One of the many advantages 
smart meters were intended to bring to electric utilities and their residential customers was the ability to implement time-of-use (TOU) rates to help reduce peak-time electricity demand. Over the past five years, millions of smart meters have been installed across the United States, but TOU pricing is absent in most of the country. Encouraging consumers to actually think about when they use their power—and developing systems to manage the required data—isn’t such an easy task.

Smarter meters are just the start


TOU rates have been a part of the bill for commercial and industrial customers for decades, but the high cost of analog meters capable of providing hourly usage-tracking made the practice cost-prohibitive for residential users—a situation that has changed considerably in the last decade. 


“Fifteen years ago, a meter that would measure time of use would cost $1,000,” said Jim Lazar, senior adviser with the Regulatory Assistance Project, a nonprofit providing research and training to state utility regulators. “Now it costs $100.”


The dramatic price reductions were aided by economies of scale enabled by 2009’s American Recovery and Reinvestment Act—more commonly known as the economic stimulus program. Under this legislation, some $3.4 billion of federal money, and another $4.6 billion of matching private funds, were poured into efforts to smarten up our electricity system. Advanced metering infrastructure installations gained the lion’s share of that funding, and homeowners across the country saw their old, spinning-dial meters replaced with newer models that feature blinking LEDs.


Along with the meters came promises of refrigerators and electric vehicles that have the ability to talk to us and our utilities. In practice, though, electric utilities and their state regulatory organizations have been slow to explore these new capabilities. However, the addition of large amounts of intermittent energy resources, such as solar and wind generation, is motivating regulators and utilities to take a closer look at TOU options, Lazar said.


He said the value to the utility is in getting customers to move their usage around, and the appeal in that has increased significantly.


“There are utilities around the country that are moving that way,” he said.


In Arizona, for example, both Arizona Public Service (APS) and the Salt River Project have TOU rates in place. APS has enrolled 40 percent of its customers in the TOU program, according to Chris King, global chief regulatory officer for Siemens Smart Grid. Baltimore Gas & Electric has close to 90 percent of its customers on its Peak Time Rewards program, he added.


In all of these territories, however, the rates are structured as opt-in programs consumers have to actively choose to participate in, which can make for slower uptake. Lazar cited Texas, where customers choose their electricity supplier, as an example of the challenges faced in enrolling new participants. There, fewer than 10 percent of customers opt into TOU plans, and companies are beginning to offer free night and weekend service, similar to old telephone-company promotions, to sweeten the deal.


Thermostats that dial up savings


It seems the device that may lead us to broader adoption of TOU rates and demand response at the residential level will be another recently smartened product capable of working in tandem with new advanced meters—the thermostat. Air conditioning and, in the South, electric heating systems remain the biggest electrical loads at the residential level, so an electric utility could have a big impact on its peak-demand requirements by influencing how customers control their thermostats.


The Nest thermostat (and other recently introduced competitors) is now marketed with steep discounts provided by many utility energy-efficiency programs because of its ability to take some of the guesswork out of previous-generation programmable models. Newer products take automation a step further by communicating with smart meters to base actions on rate signals passed through to the devices through a homeowner’s meter.


“Now you don’t have to be on-site,” said Yann Kulp, vice president of residential energy solutions, Schneider Electric. 


Schneider Electric has a new Wiser Air thermostat designed to learn a household’s heating and cooling patterns and respond to utility-supplied rate data. In a TOU rate setting, this capability could automate the response of customer systems, enabling true set-it-and-forget-it operation. For example, customers could set price thresholds for automated setbacks, so a kilowatt-hour (kWh) rate shift from $0.10 per kWh to $0.15 per kWh might trigger a thermostat adjustment of 3 degrees, and a higher rate shift could result in a 6-degree adjustment.


In this example, the meter would act as a transmitter of real-time data from the utility, communicating through Wi-Fi or other communications protocols and not just as a recorder of ongoing electricity usage. 


Simple metering, Kulp said, “tells you after the fact, and it’s still not convenient.”


Such a real-time approach requires data on rates, customer preferences and actual time of response, and utilities are only just beginning to figure out the back-office requirements necessary to enable these advanced pricing schemes. Schneider Electric, like others in the exploding field of smart thermostats, offers enterprise-level systems to help utilities understand setback timing, along with help with customer recruitment and installation.


Comverge, based in Norcross, Ga., is another leader in this new world. It has come to the industry as a demand-response (DR) aggregator—the company contracts with utilities to aggregate the potential load reductions of thousands of customers on very short notice during peak periods. These short-term reductions can eliminate the need for the utility to fire up expensive and often less-efficient peaking power plants. The company has developed a thermostat, called IntelliTEMP, with its own proprietary IntelliSOURCE software that operates similarly to Schneider Electric’s device. It also offers a control device that can be attached to a home or apartment’s second-biggest electrical load, the electric hot water heater. Like the thermostat, it can receive pricing or DR signals to reset its temperature settings to reduce electrical demand.


Comverge has seen notable success in a program it runs for Pensacola, Fla.-based Gulf Power, though John Rossi, the company’s senior vice president for corporate strategy, said participation tops out at 12 percent of the utility’s residential customer base. One major impediment to broader adoption, he said, is state-level regulators who stop short of making TOU pricing the default-rate schedule and instead set it up as an optional offering for customers willing to try something new.


Are TOU rates DOA?


The politics of TOU rate plans has made it difficult for state utility regulators to force top-down adoption of programs such as default pricing schemes—for example, AARP has come out strongly against TOU plans proposed in a number of states that would require customers to opt out, instead of opt in, to the planned rate schedules. Many observers see these offerings as part of the bigger evolution now occurring in utility business models.


Today’s electricity customer might also be an electricity supplier through rooftop photovoltaic (PV) panels, and intermittent solar and wind resources are requiring utilities to react much more quickly to power and voltage fluctuations. In short, what has historically been a one-way relationship is quickly turning into a two-way street.


“What needs to change is the relationship between the utility and the customer,” said Rob Thormeyer, communications director for the National Association of Regulatory Utility Commissioners. “The utility has to be ready and be willing to engage with their customers, and just learn.”


Whether it’s the rate a consumer pays for a kilowatt-hours delivered during peak times or the compensation a utility pays customers for a PV-generated kilowatt-hours, pricing is the center of debates going on right now between utilities, customers and regulators across the United States. The result of those conversations will help determine which utilities thrive and which fail as the implications of this new two-way relationship continue to play out.


“The threat to their survival is something they are very concerned about,” Lazar said, noting how some utilities have embraced customer-sited solar generation and others have fought it, with connection charges and other fees they see as necessary to maintain required infrastructure. “What is the right framework for pricing? That’s the biggest issue we’re facing across the nation.”