What's Really Wrong With the Smart Grid

It was only a matter of time before the Tea Party turned on the Smart Grid. First there were lone citizens who tried to bar their local utilities from coming on their property to change their power meter, leading to news items like this one from Placerville, CA. Then this week Jerome Corsi, who was involved in the Swiftboating of John Kerry,as well as an interesting call to impeach George W. Bush, penned an indictment of the Smart Grid as the beginning of "energy police," "energy criminals," and a government invasion of privacy driven by a "green ideological agenda," and abetted by Google.

I don't buy Corsi's argument, but I think the fact that he's making it demonstrates that the biggest problems with the $1.5 trillion installation of the Smart Grid are not the dicey technological, financial, and regulatory riddles that currently obsess bureaucrats, but chewy philosophical ones.The Smart Grid is rolling out lickety split because all the right interest groups love it: Utilities like the idea of cutting labor costs and being able to manage electricity usage; environmentalists want to integrate renewables onto the grid while stimulating energy efficiency; manufacturers want to sell appliances; regulators are trying to forestall the electrical outages that already cost our economy $119 billion a year; Congress and the DOE wanted to throw money at such an eminently popular, modern, "smart," concept. This enthusiasm covers up the fact that there is no coherent ideology there at all, never mind a green one. And that's the problem: Nobody has bothered to explain why the Smart Grid is good for you and me and then turn that into a policy.

Consumers, who are seeing their unspoken agreement with their utilities rewritten for the first time since the 1920's, have been left out of the discussion. Across the country Smart Meters have become increasingly unpopular as they malfunction, overcharge customers, allow utilities to quickly disconnect homes, and put the burden of equipment installation on ratepayers. (For detailed tracking see Jerry Richman's excellent blog.) While there's a tendency to see each bit of bad news as an isolated event, together I think they reflect a failure of the country's leaders to articulate a clear philosophy of the Smart Grid and its relationship to consumers. We really need to define the Smart Grid not in what it might offer interest groups, or why it's a "good idea," but in how it will empower consumers to save energy and money, encourage innovation in technology and markets, and create a stable atmosphere for investment and productive competition.

What would that look like? For starters, a consumer-focused grid would make cooperation between utilities and their customers part of the contract. Right now, utilities are switching to "time of use" electricity pricing, allowing them to charge customers more for using energy at peak hours. In theory, users could install more efficient appliances or use them at different times of the day to save money, but many cannot make the investment or change their timing, or simply have no idea how to change their habits so they end up paying higher bills--charged, Corsi says, for being "energy criminals." At the moment utilities have no explicit incentive to reduce consumers' bills. A proper contract would put the onus on the utilities.

Here's an idea: For the first five years after installation, the utility has to charge the consumer the lesser charge--either calculating by time of use or by the old utility contract of static pricing. Utilities, however, are given the option of making more regulated profits by reselling power to other utilities, giving them a clear incentive to help their customers use less power or less expensive power by helping them change behavior or buy more efficient appliances. (And utilities could use the low-interest publicly guaranteed credit lines they use to build power plants to instead invest in their clients appliances--passing along the low interest rate of course.) Consumers, given the option of buying cheaper power at less popular times, would be able to--without paying a penalty (yet) for using more expensive power.

Looking at the current marketing of the grid, and its vulnerability to charges like Corsi's, one gets the sense that utility marketing departments, so secure in their support from Congress and regulators, have fallen asleep at the switch. Americans love low prices, why not pitch the Smart Grid as the Value Grid, where you can shop for cheap electricity in the middle of the night? Corsi (and many consumer advocates) fulminate against time of use pricing, but in fact it's a time-honored American tradition. Happy Hours and Early Bird Specials are beloved examples of time of use discounts. Expensive Mother's Day dinners, last minute air tickets, World Series tickets are examples of peak pricing that make instinctive sense to all of us. In wholesale electricity markets, off peak power can cost a third the price of peak power. Walmart, I'm sure, would figure out how to market bargain basement power prices to its frugal customers. The problem in much of the half-hearted marketing of the Smart Grid is that it suggests that the grid is the smart thing, without empowering consumers to be the "Smart" ones.

The second hot button issue Corsi touches upon is whether the Smart Meters invade users privacy. The short answer is that the utility is going to be able to "see" what you're doing inside your house, whether it's washing clothes at 3 am or using an ungodly number of grow lights. And eventually every appliance in your house may have a url, making it controllable from a central panel both inside and outside the house. Our traditional definition of privacy is that what happens under one's clothes, inside sealed envelopes placed in the mail, and behind the drawn shades of one's home is one's own private business. The idea of a home as a castle protected by a sort of legal moat is why government needs search warrants and due cause to cross any of those barriers. However, technology has broken down those physical barriers so that scanners can see under one's clothes; Google--never mind the government--can read my naked emails; and wires shuttling information penetrate the walls of the house, rendering them porous. (Ironically, the new porosity was apparently news to a PG&E executive who joined an anti-smart meter group under a false name and is now on leave from his job.) Ultimately, we need a better legal and philosophical concept of what privacy means when barriers are porous and the invader is not the government.

The chewier problem with the Smart Grid, as I see it, is that your utility can profit from its knowledge of your habits by selling the electricity you're not using for a profit. This isn't Corsi's jackbooted thugs busting down your doors, it's more like a boorish busybody sitting around your kitchen eying your plate and constantly saying, "Are you going to eat that?" The idea of my utility, or Google, making a profit from the energetic equivalent of my potato peelings is either the acme of boorishness or the highest attainment of the free market, depending upon how you look at it. And I think how we look at it will depend upon how successful the process is. If the Smart Grid brings us lower bills, lower carbon emissions, and better and more comfortable homes, without explicit invasions of privacy, we'll probably love it. But if it fails to deliver on its promises, and becomes largely the tool of utilities to maximize profits and lock out competition, we will judge it a failure. Worse, if utilities or others sell information about our habits to third parties like health insurers who, for example, decide that we spend too much time in front of the TV drinking beer to be worth insuring, it will become a whole new problem. This is another situation where the Obama administration needs to lead the alphabet soup of agencies overseeing the Smart Grid to clearly define a philosophy of consumer-centered privacy.

One final point. Opposition to the Smart Grid is picking up speed because there are parts of the roll out that some Americans find instinctively offensive, but that doesn't mean we should abandon the Smart Grid. It means we need to be smarter about it, to address the core issues first. At the same time, it's important to recognize that some "instinctive" arguments make no sense. For example, this Tea Party Patriot website, which contains a post opposing the Smart Grid, also endorses "limited government," and the "free market," neither of which is really part of the design of the regulated utility deal we've had for almost a century. Furthermore, the very promise of electricity for all as a virtual "right," was established by Tea Party boogeyman FDR.

FDR's influence on the construction of the TVA and other hydro electric power projects is well known, but he also campaigned for New York Governor on a platform called the "waffle iron campaign," in which he said every household, no matter how humble, should be able to have a waffle iron. That promise led not only to waffle irons, but also to the home appliance industry, and the frozen food industry, generating millions of jobs and profits, not to mention innovations like toaster waffles. (A clear dotted line leads from the waffle iron campaign to 1959's Kitchen Debate between Nixon and Khruschev.)

A similarly broad, encompassing, deeply philosophical promise of what a remodeled grid will do for consumers, and our economy, is exactly what the Obama administration needs to articulate over the next two years.