Smart Grids, Bad Effects
The American Recovery and Reinvestment Act of 2009, the so-called "Stimulus Bill", contains $4.5 billion for "expenses necessary for electricity delivery and energy reliability activities to modernize the electric grid." With those 14 words Congress has begun the process of radically transforming the way utilities price and deliver electricity to consumers.
In explaining the bill, President Obama said it would "make our energy bills lower, make outages less likely, and make it easier to use clean energy."
Which is interesting because I read something similar long ago...In "Energizing America: A Blueprint for Deregulating the Electricity Market", Adam Thierer laid out the case for opening electric markets up to full competition, the year, 1997.
Thierer wrote that electric deregulation would lead to "increased competition, lower prices, lower operating costs for businesses, lower regional cost differences, more jobs, increased reliability of service, and a cleaner environment."
Actually, it led to the California Electric Crisis, rolling blackouts, Enron, the Arthur Anderson scandal, and a massive return to regulation for electric utilities in states that had dabbled with dereg.
So it is with some history and concern that we look at the "Smart Grid" theory.
The first and most potent issue is raised in the April 13, 2009 issue of BusinessWeek, in an article entitled "The Static Over Smart Grids", which contains this quote from the senior vice-president for asset management and planning at Pepco Holdings, Inc, a D.C.-based utility: "different rate structures will help people understand the cost of energy," according to William Gausman.
One cannot quibble with his point. Smart grid technology relies on "smart meters". Smart meters let people with solar panels on their home sell electricity to the grid when prices are high, but in so doing they require utilities to create 'real-time pricing' models. Which is where Gausman's point becomes a razor: By allowing utilities to introduce 'real-time pricing' people will quickly understand the cost of energy, because they will be billed for the real-time cost of energy.
The problem is that the cost of energy in the summer can be very, very high. Advocates for real-time pricing say that shielding consumers from that very high cost produces inefficiencies - it forces utilities to meet peak demand at a time when supplies are highly utilized (that is, when it's really hot and everyone is using air conditioning, the power plants are already running and there isn't much available power to buy).
But one economist's inefficiency is another person's air conditioning... Yes, utilities would benefit from passing the real-time cost of power through to customers, but to take just one example exactly what is a day-care center in Phoenix supposed to do when prices quadruple in July? Hose the kids down?
The fact of the matter is that people don't have the time, the interest, or the ability to monitor real-time energy pricing - and even if they did, many don't have the ability to eliminate their use for an hour or two "as prices stabilize".
But the concern Insight has with "Smart Grid" technology isn't just the effect of the policy, it's also with the name: "Smart Grid". Who could oppose a smart grid? And look at the (promised) benefits - lower costs, better environment, fewer blackouts, what's not to like?
What's not to like is that we've seen it all before - and it doesn't end well for utilities or consumers.
Yes, some utilities will make a killing in the first few months (maybe even a year) of "real-time pricing", but public utility commissions don't like hordes of angry citizens, and television crews will quickly find that day care center that can't pay its electric bill - and the easy money will disappear as it always does, leaving shareholders exposed to a hostile regulatory climate, and consumers demanding retribution.
The lessons are many - beware of any government policy with a great name, California sold electric dereg with Plug In! California, beware of any program that offers nothing but upside. And for utilities in particular, beware of 'too good to be true' schemes - the good times never last long...
Posted by Paul Walker at 19 Jun 2009 
Categories: Regulatory Analysis, Insight Papers and Presentations, Summaries of Articles
Tags: Electricity Infrastructure Energy
Categories: Regulatory Analysis, Insight Papers and Presentations, Summaries of Articles
Tags: Electricity Infrastructure Energy
Well, this won't reduce ratepayer concerns...
Here's a story from yesterday's Albany Times newspaper:
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'Smart grid' project kept secret
Apr 23 - McClatchy-Tribune Regional News
Larry Rulison, Albany Times
Union, N.Y.
National Grid is keeping secret large portions of its $240 million plan to test "smart grid" technologies in Saratoga County and the Syracuse area.
The company, the largest utility in the Capital Region, unveiled its smart-grid proposal on Friday, the same day it made a large filing with the state Public Service Commission seeking approval.
"Smart grid" is a concept under which new technologies are used to enable customers and the utility to better mange electric and natural gas usage, saving money and conserving energy.
The biggest breakthrough for homeowners is so-called smart meters that provide real-time electricity prices and usage data that can help them decide when it's cheapest to use appliances. National Grid would install the smart meters in homes in the target areas.
Testing of renewable energy sources would also be done under the pilot program.
National Grid is hoping to get half the money needed for the project from the federal stimulus package, which has set aside $4.5 billion for smart-grid initiatives.
The company also wants customers to pay for at least a portion of the project, although the utility has yet to spell out how that would work. The PSC would have to approve the use of ratepayer money.
National Grid has already submitted hundreds of pages of documents on the project to the PSC, although whole sections of the plan, including one of the three volumes that were produced, have been redacted by the company and are unavailable to the public.
In a letter to the PSC, Catherine Nesser, National Grid's assistant general counsel, said the redactions were done to "protect confidential information for which trade-secret protection is concurrently being sought."
In Volume 2 of the filing, an entire section about "green" technologies, such as solar and wind power, has been blacked out. Nesser writes that Volume 3, which is unavailable, contains confidential materials that accompany the trade-secret request.
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