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AMI/Demand Response: For Real This Time?

Smart metering is coming of age. Is the utility world ready for it?

Fortnightly Magazine - September 2006

seems unlikely that voluntary time-based rate structures can fully realize those benefits.” (Responding to EPACT 2005: Looking at Smart Meters for Electricity, Time-Based Rate Structures and Net Metering, NERA Inc., May 2006).

Selling Smart

The growth of smart metering might depend more on political factors than it does on the technology itself.

For example, most utilities’ time-of-use rate programs thus far have been offered to customers on a strictly voluntary basis. And EPACT Section 1252 only requires smart metering for those customers that request it; nowhere does it suggest utilities require customers to accept time-of-use rates. Yet engineers and policymakers agree that extracting the true benefits of smart-metering and time-of-use rates requires large-scale adoption.

“One of AMI’s most important premises is that you collect interval data on substantially 100 percent of your customers,” says Kevin Cornish, DCSI Inc.’s project manager in charge of the Pacific Gas & Electric (PG&E) smart-metering initiative. “There are differences of opinion on the level of granularity you need, but in general the market is settling on hourly interval data for the mass market, and 15-minute intervals for mid-sized and larger commercial customers.”

Additionally, some time-of-use rate structures might prove ineffective because they do not reflect the real cost of power in the market. Few demand-response programs directly are tied to real-time market prices, and some utilities, such as Nevada Power, go so far as to guarantee time-of-use subscribers will pay no more for their monthly energy usage than they would under standard rates.

“At the present time, because of price caps and rate protocols, prices don’t rise high enough to provide adequate signals,” says Paul Joskow, professor of economics at the Massachusetts Institute of Technology (MIT) and director of MIT’s Center for Energy & Environmental Policy Research. “It’s always a good idea to provide consumers with better price signals, so they can increase or decrease consumption accordingly. But if you give consumers prices that are wrong or too low, they won’t react to those prices. Until you integrate the system-operation protocols with prices and demand-response systems, you won’t get the incentives you need.”

The implications go beyond efficiency and customer service, and into areas affecting grid reliability and security. A key selling point of the intelligent grid is the control it gives to system operators, who need the ability to call upon demand-response resources in an emergency, for example. But without broad deployment and transparent price signals, smart metering won’t give system operators the tools they need to predict and manage power loads.

As a result, smart metering suffers from a classic chicken-and-egg problem. Until smart meters and time-of-use rates are adopted by virtually all customers within a utility’s territory, they cannot deliver on the promise of greater resource efficiency and network control—to say nothing of business transformation. And until utilities and regulators are convinced smart metering will deliver on its promises, they will not invest in broad AMI deployments.

To overcome this dilemma, metering vendors and consultants are working to clarify the business case for smart metering. For example, member companies in the AMI/MDM Working Group