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Selling the Smart Grid - The Pitch

Two utilities win customer support for dynamic pricing and demand response.

Fortnightly Magazine - April 2008

If the recent backlash against California’s proposed new building codes proves anything, it’s that ratepayers won’t buy into the smart-metering concept by themselves. The industry will have to sell it.

That means hammering home the benefits, including an assortment of cost savings, environmental benefits, greater flexibility to make energy choices, and improved grid reliability— i.e., fewer brownouts and blackouts, and lower transmission system maintenance and operating costs.

Utilities that hope to get around all that by relying on state-imposed regulatory mandates similar to the California Energy Commission’s (CEC) ill-fated proposal almost are certain to fail. In fact, experts say, suppliers would do well to completely avoid the M-word: “mandate.”

“Mandatory direct load control just won’t work,” says Lynne Kiesling, a professor and economist at Northwestern University and a founding member of GridWise Architecture Council. “It’s a sure-fire way to make consumers look at smart grid technologies with suspicion.”

How then should electric utilities, municipals and cooperatives go about introducing smart grid technologies? Two major utilities—Public Service Electric & Gas (PSE&G) and Southern California Edison—are in the early stages of doing just that

PSE&G’s myPower

The myPower program at PSE&G ran through 2006 and 2007 and allowed the utility to determine how: 1) price signals can influence a customer’s energy use patterns; 2) how customers react when given the opportunity to shift load during peak periods; and 3) how technology can help them do that.

To examine how and when participants will shift electrical demand to other time periods, PSE&G introduced a tiered rate structure that featured low, medium and high cost time periods, with an extra high critical-peak price.

Instead of the utility’s standard rate of 11 to 12 cents a kilowatt hour, the pilot rates ranged from roughly 8.7 cents/kWh between 9 a.m. and 1 p.m.; 23.7 cents between 1 and 6 p.m.; 8.7 cents between 6 and 10 pm.; and 3.7 cents between 10 p.m. and 9 a.m. During critical peak periods, which occurred five times last summer, the price jumped to $1.46/kWh.

Participants were recruited through a direct mail campaign supplemented by telemarketing calls. The utility offered a cash incentive—$25 upfront and $75 at completion of the pilot—to spur interest. Customers were screened over the phone to ascertain various in-home attributes, such as the type of heating and air conditioning, broadband Internet, and in-home phone lines available.

Those accepted into the program were divided into two segments: One would be notified by the utility via phone or email when PSE&G expected a critical-peak to occur the next day. A second “technology enabled” group received new smart thermostats that automatically responded to price signals sent by the utility. Each group was comprised of about 375 customers.

Once accepted, participants received a new 15-minute interval whole-house meter. Those in the technology group also received the smart thermostat, which was installed and programmed by a PSE&G technician. Customers

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