In Oklahoma, Putting Off the Need for New Power Plants

By Rona Cohen

Conservation has long been considered a societal good, but increasingly, utilities in major energy-producing states are discovering that it makes economic sense, too

Developments in Oklahoma, a top supplier of natural gas, exemplify how a mix of regulatory and economic forces is bringing about a change in attitude. Back in 2007, Oklahoma Gas and Electric (OG&E), the state’s largest utility, abandoned a bid to build a 950-megawatt coal-fired plant to keep up with growing demand, after the Oklahoma Corporation Commission failed to grant pre-approval to the plant’s $1.8 billion price tag. The proposal ran into stiff opposition from powerful local natural gas interests and environmental groups, who wanted the utility to pursue cleaner alternatives.

Amid an uncertain regulatory environment, a fast-changing energy economy, and a need to meet rising energy needs, the utility then made a decision: it would embrace smart technologies in a bid to avoid the need to build new fossil fuel generation before 2020.

OG&E proceeded to launch a small, 25-person pilot in the university town of Norman that offered customers smart meters and real-time pricing information to induce them to cut back on energy consumption during peak periods.

The timing was auspicious, as it coincided with a move by the Obama administration to funnel an unprecedented level of funding into the largest modernization of the electric grid in history. The Recovery Act sent $4.5 billion specifically to smart-grid investments and demonstration projects that are examining how consumers respond to demand-response programs and the technologies they make use of.

OG&E’s share was $130 million, a sum that enabled the utility to take demand-response to the next level.  Its $293-million Smart Grid Investment project, launched in 2010, included a two-year study to help customers access dynamic pricing to avoid using power during peak demand times. Customers were offered a variety of control-based technologies, including programmable thermostats, in-home real-time pricing displays, and a Web portal that helped customers track their energy use.

The results were promising: the 3,000 participants in the first phase lowered their average energy consumption between 11 and 33 percent during peak demand days, and cut their overall energy use by up to 57 percent when compared with a control group. In 2011, OG&E added an additional 3,000 customers to the study, and average savings during the summer months were $200 per home, said Penny Seale, a senior communications specialist for OG&E, who was providing information on the utility’s smart-grid program on the sidelines of a recent conference in Washington, D.C., sponsored by the Edison Foundation and the Institute for Electric Efficiency.

The utility is now offering smart meters to all of its nearly 800,000 customers in Oklahoma and western Arkansas.

Elsewhere across the country, utilities are rolling out large-scale demand-response pilots that are handing consumers a range of tools to track their energy habits, in a bid to enhance the efficiency of the grid by alleviating stress during peak usage times. The programs encourage ratepayers to cut their energy consumption or shift their use from times of the day when demand and prices are high to periods when demand is low.

Such strategies can yield a variety of benefits for power providers and the public. Shaving demand minimizes the need to draw power from expensive “peaking” plants, which need to be maintained and kept on standby, though they are rarely used. Such plants tend to be older, less-efficient generators that emit more air pollutants than newer plants outfitted with the latest pollution-control technologies, so avoiding their use may also lead to environmental gains. And when the programs also lower overall energy demand, they enable utilities to defer investments in expensive new power plants and avoid associated rate increases for consumers.

But not everyone is convinced that smart grid technologies will be beneficial. Some consumers have expressed suspicion about installing communication devices that send power providers a steady flow of information on their personal energy habits.

“A lot of people are not engaging with smart grid and some are actively fighting it,” said Lisa Hillenbrand, global marketing director of Procter & Gamble, during a panel discussion at the conference where OG&E was showcasing its program. “A key question for all of us is: How are we going to engage people so that everyone benefits?”

While there is anecdotal evidence that some consumers have rejected cutting-edge power-monitoring tools out of concern about disclosing such data, so far, research shows that participants in early pilots are reaping low to moderate gains. A study released in February from the American Council for an Energy Efficient Economy (ACEEE) that surveyed nine demand-response pilots in the United States and Ireland revealed some behavioral change: customers provided with real-time feedback on residential electricity consumption saved an average 3.8 percent on their electric bills, with savings of up to 11.3 percent during peak demand times.

Early results from other pilots suggest that when presented with dynamic price signals, consumers will modify their energy habits to cut costs. “Most of our jurisdictions have electricity much cheaper or even half that of prices in New England or California, but our customers are still interested in understanding what’s going on on their side of the meter,” said Nicholas Akins, president and CEO of American Electric Power, during a panel discussion.

The utility’s Grid Smart project offers smart meters to 110,000 residential and business customers in northeast Ohio, and is testing digital communications and automated functioning to improve grid reliability and reduce the need to build new power plants.

Untapped Potential

Utilities have offered demand-response programs to commercial and industrial customers for decades, particularly in states along the nation’s east and west coasts. Nationwide, more than 21 gigawatts of commercial and industrial energy demand have been enrolled for reduction or rescheduling to manage peaks—equivalent to controlling more than three-quarters of the peak load in New England, according to the White House report “A Policy Framework for the 21st Century Grid,” released last June.

But much of the existing efficiency potential remains untapped. A 2009 report prepared by the Brattle Group for the Federal Energy Regulatory Commission found that if advanced metering infrastructure and dynamic pricing were made available nationwide, demand response had the potential to reduce peak demand by 20 percent by 2019, compared with a business-as-usual growth rate. That’s equivalent to taking away roughly 2,000 peaking plants with an average size of 75 megawatts.

Efficiency proponents say that in order to engage utilities in energy-saving measures, it is critical to remove existing regulatory barriers to progress. Most utilities lose out on revenue when natural gas and electricity usage declines, and are not compensated for efficiency investments. Thirty-eight states have taken steps to realign their utility rate structures to remove the regulatory and management barriers discouraging support for energy efficiency, according to a January report from the National Governors Association.

Regulatory change made possible the experiment that is now unfolding in Oklahoma. Back in 2008, the state utilities commission responded to a petition from two environmental groups, the Sierra Club and the Oklahoma Sustainability Network, by forging rules that essentially removed the disincentives to demand-side management and efficiency programs. The rules made it potentially lucrative for investor-owned utilities like OG&E to pursue such programs, without creating mandatory targets or penalties for underachievement.

The new rules offered program cost recovery, savings incentives (whereby the utility is granted a portion of the savings achieved through the programs), and reimbursement for every kilowatt-hour that the utility can document as a lost opportunity to sell power, said Montelle Clark, director of the Energy & Air program at the Oklahoma Sustainability Network, and a member of the Air Quality Council at the Oklahoma Department of Environmental Quality.

Environmentalists say that while OG&E’s program is a promising start, there is substantial opportunity to capture more economic and environmental gains through conservation. This is because demand response, with its focus on shifting load away from peak times to relieve stress on the grid, is not the same as energy efficiency, which reduces load altogether. Energy efficiency refers to using less energy to perform the same level of service to the consumer, but in a more economically efficient way.

Cutting net energy usage lowers the quantity of emissions produced by burning fossil fuels, avoids the need to build new power plants and associated transmission equipment, and is comparatively cheap: the cost of saving 1 kilowatt through energy efficiency typically is one-third or less than the price of providing that power via new generation.

Some studies show that the cost structures offered to consumers in demand-response programs could influence them not to conserve, because cheap off-peak prices could induce consumers to merely shift their energy use to those hours—such as running the washing machine at night or on the weekends—thus saving them money without the need to cut back on consumption. A flyer from OG&E reveals how dramatically prices can vary depending on the time of day: rates are a flat 4.5 cents per kilowatt-hour at any time except during the high-demand peak hours of 2 p.m. to 7 p.m. on weekdays, when they skyrocket to as high as 46 cents.

“If you want it to be a win for the environment, then you have to start eliminating some of your load through energy efficiency,” said Clark.

Going forward, recent rules finalized by the U.S. Environmental Protection Agency (EPA) requiring reductions of multiple pollutants from older power plants could make a compelling economic case for embracing energy efficiency. The EPA’s regional haze program could force plant owners to spend as much as a billion dollars to upgrade existing coal generation in Oklahoma, said Clark.

The EPA has allowed energy efficiency to be partially considered as compliance measures for the Cross State Air Pollution Rule, which was released last July, he said. The rule will require power plants in 27 states to significantly reduce emissions of nitrogen oxides and sulfur dioxide, two key ingredients of ground-level ozone.

Prioritizing Conservation

Although Oklahoma does not have a renewable portfolio standard, the state has set a target that 15 percent of all installed electricity generation capacity within the state must come from renewable sources such as wind, solar, and geothermal by 2015, and a quarter of that target can be obtained through demand-side management and energy efficiency.

“We’ll blow through that 15 percent target this year just with projects that are already under way. So while we don’t have mandates, we’re achieving the same results,” said Jay Albert, who serves as deputy secretary of energy under Governor Mary Fallin.

Oklahoma is a major natural-gas-producing state, and ranks as the eighth-largest energy-producing state overall. Electricity rates are comparatively cheap by national standards, which could serve as a disincentive to conserve: they average around 7 cents a kilowatt-hour, compared with 11.5 cents per kilowatt-hour nationwide. “But we know that there’s a lot of potential out there even with low electricity prices,” said Albert.

Recent directives from Fallin’s administration have prioritized conservation. Last year, the governor issued an energy plan calling for an increase in the use of cleaner-burning natural gas, wind, demand-side management and energy efficiency, among other measures, “to control emissions and ensure air quality.” According to the plan, Oklahoma has the potential to reduce peak load through energy efficiency by up to 30 percent.

In her State of the State address this year, Fallin asked the legislature to send her a bill directing every state agency and higher educational facility to cut their energy use by 20 percent by 2020—which could lead to $300 million in savings, she said.

The legislation was approved unanimously by the state senate on March 12 and passed the house with amendments on April 24. At press time, the bill was headed back to the Senate for approval.

“Oklahoma has always been a leader in energy production. Unfortunately, we have lagged far behind in energy conservation, with taxpayers footing the bill,” said Fallin in her address on February 6. “That’s unacceptable, and with the help of the legislature we can address this problem and become a leader in energy efficiency.”