(August 2011) Economic consultant Michael Rosenzweig challenges Constantine Gonatas’s proposal for ensuring FERC’s demand response rulemaking achieves its objectives. Also, Juliet Shavit...
Smart Grid: A Customer Challenge
Consumers hold the key to technology’s benefits.
As excitement and interest in a smart grid builds, utilities across North America are launching Web sites and experiments that will help customers take better advantage of the information that will be available. But as great are the issues with privacy, data management, security and technical performance associated with two-way devices, we shouldn’t delude ourselves that the customer changes ahead will be easy. Whatever the potential benefits, much will need to change both inside, as well as outside, in order for utilities to engage customers, and these changes in turn will create the most difficult challenges.
As important as funding, installation and performance issues will be, ultimately, widespread deployment and success will depend on the ability to engage large numbers of customers in different ways, as partners in energy-delivery networks. This will require customers to think differently about their energy use, and utilities to perform as change managers, in different and more sophisticated ways.
If this goes wrong, benefits will be greatly delayed and societal costs increased, so prior deliberate and thoughtful action is imperative.
The smart grid will move the utility industry’s relationship with residential customers beyond conservation to load shaping. This will require both unlearning and new learning to be successful. As Fred Butler, New Jersey BPU commissioner and current NARUC chairman, has noted, “Consumers don’t understand that it costs more to produce energy during a peak period.” 1
When electric utilities were operating in a declining marginal-cost environment, it was in their best interests to encourage consumption, often with declining marginal rates. Indeed, it’s probably a misnomer to think of customers as kilowatt-hour (kWh) consumers; most are very aware of their consumption in terms of the heat, light and motion used and of the resulting bill (for kWh usage). Conservation has been approached in a similar way, with the focus on strategies that could reduce kWh consumption—such as insulation, compact florescent bulbs, etc.—and on the resulting bill.
However, detaching what is consumed ( i.e., capacity or the amount of generation capability needed to support the needs of the customers) from what is enjoyed ( e.g., heat, light and motion) has contributed greatly to residential customers’ misunderstandings and reservations concerning rates. Why industrial customers should get better rates is a question many have asked, and few really understand the answer. Economists who suggest the answer can be found in better price signals for capacity used, especially during coincident peak periods, overlook the lack of a fundamental understanding of the consumption units themselves, let alone how to control them. Kilowatt (kW) pricing or even perhaps kilovolt ampere reactive (KVAR) pricing are mystical concepts for many residential households and possibly utility customer-service representatives as well.
Ray Gogel, formerly Xcel Energy’s chief information officer and architect of the company’s smart-grid city project, said, “Today’s electric