Contrary to conventional wisdom, electricity demand isn’t immune to price elasticity, and rate designs can encourage conservation. In particular, inclining block rates coupled with dynamic pricing...
Advanced Metering: Policymakers Have the Ball
Demand response could help solve some energy problems, but not without state regulators pushing for it.
FERC Chairman Pat Wood recently testified before Congress that "demand response is a crucial element for efficient grid use, as well as an effective deterrent to the exercise of supplier market power." He noted that "most retail customers see flat, 'after-the-fact' electric prices that give little hint of the underlying cost of energy production; they don't reflect scarcity, as when total demand outstrips supply and purchasers compete for the limited power available, or the higher production costs that occur when more inefficient (and costly) power plants are brought online." He added that demand response, using "smart meters" and real-time and time-of-use rates, would allow consumers to use less electricity when it costs more.
Federal and state regulators, along with legislators, are looking at options to address many energy challenges, and are reaching consensus on the need for demand response-and with it, the need to look at advanced metering policy. Since state regulators are responsible for regulating retail electric service, they have the most important role.
Why Demand Response?
Figure 1 is the proverbial picture worth a thousand words. This chart shows the hourly load duration curve for the PJM Power Pool, covering the Mid-Atlantic area. From 1999 to 2001, the highest 15 percent of load on that system-7,500 megawatts-was used only two percent of the time, or only about 100 hours per year.
The Electric Power Research Institute (EPRI) and others have documented that a small shift in usage from the peak period will lead to significant price decreases, as well as a lower probability of electricity shortages. 1 Accordingly, policymakers are recognizing that the present situation, in which consumers get no price signals and pay the same price no matter when they consume power, does not make sense anymore. The answer, they say, is demand response.
Demand response refers to dynamic pricing, whether time-of-use, real-time or critical-peak-day rates, or dynamic load response (including appliance/equipment load control and other interruptible/curtailment programs). While some of these options historically have been referred to as "load management," the change in terminology signifies that advances in metering, communications, and control technology in recent years have resulted in entirely new capabilities. In particular, time-based rates enable consumers to have more choices and more control over their energy use-and of course, their bill.
Advanced Metering: The Basic Infrastructure for Demand Response
Automatic meter reading (AMR) technology has allowed utilities in recent years to reduce costs. However, while these cost reductions presumably have been passed on to customers as a benefit, there is no other direct benefit to the customer from an AMR deployment. AMR systems vary in their capabilities, but in general, the aim of such systems has been to replace monthly manual meter reading with automation, and nothing else.
In contrast to typical AMR systems, an advanced meter not only automates the meter reading function, but also does much more. Advanced metering is the key to providing consumers with price signals and the ability to manage their usage in response