not so extreme as to spark a consumer revolt. PG&E says its variable-pricing structures will be "very attractive" and entirely voluntary. Edison says, in its regulatory filing, that 80% of its small-use customers will be put on "critical peak pricing" programs, which can result in a big price spike during a moment of high stress for the electrical system. It essentially punishes people for using power at certain times. Although variable pricing for electricity is novel among residential consumers, large commercial and industrial customers have been offered such programs for years. What's new for them, though, is the likely imposition of peak pricing during critical-use periods. Late last month, the utilities commission nixed proposals to impose critical peak pricing on big energy users this summer, after many of these customers complained they didn't have enough time to prepare for such a change. The commission has directed utilities to come up with new plans, later this summer, which would take effect in the summer of 2006. One energy economist who has studied the issue believes a properly designed variable-pricing program could produce huge public benefits and push utilities to think more innovatively. He also feels that consumers, once they understand the potential of meters to foster efficiency, will embrace them. "I think we're going to find there's a lot of price responsiveness at the residential level," says Severin Borenstein, head of the Energy Institute at the University of California at Berkeley. Write to Rebecca Smith at [email protected]

Source: http://www.arema.com.au/media/us_time_of_use_meter.pdf