SAFEGUARDING THE RIGHTS OF VULNERABLE POPULATIONS DURING MODERNIZATION OF

ELECTRICITY DISTRIBUTIONSargent Shriver National Center on Poverty LawDec. 1, 2010

Contact Information

Julie Nepveu Sr. Attorney AARP Foundation Litigation jnepveu@aarp.org I am primarily a legal advocate for low

income people, not an energy wonk. Views I express in this webinar and the

accompanying article published in Clearinghouse Review are my personal views and should not be attributed to my employer.

Webinar Goals

Despite complicated and technical aspects of electricity distribution modernization, there are some basic low income legal advocacy strategies that may be effective in ensuring that low income people are not harmed by the modernization of the electricity grid.

Introduce the basic regulatory framework and key terms.

Discuss basic consumer protections needed and provide examples of successful advocacy.

Driving up cost and environmental

impact of generating electricity.

Demand, climate change, oil depletion

Basic Regulatory Structure

Only state regulatory commissions can review and approve filings of public utility investments, rate recovery policies, and utility pricing programs for retail customers.

States have jurisdiction over the regulation of intrastate monopoly functions and the rates that end-use customers pay for essential electricity and natural gas service.

Universal Service

Public utilities that enjoy the benefits of monopoly service areas must “serve on reasonable terms all those who desire the service it renders.” United Gas Co. v. R.R. Comm’n, 278 U.S. 300, 309 (1929).

Regulators are obligated to set “just and reasonable” rates.  Fed. Power Comm’n v. Hope Natural Gas Co., 320 U.S. 591 (1944).  

Federal Role: Guidance

Federal Energy Regulatory Commission (“FERC”) regulates interstate wholesale energy services and utility investments in the bulk transmission and natural gas pipeline systems, as well as regional energy markets.

The federal role in promoting Smart Grid investments is limited to guidance, assistance in national standards development, or contingent on federal grant authority, research and development.

Federal Policies and Incentives Energy Independence and Security Act of

2007, Pub. L. No. 110-140, 42 U.S.C.S. 17001 (2007). Established national goal to implement smart grid, including installation of smart meters in all homes by 2030 (approximately 60 million).

American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-5, 123 Stat. 115 (2009). Provides $3.4 B to develop and implement smart grid.

Utilities Follow the Money

What is the Smart Grid?

A technologically advanced transmission system designed to improve efficiency of electricity distribution and encourage conservation using detailed, real-time two-way communication over the internet.

Advanced Distribution Automation

“ADA” is a technologically advanced system to distribute electricity over the grid with greater efficiency and reliability.

ADA Goals and Benefits

Reduce environmental and financial impact of meeting peak electricity demand (“peaker plants” create more expensive, “dirtier” electricity);

Enable remote detection and repair of outages; Permit contributions to grid from renewable but

unreliable energy sources (wind, solar, hydro); Postpone construction of generating plants

necessary to meet increasing demand for electricity.

Integrate electric vehicles into grid structure.

ADA Cost Savings Projections Reduce electricity usage by more than 4 percent

by 2030: estimated total cost savings of $20.4 B.1

Reduce peak electricity demand by 1,400 megawatts, saving rate payers more than $1.5 B in capital costs for new power plants.2

Avoid overheated transmission lines and blackouts (cost $150 B annually).3

Reduce labor costs through automation. At state level utilities not yet focused on this

aspect of grid modernization.

Advanced Metering Infrastructure

“Smart” meters provide real-time data over the internet to enable remote or automatic monitoring and control over electricity usage.

“AMI” is a platform that enables time-of-usage (“TOU”) pricing structure which more accurately reflects cost of generating electricity at time it is used.

Smart meters do not themselves conserve any electricity.

AMI Goals and Benefits

Demand response pricing structure ostensibly provides consumers with financial incentives to reduce usage during times of peak demand – less peak use theoretically provides savings on bills.

Conservation at peak demand, when cost and environmental impact of generating electricity is greatest offers correspondingly greater environmental and financial benefits.

Interests Overlap But Not Identical

“The utility is concerned about managing capital costs. They look at the interval data and the customer portal as a way to influence your time-of-use behaviors. They really don't care how much power you use, they just don't want your demand to be lumpy. On the other hand, we just want our bills to be low.”

Jim Stogdill, (http://radar.oreilly.com/2009/02/ googles-powermeter-its-cool-bu.html)

Jobs For Low Income People?

The Smart Grid will lead to a net job-loss because technology will automate operations.

Reduced labor costs are a primary source of utility operational cost savings.

$150 M provided for training programs by ARRA will be insufficient to prepare low income people for high tech smart grid jobs.

10,000 temporary installation positions will likely be filled by currently employed maintenance employees who ultimately will lose their jobs.

AMI Cost And Hidden ExpensesUtilities may seek to transfer the cost of smart

grid technology to consumers even before they are installed or provide any services/benefits.

Basic meters may cost over $600 and remote control features add $100’s more.4

Cost for broadband, compatible appliances and devices may not be reflected in proposal but will increase costs for low income people.

To Do: Challenge Price Structure

Expose hidden expenses for low income people and ensure proposal accurately reflects full cost.

Ensure people are not charged for costs before they receive promised services/benefits.

Seek subsidies to pay for necessary meters and compatible devices and appliances.

Insist on complementary energy efficiency measures to help low income people reduce their usage, such as weatherization programs and affordable access to energy efficient appliances.

Advocacy Example: MD

Baltimore Gas and Electric (“BG&E”) wanted to pair a new surcharge for smart meters with mandatory time-of-use rates — paying more for usage during peak hours.

Advocates argued that meant higher electricity bills and additional costs, without any benefits.

Commission rejected BG&E’s pricing scheme, finding that BGE's promised benefits to consumers were not substantiated and could not be guaranteed.

Advocacy Example: PA

Office of the Consumer Advocate in Pennsylvania helped persuade one utility (Allegheny Power) to withdraw its initial smart metering plan, that would have cost residential customers $15 per month before services provided and included $100 million for unspecified "in-home devices.”

Demand Response Potential

To offset the cost of smart meters and increased electricity rates under TOU pricing, consumers will have to shift usage to off-peak times.

Where demand response potential is less than utility assumes in proposal, cost savings obtainable through shifting usage may be overstated.

People in single-family homes and homes with central air conditioning have greater responses to pricing signals than people in multifamily units and those without central air conditioning.5

Direct Load Control Alternatives

Feasible to provide cost effective and reliable methods of reducing peak demand without smart meters and associated costs.

Direct load control is an incentive-based demand response model in which the utility can briefly turn off a designated appliance to avoid a surge in power demand (AC, thermostat) without meter.

Customers generally volunteer to participate in direct load control programs, and most allow the customer to override the utility’s control of the appliance.

Disproportionate Burden

Smart meter costs and TOU pricing structure “incentives” ostensibly designed to encourage conservation will potentially drive cost of life-sustaining utilities out of reach for people who have low income, are older, have disabilities, or provide care for older or young people contrary to principles of universal service.

Various factors contribute to the vulnerabilities low income people face in responding to TOU pricing.

Low Income Vulnerability

Nothing To Turn Off

Low income people have smaller homes. Half as many low income households as

higher-income ones have central air conditioning, and they use it less frequently.

69% vs 91% have a clothes dryer.6 46% vs 86% have a dishwasher.7

Inelastic Demand

Older people, young children, caregivers, people with disabilities, those who use medical devices, or have temperature sensitive medical conditions have inelastic demand: they cannot shift or reduce peak usage.8

People who have inelastic demand may be harmed by increased rates during peak usage and will not benefit from the promised savings on their energy bills.9

Smart Appliances Unaffordable Automating conservation during peak demand

using energy efficient and smart grid compatible devices is most effective in reducing usage.

Low income people are unlikely to be able to afford energy-efficient or smart grid-compatible appliances and devices.10

They will have to carefully monitor and directly adjust their usage (if they can) compared with people who can automate usage reduction in order to avoid higher costs.11

Digital Divide

Low income people continue to lag behind their wealthier counterparts in internet technology uptake.12

Broadband internet is not available and affordable for all.13

Low-income people without internet and compatible monitoring devices will not have access to the benefits of automated monitoring and conservation capabilities.14

To Do: Get More Info

Insist on better data and analysis to understand how low income people will respond to and can be assisted in responding to pricing signals, including data collection if implemented.

Expose overstatements, inaccuracies, and data flaws in studies used to show support for poorly designed smart metering proposals. Use expert testimony.

Encourage regulators to test veracity of alleged benefits to low income people of smart meter deployment.

DOE Studies To Support TOU Approximately 10 utilities are working with

Lawrence Berkeley Lab and DOE to design and implement experiments in customer behavior response to dynamic pricing that involve pricing regimes, automation technology, and education/ motivation to fill the gaps in the current studies.

Ultimate goal is to implement federal policy to universal TOU pricing.

DOE Reports will be issued in late 2013.

To Do: Suggest Alternatives

Urge regulators to evaluate whether there are less expensive, less harmful methods of achieving desired benefits without exposing low income people to potential harms.

Advocacy Example: CA

The California PUC issued an order requiring disconnection data monthly reporting to monitor impact on low income people.

Disconnection benchmarks set by settlement agreement between Consumer Groups and San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas) – currently pending before the CPUC, with decision expected late 2010.

Extra protections kick in if benchmark exceeded.

Advocacy Example: MD

MD Public Service Commission rejected BG&E proposal finding, “We do not purport to know the extent to which ratepayers ultimately will participate in a dynamic pricing schedule such as the one BGE proposes, but we do not have a high level of confidence in BGE’s predictions on that score, and we do not believe BGE’s ratepayers should exclusively bear the risk that participation will fall far short of the Company’s projections.”

Utilities Already Unaffordable

Low income and older households spend a greater proportion of their income on energy. use older, less efficient appliances. rising energy costs also consume a greater

percentage of stagnant monthly income. Households below the federal poverty level

receiving LIHEAP assistance may spend over 16% of their monthly income on energy while wealthier households spend only 3.6% of their income on energy bills.15

Worse Than Dark Homes

People may resort to heating or illuminating their homes with candles, ovens, or kerosene heaters, which poses a greater risk of fire, air quality issues and the risk of carbon monoxide poisoning.

With 14.3% of the population (43.6 M people) currently living below poverty levels, the impact of unaffordable utilities poses a significant threat not only to individuals but also to the public’s health and safety.16

Worsened Health

People who can’t afford utilities may inadequately heat or cool their homes, which may create or exacerbate health conditions prevalent among low income population. Cardiovascular Respiratory Diabetes Stroke Death

Temperature Related Risk

The very young, very old, and people with medical conditions or taking certain medications may have difficulty maintaining their normal body temperature.17

Inadequate heating and cooling poses particular risk to their health, including death.

Lower socioeconomic status means greater risk of temperature-related death, especially for older adults.18

Hunger

People who cannot afford their utilities may be forced to choose whether to “heat or eat.”

The relationship between hunger and utility costs is predictable: Northern states - late winter and early spring Southern states - late summer

Food insecurity may cause developmental delays in children and increase the use of public health services.19

To Do: Educate Regulators

Team with health professionals and others to educate regulators about the significant societal costs posed by setting unaffordable utility rates.

Seek to preserve and bolster energy assistance programs for low income people.

Simplify subsidy programs with onerous application and certification requirements to encourage greater participation and protect against loss of essential utility service.

Advocacy Example: CA

In June 2009, The Utility Reform Network (“TURN”) filed a Petition for Rulemaking, asking the CPUC to consider changes to utility practices for the purpose of reducing disconnection for nonpayment and lowering customer arrearages.

The CPUC opened a rulemaking, recognizing that “utility service is a matter of health and safety” and seeking “to identify more effective ways for the utilities to … develop solutions that avoid unnecessary disconnections without placing an undue cost burden on other customers.”

Advocacy Example: MA

Advocates reached agreement in principle with at least one utility to use their smart meter pilot to obtain detailed data concerning low-income usage and impacts of dynamic pricing.

Advocacy Examples: NV

Commission opened a docket on consumer protections and shut-off protections even though it approved the utility's smart grid project.

Commission ordered the utility to refile its compliance plan, and to hire expert to conduct a statistical study of low-income energy usage and demand (utility claimed it did not know how to identify low income customers for such a study). 

Advocacy Examples: NY

In response to an earlier effort to mandate time of use rates for residential customers in New York, the New York Legislature has prohibited time-based rates for residential customers except upon affirmative and voluntary selection.

Prepaid Meters, Service Limiters Smart meters may include capacity to

require pre-payment or have service limiters, which trip a circuit breaker when usage exceeds a certain limit.

Electricity rates for prepay meters are higher because they include costs related to reloading meters (smart cards, kiosks, etc).

Circumventing Protections

Utility companies favor pre-paid meters and service limiters because they make it easier to collect outstanding debt and prevent customers from accumulating additional debt while also saving on labor costs.20

The use of pre-paid smart meters and service limiters enables utilities to circumvent important — albeit limited — procedural protections designed to prevent disconnections.21

Eliminating Customer Contact New York, Maryland, Ohio, and Illinois are

examples of state utility consumer protection regulations that require the utility to attempt contact at the customer’s premises prior to physical disconnection of service.

Smart meter business models typically predicated upon operational cost savings, including the ability to disconnect service automatically, without incurring labor costs of a home visit.

Tragic Consequences

In January 2009, a 93-year-old man froze to death when his service limiter tripped over the weekend, cutting off his electricity. The victim apparently was never told how the service limiter worked. When a neighbor discovered him, money evidently intended to pay the utility bill was found stacked on the kitchen table.22

Over the years, there have been numerous reports of people dying in fires caused by candles in homes without electricity.

To Do: Ban Mandatory Prepay Mandatory pre-paid or service-limiting

metering programs, including for renters or customers with outstanding debts, should be prohibited.

Ensure that procedural protections against disconnection are not circumvented simply because people who cannot afford utilities are forced to disconnect when they run out of money to reload a prepay meter.

To Do: Ban Remote Disconnection

Ensure vulnerable people are not remotely disconnected without a site visit made with the goal of avoiding the loss of service.

Ensure people facing disconnection know their options to seek payment plans, obtain energy assistance, benefit from conservation or energy efficiency programs, or obtain protection for those with certain health conditions.

Ensure any notice requirements are met.

Advocacy Example: MA

Mass DPU rejected a filing by Western Massachusetts Electric Company that would have installed prepayment meters as part of its smart grid pilot.

A municipal light plant planned to install pre-paid meters, but advocates convinced the state PUC that the use of pre-paid meters would violate billing and termination rules because people would be “shut off” when the money runs out on the meter.

Advocacy Example: MD

Commission ruled that service disconnections must conform to current regulations (no remote disconnections without a site visit), and emphasizes the critical nature of a robust and comprehensive customer education effort.

Advocacy Example: Ohio

Negotiated settlements with FirstEnergy and AEP which will prevent the use of smart meters to remotely disconnect customers or to be used as prepaid meters.

In a litigated proceeding with Duke, the Ohio Commission denied a waiver of Ohio credit and disconnection rules which would have permitted remote disconnection.  Duke argued that a notice via text message or the web should suffice.

Advocacy Example: CA

CPUC required that all customers at risk of disconnection be offered a payment plan of at least three months, with utility discretion to offer plans up to 12 months.

Suspended re-establishment of credit deposits for late payment for all residential customers and following disconnection for low-income customers and moderate-income customers with large households.

Notices must be provided in 6 languages and alternative accessible formats.

Advocacy Example: NY

NY Commission reminded utilities that “customers must be afforded the opportunity to make payment to utility personnel at the time of termination. This process requires a site visit, even where a remote device is utilized.”

Advocacy Example: KY

Advocates in KY worked to defeat a prepayment pilot operated by Louisville Gas and Electric.

To Do: Add Contextual Protection

Service should not be disconnected at a time when a customer is unable to recharge a meter, whether due to the time of day, lack of transportation, sickness, infirmity, incapacity, or other hardships.

It may be necessary to add age- or disability-based anti-termination requirements to protect particularly vulnerable low income older people, families with children, and people with health risks.

Advocacy Example: CA

CPUC prohibited the disconnection of life support customers or customers enrolled in the Medical Baseline program (who have certain qualifying medical conditions requiring the use of extra quantities of electricity or natural gas) without an in-person visit from a utility representative.

Required the utilities to provide a field representative who can collect on a bill during an in-person visit prior to disconnection for life support and Medical Baseline customers.

Advocacy Example: NV

Advocates have a draft rule requiring premise visits for elderly and disabled customers.

Draft rule reduces reconnection timeframes.

Advocacy Example: MA

Terminations (not specific to smart meters) governed by state law, which protects seniors from terminations and generally requires restoration of terminated service if there is a financial hardship in paying the bills and (1) there is a serious illness in the household; or (2) there is an infant under the age of 12 months in the household; or (3) the date is between November 15 and March 15.

Imprudent Investment?

Smart grid technology is still developing, may quickly becomes obsolete. Rate payers should not be forced to bear the expense of such risk.

Standards not yet set. The costs associated with the future implementation of such standards when ultimately set is not yet known or reflected in many smart metering proposals.

Results in stranded costs related to the premature abandonment of the existing metering system.

Stranded Costs

In Texas, Oncor’s electricity customers were required to pay $93 million for the obsolete smart meters that were never installed and $686 million for meters with the newer technology.

The California PUC approved PG&E’s request to increase costs by almost $1 B to change the communication system that was included in the original smart metering deployment application.

Advocacy Example: MD

BG&E had failed to recognize stranded costs in the amount of $250 M in its smart metering proposal. Advocates succeeded in exposing stranded costs, contributing to the Commission rejection of proposed pricing model.

Smart metering ultimately approved, but Commission ruled that BG&E will have to prove benefits for consumers before it can start charging them for the meters.

Advocacy Example: IL

Court overturned Illinois Commerce Commission approval of "system modernization project" charge (or SMP rider) to retail customers of ComEd that would immediately recoup smart grid costs. Commission violated prohibition on “single issue rate setting.”

Customers may ultimately receive rebate of approximately $48 million.

ComEd has appealed to IL Supreme Court.

Unfair And Deceptive Practices? Consumer complaints against utilities

typically must be heard by utility regulators, which are not well suited to hear residential billing or deceptive practices disputes.

Billing disputes have become national concern.

Ratepayers may be encouraged to purchase equipment or services that do not provide promised savings or that quickly becomes obsolete due to evolving technology.

To Do: Protect Against Risk

Educate consumers and regulators about the risk of investing in still-evolving technology.

Ensure the costs and risks are fairly allocated between utility and consumer.

Ensure regulators protect consumers from unfair and deceptive practices and deceptive marketing claims (e.g., prohibit elimination of daytime off peak hours after consumers buy into TOU rate plan or purchase TOU equipment marketed or sold by utility).

Privacy and Security Concerns

The technology will have the capacity to reveal unprecedented personal information, such as when a person is home, what time she cooked dinner, and whether a microwave or conventional oven was used to do so.

Such information is susceptible to misuse by marketers, scammers, debt collectors.  

Widely acknowledged problem, so far inadequate response.

Accessing the Data

Still an open question as to who owns the data and what data will be collected, shared.

Devices on/near the meter can pick up its signals and send data to Home Area Networks or laptops with no intervention by utilities.

Google and Microsoft have developed software to help people manage their usage, provided for free in exchange for access to the user’s data.

To Do: Safeguard Privacy

As smart grid technology is designed and adopted, advocates must insist that strict safeguards to protect privacy and security are adopted, adhered to, and regularly reviewed for effectiveness. 

If Not You, Then Who?

Smart metering has been approved without any consumer protections in Maine, District of Columbia, Idaho, Delaware, Pennsylvania(state law mandates smart meters without any findings of benefits to exceed costs and authorizes surcharge cost recovery).

Despite the potential benefits of smart meters, these are legitimate concerns that should and can be addressed.

Contact Info

Julie Nepveu Sr. Attorney AARP Foundation Litigation jnepveu@aarp.org

End Notes

1. http://www.physorg.com/news175870357.html, citing study by the Electric Power Research Institute.

2. U.S. Department of Energy, http://www.energy.gov/8216.htm

3. Dep’t of Energy, Litos Strategic Commc’ns, The Smart Grid: An Introduction 33 (2008).

4. Charlie Harak, Et Al., National Consumer Law Center, Access to Utility Service (4th ed. 2008).

5. McGann & Moss, Univ. of Melbourne, Smart Meters, Smart Justice?: Energy, Poverty and the Smart Meter Rollout, x-xvi, 39-46 (2010), http://bit.ly/mcgannandmoss.

End Notes

6. See McGann & Moss, supra note 5 7. Id. 8. Neal Walters, AARP Public Policy Inst., Can

Advanced Metering Help Reduce Electricity Costs for Residential Consumers? (2008).

9. See generally Ctr. for Disease Control & Prevention, Heat-Related Deaths—United States, 1999-2003, 55 Morbidity & Mortality Wkly. Rep. 796 (2006).

10. Lucas W. Davis, Evaluating the Slow Adoption of Energy Efficient Investments: Are Renters Less Likely to Have Energy Efficient Appliances? (2010).

End Notes

11. Opinion Dynamics Corp., Massachusetts Residential Appliance Saturation Survey, Rep. Vol. 1. Summary Results and Analysis (2009); see also Ahmad Faruqui & Lisa Wood, Edison Electric Inst., The California Statewide Pricing Pilot Summary app. C (2008); Michael McGann & Jeremy Moss, Univ. of Melbourne, Smart Meters, Smart Justice? Energy, Poverty and the Smart Meter Rollout (2010).

12. Sydney Jones & Susannah Fox, Pew Internet & American Life Project, Demographics of Internet Users (2010).

End Notes

13. Id. 14. Id. 15. Snyder & Christopher A. Baker, AARP Pub.

Policy Inst., Affordable Home Energy & Health: Making the Connections 14 (2010); see also Charlie Harak, John Howat & Olivia Wein, Nat’l Consumer Law Ctr., A Consumer’s Guide to Intervening in State Public Utility Proceedings (2004).

16. U.S. Census Bureau, Income, Poverty, & Health Insurance Coverage in the United States: 2009 14 (Sept. 2010).

End Notes

17. Snyder & Christopher A. Baker, AARP Pub. Policy Inst., Affordable Home Energy & Health: Making the Connections 14 (2010).

18. Id. 19. Ruth Rose-Jacobs et al., Household Food

Insecurity: Associations with At-Risk Infant and Toddler Development, 121 Pediatrics 65, 69-70 (2008).

20. Rebecca Smith, More Utility Bills Go Unpaid: Consumer’s Economic Struggles Spur More Power Shutoffs as Firms Step Up Collections, Wall St. J., Nov. 3, 2008, at A3.

End Notes

21. K. Jewell, Consumer Union, Residential Retail Competition in the Electricity Market: Lessons from the United Kingdom (2003), http://www.psiru.org/reports/2008-09-EW-PoorChoicesEnergy.pdf.

22. Scott Michels, Michigan Investigates Freezing Death of 93-year-old, ABC News, Jan. 27, 2009, http://bit.ly.abc_mich.