Ken Silverstein EnergyBiz Insider Editor-in-Chief

In an era of supply shortages, environmental pressures and community activism, time-of-use technologies give consumers an opportunity to curtail their energy usage during high demand in exchange for lower prices. The idea is for "demand response" centers on "smart meters" to collect energy usage data and price it accordingly. By making people price sensitive, they will shift their usage patterns.

"A more informed consumer makes better decisions," says LeRoy Nosbaum, CEO of Spokane, Wash.-based Itron that is a maker of advanced meter reading equipment and software. "If utilities are able to give customers information as to how much electricity will cost, then they will get their customers to reduce load during peak."

The utility industry could save between $50 billion and $100 billion over the next two decades if demand response becomes the norm, the Rand Corp. says. That not only translates into better prices for consumers but it also means that the stresses on power plants would be diminished, along with the subsequent emissions.

Lawmakers understand the need to educate consumers and to enlighten them that power prices are tied to supply and demand. In fact, the Energy Policy Act of 2005 requires utilities to offer each of its customer classes within 18 months a so-called time-based rate that reflects the utility's cost of generating or procuring electricity. That sounds esoteric, but it really means that homes and businesses would be penalized or rewarded for using power at certain times on the hottest or coldest days.

Manitoba Hydro in Winnipeg, Canada will roll out its version of advanced metering in September to give as many as 750,000 consumers a chance to cut their energy usage through time-of-use technologies. In this case, customers communicate with thermostats through a web browser. In other cases, utilities are given the right by their customers to access "smart thermostats" during periods of high electricity demand.

"It has become clear to us that advanced metering technology and related software will be an important asset in enabling Manitoba Hydro to achieve key objectives set forth in our corporate strategic plan, particularly in the areas of conservation and stewardship, delivering customer value, financial performance and employee safety," says Bob Brennan, CEO of Manitoba Hydro.

Price Sensitivity

The possibilities for advanced meters are huge. There are now about 130 million meters in the United States alone. Of those, only about 10 million or so have high-tech gadgetry to facilitate automated meter reading or remote temperature control. According to Itron's Nosbaum, a utility may provide the meters or it may retrofit older ones. The "smart thermostats," meanwhile, are now commercially available.

To gather the data, some advanced metering companies are installing modules on meters and then using wireless radio signals to transmit the data. Others are placing a gateway in the home that can speak to the meter and then send the data out via the Internet. Such devices are the size of thermostats and are mounted on the wall where they can be coordinated with phone or cable lines, as well as any wireless-technology consumers may be using. Meanwhile, power line communications is receiving attention. In this case, the meter "speaks" to a substation system over the existing power lines.

But the widespread use of advanced meters is still distant. That's because consumers are shielded from price fluctuations and there is a limited awareness of the benefits of such programs. At the same time, the cost to deploy smart meters is high and utilities are reluctant to make those expenditures unless they know they can recoup their investment.

"When prices are set by regulation or law and change infrequently, consumers are largely insulated from frequent and short-term changes in the cost to generate electricity," says a report by the General Accountability Office. "Industry experts have long said that encouraging consumers to change their demand for electricity in response to ongoing changes in its price may offer cost and operating advantages over relying solely upon changes in supply."

Advanced metering enterprises say the trend toward demand response is inevitable: With that technology, utilities are given greater control over load management. Dispatchers, for example, monitor weather forecasts and the subsequent demand for their energy. Using that information, they can reduce consumer demand if that becomes less expensive than generating power or buying it on the spot market.

Toward that end, some utilities and system operators have created a variety of electricity pricing programs that encourage customers to adjust their usage during periods of peak demand when supply is scarce. Georgia Power began offering a voluntary real-time pricing program in January 2005. That deal, which charges customers a fee of about $9.75 a month, offsets about 5,000 megawatts of power.

Gulf Power of Pensacola, meantime, sends real-time pricing signals to some of its customers. In some cases, thermostats are automatically reset at 79 degrees while other energy-consuming equipment such as pool pumps is programmed to turn off or tone down. Consumers, who participate and pay a small fee to do so in exchange for smaller monthly bills, have given the program a huge vote of confidence.

It's been said that a megawatt saved is a megawatt not burned. Put simply, conserving energy or shifting consumption patterns not only gives customers a chance to save money but it also helps to ensure utilities will have enough electricity supplies. With the ever-increasing strains over permitting and emissions issues, technologies that promote conservation and shift consumption patterns have a powerful hand.

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