ECM

Demand-Side Management & Metering Tech

Combining real-time usage data with the newest technology can earn benefits for utilities.

Some amount of confusion on the part of end-users of electricity is inevitable as the electricity industry evolves. Confusion seems to be a necessary ingredient of change. At PJM Interconnection, we see fusion as the answer to confusion. First is the fusion of technology-both computing and communications technology-with the electric industry. Second is the fusion of pricing and usage information with the end-user's ability to act on that information.

We can maximize efficiency using pricing information. Once customers are able to see and respond to real-time pricing information, the electric industry will be more efficient, and concerns about market power will lessen. Fusion will replace confusion. The questions are, when, and how?

Step Into the Future

Consider the following scenario. Susan heads out to a book club meeting leaving John home paying bills. John reviews the status of the bank statement online before paying any bills not already paid automatically. He notices the electric bill has been paid and recalls that Susan had mentioned reading about an electric product offer that seemed much more closely matched to their needs. They already enjoy the benefits of an electricity home management system, installed when their house was constructed. They jointly chose an electricity supply and management plan that reduces electricity usage, elevating the thermostat by five degrees on hot summer weekday afternoons when the price of electricity reaches or exceeds 10 cents/kWh. This arrangement suits them well because they are "empty nesters" who both work outside the home. However, Susan telecommutes two days per week, so she either packs up her work and heads to the local library on very hot afternoons or overrides the electricity management system and pays the higher cost of 10 cents/kWh for the additional quantity of electricity needed to cool the house the additional five degrees.

The offer John reviews on the electricity supplier's Web site appears to suit their needs better. The new plan provides 20 hours of override per month at the base rate but charges a base rate that is half a cent higher per kilowatt-hour. John e-mails questions to the electricity supplier. His e-mail includes directions to switch their household to the plan if his understanding is correct.

Welcome to fusion. If this scenario seems far-fetched, think again about the Internet technology we use everyday.

Clearly, 21st century technology can and will enable the automation of demand-side response by end-users of electricity. As prices for hardware and software fall, key aspects of demand-side response can and eventually will be automated for data collection, selected pricing information, communication of pricing and usage information, decisions about electric consumption, and implementation of decisions about electric consumption. Energy management providers will assist end users unable or unwilling to use computers. The bottom line is that technology will enable end-users directly or their electricity suppliers/managers to see and respond to real-time wholesale electricity prices. Susan and John selected their product offering on the basis of price and their needs while their electricity supplier used their decision to help manage the volatility of wholesale electricity prices.

Note that the value of demand response is not limited to areas where end-users can choose suppliers. Demand response can contribute significant value in fully regulated states because resources are still economically dispatched on the basis of cost. This means that the technologies employed by Susan and John are equally applicable to end-users whose regulators design tariffs to show the differences in the real cost of electricity from hour to hour and season to season.

Today's Technology: Better, Faster, Stronger

We have the necessary data. We have the systems and expertise to put the data to work for end-users. We have the telecommunications "pipes" to connect the data, systems, and users. We know benefits of price response.

At PJM we know about data. There are more than 46,000 data points within PJM that are updated every 10 to 14 seconds. This operational data includes unit outputs, flows, voltages, and equipment status. PJM uses this and other data including the price offers of generators to calculate locational marginal prices (LMPs) for each load bus and generation bus in PJM every five minutes. Using this nodal pricing information, PJM then calculates zonal LMPs for each of PJM's transmission zones every five minutes and then on a weighted basis for every hour. (A bus is a connection point in the electric system.)

Having converted the data into useful pricing information in the form of LMPs, PJM's Web site makes the LMPs available for decision-makers, both private and public. PJM offers the "eData Feed" product that allows users to customize the flow of specific, real-time pricing information directly into their computer systems.

Empowering Consumers

The electric industry has a bevy of energy consultants, software developers, and energy management system providers (not to be confused with the Energy Management System that balances load and supply and evaluates contingencies in each control area) to help end-users manage their electric usage and match their electricity needs with available regulated and/or competitive offerings of electric service providers. The decisions of end-users can then be implemented in an automated fashion.

There are two obvious questions for these energy consultants and energy management system providers. Does it work? How much does it cost? End-users want a cost-benefit analysis of the fixed regulated rate or the competitive offer (if available) against the cost of an energy management system designed to reduce their overall electricity bill. In other words, are the savings from peak-shaving and demand-response program participation greater than the costs of acquiring and implementing an energy management system? If our industry follows the evolution seen in other industries, prices will fall over time and refinements will enhance customer friendliness and thus the value of energy management devices and related services.

Information Pipes

We have the telecommunications capacity (or "pipes") to link in real-time (or near real-time) pricing information reported by the RTO from the supply side and the usage decisions from the demand side. Thanks to a glut in the nation's supply of telecommunications capacity, these pipes are fatter and cheaper. In the telecommunications sector, cable competes with traditional phone lines, and both compete with wireless services.

Finally, price responsive load like that of Susan and John described above is "win-win." Susan and John save money by reducing load during high-priced hours. The couple's electricity supplier, whether competitive or regulated, saves money because high-priced (cost) generation does not need to be dispatched during hours of very high demand. The reduction of load by Susan and John during high-priced (cost) hours contributes to the reliability of the grid.

Wholesale Market Design: Only Part of The Equation

We currently have an electric market in which only one hand, generation, is clapping.2 The effort is under way to develop market designs for the wholesale electric market that accommodate and value demand response. More work needs to be done.

The biggest challenge in all of these efforts is to treat all resources, both generation and demand response, comparably. Comparably does not mean the same, but it does mean that the proverbial playing field for both kinds of resources must be as level as possible. Market designs, whether for energy, unforced capacity or spinning reserves, must recognize the important differences between generation and demand response without providing an unfair advantage for either resource. Participation by demand response in any wholesale electric market must be valued properly to avoid distorting the important price signals.

Moreover, as described above, efforts are under way to prove that the technology-including equipment, software, and communications-actually works. The United States Department of Energy (DOE) has awarded and is soliciting projects to prove these technologies in the field. Given the current anemic state of investment in much of the electric industry and the improving but still weak economy, DOE's projects have grown in importance. The significant power outage on Aug. 14 of last year may or may not change this environment for investment. Fortunately, the Federal Energy Regulatory Commission (FERC) and many state regulators have adopted demand-response policies including funding commitments that support the projects DOE is sponsoring and partially funding. FERC has said that "without a demand-response mechanism, the [independent system operator] is forced to work under the assumption that all customers have an inelastic demand for energy and will pay any price for power."3 Likewise, state regulators have filed comments supportive of developing demand-side response in PJM markets.4

Feasible Prices for the Technology

It also is essential for energy management systems to be priced at a level that makes end-users' investment in them feasible, given the market-measured value that these systems produce. In other words, proving that the technology works is not enough. It must enable end-users to see and respond to market prices for electricity. The price of the energy management system that optimizes the end-user's electricity purchases and load reductions must be commensurate with the value that the end-user can obtain in the electricity market by installing the system. Presumably, energy management system providers will focus first on the largest end-users.

Two load-response programs approved by FERC are currently "jump starting" demand-side response in PJM. Load currently registered in these programs, the emergency and economic load-response programs, equals approximately two percent of PJM's all time peak demand.

The vast majority of end-use customers in the PJM RTO pay flat, fixed rates for electricity and have electric meters that do not record the time of use. This means that, for now, PJM must continue to offer load-response programs that are admittedly poor substitutes for enabling end-users to see and respond to market prices. We can hasten the day when more end-users have interval meters that measure and record usage information over time, rather than simply accumulating the total usage over the course of a month or two. Interval meters better permit the utilization of rates or pricing that varies with the time of use-just as the cost of producing electricity varies with time. Flat, fixed rates simply do not encourage end-users to conserve electricity. It is disheartening to drive by college dormitories with the windows open in winter because of overheating or in summer because of overcooling.

Confusion remains, but the fusion that we eventually achieve will be well worth the initial confusion. There is something profoundly obnoxious about continuing to waste a resource as important as electricity by not properly reflecting its real cost.

Endnotes

1. With apologies to Professor Michael L. Dertouszos of M.I.T. and to Joanne and her husband, characters in Professor Dertouszos' book, What Will Be. How the New World of Information...
2. Hirst, Eric and Kirby, Brendan, "Retail-Load Participation in Competitive Wholesale Electricity Markets", January 2001, pg. v. Mr. Hirst is a former corporate fellow at Oak Ridge National Laboratory.
3. San Diego Gas and Electric Co., 95 FERC 61,148 at 62,555, 2001.
4. "Additional Comments of the Mid-Atlantic Conference of Regulatory Utility Commissioners, In the Matter of Remedying Undue Discrimination through Open Access Transmission Service and Standard Electricity Market Design," Docket No. RM01-12-000, Jan. 10, 2003, pp. 27 and 40.

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