Originally published in Dallas Morning News.
March 19, 2015
By James Osborne, Staff Writer
josborne@dallasnews.com
When the Texas Legislature authorized the installation of “smart” electrical meters a decade ago, it was intended to usher in a new age of efficiency and reliability. Downed power lines would be identified almost instantaneously. Electricity consumption could be scaled back when the grid gets overloaded. Customers could track their electricity bill in real time.
But two years after the more than $2.5 billion rollout was completed, a touchstone of the smart meter program has struggled to get off the ground, setting off a new round of legislation.
With that program, known in the industry as demand-response, legislators envisioned use of the meters as a means to encourage consumers to cut back their electricity use for short periods of time. On a hot Texas summer afternoon, the collective whirring of air-conditioning units can send wholesale power prices to a hundred times their normal amount. With smart meters, the theory is, power companies can pay customers to conserve, either by sending out mass requests or taking control of their thermostats through an automated device like the Nest.
But according to a report by the Federal Energy Regulatory Commission in December, Texas’ electrical grid is lagging far behind on this front. In 2013, the Electric Reliability Council of Texas grid, which controls 85 percent of the state’s electrical load, had the ability to scale back only 2.9 percent at times when demand was peaking. That was half the average of the nation’s other wholesale power markets, with the Midwestern market able to decrease its load by 10 percent through demand-response.
“Part of the original thought process around [smart meters] was to put tools in place for things like demand-response and automated thermostats,” said Gary High, vice president of sales and business development for Landis+Gyr, a Swiss power technology firm that installed smart meters across much of Texas. “That’s still an opportunity. But the thing that inhibits Texas is the market structure is very different from other parts of the country.”
Legislative strategy
Now, a coalition of firms that provide demand-response services is urging the Legislature to step in again. Last week, Sen. Kirk Watson, D-Austin, and Rep. Sylvester Turner, D-Houston, filed bills that would require ERCOT to promote demand-response programs and remove “regulatory barriers” in their way.
But they are likely to face a strong pushback from the state’s power industry.
For power generators like Luminant and NRG Energy, demand-response programs kick in at the exact time producing electricity is most profitable. Until smart meters, demand-response was essentially limited to large consumers such as industrial plants that buy their electricity directly from power generators. They remain the largest participants, but new technology has expanded the market to big-box stores, schools and individual homes.
Already, the number of hours of “peak pricing” is falling, said John Fainter, president of the trade group Association of Electric Companies of Texas.
“Last summer wasn’t like 2011, but there were a lot of 100-degree days. And there wasn’t more than an hour of peak pricing. A lot of people were surprised,” he said. “My feeling is the cumulative impact of a whole lot of things — demand-response, more efficient homes — it’s taking pressure off peak demand.”
Power companies declined to comment publicly on the legislation for this article. But behind the scenes, they are arguing that the bills amount to a legislative mandate promoting one form of energy over another, potentially leading to unintended consequences for the state’s power market.
Making inroads
Michael Jewell, a lobbyist for the EnerNOC, one of the largest demand-response companies in the country, dismissed those claims as the industry trying to maintain the status quo. He said the biggest hurdle is explaining to politicians and the public exactly what demand-response is.
“The only time people are really conscious of [electricity] demand is when you have rolling outages,” he said. “It’s easy to say anybody that participates in the market needs to operate in the same manner. But it’s important to recognize customers cutting back their load is very different than a power plant generating electricity.”
Even as the firms claw for greater market share, demand-response appears to be starting to make inroads in Texas. Retailers, including TXU Energy, Ambit Energy and Reliant, all now offer a demand-response program — often in conjunction with their smart thermostat offerings.
A report last month by ERCOT showed that the number of business and residential customers signed up for demand-response programs has grown to more than 413,000. In 2013, the tally was less than 3,000.
Paul Wattles, a senior analyst at ERCOT, said there were issues with data. One retailer reported its entire customer base of 300,000; others only reported those that had actually participated in a demand-response event. Still, Wattles said, he was confident the market is growing.
“There’s some nuance to it. But the trends are all in a good direction,” he said.
Follow James Osborne on Twitter at @osborneja.