Encouraged by regulations, policy decisions and programs in New York providing incentives to manage electricity usage, end users are turning to technology in order to conserve energy and realize lower prices. We have entered the era of the "smart meter" and may now enjoy its many benefits along with the measure of added complexity that technology advancement often imposes. New York State is actively encouraging the use of advanced meters, other load management devices and participation in load management programs. Among the significant aspects of smart metering is that it enables end users to take advantage of timing differences in the market price of electricity.

Commercial and Industrial Voluntary Demand Curtailment

Recognizing that New Yorkers face persisting tension between increasing demand for electricity and tight supply, the New York Independent System Operator (NYISO), with the approval of the Federal Energy Regulatory Commission (FERC), is encouraging users to voluntarily curtail demand in response to NYISO's signals during periods of high demand. Programs such as NYISO’s Emergency Demand Response Programs (EDRPs), which make payments available to end users for curtailing usage at times of peak demand, are viewed by the NYISO as essential to the proper functioning of electricity markets with respect to reliability and price. The EDRPs are open to customers ranging from light commercial to heavy industry and the wide variety of participants has ranged from cement factories to cheese producers. Options under the EDRPs generally include: (i) voluntary load reduction measured against a statistically set load baseline, (ii) competition within a day-ahead bidding program under which participants offer their load reduction into the market and compete against generator offers and (iii) contractual commitments to either reduce load or supply it by on-site generation.

The New York State Public Service Commission (PSC) has supported demand response programs and has encouraged their operation by requiring utilities to establish appropriate tariffs, including Real Time Pricing (RTP) rate structures based upon the NYISO’s day-ahead market, for those customers who elect to purchase energy in this manner. The PSC issued an order to extend the effectiveness of these tariffs beyond their initial termination date of December 31, 2002, to October 31, 2005 to correspond to a NYISO request to FERC for a similar extension of NYISO’s EDRPs.

Metering

On the regulatory side, PSC proceedings over a period of years directed towards opening areas of utility service to competition have included policy decisions with respect to metering. PSC policy now calls for installing, testing and reading meters along with data handling to be opened to competitive providers, including the incumbent utilities. This policy also allows for meter ownership by competitive providers, utilities and non-residential end users meeting specified demand criteria. The PSC is currently considering implementation details for these new metering policies. The PSC has also encouraged electric distribution utilities to facilitate efforts by customers to utilize advanced, remote metering.

On the incentive side, the New York State Energy Research and Development Authority (NYSERDA) is encouraging the installation of advanced meters and other energy management devices by commercial, industrial and institutional customers to permanently reduce load or enable them to participate in the NYISO's demand response programs. For example, a current NYSERDA Program Opportunity Notice (PON) provides incentives for the installation of interval meters by customers participating in NYISO load reduction programs, transmission owner load response programs or such programs offered by load serving entities (LSEs). Another example is that NYSERDA will provide incentives for the installation costs related to advanced interval meters and other elements of energy management systems for multi-family residential apartment buildings.

Real Time or Other Time Sensitive Pricing

Advanced interval meters are necessary in order to take full advantage of purchasing electric energy on a time sensitive basis. Time of Use (TOU) pricing has a long history but has not been generally available in bi-lateral contracts following deregulation. Widespread time sensitive pricing is essential in order to provide incentives to end users to manage demand. The NYISO advocates "connecting" wholesale and retail markets. Doing so will create time sensitive rate structures for a wide range of consumers and encourage non-residential and residential load management.

Notwithstanding NYISO encouragement, it can be difficult to find suppliers offering time sensitive rates. An alternative, however, is to purchase power under a Real Time Price tariff. For example, Con Edison’s voluntary real-time pricing tariff (RTP rate) is applicable to several service classifications such as commercial, industrial and multi-family dwellings. Although the demand rate under that tariff can be higher than Con Edison’s Retail Access demand rate (since the RTP rate is under Con Edison’s full service tariff) there remain significant potential savings to those end-users able to move usage to off-peak periods. Prior to taking service under any RTP rate, end-users should analyze their specific demand curves in order to determine whether there is sufficient elasticity of demand to justify purchasing at the RTP rate. The installation of advanced interval meters is key to any comprehensive analysis of a facility’s usage patterns. While Con Edison and other utilities can provide standardized load curves, only an interval meter will enable an end-user to determine its own usage characteristics sufficiently to conduct a meaningful analysis.

There are several potential benefits to load management — reduced demand charges, receiving curtailment payments and lower energy costs. A variety of end-users have and can benefit from load management. Non-residential customers such as commercial users, hospitals and school districts have installed advanced interval metering and building management systems (BMS) that serve diverse functions. For example, school districts have made such installations as a portion of projects that involved the installation of energy conservation measures and cogeneration. The installation of a BMS affords the facility essential knowledge and control of energy usage. Apartment buildings that have submetered under PSC regulations, by installing a master meter and individual apartment meters can also benefit from advanced metering and load management.

There are several projects in New York City cooperative apartment buildings designed to demonstrate the benefits of programs centered around advanced metering, curtailment and time-sensitive rates. One of those projects is taking place in the cooperative apartment building in which Peter Funk, one of the authors of this article, resides. The lessons learned from these projects should be broadly applicable to residential and non-residential electricity end-users. Energy Investment Systems, Inc. (EIS), whose President is Lewis Kwit, is implementing a model in these buildings that EIS developed based upon information derived from several years of participation in NYSERDA supported programs. One of EIS’ projects includes: (i) advanced interval meters and equipment which can measure usage in time intervals and can read meters automatically; (ii) telephonic interconnects with Con Edison; (iii) automatic curtailment control devices (with overrides to meet resident approval), (iv) individual apartment display devices which provide energy-related information, (v) the purchase of electric power at the RTP rate or other time sensitive arrangement and (vi) the development of an internal time sensitive apartment rate schedule which mirrors the RTP pricing categories and considers peak demand periods. Apart from the master interval meters to be installed by Con Edison, EIS has arranged for Comverge Technologies, Inc. to provide the advanced meters and other electronic units for that project.

The implementation of a rate structure within any building having multiple users, whether commercial or residential, raises challenges. These challenges can have technological, practical and regulatory aspects. In particular, consideration must be given to state and local regulations relating to the sale of electricity. For example, the apartment building project referenced above is planning to switch to RTP rates and to implement an internal rate structure to reflect RTP rates. Gulf Power Company will be creating the building’s internal rates. In establishing an internal rate, the building will have to consider the application of the PSC's submetering regulation that requires the cooperative to devise a cap on internal rates in order to prevent bills to submetered residents from exceeding the amount that would be charged for the same kWh usage based upon a utility's residential tariff rate for direct-metered utility service (SC-1).

Efforts by the PSC to establish a competitive market for electric supply have required the unbundling of the supply and delivery service portions of utility rates. While precise unbundling has not yet occurred, interim back out credits are in place. These deregulation steps occurred after the promulgation of the PSC’s submetering regulations and a certain dissonance has resulted. There should not be a meaningful conflict with the submetering rate cap since the average rate for each submetered unit over time is expected to be significantly below the SC-1 rate. However, rates during certain limited hours of the day within summer peak periods, knowledge of which is a benefit of interval metering, might be higher than the SC-1 rate. Presently, a master metered building may elect to purchase power from an alternative service provider for fixed energy cost pursuant to a bilateral contract. Such a contract could prove more expensive than direct utility service for a summer month although, on average, be significantly less than direct metered service. In the event the building is submetered, such billing might not be in conformance with the PSC’s submetering requirements, depending upon how these are interpreted. Further, complicating a comparison of SC-1 and submetered rates are month-to-month changes in the cost of direct-metered service and the demand component of the SC-8 rate. The challenges are acceptable, however, because using a uniform internal rate does not provide incentives to residents to manage their demand and usage. For these reasons, it is important to amend the submetering regulation in order to accommodate and facilitate the advent of Real Time Pricing in the multifamily building sector.

There are also challenges raised by implementing an advanced submetering system within New York City. New York City requirements relating to the compliance of socket-variety advanced submeters of the Bureau of Electrical Controls within the New York City Buildings Department (DOB) exist side by-side with PSC regulations governing utility meters but not always harmoniously. With end-users and their contractors installing an increasing number of meters and in light of the PSC's policy decisions that will serve to increase the number on non-utility owned and installed meters, it is critical for the DOB to have a meter approval system in place that is in alignment with statewide policies and initiatives. One of the lessons we have learned from these projects is that the assimilation of Real Time Pricing into conventional consumer society will require governmental action at all levels.

In summary, implementing advanced metering, RTP rate purchasing and, where applicable, establishing an internal time-sensitive price structure can be a cost effective way to manage electricity and save money. The ability to participate in NYISO curtailment incentives and load shedding will create value-added benefits. Of course, educating end-users about automatic curtailment, RTP rates, ISO curtailment incentives and related opportunities is critical. We believe that the combination of institution incentives, time sensitive tariffs and advanced metering and curtailment technologies can provide important benefits to end users, the city in which they live and advance statewide energy reliability initiatives.

Note: The authors, Peter Funk (peter.funk@thompsonhine.com) and Thomas Riozzi (thomas.Riozzi@thompsonhine.com), are attorneys in the law firm of Thompson Hine LLP located in New York City (212-344-5680).