By Rich Heidorn Jr.

WILLIAMSBURG, Va. — As of last year, 17 states had smart meter penetration of 50% or more. Yet only seven states — Maryland, Delaware, Arizona, Oklahoma, Ohio, Arkansas and Louisiana — have more than 5% of their residential customers enrolled in time-varying rate plans, according to the Energy Information Administration.

The reason for states’ halting progress was the subject of a session moderated by Maryland Public Service Commissioner Anne Hoskins at the Mid-Atlantic Conference of Regulatory Utilities Commissioners Education Conference last week.

Leah Gibbons, director of regulatory affairs for NRG Retail Northeast, said consumers’ wariness of time-of-use rates and the speed of technological changes are arguments for retail competition.

“The real reason for relying on retail markets … is because consumer needs and desires are a very quickly evolving thing. People change their minds on what they want and what they need all the time. And the best way to meet those needs is through the innovation of competitive markets. … The regulated model simply is not equipped to deal with that pace and keep up.

“We still don’t know what are customers really going to want. What are they going to go for?” she asked, citing the experience in Texas and some experiments in the Northeast. “Customers really do not like big price spreads that you get in a time-of-use rate. … They’re kind of afraid of it. But you really need to have a decent price spread between on- and off-peak to get customers to change their behavior and actually shift their load. So … we’re going to have to figure out: How do you get customers to choose those kinds of products? Or does it make sense to think more about demand response products?”

Gladys Brown, chair of the Pennsylvania Public Utility Commission, said many of the state’s industrial customers are already on TOU rates and that the commission is now focused on expanding the option to residential ratepayers to take advantage of its 2008 law mandating smart meters. The PUC says about 40% of its 5.7 million residential customers now have advanced meters.

A PPL Energy pilot program that began in 2011 was suspended after less than a year after an unexpected increase in spot market prices resulted in both on-peak and off-peak prices being below the fixed-price default service, resulting in undercollections (P-2013-2389572). When prices rose above the default rate, customers fled the program.

“It started out slowly,” Brown said. But she said regulators hope that with “full deployment of smart meters that we’ll have a lot of different programs.”

Rich Sedano, director of U.S. programs for the Regulatory Assistance Project, said that in addition to reducing peak demand, TOU rates can influence customers’ willingness to add solar panels or a high-efficiency water heater. “The marginal costs of the system are something that customers are typically not aware of if they are in a flat-rate situation, but with time-varying rates they can be made aware of that. And their investments can actually be replacing utility investments,” he said.

William Fields, senior assistant for the Maryland Office of People’s Counsel, questioned whether TOU rates are compelling enough to motivate consumers, citing Pepco’s current TOU rates: 9.6 cents/kWh on-peak; 7.7 cents/kWh off-peak; and 8.2 cents/kWh intermediate.

“In this low-gas-cost, relatively high-capacity-cost … environment, is there really a big difference there?” he asked. “We just want to express some caution that we take a very close look at whether there’s value there to make it worth it.”

The first step is to obtain better data, he said. “One of the frustrations I’ve had … is the limited amount of really good customer data — usage for residential customers, different size houses, apartments,” he said. “I think the [advanced metering infrastructure] that we have should be looked at as an opportunity to collect some better data on things like how does overall usage correlate to [peak] demand? … Do smaller-usage customers have small demand and large-usage customers have large demand?”