The McDonnell Group

We continue our conversation with Clark Howard on smart grid consumer engagement. In Part Two of our blog article, the nationally syndicated financial advisor and self-proclaimed penny-pincher discusses:

Incentives, Apathy, & the True Costs of Energy

By Nancy Broe

Nancy Broe (NB): How important an issue is consumer knowledge or apathy?

Clark Howard (CH): It is a central issue.  We need to make any system we do an easy choice for people. There’s an old expression that "Perfection is the enemy of the possible." Greater even than trying to design the perfect way of measuring power is to make it easy for people to see the clear savings.  Simplicity and savings, ease of use are the top priorities.  Just giving people who use it directives such as to run appliances at 2 a.m. when the power grid is underutilized can be too complex. People aren’t going to respond to that.

NB: Unless they can program it and go to bed, perhaps?

CH:  Yes.  If it’s as easy as programming a DVR, and if people can see a clear savings, that can be a winner.  Ease of use and simplicity, those are the two things that can lead to public adoption.  Generally, energy savings are not something that will ever be front-of-mind for people -- except on the one day a month they open the bill and start shrieking.

NB: How and when do you think consumers should inform themselves about smart grid?   For example, do you have ‘best questions someone should ask’ after their utility rolls out smart metering or integrates wind into the grid?

CH: I find that most people don’t care where the power comes from; they just care what it costs. When you look at the energy programs around the country where people can pay extra to subsidize the purchase of green energy, you have just a tiny percentage of people who do it. For example, here in the Atlanta area, Georgia Power has a program in which people can pay extra to subsidize green energy.  I can buy green credit but I get nothing for it.  I do it just because I’m into it.

To engage consumers at large, you need incentives.  You need to do what California has done; you have to mandate a greater and greater percent of the grid’s power coming from alternative energy. You have to have some way to do that. You have to come up with incentives for industry, especially.  Aside from the consumer, industry is so complacent, yet they can be the biggest users of energy.  They need a motivator to do something different.

It is do-able, the question is:  “At what cost?”  Portugal is a country that is certainly not poor, but certainly not wealthy. Yet they’ve done more than any other place in the world to create a smart grid and get energy from alternative sources.

NB: What role do you think consumer advocates (locally or nationally) should play in helping find energy solutions?   Should they focus on larger issues of prudent infrastructure investment for the future or simply on ways to keep consumer costs low?

CH: It depends on how you compute costs. If you know what the cost of coal is, but you don’t calculate the health costs of the potentially shortened life spans of people and all the people who have respiratory issues, cost is one thing.  But we can’t look at just the costs of the production and transport of coal. Depending on what you consider to be the overall costs of various sources of energy, that changes the conversation.

I find that utility providers tend to look mainly at the acquisition of the material and operation of the plant, and that’s not the full picture. There is more at stake than rate of return and that type of thing. The true picture consists of what the full costs are.  I don’t understand global warming and I don’t know about carbon stuff and the footprint thing they talk about, but health –- that is not pie in the sky. There are direct health consequences to using dirty sources of energy.

NB: Do you think consumers look at those issues or are they concerned solely about their bill?

CH: They’re concerned solely about their bill.

NB: If utilities realize that in the long term they need to invest in their infrastructure, and that the payoff could be years before it reaches consumers directly, how should the industry make investments in smart grid -- and get customers on board now?

CH: Smart grid in the short term is a cost; but in the long term it is a big savings. In the short term, the cost is more because you have to build all of that transmission capacity, but in the long term it creates long term flexibility for the markets.   If you think of the analogy of the wonderful natural gas plant that can be built pretty quickly when gas prices are low, they can do power so easily from natural gas that I think that’s a good example of what you get if you really build a smart grid.

NB: Last question. Describe the ideal consumer utility. What do you think it should do to best engage customers? What would the ideal utility-customer relationship look like?

CH: Reliable energy is not something a lot of people think about, except when rates go up.  Generally people expect it to be reliable and that’s all it takes to make them happy. It’s a simpler relationship than most others.  If you think about the cell phone I’m on now and how routine it was that the call dropped during our conversation, then compare that reliability to what people are used to from electric providers… We tend to have a stronger reaction to power since the reliability we’re used to is 'off the charts.' Ninety-nine percent reliable is fantastic.  I don’t think the public makes much personal connection to a power company. Emotionally, no one feels like a big connection -- as long as they keep the lights on.

It is important that consumers see the bigger picture. Yet, I’m not sure that it’s really an issue that individual local utilities can drive.   We need a national discussion, not just a regional one.  It affects national security as well.  As a nation, if we take steps to adjust and improve our grid now, we will see the benefits.

About Clark Howard

Every day across America, Clark Howard's voice is heard on more than 200 radio stations advising consumers how to save more, spend less and avoid getting ripped off. The Clark Howard Show airs on HLN (formerly the Headline News channel) in a weekend program, including the best calls from his daily national radio. He is also a TV reporter on Atlanta's ABC affiliate WSB-TV. Clark has published eight books in total -- with 2002's Get Clark Smart and 2003's Clark's Big Book of Bargains both charting on The New York Times' "Best Sellers" list (No. 6 and No. 7, respectively). 2007's Clark Smart Real Estate addresses issues in today's mortgage crisis.