The Smart Grid Trojan Horse

Perhaps you've heard of the Smart Grid initiative. Perhaps you understand that the goal of the initiative is to improve and modernize the nation's power transmission and distribution networks. Maybe your electric utility has even installed a Smart Meter at your home or business. What you probably don't know is that the Smart Grid movement is the Trojan Horse of the green agenda, a step toward Cap & Trade.

Since the time of grid pioneer Samuel Insull, the goal of utilities everywhere has been to balance generation capacity against electrical demand to ensure system integrity. Curiously, this goal is shared in modern times by the green movement. The difference is in how the goal is accomplished.

For decades, utilities satisfied unbridled energy demand growth by constructing new generating plants. The concept was pleasantly simple: Predict the pace by which energy consumption would increase and build generating plants to keep ahead of it. Then came environmentalism and its evil twin, mindless anti-capitalism, both rooted in the counterculture of the 1960s. Thereafter, utilities began to evolve at the point of a gun. Every aspect of generating electricity came into question under a variety of federal energy acts and environmental regulations. Power plant construction would never again be easy or cheap. Energy efficiency and conservation would have to save the day in accord with the Green agenda. Meanwhile, many state Public Utility Commissions established Renewable Portfolio Standards (RPS). These standards required utilities to incorporate high-cost renewable energy sources into their portfolio of low-cost conventional generation assets (never mind the consequences).

Now comes the Smart Grid initiative. In truth, the initiative is but a collection of programs captured in the form of federal standards that separately and jointly advance the Green agenda without raising many eyebrows. The first effort involves replacing conventional electric meters with Smart Meters. Smart Meters are key, because they can be programmed to total your energy consumption by time-of-day (among other sophisticated capabilities). This feature facilitates the application of Time-of-Use (TOU) billing tariffs, euphemistically called "dynamic pricing"in marketing circles. These tariffs vary energy charges depending on when energy is used. Conventional meters do not include the time-of-day feature. They are very modest devices that have little calculation capability. They simply total kilowatt-hour consumption (energy) for monthly billing calculation purposes with no regard to when energy is consumed. This simple metering approach met, and still meets, the operational needs of utilities that bill against a simple flat cost-per-kilowatt-hour tariff. That would be the majority of utilities.

To be clear, existing conventional dumb meters have ample sophistication for simple flat-rate billing purposes. For more complex billing tariffs, a more complex meter is necessary -- the Smart Meter. So why do utilities need more complex billing tariffs? Simple: to better and more subtly mine your wallet for the funds needed to uphold renewable energy sources and other costly Green initiatives. Of course, that's not the official reason.

In fact, Smart Meters will be collecting and transmitting real-time energy consumption data, your data, to servers at (or controlled by) your host utility. The data will be conveyed via the internet, and accordingly, you'll be able to examine this data at will via a home display or online. An iPhone application is already available.

According to Smart Meter proponents, by having access to real-time consumption data, consumers will be better-informed about their energy use and will therefore spend time and effort finding ways to reduce consumption. I would not call this a lie so much as a yet-to-be-validated truth that falls well short of "full disclosure." On examination, one might agree that energy cost "savings" are plausible. Meaningful savings is a different story altogether. Rarely do you hear the words "return on investment" in the context of Smart Meters.

Ironically, even while Smart Meters are being deployed by the millions at a cost of billions in stimulus grants, the Electric Power Research Institute (EPRI) has yet to complete a collection of "demonstration projects" launched specifically to gauge the value of providing consumers with real-time energy data. As of this writing, there is no hard evidence that shows a per-household return on the Smart Meter "investment" you unwittingly made and are continuing to make via taxes and utility charges. In fact, the DOE's Smart Grid Information Clearing House website posts this note in red at the top of the home page: "We expect to officially launch the site in Fall 2010."

I suspect EPRI and the utilities deploying Smart Meters already know that few consumers will avail themselves of the promised data, and that even those rare birds who diligently and aggressively pursue savings will be bitterly disappointed by the results. Actually, the anecdotal evidence is already plain and convincing. So why the ruse? Uncovering the details takes a fair understanding of the subject.

Typical flat-rate billing tariffs are not remotely representative of how generation costs are accrued in the real electricity market. They would be so only if utility costs were similarly flat across each day, each week, each month, and each season -- but they are not.

Operationally speaking, utilities have two basic "types" of generators: base load and peaking. The fundamental difference between the two is in how they are deployed. Base load generators are intended to run constantly with a fairly high, flat output. They satisfy fundamental consumer demands and are relatively inexpensive to own and operate. On the other hand, peaking generators run only to meet electrical demand spikes, like those that occur on particularly hot summer days. Peaking generators therefore cost utilities more per generated kilowatt-hour because the asset is often sitting idle while ownership and maintenance costs tick.

All that said, a thoughtfully designed flat-rate tariff will equitably account for cost variation, as it has for decades. This is done through averaging. Simply put, a flat-rate tariff "overcharges" during parts of the day and "undercharges" at other times in order to yield a total net charge that properly accounts for the utility's varying costs. In short, existing rates and meters meet the accounting and billing demands of conventional generation operations.

Now for the green twist: Conventional generation operations are going the way of the buggy whip. Once you add wind and solar to the generating portfolio of utilities, operational management gets a lot more complicated.

There are a number of technical problems that come with wind and solar sources, but for the purpose of this article, the chief problem is that they appear and "disappear" at the call of nature, often defying all efforts to forecast their Copperfield-like magic tendencies. This causes grid system operators (sysops) no end of grief, as they must balance varying consumer demand against a supply reserve that now contains a host of variable, uncontrollable generators. This results in exceptional use of conventional generating assets and taxes grid stability.

See the need for a smarter grid? Imagine how sysop issues multiply as the number of subsidized wind farms and solar generators grows to include "home generation" solar panels and wind turbines.

Given the foregoing, the need for Smart Meters is clear. Simple metering and flat-rate billing can no longer equitably account for all the green cost variables being inflicted on utilities. In the final analysis, time-of-use billing tariffs are the answer. To enable these tariffs, Smart meters are required.

One set of statistics for your consideration. The Cape Wind project, America's first offshore wind farm (within view of the Kennedy compound), pre-sold 50% of its design output last month on a fifteen-year contract to National Grid. Sales price: $0.207 per kilowatt-hour, plus an annual cost increase of 3.5%. Power deliveries are scheduled to begin in 2013. At the end of the contract in 2028, the kilowatt-hour price will have escalated to $0.3237.

Quoting from the article "National Grid To Buy Power From Cape Wind" (published online by North American Windpower):

Based on its forecasts of what customers will pay for electricity in 2013, National Grid projects this will translate into a total monthly bill increase of $1.59, or roughly 2% per month, for a typical residential customer who uses 500 kWh per month.

In other words, the subsidized wind power cost when diluted by the low cost of conventional generation is barely noticeable! Never mind that the raw cost is just shy of double the national average residential energy cost, according to statistics taken from the U.S. Energy Information Administration. This is how frogs are boiled.

Stopping the march to green serfdom will not be easy because a confluence of separate conflicts of interest are securing our fate. On one end, you have the green mafia, who are on the threshold of having their dreams fulfilled. On the other end are vendors who stand to make millions selling "greenware." Between are utilities that will finally secure the means to bear the financial pressures of environmentalism. On the periphery are engineering firms and installation contractors, many that would otherwise starve in this economy but for the Smart Grid initiative. Politicians, of course, are filthy throughout, the most effective offenders being members of state Public Utility Commissions (PUC). Having already enabled costly Renewable Portfolio Standards, no doubt they will approve costly sophisticated rates as well.

The foregoing is only the tip of the proverbial iceberg. Clearly, the Smart Grid initiative is every bit as ominous as Cap & Trade, perhaps worse, because it romps along without much notice as billions of taxpayer dollars are spent. Fighting it starts with understanding that the initiative isn't really about modernizing the grid in the way most people understand the definition of "modernizing." It's about enabling the green agenda.

Grant Ellis holds a BS in Electrical Engineering from the University of Florida and Professional Engineering licenses in Texas, Georgia, and Kansas. He is in private practice and a veteran of multiple power distribution and energy efficiency projects over a 31-year career.