 Energy Conservation: A Real-Time Choice Daily IssueAlert 3/4/2003 Free Advanced metering is a natural byproduct of deregulation. By installing new meters or modules on existing ones that collect energy usage data, utilities can read meters remotely as well as implement programs to curb energy usage during peak periods. By understanding their consumption patterns and the costs tied to them, consumers can make smarter choices that will conserve energy and save money—not just for themselves but also for utilities, which must oftentimes procure power at expensive times. State regulators understand the potential. Texas, for example, is working with utilities to find ways to monitor meters as often as hourly for commercial and industrial customers. The approximately 110 million residential meters installed throughout the United States are typically read monthly and are best used to gauge monthly usage—not hourly or daily consumption. It's a process that utilities have mastered and one that they are reluctant to change, given the cost pressures they now face. But if the benefits are clear and the returns forthcoming, more utilities will come around. Manufacturers say the trend is inevitable: With advanced metering, 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. Consumers who use these services pay a monthly fee so that they have the ability to reduce their usage and receive lower bills. According to a 2001 study by McKinsey Co., the savings to residential and corporate consumers from demand response programs alone would be $10-$15 billion per year if the concept was rolled out nationally. The Brattle Group, meanwhile, has said that if peak usage dropped by 10 percent, it could cut wholesale prices by as much as 50 percent—and limit the possibility of market manipulation. New Opportunities Consider Gulf Power Co., which is using a gateway developed by Comverge Technologies to read meters and offer advanced services: The Pensacola, Fla. utility is installing smart thermostats in customers' homes that give homeowners opportunities to adjust temperatures and keep bills down. Meanwhile, the utility is utilizing its knowledge of energy use to more precisely coordinate electricity supply and demand, a process that permits it to run cost-effective generation and save money. Similarly, ISO New England says that demand response programs would improve reliability and relieve congestion. Specifically, it said that the reduction of 50 megawatts in a congested zone would improve reliability by 30 percent. The threat of rolling blackouts would therefore diminish. "Smarter energy buyers lead to a more efficient energy market," says Ross Malme, CEO of RETX, a meter information company in Atlanta. "If consumers are in tune to the fact that energy prices can have wide variations on an hourly basis, they would be able to identify ways to take advantage of those variations." In a period of uncertainty, utilities are forced to look for ways to reduce costs, improve efficiencies and protect themselves from wild price swings. Using wireless or Internet technologies, utilities can now remotely access meters more frequently and accurately—a process that increases efficiencies and customer satisfaction. And that same technology can be also used to offer additional services, such as energy management. The first step in the evolution toward utility automation is gathering the data from the meter and sending it to a centralized pool where it can be assimilated and analyzed. Some companies, like Schlumberger, are installing modules on meters and then using wireless radio signals to transmit the data. Others, like Comverge and muNet, are placing a gateway in the home that can speak to the meter or security systems and then send the data out via the Internet. "Some of the obstacles that we faced earlier, such as broadband access, are getting lower and lower," says Sean Doyle, director of marketing for muNet in Lexington, Mass., which developed an Internet-based system with advanced meter reading functions. "More homes have broadband available to them." muNet has provided Northeast Utilities Systems and several others the tools to help customers reduce their energy usage. Overcoming Obstacles Success is not a slam dunk. Consider that Puget Sound Energy declared its demand response program a disappointment after consumers who had enrolled in the program were found to be paying higher prices than those on traditional billing cycles. Its fate, however, is less a verdict on the technology and more a product of steadier electricity markets and administrative rules that governed the system. It's a process, however, that is expected to be revamped and re-implemented. Besides the risk of failure, the cost associated with automated meter reading has prevented it from becoming widespread. A new meter, or the cost of a module to be affixed to an existing one, runs about $250. The exact price, however, depends on a number of factors, which include the sophistication of technology and the volume of data to be read by the meters. The value of this service is about $1 per month to utilities, which comes mainly from cutting personnel costs and eliminating errors. If advanced metering options are to be used, utilities will have to spend another $250 per meter, or a total of around $500, say vendors. But the value to utilities is potentially several dollars a month, which comes from being able to sell additional services as well as from controlling demand. Altogether, many utilities that use the service are requesting data output every 15 minutes, or 96 times a day, says muNet's Doyle. "Utilities have been conservative and are reluctant to spend," says Doyle. "But any utility that thinks it will remain competitive by just getting one meter read per month is kidding itself," he adds, noting that the investment generates information that can be used to increase revenues and create customer loyalty. To make advanced metering and demand response programs economically attractive to utilities, both the House and Senate have supported tax incentives. Meanwhile, the National Association of Regulatory Utility Commissioners urged in July 2002 that state commissioners explore ways to move customers into dynamic pricing programs as well as how states might fund such initiatives. But eventually, the concept must prove its worth in a free market. Automated meter reading and advanced services are bringing some utilities early rewards. It may do the same for others, particularly during periods of high price volatility. To get there, however, the benefits must be shown to outweigh the costs. In an atmosphere clouded by brownouts, market manipulation and runaway prices, advanced metering may look increasingly attractive. UtiliPoint's IssueAlerts are compiled based on the independent analysis of UtiliPoint consultants. The opinions expressed in UtiliPoint's IssueAlerts are not intended to predict financial performance of companies discussed, or to be the basis for investment decisions of any kind. UtiliPoint's sole purpose in publishing its IssueAlerts is to offer an independent perspective regarding the key events occurring in the energy industry, based on its long-standing reputation as an expert on energy issues. Copyright 2003. UtiliPoint International, Inc. 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