The New Golden State of Smart Grid

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by Kristen Wright, associate editor

Texas keeps swaggering into conversations about who’s doing smart grid right, and for many reasons. Why do smart grid beginnings shine there while they’ve caused headaches and prompted lawsuits elsewhere?

“If you’re talking at the level of the state of Texas, it’s materializing because we have a competitive marketplace,” said Kenny Mercado, senior vice president of smart grid deployment at CenterPoint Energy.

The company moved forward with its automated metering system in February 2009 after receiving approval from the Public Utility Commission of Texas. CenterPoint Energy serves more than 5 million metered customers. Its electric transmission and distribution company serves the greater Houston area. It also has local natural gas distribution businesses in six states, plus a competitive natural gas sales and service business in the eastern U.S.

Now in its second year, the metering deployment is going very well, Mercado said.

“If you start with the automated metering system, it becomes like the foundation of the smart grid,” he said. “And the benefits become larger at the market level because generation and load can be closely matched. You have actual near-time information. That level of efficiency becomes a big benefit for the economic dispatch of the electricty in Texas. Everything goes back to the retail marketplace. Our regulators understand that.”

Given, he lives in Texas, and people expect Texans to talk about bigger and better. But Mercado’s not the only one ranking Texas on top. Chris King, chief regulatory office at eMeter, is another fan.

“Texas is the one I always point to, and the main reason, I would say, is they are taking a very common sense approach,” King said. “The legislature passed a law saying, ‘We want smart meters.’ They didn’t spend 10 years trying to boil the ocean. They have home area network interfaces in the meters, as does California, but in Texas they’re already live. California is a year away, maybe two.

“Texas knows they’re making mistakes—they’re small—and they make a fix.”

Mercado said that CenterPoint Energy’s ratepayers haven’t complained any more about smart meters than they have about other issues. But he acknowledges what remains unclear.

“Even though they’re not complaining, it doesn’t mean they’re satisfied,” he said. “Our customers expect a lot more. The money curve is still in front of us, so we’re still wanting to market and advertise to provide instruction to the customers.”

Most of his customers don’t understand the reason for switching to smart meters, Mercado said. A recent EcoAlign survey reported that some 70 percent of Americans don’t know what “smart grid” means.

Some state regulators remain uneasy about the switch, too, and like consumers, they seem focused on the meter, said Wanda Reder, IEEE Smart Grid Task Force chairwoman.

“That’s really true, there’s a lot of focus on that meter component,” Reder said. “That’s one facet, but we have to remember that the smart grid encompasses other facets, as well.”

She recommends thinking beyond the meter.

“We’re putting ourselves as an industry in a position to serve at a lower cost—maybe take some of the labor out of the equation,” Reder said. “The other stream of conversation is when you start looking at the meter, is it cost-effective? There’s an element of what is the overall good? We need to take into account consumer acceptance of this technology.”

The best way to convince consumers and state regulators that smart meters can benefit everyone, King said, is to point to what has been successful.

“The best way is to find good examples where smart meters are working well and consumers are happy,” King said. “One example is Toronoto Hydro, where consumers have access to their information on the website.

“Another example would be CenterPoint Energy. It’s still a bit embryonic.

“A third example is JEA in Florida, a municipal utility. They use the outage ability of smart meters so parents know when to send their kids to school. Another good state is Maryland. They are about to approve the applications for Baltimore Gas and Electric and Pepco to offer smart thermostats to every customer with a central air conditioner.”

Nora Mead Brownell, a former commissioner of the Federal Energy Regulatory Commission and founding partner of ESPY Energy Solutions LLC, agrees with King and Mercado about ranking Texas at the top. For any state to be successful in its smart grid deployment, she said, it must have federal and state backing.

“I think the ideal solution would be national legislation and support because when you do these just state by state, it’s very difficult to eliminate barriers to entry, but the reality is under the current regime, it is state by state, and some states are doing a great job,” Mead Brownell said. “Texas and Pennsylvania are among them.”

King pushes for collaboration between states and the federal government, as well. He called the U.S. Department of Energy (DOE) a “tremendous reservoir of expertise.”

“The best way for them to work together is for DOE to do what it does best, which is to provide technical assistance,” King said. “Leave it up to the states where they have their expertise, implementing policies for actual program implementation.”

Mead Brownell said that the United States should look even outside its borders to find good smart metering examples.

“Well, I think you merely have to look at somewhere like Italy that has had deployment of smart meters and talk about drastic reduction of the operation and management costs,” Mead Brownell said. “I think we’ve had a not very objective analyst of what smart meters can really do, and we tend to focus on a few isolated instances where somebody failed with their execution, like what seems to have happened in California.”

Bakersfield, Calif., to be precise. Pacific Gas & Electric (PG&E)hasn’t enjoyed the success that CenterPoint Energy has in smart meter deployment. In early May, PG&E said that as many as 23,000 of its customers with SmartMeters might have received incorrect bills. PG&E plans to add 165 call center representatives to help customers with their billing concerns, according to its website.

The good news is that there aren’t many Bakersfield look-alikes. Mead Brownell said there are a few ways state regultors, once they’re on board, can convince ratepayers that smart meters are worth it.

“One, you need to be transparent and have a major educational outreach, but you also need to give customers end-use information,” she said. “One of the mistakes we’ve made with smart meters is we haven’t given them in-home displays. You educate, and you give them the tools. You’re realistic with the prices.”

Mead Brownell said there would be more consumer buy in if meters were available at Wal-Mart and Best Buy for about $60.

Tanya Bodell, vice president of Charles River Associates, said that overall collaboration is important, but state regulation will trump all else when it comes to smart meters.

“To realize the benefits of smart meters, customers require smart price signals,” Bodell said. “This is the domain of state regulators who approve rates for regulated load-serving entities. As a result, many of the roadblocks to the smart grid result from existing regulatory structures that reside at the state level; therefore, state regulation enabled by state legislation is likely to be the most powerful resource to overcome the challenges that otherwise would prevent the smart grid to materialize.”

State regulators need to consider four questions, Bodell said. What is the value provided by the smart grid? How is that value allocated across stakeholders? Who is willing to pay for that value? And what is the most efficient way to realize that value?

In addition, there are many detailed issues that fall under each category, she said. They include approved level and timing of smart grid investment, cost-recovery mechanisms, rate structure, ownership of information, market design and implementation, customer education and regulatory rules.

Bodell won’t hand Texas the golden trophy just yet. It’s too early to tell which states are the early winners in smart grid, she said.

“To quote the old adage,” she said, “‘the proof is in the eating of the pudding,’ and most states have not finished setting the table.”

It’s probably going to be easier to predict the last adopters, Bodell said.

She said to look at which states already had smart grid initiatives underway and which ones received the DOE’s first round of Smart Grid Investment Grant awards.

Smart Grid Initiatives by State Initiated Prior to 2009

California had five smart grid initiatives before 2009; Indiana had four; there were three initiatives each in Texas, Florida, Pennsylvania, Michigan and Wisconsin; there were two each in Washington, Arizona, Colorado, Minnesota, North Carolina, Tennessee, New Jersey, Connecticut and Maryland; and there was one initiative each in Oregon, Idaho, Nebraska, Kansas, Iowa, Missouri, Illinois, Louisiana, Ohio, New York and Georgia, according to Charles River Associates data.

“Certain states already had embarked on smart grid initiatives when ARRA (American Recovery and Reinvestment Act) was passed,” Bodell said. “Following those first movers are new states that received DOE funding to install smart meters. States that had not already embarked on smart grid implementation and only received DOE funding for synchrophasors through their RTOs seem to be the furthest behind. That being said, there may be an advantage in being the second mover due to advancement in commercialized technology and lessons learned from early initiatives.”

Reder called the DOE stimulus funding a blessing.

“We need to be very prudent in how that’s used,” Reder said. “We need to frame the pilots and learn as much as we can through those efforts. Sometimes at the state level, there may be a little question how to proceed. That’s a long–winded answer to say it has to be seamless and coordinated. The regulators play a very important role in the sustainability moving forward.

“Utilities need to have the flexibility to take that step,” she said. “There needs to be a relationship established to allow them that flexibility. Start in small. It’s not unusual to have a pilot. Our traditional asset base has been depreciated over a 20-year life. So there have been techniques within ratemaking to accelerate depreciation. Obviously, the thing that’s really up in a lot of discussion is the dynamic pricing. When the price is high, the price to the consumer appears to be high.”

Bodell’s company, Charles River Associates, has developed a framework for examining the smart grid that includes three major components: smart utilities, smart customers and smart markets, she said.

“Utilities are in the lead, especially in those states that have begun passing legislation and regulations that support smart grid investments,” Bodell said.

“Customers only recently are starting to receive outreach and education about smart meters and what the smart grid means for them, but such outreach is limited in scope, scale and geography,

“Smart markets have not yet been addresssed other than preliminary discussions on rate structure. We have a significant journey ahead before we will realize the full potential of the smart grid.”

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