More on Pepco’s Electricity Metering and Pricing Pilot

Lynne Kiesling

Let me extend the discussion of the Washingto Post article on Pepco’s metering and pricing pilot that Mike mentioned yesterday. I have not discussed these pilots with anyone at Pepco, nor have I been able to glean any information from their website. Here’s a PR hint, guys: if you have a cool pilot project and then someone writes about it in the newspaper, feature that project prominently on the front page of your website! I mean, come on, what century is this? If this really is a core part of your business model and your heart is really in it, feature it on the front page so that enthusiasts like me don’t have to dig through layers of bureaucratic blather to learn anything about it.

Here’s what I infer from the article: Pepco is offering a real-time price to residential customers, and is also offering direct load control, in which the customer pays a lower rate in return for giving Pepco the right to cycle their air conditioner. Apparently Pepco is installing new meters to enable these product offerings, although I can’t tell from the article or Pepco’s website whether these are true two-way communication AMI (advanced metering infrastructure) meters.

Offering these choices to customers is valuable and important; retail electricity competition is not only about prices and cost savings and efficiency. It’s also about choice and the ability of customers to make informed choices and to take the level of price risk that best suits them, and to buy electric power service and other services that meet their needs, suit their lifestyles, and come from sources that make them happy (like green power, if your preferences tend that way).

I share Mike’s concerns about real-time email notifications about changes in real-time prices. Is Pepco going to spam its customers without them being able to take a meaningful action to change their behavior in response to the price change? What if I get the email, but I’m on the Metro, and not at home or at my desk, and I don’t have email access on my cell phone? Then I can’t respond to the price signal. If that’s the way you’ve set up your pilot, all you’re going to do it anger the participants, because you’re sending them price signals but they don’t have the technology that enables them to respond. That’s not going to create enthusiasm for real-time pricing; nor is it going to create the kind of demand response that a more thoughtful design would produce. There are two ways to be more thoughtful about customer behavior: send price change notifications in advance, and/or bundle the enabling technology in with the real-time pricing contract.

Here are two real-world pricing pilot examples to illustrate these points:

Example 1. For three years the Center for Neighborhood Technology ran a residential RTP program with ComEd (which I’ve discussed before). The price signal was a 24-hour advance price, so not technically a RTP, but it could change hourly. This 24-hour advance notification enabled participants to change their behavior in anticipation of the price increase without the need for any other electric system technology. For the past year the follow-on residential RTP program at ComEd has been managed by Comverge, and the program participants tell me that they have changed the notification to be real-time and not 24-hour advance notice. As I said, that’s a great way to piss off your customers.

Example 2. The GridWise Olympic Peninsula Testbed Demonstration Project did two things in 130 households for a year: it provided them with two-way communicating thermostats that could receive price signals and automate household responses to them, and at the beginning of the project it gave households choice of which of three retail contracts they wanted — fixed, time of use, or real-time price. In this project customers used technology to automate their responses to price signals, shifting their use over time (particularly the RTP group) and actually engaging in overall conservation (particularly the TOU group). In this example, they can program their demand functions into the thermostat, so if the price changes (and in this project we had market clearing every 5 minutes!) while you’re on the train or out enjoying the day with your family, you aren’t missing an opportunity to save money by responding to a price signal. That’s how you do residential real-time pricing! More info on the project from Google. Full disclosure: I am on the project team, and we are in the process of writing up the results.

Given what I could glean from the article and Pepco website, my primary concern is that their take on residential RTP and on direct load control is still too heavily informed by the top-down, command-and-control engineering view of how retail markets should function in this industry. Direct load control does not put control in the consumer’s hands, it just compensates the customer for letting Pepco control one of their appliances. When you peel away the layers of the onion, retail markets are characterized by highly distributed control, even though in most markets we don’t think about them that way. But in this industry, with its history of centralized control and its continuing need for physical flow control, the concept of truly distributed control is still alien. Too alien, in my opinion.

I have some reason for optimism, though. Pepco has joined Centerpoint as a member of IBM’s Intelligent Utility Network Coalition to expand smart grid technology in the network:

The Intelligent Utility Network Coalition is being launched and developed by IBM to help accelerate the adoption of IUN technologies and solutions on a global basis. This effort will include: establishing an industry community for collaboration, knowledge sharing, education and innovation; working with energy industry and standards groups, and the development and deployment of IUN strategic solutions and technologies.</blockquote

IBM is very involved with the interoperability and open architecture work that we are doing on the GridWise Architecture Council, so I hope that these projects are Pepco dipping their toes in the water. But I remain concerned that if they irritate their customers in the RTP pilot, customer acceptance of such innovations won’t be there.