I recently had the opportunity to interview the Chairman of the Pennsylvania Public Utility Commission, Robert F. Powelson, regarding his views on smart meter opt-outs and other issues affecting Pennsylvania’s energy future. Because I live and practice in Pennsylvania, I may be biased but I think Smart Grid Legal News readers will agree it is refreshing and rare to hear regulators like Chairman Powelson promote smart meters, energy efficiency and other practices that advance our energy future.

Evers: Chairman Powelson, thank you for taking the time to discuss smart meters with me. Why is it important for customers to have smart meters?

Powelson: Act 129 of 2008 has really paved the way for the rollout of smart meters, also referred to as Advanced Metering Infrastructure (AMI), and the implementation of Act 129 continues to benefit Pennsylvania customers. As I see it, smart meter technology is a “win-win” situation for the Commonwealth – both electricity customers and electricity providers alike reap the benefits of advanced meters. 

Smart meters give customers greater control over their energy consumption by allowing them to measure their energy usage, monitor real-time electricity prices, and adjust their consumption and behavior in order to realize significant savings on monthly bills. Customers can even shut down appliances during peak periods or pre-program appliances and devices to operate only at predetermined (and lower cost) timeframes if they so choose.

Similarly, electricity providers also benefit from increased smart meter deployment. The two key concepts here are efficiency and reliability. AMI makes meter reading quicker and more efficient by eliminating the current practice of estimated meter readings. Additionally, with smart meters, utilities have the ability to monitor distribution networks to allow for the immediate detection of irregularities, which leads to drastically reduced response time in addressing outages. 

Finally, smart meters can help reduce both overall electricity use and peak demand use, leading to lower emissions from fossil power plants that will not have to generate as much power – a direct environmental benefit.

Evers: Chairman, across the country several states have implemented an opt-out process due to customers concerns about health and privacy. I am concerned about the impact of an opt-out process as people relocate in and out of homes with smart meters. I call it a smart meter mosaic. I joke that real estate disclosure forms will soon have to start indicating the home’s level of smartness. Seriously, I think the implementation and long-term management of such a process could eventually put upward pressure on rates for everyone. What are your views regarding a smart meter opt-out process?

Powelson: In May, I testified before the Pennsylvania House of Representatives Consumer Affairs Committee on a proposal to partially repeal Act 129 and permit smart meter “opt-out” programs in the Commonwealth. My testimony addressed two pieces of legislation – House Bill 2186, which would allow consumers to opt out of having smart meters installed at their premises, and House Bill 2188, which would require consumer consent in order to share information from electric meters with government agencies. These bills represent a significant step backward in policy, with the potential to negate all of the reductions already achieved under Act 129.

The proliferation of opt-out requirements for AMI deployment has the potential to cripple efforts to modernize grid technology. Maine has received a lot of attention regarding its AMI opt-out, and Central Maine Power (CMP) has considered, analyzed and provided substantial cost information relating to a variety of potential solutions or mitigation measures for customers seeking to opt out of CMP’s Smart Meter Program. CMP estimates these incremental infrastructure and support costs to be as high as $70 million over the life of the AMI project – and that is assuming only 1 to 2 percent of CMP customers opt out. At an opt-out level of 10 percent, these incremental costs grow to hundreds of millions of dollars – exceeding the costs of CMP’s advanced meter project.

While I appreciate that there are consumers who have security and privacy concerns with respect to AMI, the PUC, legislature, and Electric Distribution Companies (EDCs) may be able to help alleviate these concerns through increased education and outreach. It is worth noting that many EDCs and their customers have had AMI in place for years, namely PPL and PECO. Additionally, we are already facilitating the continued implementation of smart grid technology by establishing rules that more precisely address conduct in the areas of reliability, privacy and security. California and Ontario have undertaken similar efforts through a “Privacy by Design” rulebook, which was integral to customer support for advanced meter roll out.

In sum, opt-outs cause operational gaps that will lead to additional costs for companies and their customers, defeating the stated purposes of Act 129. Such a system reduces reliability for all customers, as well as the benefits of a completely modernized electric grid. Simply put, there is no compelling reason for an “opt-out” program.

Evers: Smart meters have received a lot of attention but there is so much more to the concept of smart grid. Beyond smart meters, what do you see as other benefits as utilities upgrade their systems?

Powelson: Nationally, billions of dollars are being invested in smart grid technology because of the many benefits to consumers and utilities, as well as the positive impact on the environment through increased energy efficiency. (By way of background, federal support for the development of smart meter systems began with the Energy Policy Act of 2005, was supplemented with passage of the Energy Independence and Security Act of 2007, and funded by the American Recovery and Reinvestment Act of 2009 – which set aside $11 billion for the creation of a smart grid.)

For me it is not just about the technology. The most important objective is to better serve the needs of consumers and build stronger, more vibrant communities in which to live, work, and play. Smart meter and smart grid programs will be much more efficient in delivering electricity to homes and businesses; responding to outages and other emergencies; monitoring and seeking to curtail usage, especially during peak periods; preventing theft and fraud; and helping electric customers save dollars on their monthly bill. In short, the benefits to Pennsylvanians will continue to grow.

Evers: Recently many utilities have partnered with Opower and Facebook to allow customers to form teams for energy saving contests and compare energy usage with friends, hopefully creating positive peer pressure. Why are innovations like this important to our energy future?

Powelson: Any method of educating consumers and raising consumer awareness is vital. The real benefits will come when people start to realize that we are all in this together, and everyone contributing a little adds up to significant decreases in demand, which then puts a downward pressure on prices.

I particularly like this idea of comparing energy usage with neighbors and friends, as it dovetails nicely with the idea of “competition” in Pennsylvania’s electricity market. The more customers learn about competitive electricity providers, and the benefits and potential price savings available in the marketplace, the better. Increased dialogue that leads to decreased energy usage is exactly what we are looking for under Act 129.

Evers: Are there any other thoughts regarding Pennsylvania’s energy future you would like to share?

Powelson: Pennsylvania has really embraced a two-pronged approach in considering its energy future. On one hand, we are doing all that we can as regulators, providers, and consumers to comply with Act 129 and become more energy efficient. On the other hand, we are strengthening Pennsylvania’s competitive marketplace to increase competition among electric generation suppliers and produce better pricing and greater savings for the Commonwealth’s 5.6 million electric customers.

In addition to fulfilling its regulatory and oversight responsibilities, the Pennsylvania PUC will continue to educate consumers on the benefits of both energy efficiency and conservation, including smart meter technology, as well the advantages of shopping with competitive suppliers for their electric generation.

The Public Utility Commission of Texas received a joint petition filed by 119 Petitioners, requesting the PUCT initiate an emergency and ordinary rulemaking to prohibit further deployment of smart meters. The petition also wanted the PUCT to require the removal of smart meters already installed. Pleading in the alternative, Petitioners ask the Commission to formulate rules that provide for the safe implementation of smart meters and related equipment as well as provide customers the ability to decline participation in the Advanced Metering System program. Two hundred and seventy seven comments were filed regarding this petition with most of the comments expressing health and privacy concerns regarding smart meter deployment. 

Oncor and other utilities opposed the petition. Oncor highlighted the benefits of smart meters which include the ability for customers to choose time-of-day rates, enhanced demand response programs, quicker outage detection and restoration and the ability to easily change retail electric providers.   

Because the petitioners did not propose rule language that would permit the Commission to publish a rule, Staff recommends denial of the petition. However, Staff notes that the Commission has received extensive comments and concerns similar to those made by Petitioners in the PUC’s current Proceeding to Evaluate the Feasibility of Instituting a Smart Meter Opt-Out Program (Project No. 40190) and an examination of these issues will occur in that proceeding.

Ted_Wood.jpgToday I would like to introduce you to my colleague Ted Wood. Ted is a patent attorney with the law firm of Sterne Kessler Goldstein & Fox and is at the forefront of the smart grid cyber security and innovation discussion. He has some great ideas to help smart grid technology developers and is passionate about what innovation means to our energy independence and security.

Evers: Ted, how is innovation relevant to those in the energy industry and to businesses that rely on reliable energy delivery?

Wood: Thank you for the opportunity to discuss my views concerning the role of innovation. Innovation does and will continue to play a critical role in reducing vulnerabilities to the power grid. A recent article in the Washington Post citing top government intelligence officials indicated that “a major cyber attack somewhere in the United States is increasingly possible.” The article went on to warn that an assault on America’s power grid system “represents the battleground for the future.” Based upon this article and several others, as well as my own observations and analyses, it goes without saying that a successful cyber attack on the grid could have a devastating impact on our national security, economy and our way of life.

Evers: Ted, I agree. One of the goals for the smart grid is for it to operate resiliently against attack and natural disaster. A smarter grid protects against outside forces by incorporating a system-wide solution that reduces physical and cyber vulnerabilities and enables fast recovery from disruptions. What is the connection to innovation?

Wood: Innovation = grid resiliency

Evers: OK, connect the dots for me.

Wood: Through innovation, new technologies can emerge to help enhance the grid’s resiliency. Such technologies should address protecting the grid from cyber and other attacks, detecting when failures occur and responding and recovering accordingly. Successful innovation includes creativity, investment and intellectual property (IP) protection. Investment is essential to transforming creativity into tangible technologies and IP protection is a significant factor considered by investors when deciding in which technologies to invest to maximize their returns. And it is critical to have strong IP protection in place before entering the marketplace.

Evers: So it’s a cycle. Innovation → Investment → IP protection→ safer, smarter grid?

Wood: That’s right. However, I would adjust your model a bit:

Innovation → IP protection → Investment → safer, smarter grid. Most investors want to know the IP protection is in place first.

Evers: So Ted, with all of the American Recovery and Reinvestment Act funding, the race is on. I imagine there are a lot of great ideas out there and the developers may feel like they can’t get to the marketplace quick enough. Any ideas on how you can help them? Admittedly I am not from the Patent and Trademark Office, but I have been involved in getting regulatory approvals for a long time and they usually don’t occur at the speed of innovation.

Wood: Recognizing the urgency of cyber security and the development of the smart grid, I believe that some sort of Grid Resiliency patent incentive program might help to spur grid resiliency innovations. The objective of one such program, for example, would be to streamline the examination of patent applications specifically focused on technical innovations to reduce vulnerabilities by ensuring the grid’s resiliency. This streamlined process could help improve the revenue stream for innovators by increasing the development speed of their products and technologies. For example, patent applications covered under such a program would include resiliency-enhancing technologies that could be added to existing grid components and systems, as well as resiliency-enhancing technologies integrated into next-generation components and systems. The intent is to leverage the U.S. patent system to encourage grid related R&D investments and innovations which would reduce the grid’s vulnerabilities. There are other programs, some already underway at the US Patent and Trademark Office, to encourage innovation across the board. These programs could be used to spur grid innovations.

Evers: That is great! What is the current status of the Grid Resiliency Patent Incentive Program?

Wood: We are vetting a number of different ideas through different means, such as industry blogs and discussions with industry and government representatives. The goal is to try and find the right mix of ideas that will help promote innovation and R&D investment in grid resiliency enhancing technologies.

Evers: I can imagine there are a lot of entrepreneurs hoping to participate. It will be a game changer for those who need funding as soon as possible. Please let me know when this is finalized. What are the other programs at the PTO that can be leveraged by smart grid innovators?

Wood: There are two that come to mind. The first is the Green Technology Pilot Program, which provides for accelerated examination of patent applications related to development of renewable energy sources, energy conservation etc. A few of the technical categories covered by this pilot program also related to smart grid. The second program is the newly implemented Track 1 initiative. Track 1 provides for accelerated examination for applications for payment of a $4,000 fee. Given the limited scope of the green pilot program with respect to grid resiliency and possibility that all innovators may not have access to Track 1 given the required fee, there may still be room for additional programs or incentives to spur grid resiliency innovations.

So Linda, I am going to switch things up a bit and if you don’t mind, I have a few questions for you?

Evers: Sure, but let me remind you…it’s my blog. (laughing)

Wood: I think the next roadblock is getting the utilities to try the new products. I know you represent a lot of utilities so I wondered if you had any insight to share on this issue?

Evers: Absolutely. …cost recovery.

Wood: My turn. Please connect the dots for me.

Evers: Ted, you are talking about new technology. The developer should expect to demonstrate to the prospective utility client that the benefits outweigh the risks. We take risks everyday or nothing would get done. In the case of the smart grid, we know the cost of doing nothing is high. However, it will be an extremely expensive undertaking to fully develop the smart grid. Utilities are very careful when making investments out of concern they will not get the cost recovery they seek from state regulatory agencies.

Wood: But developing the smart grid is a huge priority for our country. I would think the state regulators would be supportive?

Evers: I know this may surprise to you, but there is a fair amount of regulatory uncertainty in this area. Views towards the smart grid will vary by state and some states have laws that require aggressive action in this area. Generally, utilities have to summit their plans to their state PUCs for approval. Part of the approval process is making the business case to support the proposed expenses. And let me tell you, 2010 was a rough year for smart grid approvals, particularly the cost recovery issue, in spite of Uncle Sam contributing $4.5 billion.

Wood: Really?

Evers: Yes! Maryland, Connecticut, Indiana and Ohio to name a few. And in California and Maine, the regulators are acting on one of my favorite lines: “I reserve the right to change my mind,” and are contemplating revising plans they have already approved, notwithstanding the fact that these utilities have already implemented most of the plan.

So for the innovators out there, the best way to get selected is to educate, educate, educate. Spend time explaining to regulators and consumer advocates the importance of your product to the grid. In the end, how does it benefit customers? Ideally, the product should be apart of the utility’s plan that gets approved.

Ted, it will happen slowly at first – layer by layer, but we will get there. Remember when cell phones first came out? For the first few years they were big and clunky and really only used by executives. And now just last year, even to my surprise, off we went to buy my son an iPhone for his 13th birthday. Progress can be like a sluggish car, slow to get going but it can hold its own on the highway. One day you will look around and bam: you will be driving to Pennsylvania to visit my family without any thought as to where you will charge your electric car; people will just know not to wash clothes and dishes in the afternoon; their appliances will conveniently start the laundry and dishes for them at 2:00 am and utilities will restore service before you even know there was an outage. All these great smart grid related things will be happening and as a county we will be more energy efficient.