Technology Corridor
Payable on Demand
Utilities are finding strategic benefits in demand-based metering technologies.
February 2004
By Guerry Waters
It's been years since utilities regarded customers as mere check-writing extensions of their meters. In fact, utilities' information technology focus during the past decade has centered on gaining greater control over customer information. The objective: Focus on-and fill-customer needs. The results are everywhere:
- Consolidated and converged bills;
- Call centers that answer questions immediately;
- Internet-based self-service; and
- Billing options.
Now a new era is emerging. Customers of all sizes are starting to control energy consumption in response to market signals. The vehicle for this change is the sophisticated metering technology now being pushed down from larger to smaller customers.
Time-of-use meters once reserved for large commercial sites are finding their way to the home. Office buildings and other businesses, in turn, are installing interval meters that were previously reserved for large industrial sites.
States and utilities have long permitted residential time-of-use meters. It took California's deregulatory woes, however, to bring time-of-use metering to the general public's attention. Time-of-use metering promised financial rewards to consumers trying to alleviate the crisis by switching consumption to off-peak hours-and penalties for neighbors who let their pool heaters run during the daytime. Today, California is one of a number of states in various stages of pushing sophisticated meters into the home to empower consumers.
Similarly, Idaho Power has initiated a pilot program to test the value of more sophisticated residential meters. Through the "installation of critical peak TOU-capable equipment," regulators hope the Idaho Power program will give consumers control and demonstrate the meters' contribution to demand response and load control-a recognition that even the smallest customers can help maintain grid stability and reduce the long-term cost of excess transmission capacity.
Demand Response
Demand response is a relatively recent trend. It allows utilities to use market-based signals like price and incentives to encourage specific consumption behavior during specific periods by customers of any size.
Most of today's demand-response programs require considerable interaction between utility and customer.
Typically, utilities short on resources or experiencing excess demand, or both, ask volunteer facilities to cut back during a specific period. They reward those that respond with financial incentives in proportion to the length and size of the reduction.
Demand response replaces the old "interruptible rate" model, under which utilities controlled power cuts. Demand response, in contrast, permits customers to define their level of participation each time the utility requests a reduction. They can weigh the energy cost against the value of their production, maintaining full supply, during, for instance, critical manufacturing processes, while reducing it if the only results will be a few complaints from warmer-than-usual office workers.
Idaho's pilot is one of the first to test this concept with consumers. But increasing numbers of utilities are using it with larger customers. The Edison Electric Institute reported as early as 2001 that 27 of its utility members were offering some form of demand response.1 That number has continued growing2 though most programs are preliminary or relatively simplistic in nature. Still, the results are promising. A 2001 New York program achieved an average load reduction of 1.1 percent3 -good enough that regulators support a state subsidy for interval-meter installation and urge program expansion.4
The Data Issue
Widespread use of sophisticated metering confronts utilities with the question of what to do with all the data these new meters generate.
Some solve the problem by pre-processing data before feeding it into the billing system. Others use complex-billing software to inform investment, scheduling, and forecasting decisions.
Of equal or greater benefit are the product opportunities that spring from careful data analysis.
"As the economy kicks in, increasing numbers of commercial and industrial customers will have money to invest in new ways to cut long-term costs," reports Jim Spiers, META Group affiliate analyst. "They're agitating for-and getting-access to the wholesale grid. They want something more than their utilities have traditionally provided-better pricing, more flexibility, and higher quality.
"The issue is not the commodity rate per se. The issue is their overall cost of service/delivered product to their ultimate consumers. Energy-intensive commercial and industrial customers must make decisions based on how their energy quality, cost, and consumption drive to their bottom line. They need price signals and consumption option analysis to stream through all business processes. If utilities can't help their consumption, data is of limited business use."
Utilities' demand-response programs will speed and intensify those demands. AMR Research's Jill Feblowitz points out that New York's Emergency Demand Response (EDR) puts in place equipment and processes that "will change the way commercial and industrial customers consume energy." She continues, "As more C&I customers use EDR in non-emergency situations, [their utilities] will see a business opportunity."5
That opportunity for utilities might become a business necessity. Zarko Sumic, META Group vice president, sees a future in which "profit margins are too low to sustain a low-cost provider, commodity-only business strategy for large customers. Instead, large customer retailers will need to focus on delivering value-added services like energy management, performance contracting, and consolidated billing. Account managers will need an intimate knowledge of their customers' businesses in order to recommend and apply contract options that return positive results for both customer and utility."
Profiling
Some utilities already are far down the track in responding to the needs of large customers.
TXU Energy, for instance, uses complex billing to offer load profiling. Profiles identify a customer's opportunities for energy- and maintenance-saving improvements, establish benchmarks, and help customers evaluate competing supply offers.
Given the ability to process complex data, the variations on product offerings are virtually endless. One large European utility, for instance, offers customers multiple options for overriding basic contracts, many of which can be used simultaneously. Options include:
- Special days on which customers can alter demand;
- Occasional offers of lower-priced electricity if demand falls within specific ranges;
- Credit options for pre-defined amounts of electricity, for use when demand is higher or lower than contract specifications; and
- "Tickets" to increase or decrease the contracted demand level by a negotiated amount of power for a predefined period of time.
Within these options are still further refinements. Tickets, for instance, may be structured for use during specific periods. They may expire at different times. And in all cases, when such tickets are used, the exact nature of the use and the accompanying separate energy and demand charges are spelled out in the bill.
Such programs are expanding. Greg Galluzzi of TMG Consulting says, "We have seen intelligent meter interfaces to CIS systems grow from mere pilots of 100 to 500 meters to full-scale implementations. The need for CIS systems to encompass this technology is imperative to providing customers with exceptional levels of service."
New metering dramatically expands utilities' data-handling requirements. Stepping up internal facilities for analyzing this data lets utilities experiment with different price signals and incentives. By gauging the effect on overall load and on grid constraints, utilities can maximize the return on existing transmission assets and reduce the need for new investment.
Just as important, utilities can use the new data to develop regulated and competitive products for specific customer niches. This is more than a profit opportunity. It is also part of a utility's public obligation. Utilities that fail to satisfy the complex and growing needs of larger customers, encourage them to seek alternatives like self-generation. The result may be both lower utility returns and increased system-maintenance costs for remaining customers.
The answer is not to chain customers to the grid with exit penalties, but to develop the ability to respond to their needs.
Endnotes
- Jim Spiers, "Energy Management + Price-Responsive Demand = Effective Customer Choice," META Group, July 2001, http://www.metagroup.com/cgi-bin/inetcgi/jsp/displayArticle.do?oid=32200.
- "EEI Member and Non-Member Residential/Commercial/Industrial Efficiency and Demand Response Programs for 2003," Edison Electric Institute, June 2003, http://www.eei.org/industry_issues/retail_services_and_delivery/
wise_energy_use/programs_and_incentives/progs.pdf.
- Eric Hirst "Barriers To Price-Responsive Demand In Wholesale Electricity Markets," Edison Electric Institute, 2002, http://www.eei.org/industry_issues/retail_services_and
_delivery/wise_energy_use/demand_response/barriershirst.pdf.
- Demand response programs are, for instance, included as a general rule in the U.S. Federal Energy Regulatory Commission's current Standard Market Design (SMD) proposal. See also the congressional testimony of FERC Chairman Pat Wood at http://www.ferc.gov/news/congressionaltestimony/WoodTestimony07-24-02.pdf.
- Jill Feblowitz, "AES NewEnergy Brings Economic Demand Response to Life," AMR Alert, Tuesday, Aug. 14, 2001.
Guerry Waters is chief technology officer and senior vice president of marketing and strategy at SPL World Group. Contact him at guerry-waters@splwg.com.
Demand-Response Technology
Time-of-use meters measure consumption so that the total is divided among a relatively small number of blocks, generally two to five (on-peak, off-peak, shoulder, etc.). The block storing consumption changes according to the time of day or week.
Interval meters record a separate consumption measurement for each interval of time (each 10- or 30-minute period, for instance.
Costs vary widely. Typically, a residential time-of-use meter costs three to four times as much as a standard residential meter. A residential interval meter might be six times the cost of a standard one. A commercial interval meter might be about twice the cost of the residential interval meter.-G.W.
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