In Oklahoma, a Utility's Smart Grid Leads the Way

Millions of Americans are about to change their electricity consumption as power companies build the smart grid projects they’ve been talking about for the past few years. One place to look for inspiration is Oklahoma, and its leading power producer.

Oklahoma is not known for being a particularly green state. It’s among the worst in the country for energy efficiency [PDF]. Its wind industry is growing, but its natural gas industry is booming so quickly that some of those executives are getting mutinous about the wind. Yet Oklahoma’s largest electric utility, Oklahoma Gas & Electric, is a national leader in smart-grid technology.

A smart grid is a system of electric transmission that allows for two-way communication between a utility and its customers. These information flows create opportunities for more efficient electricity distribution and pricing. If customers have smart meters, for example, utilities can implement variable pricing programs that encourage customers to run their dishwasher in the morning, when rates are cheaper. Such tweaks could have significant environmental and economic upsides: An effective smart grid infrastructure would mean less consumption, lower bills, fewer power plants and reduced greenhouse gas emissions.

In 2009, after some successful small-scale experiments, OG&E’s Positive Energy Smart Grid program received $130 million in federal stimulus funding. Executives reckoned that was enough to cover 40 percent of the cost of rolling out smart grids to all their customers. Accordingly, it has already distributed smart meters to some 500,000 of its 800,000 customers, and plans for everyone to have one by the end of this year.

It’s too soon to tell what kind of energy savings can be achieved when all the customers are on board, but in initial phases of the program, customers reduced consumption and lowered their bills.

OG&E is considered a successful utility from both a business perspective and from the consumer side. Last month, Electric Light & Power, an industry publication, named it the 2011 utility of the year. It was also the top-ranked large utility in the south, according to the annual customer satisfaction survey from J.D. Power and Associates, edging out San Antonio’s CPS Energy, which is municipally owned.

The utility's smart-grid program is part of this business success. OG&E takes some interest in environmental issues, having increased the share of its portfolio devoted to wind power resources. But as an investor-owned utility, the company also has an obligation to shareholders. That means it wouldn’t have gone full-steam-ahead until the numbers made sense. That they did is a reason to feel optimistic about other such projects.

Ken Grant, the managing director of the smart-grid program, explains that in 2009, the utility set a goal of not building any additional fossil fuel-generation capacity until 2020. Power plants are very expensive, so utilities are never excited to build them. OG&E was particularly reluctant to strike out because of political and economic uncertainty, as well as ongoing technological development. Natural gas was beginning to boom. Wind and solar projects were making tentative progress. There was a possibility of legislation that would make coal-fired power plants much more expensive.

“You’d hate to build something in this time frame and find out that you could have done something that would have been much more cost effective and better for your customers,” Grant says.

Under business as usual, it would have been difficult to postpone the capital investment. Oklahoma is a growing state with a relatively healthy economy, and OG&E expected demand for electricity to grow too. The utility had enough capacity to meet demand most of the time, but peak demand was going to be a problem. If a utility doesn’t have enough generation capacity to meet peak demand, it has to buy extra power at exorbitant rates or else get brownouts or blackouts. So OG&E forged ahead with the smart grid. Replacing the meters, establishing administrators, and informing the consumers is expensive, which is one reason more utilities haven’t done it. But even without the stimulus money, it would have been cheaper than building a new coal-fired power plant.

The result has been quite smooth. One of the best things about OG&E’s smart grid is that it gives the consumers access to their own consumption data, with only a slight delay. With a traditional meter, a customer doesn’t know what they’ve consumed until weeks after the fact, at which point it’s too late to do anything about it. Under OG&E’s system, you can log on to the website and see what you’ve already spent, reducing the likelihood of an unpleasant surprise when the next bill arrives.

You can even imagine taking this a step further: Wouldn’t it be nice if your electric company sent you a text notification when you’d hit $100 for the month?

Unfortunately, most existing smart-meter projects haven’t made an effort to give customers such access. It adds additional administrative costs, and it’s not clear whether customers would bother to check the website anyway. A more cynical explanation would be that it’s not actually in a company’s interests to give the customer this data. The utilities are, after all, in the business of selling electricity, and many of them, being in regulated markets, don’t even have to compete for customers.

Regardless, this is something consumers should demand. We’re going to spend billions of dollars in taxpayer money over the next decade building out smart-grid infrastructure, and it might as well be as smart as possible.

The plainspoken Grant acknowledges that the potential impact on revenue was an concern, but he offers two considerations. The first is that the point of OG&E’s smart grid is to smooth demand rather than to reduce consumption across the board. A lot of environmentalists are going for the broader goal—according to studies, Americans could reduce their residential consumption considerably just by setting tougher energy-efficiency standards—but even the demand smoothing represents a major net benefit if it postpones the need to build additional fossil-fuel capacity.

Grant’s second point is that an electric utility operates in a broader economic context. If OG&E can provide reliable service at reasonable rates, that boosts the Oklahoma economy more generally, and growth in Oklahoma is good for OG&E’s business. “It’s kind of simple logic,” he says. “As a business we want to grow over the long term.”

Simple, and successful. Other utilities should be looking to smarten up like OG&E.

Photo via (cc) Flickr user nayukim; Screenshot courtesy of OG&E