by Jeff St. John
January 11, 2017

For the past 30 years or more, residential demand response in the United States has followed a typical pattern. Utilities (or demand response providers and aggregators) look for customers willing to turn down their power during times when grid energy demand is peaking beyond the capacity to serve it, like hot summer afternoons, or cold January mornings.

A certain number of customers sign up, and receive equipment like load control switches for air conditioning and pool pumps, or smart thermostats and smart appliances, that will turn their electricity down for them. In some cases, customers can turn things down manually, if there’s a way to measure the resulting drop in energy use.

But in any case, each customer is compensated in a fixed way, often through pre-payments for participation, plus a credit or incentive for actually hitting their reduction targets on peak days. And of course, nobody but the customers who actively signed up are counted.

Then there’s Baltimore Gas & Electric’s Smart Energy Rewards program. Customers don’t have to sign up -- everyone is not only eligible, but more or less part of the program by default. BGE and its partner, Opower, simply track every customer’s typical energy consumption through their smart meter data, and create baselines to compare against the handful of peak days when they’re asking everyone to use less energy.

On those peak days, BGE compares each customers’ usage to those baselines. If they’ve used less, they get a credit on their bill at the end of the month -- and a friendly email or text reminder that they’ve saved money a few days after the event. The only way to avoid getting paid is to actively opt out of the program. But who would want to opt out of getting some free money?

This approach, called “behavioral-based demand response,” makes for a potentially disruptive way of conceiving of and implementing residential demand response in the United States today. It’s made possible through a combination of technologies, including smart meters, as a tool for tracking home energy use in sub-hourly increments and software to convert that data into verifiable, temporal value.

It’s also enabled by a regulatory construct that allows BGE to count every customer as a potential participant -- and pay them from a surcharge on all customers’ bills. “The success we’ve seen is because we’ve taken an auto-default approach, where anyone who’s got a smart meter becomes eligible to participate,” America Lesh, BGE energy efficiency programs manager, said in a recent interview.

Finally, it requires significant data-crunching to ensure that the per kilowatt-hour prices BGE is paying people can yield the predictable and cost-effective behavior changes that add up to real-time reductions in its energy demand. BGE bids its Smart Energy Rewards-derived load reduction into the demand response capacity markets of mid-Atlantic grid operator PJM, and must earn back the costs to its broader customers from earnings on those contracts.

Old-school vs. behavioral-based demand response: A game of numbers

So far, this combination has proven successful in breaking the traditional limits on customer participation in demand response for BGE. In the three years since it launched its Smart Energy Rewards programs, the utility has consistently built up its results, culminating in an average of 309 megawatts of load reduction through the days of its more-active-than-typical 2015 peak season, Lesh said. (Last year’s numbers are still being verified.)

That averages out to about one-third of a kilowatt per home eligible for participation, although this figure represents a wide range of typical homeowner responses, from doing nothing at all, to running around and turning off everything. Customers earn $1.25 per kilowatt-hour they reduce their electricity use by during those hours compared to a baseline, or an average of $5 to $8 per peak day, she said.

It’s important to note that BGE gets more megawatts out of its old-school Peak Rewards direct load control program, she said. This nine-year-old program, which directly controls air conditioning and electric water heaters via one-way pager networks, achieved 418 megawatts of load reduction last year, or about 1 kilowatt per home, she said.

Lots of utilities have programs like these, and they’ve achieved some success, Lesh said. But for BGE, customer uptake has pretty much reached saturation point, with about 320,000 customers, or one-quarter of its 1.25 million electric customers.

This is a fairly typical pattern for direct load-control programs around the country, Opower CEO Alex Laskey said. “They’re effective, but BGE is kind of an outlier with their large percentage of customers,” he said in a recent interview. Nationwide, the average participation rate is less than 5 percent.

“We started with the idea that we could maybe flip this on its head, and go after the mass market by not asking them to sign on the dotted line, but giving them signals and information to drive and change their behavior.”

Opower, which was bought by Oracle for $532 million last year, is working with dozens of utilities to connect customers to their energy-saving potential, mostly via mailed paper reports, along with texts, emails, and web and mobile platforms. For the most part, the company’s approach has yielded reliable per-home efficiency savings in the low single-digit percentages. But in its first-of-a-kind behavioral demand response campaigns with BGE, it has shown the potential to reduce customer peak loads by as much as 18 percent.  

Not only that, but four consecutive summers have shown that BGE’s behavioral demand response has yielded participation from between 70 percent to 80 percent of the utility’s customers, Lesh said. That’s a huge jump in customer connections, even if it’s yielding lower per-home results -- a key factor for how BGE sees itself transforming its customer relationships in years to come.

Breaking down the cause and effect of behavioral demand response

The cycle of behavioral call-and-response starts the day before a peak event, Lesh said. “When we see a trend of higher heat, we will make a decision collectively across multiple functional areas, and determine that, yes, tomorrow is a day we should have an energy-saving event to stave off any emergency in our area,” she said.

Then BGE runs through its list of customers who’ve asked for emails, texts or phone calls on the day before a peak event, and hits each one with a warning to conserve between 1 p.m. and 7 p.m. It also hits its publicity channels -- local TV news stations, Orioles baseball game radio spots, and Facebook and Twitter.

Then, on the day of the event, it starts tracking the 1.1 million or so customers eligible for rewards. “Behavioral customers can choose to act by not using appliances, or changing their temperature setting a few degrees, or unplugging extra freezers,” she said.

While BGE doesn’t track just what happens in each home, “We hear back from customers all the time,” she said. “They’ll post on social media the things they did. We have folks competing with their friends. We have a mom who said she loves Smart Energy Rewards because it made her kids read instead of watch TV,” since she unplugged the TV to save energy.

In fact, BGE has received calls from customers asking why they haven’t been contacted during a hot day that happens not to be a peak event. “They really like being able to save,” she said.

This social aspect is a key part of raising the participation rate year over year, Laskey said, though it’s a hard factor to quantify. “We get different results in different places, and we’re trying to unpack why those differences are there,” he said. “We do see a lot of social media. When these things come out the day after, saying ‘Thanks for participating, you saved $12,’ there are a lot of people showing off. We’ve even seen a woman who posted Instagram pictures of the savings she got.”

To get people engaged on this level, you’ve got to alert them to how much they’ve saved as quickly as possible, he said. “If you’re going to ask them three, five, sometimes 10 times per summer to reduce their usage, you have to give them immediate feedback on how they did,” he said. That’s why BGE and Opower start sending out savings messages via email and text message as early as the day after the peak event, or weeks before they receive their official credit on their monthly bill. 

This is a tight timeline for turning raw meter data into kilowatt-hour rewards, particularly given the complications of establishing the right baselines. It wouldn’t be fair to measure people’s consumption during a heat wave against a baseline that only included fair weather, for example. Nor would it make sense for Smart Energy Rewards to pay out more than its direct load control participants are earning, on a per-kilowatt basis.

To deal with that, BGE measures the difference between load reduction from its direct load control participants and its behavioral DR group, looking back 14 days excluding holidays and weekends, Lesh said. It also uses about 60,000 customers in a control group that receives no communications, to establish a baseline for what constituted “normal” behavior during that period.

As for how much customers have earned as a group, Lesh didn’t provide specific figures, although she said “it’s a sizable amount.” These credits are funded through a ratepayer surcharge enabled by the 2008 EMPOWER Maryland Energy Efficiency Act, which set a statewide goal of 15 percent improvement in energy efficiency by 2015 -- a goal the utility achieved last year, she noted. At the same time, BGE is converting the cost of this load reduction into value as demand response for PJM’s capacity markets, she said.

Building a new utility-customer relationship

It’s difficult to calculate cost-per-customer differences between direct load control and behavioral demand response, since they’re such different types of programs. But “I think what you’ll find is that our programs are, per megawatt, quite a bit cheaper than direct load control,” Laskey said, largely because they don’t require equipment and installation costs. 

Behavioral demand response can also capture a whole range of devices that make up an increasing preponderance of the new peaks utilities are facing. While cooling and heating still make up the biggest portion of a typical home’s electric bill, appliances make up about a quarter of it, and digital devices are in the teens and growing. These loads are also coming on when people get home from work, rather than in the hot afternoons.

At the same time, being able to spread out the sources of load reduction also allows for participation to increase even on hot days, Lesh noted. “Even this summer, when it was exceedingly hot, saw our participation increase. […] That’s a pretty good sign for a behavioral-based program.”

This indicator of persistent engagement is backed up by data on customer satisfaction, Laskey noted. “People like this program -- but it also just changes their impression of the utility as charging you an arm and a leg for electricity, when they come around and offer to give you money.” That finding is backed up by BGE’s customer satisfaction rating from J.D. Power and Associates, which rose to bring the utility into its top 10 list in 2015.

This opens up new opportunities for utility-customer interaction, Lesh said. All of the customers participating in its Smart Energy Rewards are also part of the Smart Energy Services initiative, launched by parent company Exelon at BGE, Pennsylvania utility PECO and Chicago-area utility Commonwealth Edison. The program will crunch customer data to create personalized and targeted marketing to encourage customers to sign up for autopay or paperless billing, set high-bill alert targets, and take part in rewards-based loyalty programs, among other uses.

In an ironic twist, this expansion of offerings could end up leveraging behavioral DR’s increased participation and engagement to bring device-based DR to a wider audience. Right now, BGE is piloting a number of two-way communicating smart thermostats with its customers, and evaluating its options on that front, she said.

In Laskey’s view, “The fact that we’re getting 80 percent of customers to participate, the value of that is simple to calculate for the utility and the grid.”

So why isn’t this kind of program happening at more utilities around the country?

“That is a question I often ask. There are a couple of things. You had in Exelon and BGE a utility that was willing to do this, and regulators that kind of held their feet to the fire, and were accepting of a utility doing this, both from the regulatory perspective and the leadership perspective. The other thing is, we need smart meters to do it -- and a lot of utilities, where this would otherwise be competitive, don’t have smart meters. That’s another challenge," said Laskey.

Finally, customers need to be able to see the value their behavior creates in a clear and significant way, he said. That could come through rebates, in the form BGE is using -- or it could come through time-of-use rates or other differentiated pricing for mass-market residential customers.

“In California, all residential customers will be moved to time-of-use pricing, and we’re working with [the Sacramento Municipal Utility District] and all three IOUs,” or investor-owned utilities, including Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric. “I would be surprised if more and more utilities don’t start doing this. According to the Rocky Mountain Institute, there’s $60 billion a year in customer savings if all customers move to some version of time-varying rates.”