Delivering Customer Value by Using Performance Metrics
By Patty Durand
The grid is made to serve electricity consumers. They deserve to know how they can benefit, both individually and as a group, from innovations. What is more, they deserve to be shown how they actually are benefiting in practice. Three states are demonstrating how development of consumer metrics can get that vital job done.
As utilities modernize their grids, it is important to keep in mind that they are investing in the grid to ensure delivery of safe, reliable and affordable power to their customers, who after all pay for the electricity and for the system itself.
The fundamental mission of serving customers has not changed with the advent of the smart grid. What is new and different today is the scale, complexity and cost of the new technology used to upgrade and add intelligence to the grid. As that effort takes place, consumers are becoming savvier and expect better service and value for their investments. Regulators, whose mission is to serve the consuming public, are demanding objective evidence that the investments they approve are cost effective and deliver customer value.
Today, industry discussions of consumer value have advanced to the point of developing metrics that establish tangible value. We’re not quite all the way there yet, but clearly understanding how consumers benefit from smart grid investments and the metrics that support them is well underway. Establishing clear-cut consumer value in return for investments in smart grid technologies is critical to the success of grid modernization.
Let us define customer value, then look at work by stakeholders in Maryland, Illinois and California to illustrate what is in progress and see where early efforts are heading.
The Smart Grid Consumer Collaborative (SGCC), a national nonprofit based in Atlanta, Georgia, has a mission of accelerating the adoption of consumer-friendly, consumer-safe and consumer-approved smart grid technologies. We think consumers want to know the answers to three basic questions: 1) What is the smart grid and why should I learn about it? 2) What’s in it for me? and 3) What’s in it for “us”? Stakeholders need to answer those questions clearly and convincingly.
We can assume that consumers have valid self-interests in mind when they are asked to learn about important public issues such as grid modernization; naturally they are concerned about material payback. But our research at SGCC has identified groups of consumers who also are motivated by factors other than self-interest, including issues of the environment, energy independence and U.S. economic prosperity.
Smart meters enable several direct benefits to individual consumers. They enable the delivery of household energy use data to help customers understand and manage their electricity use. Smart meters also enable swifter, automated outage detection and restoration. And smart meters allow new services and programs tailored to specific customer groups and/or individuals. All these benefits are the focus of past and present studies to determine appropriate metrics, as we shall explore here.
As for society—the greater “us”—the three chief benefits will be in lower environmental impacts, greater energy independence and economic productivity. A more modern, efficient grid pollutes less, particularly with the addition of renewable energy sources. The transition from fossil fuels to renewables promises to provide greater energy independence. And improved energy infrastructure greatly enhances national economic productivity. Expert analyses show that the monetized benefits of grid modernization in terms of jobs created and economic payback far exceed the cost of investments.
How can smart grid benefits to consumers, both individual and collective, be quantified and demonstrated? The states of Maryland, Illinois and California are showing what can be done with consumer-centric performance metrics. These states cross the spectrum of U.S. geography and, thus, prove that such metrics can work throughout the country.
The California Public Utility Commission (CPUC) has adopted 19 smart grid metrics, nine of which address smart metering or AMI, seven which address operational issues, one pertains to plug-in electric vehicles, and one addresses energy storage. The CPUC has also established a working group to define and document related goals and metrics. For instance, one goal calls for dynamic pricing and a metric to gauge consumer response.
The Illinois Power Agency Act introduced “performance-based ratemaking," which requires rigorous performance metrics and improvements over time. Such rates provide for cost recovery and a set return-on-investment as well as incentives for local utilities to meet operational, environmental and customer-related metrics. Commonwealth Edison (ComEd), for instance, has established “smart grid trackers” that document metrics in these areas. They include customer enrollment in dynamic pricing programs, the number of premises capable of receiving grid information, and peak load reductions enabled by demand response (DR) programs.
Maryland regulators and the state’s utilities (Baltimore Gas & Electric and Pepco) calculated that half the operational benefits of grid modernization would come from system efficiencies and the other half from peak load reduction. Also, regulators made cost recovery contingent on the effectiveness of related investments.
In one important area —peak load reductions through DR— a peak load reduction credit appears to have driven Maryland’s high rate of customer participation in this program. Maryland is second only to Connecticut in DR participation.
Maryland also tracks smart grid program deployment and related customer engagement. It probably has the highest number of metrics and currently employs more than 55 metrics relating to capital and operational savings and other system benefits. Seventeen focus on customer education and engagement including whether and how customers are using tools at their disposal to manage their energy use and their participation in the peak load reduction program.
These three states currently appear to be in the vanguard of articulating customer value and defining the metrics that will establish how value has been delivered and that it has been delivered.
Of course, to assure customers they’re receiving value, you have to get their attention. In mid-July, the U.S. Department of Energy released Voices of Experience: Insight on Smart Grid Customer Engagement, a simple-to-use guide on consumer-oriented smart grid benefits and step-by-step direction on communicating that value. The guide is based on successful utility practices and metrics that establish their efficacy. The SGCC will steward the document and continue to raise awareness of its existence. Readers are urged to peruse the guide; a particularly useful one-page quick reference for tenets and steps in successful consumer engagement can be found on page 6.
Our sense at SGCC is that the power industry has grasped the importance of documenting consumer value-related metrics and that the actual work has begun. Now we need to spread the word and offer resources to accomplish this important goal.
Patty Durand is the Executive Director for the Smart Grid Consumer Collaborative, a consumer-focused nonprofit aiming to promote the understanding and benefits of modernized electrical systems among all stakeholders in the United States. At Georgia Institute of Technology, she helped prepare and submit smart grid grant proposals to ARPA-E and the Department of Energy, and conducted smart grid research projects. Before that, she was the state director of the Sierra Club's Georgia Chapter, where she focused on programs addressing climate change and energy policy. For ten years she worked in IT on B2B projects with Hewlett Packard and Compaq Computers. She has an M.B.A. from the College of William and Mary, in Williamsburg, Virginia, and a B.S. in Business from Virginia Commonwealth University, in Richmond.