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The Static Over Smart Grids


Utilities say new technologies will boost efficiency and lower overall energy costs. But consumer advocates worry about fluctuating prices

Can technology make the U.S. more energy-efficient? President Barack Obama certainly hopes so. As part of the $787 billion stimulus package, the Administration is allocating billions to subsidize the purchase of new technologies by utilities across the country. The idea, Obama said earlier this year, is to "make our energy bills lower, make outages less likely, and make it easier to use clean energy."

But there's a hitch. From California to Colorado to Maine, consumer groups are expressing concerns about these efforts. In particular, they're leery of giving utilities the ability to change electricity prices on the fly, jacking rates up on hot summer days, for instance. Most utilities are prohibited from using variable prices now, but the flexibility to raise rates for a community as demand rises is essential for utilities to get the full benefit of new technology. Consumer groups worry these so-called smart-grid technologies are just another way for utilities to make extra money off consumers. "It's the biggest hype since electric [deregulation] and has the same amount of factual basis," says Barbara Alexander, a consultant for several state consumer advocates.

Battles are likely to break out across the country in the months to come. Utilities are stepping up their lobbying of state regulatory commissions to get support for flexible pricing and technology investments so they can claim their slice of the $4.5 billion in matching funds from the stimulus package.

A range of technologies is used to create smart grids. Sensors on long-distance transmission lines help pinpoint network problems, while monitoring systems can let homeowners with solar panels sell back electricity to a utility when prices are high. At the heart of the debate are so-called smart meters, which would be installed on people's homes in place of the old models. They can relay information about electricity use and price to consumers and let utilities collect usage data wirelessly without trucks or meter readers.

HOT COSTLY SUMMER

The controversial aspect of smart meters is that they let utilities create real-time markets for electricity, with prices that could vary by the minute. If demand is low on a cool fall night, prices are low. But if demand surges during the summer as people blast the air conditioning, the utility can raise prices in the region to discourage usage. That saves utilities money because they wouldn't have to build power plants to meet high demand. And, supporters argue, consumers would learn to conserve energy. "Getting these different rate structures will help people understand the cost of energy," says William Gausman, senior vice-president for asset management and planning at Pepco Holdings Inc., a utility based in Washington, D.C.

Consumer advocates have a different perspective. First, even with stimulus grants, consumers have to pay part of the cost of any smart meter rollout, but much of the benefit is in lower operating costs for utilities. More crucial, all consumers, including those who can't or don't want to be responsible for monitoring their electricity use, could be exposed to volatile prices. An elderly woman home alone on a summer day could see rates in her community triple or quadruple without being able to do much about it.

There may be a compromise between the two camps. States have three ways to introduce flexible pricing: They could mandate it for all customers; they could have it be the default but allow customers to opt out; or they could make flexible pricing a voluntary program that customers choose to join. Studies have shown the mandatory and default options result in the biggest drops in energy use. But consumer groups vow to fight those approaches.

Utilities, while preferring default or mandatory pricing, say they can make smart meters pay off with voluntary pricing. Under Pepco's plan, customers would have to pay for the smart meters, but overall energy costs will come down even if only 20% of customers take part in the pricing and efficiency programs, says Gausman.

The brewing resistance has garnered the attention of state utility commissioners. Many are wary of upsetting consumers, especially during the recession, by adding fees or changing pricing plans. Frederick F. Butler, president of the National Association of Regulatory Utility Commissioners, says he supports smart-grid technologies but favors moving forward slowly. He suggests investing in transmission-line technology first and running more smart-meter tests to build awareness. "In this economy, it's not a good thing for the smart meter that's put on your house to be something you don't understand," he says.

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Shaking Up the Grid

How to make the country's electrical grid more efficient, reliable, and smart? The April cover story of Wired—called "Fix the Grid!"—provides an overview of changes that could make sense. The seven ideas are futuristic, but not pie in the sky. They include everything from next-generation batteries to solar generators on the roofs of retailers, which could sell any excess power back to utilities.

For more on the smart grid, got to http://bx.businessweek.com/smart-grid/reference

Green is an associate editor for BusinessWeek .

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