Mission Critical in Manhattan
New York City, FERC Load Zone J, is an area of concentrated electrical demand that places stringent requirements on generating capacity installed within its limits. New York City residents and businesses pay high electricity costs that result from a lack of inexpensive local generation and limited transmission capacity. Edison’s built his first direct current power system in 1882 in lower Manhattan. Since then New York City’s power system has become much more complex and extensive, yet some elements of the early direct current networks are still operating.
Blackouts and brownouts threaten New York City’s economy during the summer, and as the city approaches the cooling season, the key question is whether it has sufficient generation, demand response, and transmission and distribution to meet projected peak demand. Historically, needle peaks have occurred during summer evenings when residents arrive home and turn on air conditioners, lighting, and other appliances at a time of day when commercial and office electric load remains high. Those hours also are characterized by high wholesale electric prices on markets operated by the New York State Independent System Operator (NYISO). Similarly during this period, residential apartment buildings with rates that include capacity charges are also likely to record the highest point of monthly demand (for the purpose of setting demand charges).
Your columnist lives in a “pre-war” cooperative apartment building Manhattan that drew direct current for its 1926 Otis elevators, until five years ago when the building installed a rectifier. This new equipment enabled us to use alternating current without changing the elevators. The direct current circuits only received power from one direction and left us vulnerable to outages.
We also submetered the building following an order and new regulation of the New York PSC in 1980 that permitted certain types of direct and metered-residential buildings to convert to submetering (the “mantra” was “the hand that flicks the light switch should pay the bill”), and that enabled us to purchase through a master meter and purchase Con Edison electricity at less expensive bulk rates. While that change saved money for the residents, it subjected them to demand charges. The rate schedule, which provided a fixed electricity charge for each 24-hour period, provided no motivation to shift usage away from peak periods such as early weekday early evenings so as to reduce demand charges.
The physical remnants of the direct current systems are not the only leftovers from the early electric grid. We must also contend with electric pricing structures that do not reflect the realities of electric wholesale markets that change hourly and may vary by a factor of 2:1 on a 24-hour basis.
Today’s deregulated power markets brought opportunities to purchase electricity from non-utility energy services companies, and disaggregation policies forced utilities to sell their power plants. Customers, however, did not see much in the way of lower power prices.
In the early 2000s, New York’s Public Service Commission (PSC) ordered New York utilities to offer a rate based upon the NYISO Day Ahead Market, which was called real-time pricing (RTP). This order gave utility customers an opportunity to save money on their utility bills. Although Con Edison (the major utility serving New York City) filed an RTP tariff as order, no customer opted for the RTP rate until I persuaded my building to do so. Until then, Con Edison believed that no customer would be interested in this rate. Our building became the New York State Energy Research and Development Authority’s (NYSERDA) first RTP demonstration project.
In order to qualify for the rate, we retrofitted the building’s mechanical submeters with advanced interval smart meters and commenced a building-wide program that included an internal time of use (TOU) rate having three daily rate periods and a 5-to-1 price ratio between high and low periods. Over time, residents have responded to pricing signals and moved power off peak, rebutting the long held (but until then largely untested belief) that residential load is not elastic.
With the passage of the Energy Policy Act of 2005, we thought that tariff-based demand response had come of age since it required electric utilities to offer time-based rate schedule and regulatory commissions to conduct proceedings relating to time differentiated rates. Motivating electric end users to conserve became an important policy of the Federal government and New York State and City. In 2005, I predicted that the importance of time-based electricity purchasing in the US would be profound. Perhaps over time that will prove to be the case, but obstacles to getting to first base for many master-metered residential buildings such as installing submetering have proven more challenging than anticipated.
In NYC, submetering (with advanced interval submeters) is an important first step since many residential apartment buildings are master metered with electric charges being included in the rent. Historically, when electricity was cheap and generator fuel largely domestic, this made sense as did rates that remain the same 24 hours a day. Move ahead to now and this arrangement leaves apartment dwellers with no motivation to reduce electric usage. Abuses can even include leaving air conditioning on all day so the apartment will be cool when the end user returns in the evening and leaving all the lights on to avoid the inconvenience of turning them on and off, and “so what” if the price for such behavior is the same as it would be if the end user conserved electricity.
In master-metered, owner-occupied apartment buildings such as co-ops and condos in which electric charges are included in rent, the only people with something to lose by submetering are high electricity users who are cross subsidized by those who conserve electricity. Owner-occupied residential buildings, under PSC regulations can, by their own volition, implement submetering, although high-energy users sometimes oppose these plans (although they rarely acknowledge the true reason for such opposition).
Submetering of rental buildings, particularly low-income rental buildings, is where real obstacles can emerge since PSC approval is required, and contested cases can involve time and expense. The long history of troubled landlord-tenant relations tends to surround any attempt by a landlord to implement submetering with the deepest of suspicions among the tenants and their advocates. Again, those with the most to lose, high electricity users, can be counted upon to be among the most ardent foes of submetering. Their strategies can include spinning the situation as though it is a consumer rights issue and seeking political support for opposing submetering.
For low-income rental housing (particularly buildings with baseboard electric heating, most commonly installed prior to the early 1970s, the most common complaint is that submetering will shift the of cost of electric service to low-income tenants and oblige tenants to pay for the cost of electricity used to heat their apartments.
Such a claim incorrectly implies that tenants are not already paying the cost of electricity and that the landlord is scheming to get these tenants to pay costs they are not already bearing. In a master-metered building, such tenants, as a whole, pay the entire cost of electricity for the apartment building since such costs are included in the calculation by which rent is set. With appropriate rent reductions and subsidies, the only tenants that wind paying more are those who use more electric energy than the average tenant. Those who use less electricity will pay less since the cost of electricity will now be allocated among the tenants based upon usage rather than on a standardized basis. Based on our experience, electricity use will decrease by 8 to 10 percent, and the tenants, as a whole, will benefit.
Since replacement meters sold today are smart meters, it is worthwhile to briefly mention another area in which opposition has arisen; the cost of smart meters. Opponents say that smart meters are often not “worth it” based solely upon an analysis of payback periods. Unfortunately, micro views of submetering that focus upon such internal elements ignore externalities such as benefits from reducing demand and thus the wholesale price of energy, which ultimately benefits the end user. Other indirect but real advantages include environmental and cost reduction benefits by postponing or eliminating the construction of generation and transmission facilities that would otherwise have been necessary and enabling coordination with smart grids.
A final area of opposition to any change in metering, particularly smart metering, that is hard to rebut, not because it is correct and not because it is consistent with economic principles, since it is neither of these things, is the sentiment that “Americans will not change the times they use electricity to save a few bucks.” Since this is a personal and emotional view, it can be strongly held despite obvious evidence that Americans respond to sales, happy hours, off-peak travel, and many other opportunities for time-differentiated savings.
One would think that having each be responsible for his or her own electric usage and empowering electric end users to reduce their electric costs and even set their own rates by purchasing at off-peak hours would enlist the support of most end users and help New York City reduce its peak demand. While this is occurring, it will take time for our society to fully embrace this concept.