Cap the Peak, Share the Cash

When Congress asked Al Gore how major new supplies of affordable energy can be assured without relying on dirty coal and nuclear power, his come-back was what he called an "electranet", to take "advantage of the creative power of the information revolution." Thereby, the former Vice President returned the climate change debate to the concept of a “Smart Grid” -- a concept that Congress had just flubbed.

The Energy Policy Act of 2005 declared that "the policy of the United States" is to encourage "time-based pricing and other forms of demand response, whereby electricity customers are provided with electricity price signals and the ability to benefit by responding to them...” Financial incentives to customers in the form of time-of-day, real-time, and critical-peak prices were certified as being in the national interest. But in misplaced deference to states’ rights, implementation was left to state regulators, collaborating regionally and coordinating with the Federal Energy Regulatory Commission (FERC).

Since then, FERC and state regulators have come up with a process of "collaborative dialog", which only masks the fact that this loop-hole has become an endless loop. Rather than resolve problems, many impediments identified have proliferated essentially pointless controversies. These include accounting anomalies between demand saved and power consumed, trade-offs of consumption avoided and power transmitted, multi-state disparities, and who’s to pay for communicating digital meters and new information and control technologies.

The fact remains that when communicating meters give notice that price is about to spike, American consumers have shown time and again they will happily delay usage until prices fall. Overall, the perception is hard to shake that electric utilities count on making money when consumers don’t know about true costs, though some progressive companies now recognize they can replace lost revenues by marketing new information-enabled reliability.

Fortunately, deferring consumption can also reduce pollution, because when demand is steady many utilities tend to “dispatch” only their more efficient (and usually cleaner) plants. When demands escalate and "peakers" have to be turned on, typically in very hot or very cold weather, power becomes dirtier and more expensive. If demand for additional energy can be deferred, these dirty and more expensive plants might never be revved up, pollution can be avoided, and money saved.

So there is congruence between deferring consumer demands and avoiding production of greenhouse gases, which compels recognition now that Congress is trying to figure out how equitably to curb global warming. Gore's "electranet" could monetize this congruence by assuring that cap-and-trade emissions markets expressly recognize and reward utilities for using price signals to prompt customers to re-schedule their demands for carbon-spewing peak power.

When power use falls off as much as 14% during peak periods (as California proved in a statewide test and Pacific Northwest Laboratory duplicated more recently in the Olympic Peninsula), that saving should be reflected in carbon allowances to the utilities who made those savings possible, as well as lower consumer retail bills. These allowances could be turned into cash in an emissions-trading regime (state, regional, national, or global), and cash inducements could reimburse utilities for installing the enabling technologies, namely the meters, communication systems and software.

There are, moreover, still further savings and benefits to be gained from deploying digital metering infrastructure: With "net" metering, also endorsed by the Energy Policy Act of 2005 but not yet mandated, utilities accept consumer-generated "distributed" power (solar and "small wind", etc.) at the same price the utility charges for sales to the consumer; in effect, the meter "runs backward".

For example, when the sun shines most fiercely, solar roofs generate more power. At the same time, the benchmark price of centrally-generated electricity has gone up, reflecting scarcity due to escalating demands on the system because of the warm weather. So residences and businesses with solar roofs should now get better prices for selling to the grid, displacing centrally-generated power, and they will. The net power gain to the grid of pollution-free energy should also be recognized by a carbon-saved credit to the utility. The former Vice President urged that Congress legislate to block a utility from limiting either the quantity or price of such reverse sales into the grid, thereby enabling a major new power source -- what Gore called "decentralized generation, widely distributed" -- to emerge organically.

This way, in its current effort to design a fair and practical, market-driven emissions-trading mechanism, Congress could encourage consumer initiatives to save power and generate renewable energy even as it rewards and motivates utilities. Now is the time to wrap up such an intelligent and perceptive re-design for the U.S. electric grid, the source of one-third of America's atmospheric carbon dioxide. Consumers will become valued partners with electric utilities in saving energy, while also producing energy and curbing climate change.

Email Steven R. Rivkin