Beware Snake Oil Salesmen

There was a time when crude oil was sold as a medicine to relieve aches and pains. Some people bought the scam.

Now, we have utilities and environmental organizations selling smart meters.

Just as crude oil had some good uses, especially the production of kerosene at the time, so do smart meters.

Smart meters can help utilities identify outages and save on the cost of reading meters.

Some publications, such as intelligentutility, continue to sell the shady side of smart meters, just like the snake oil salesman of yore.

A recent article in intelligentutility is about Dynamic Pricing.

The sale’s pitch is that Dynamic Pricing will allow consumers to base their usage of electricity on the cost of electricity at various times during the day, because smart meters will provide them with real-time pricing information so that consumers can cut back on usage when prices are high and save on their electric bills.

While theoretically true, it’s terribly misleading. Smart meters and Dynamic Pricing won’t help consumers very much, especially if they have to pay for their installation.

This is what happened in Illinois, when the state legislature allowed Exelon’s subsidiary to increase its rates to pay for the installation of smart meters, even though Exelon would save a great deal of money by eliminating meter readers.

Most articles about Dynamic Pricing and smart meters dwell on air-conditioning.

This is because air-conditioning is the only appliance where significant savings can be realized, but only if consumers are willing to be uncomfortable on hot days.

Dynamic Pricing also has interesting issues pertaining to how the prices are set. The objective is to have high prices during periods of high demand, and low prices during off-peak hours.

The dilemma is whether to completely reflect the cost of incremental power generation during peak periods or to merely have sufficiently high prices during peak periods to persuade people to cut back on their usage of electricity.

For the price to accurately reflect the cost of generating electricity at the margin during peak periods, it could easily be several dollars per kWh, compared with the average price of around 10 cents per kWh now.

That high a price would certainly get people to turn off their air-conditioners and sweat through the summer, but I doubt that people would be very happy.

The question then becomes, what is the price where consumption becomes price sensitive? This will vary between households, but some bureaucrat will have to make a decision based on some statistical calculation.

A third decision will also have to be made as to the time frame during which these prices are in effect. Should the rate change every minute, every ten minutes, every hour or only between night and day time hours?

The municipal utility, SRP, serving Phoenix, has tried to answer these questions. At SRP, 22% of residential customers are on a seasonal Time-of-Use plan with a seven-hour window that extends from 1 pm to 8 pm during summer months and 5 pm to 9 pm the remainder of the year.

SRP has established a price of approximately 21 cents /kWh for peak periods, and approximately 6.5 cents /kWh for off-peak hours. The normal rate is approximately 11.6 cents /kWh for those not on the plan.

SRP has had this plan, or similar plans, in effect since 1980, but only 22% of their residential customers have elected to be on the plan. It’s clear a few people can benefit, but the sweeping energy savings just haven’t materialized.

Here’s what one bureaucrat, Ott, senior vice president of markets at PJM Interconnection, says:

“By empowering consumers and businesses to respond to changes in real-time wholesale electricity prices, Smart Grid-driven approaches like price responsive demand and flexible rate options can enhance the reliability and economic efficiency of the electric system, help the environment by managing energy consumption, and save money.”

He, too, singles out air-conditioning as the mother lode of savings.

The reason the supporters of smart meters constantly mention air-conditioning is that there are few other real opportunities for consumers to save money with Dynamic Pricing, which is what SRP has learned from their simplified approach.

Lights need to be turned on when the sun goes down, or sit in the dark, as people did in the 1800s.

Food has to be cooked when people need to schedule their meals, not at 10 pm.

Refrigerators can’t be turned off for any significant length of time.

About the only options for cutting back usage are to wash and dry cloths after 10 pm, set the dishwasher to wash at night, and clean the oven at night.

But these actions only occur once or twice a week, and don’t result in any significant savings.

The proponents of smart meters are fond of mentioning that recharging the batteries of electric vehicles should take place during off-peak hours, and that smart meters would facilitate this. But there are other simpler methods for making certain batteries are charged during off-peak hours, if and when this becomes an issue, which doesn’t seem to be any time soon.

There may be exceptions, such as in New Zealand where electric hot water heaters are common, but the exceptions are few and far between.

Smart meters can save utilities money, so there shouldn’t be any objection from consumers if the utility installs smart meters, so long as the consumer doesn’t have to pay for the installation and the smart meter can’t control the homeowner’s air-conditioning unit or other appliances.

Note:

  1. Some people are afraid of electromagnetic fields, but I’m convinced they don’t present health risks.
  2. The SRP information is at http://www.srpnet.com/prices/home/tod.aspx

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