OGE Energy (NYSE:OGE), owner of Oklahoma Gas & Electric, had big plans for using technology to reduce customer demand. But it recently announced that it could miss its targets by as much as 23%. The reasons for the shortfall may surprise you.
Weather and more
According to Mike Farrell, a director of customer programs at OGE Energy, the company's SmartHours program was supposed to achieve a load reduction of around 210 megawatts by year end. That's roughly a third of the size of Southern Company's (NYSE:SO) soon to be completed Kemper coal plant and could save OGE the expense of having to build new capacity. But now OGE expects the load reduction to clock in somewhere between 160 and 170 megawatts. According to Ferrell, "We're a little bit behind, and part of it is really due to weather." However, that's not the only reason.
It seems that around 30% of those enrolled in the SmartHours program aren't using the utility's free programmable thermostat. Why not? For one, not every enrolled customer has central heating and air. In other words, the thermostat really wouldn't have anything to control and, thus, would be worthless. Second, and perhaps more frustrating, some people simply didn't want to use the utility's thermostat. "Looking back," Ferrell admitted to Utility Dive, "we thought everyone would want a thermostat ..."
Those without the company-provided gear just get pricing data, which isn't the same since such customers would have to manually cut back on use instead of programing their thermostat to do it for them. And it turns out to be a pretty big problem, because, "When customers don't have that enabling technology, we see about a third of the demand reduction versus if they do," according to Ferrell. That's a notable shortfall and one of the reasons why OG&E is extending the enrollment period by up to a year so it can meet its targets.
It's about having the right tools
Giving customers the tools to change their use via technology is a vital part of OGE's SmartHours program. The basic idea is to get customers to cut back demand during peak periods, shifting their use to times when demand is lower. And the impact on the wallet is notable since off-peak electricity (any time other than 2pm to 7pm on a weekday) costs as little as $0.06 per kilowatt hour while peak pricing can get as high as $0.43 per kilowatt hour during high-demand periods. Normally peak power costs between $0.10 and $0.19 a kilowatt hour.
Customers can save hundreds of dollars a year if they enroll in the plan. But, getting just pricing data, essentially sharing information, is only half the equation. In fact, those with the ability to plan ahead using the utility-provided thermostat save as much as 46% more than those without.
And while there's little to be done about an older home that lacks central heating and cooling, customers, perhaps your neighbors, simply saying no to a free utility-provided thermostat (a $300 value, according to the company) is a big human wrench tossed into the gears. It seems humans are capable of making the smart grid stupid, or at least a little less smart.
How big is your thermostat, baby?
So why would your neighbor say no to a free thermostat? Perhaps because they've already jumped on the high-tech bandwagon and purchased one from Google's (NASDAQ:GOOG) Nest. Being that these thermostats cost around $250 dollars, that's understandable. But the fact that so many customers didn't take the free thermostat shows that there's still a divide that needs to be conquered before SmartHours-like programs can really take off.
Living in an older home isn't a solvable problem, but the human factor is. Saving money may not, in the end, be the only incentive needed to get customers fully involved. That said, OGE Energy's SmartHours program is a good first start and while not as successful as hoped, it should help the utility reduce energy requirements by around 1% a year. It sounds small, but it adds up. And what the utility learns today will only help improve its demand reduction efforts in the future.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Google (C shares) and Southern Company. The Motley Fool owns shares of Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.