Question: Silver Spring Networks and the Smart Grid Smart meters will allow you to actually monitor how much energy your family is using by the month, by the week, by the day, or even by the hour. So coupled with other technologies, this is going to help you manage your electricity use and your budget at the same time, allowing you to conserve electricity during those times when prices are higher, like hot summer days.59 Barack Obama Technology is expensive, but not using it will be even more expensive.60 Ahmad Faruqui, The Brattle Group Introduction Silver Spring Networks (SSN) provided platforms for enabling communication within a smart grid. A smart grid in the United States was projected to reduce electricity costs in the United States by over $200 billion by 2020 through improved efficiency. In addition, using smart technology in the home to provide customers with information on their electricity usage and on prices that reflected real costs would allow them to manage their usage and shift demand from peak to off-peak times, reducing costs by $45 billion. These efficiency savings required communication between customers and the grid and among components of the grid structure, and those components had to be managed and integrated.

For example, growth in the use of rooftop solar panels produced an intermittent supply of electricity that had to be meshed with other generation capacity, taking into account transmission capacity. SSN provided Internet Protocol-based platforms for the communication needed to manage the components of electricity generation, distribution, and use. SSN provided the software platforms for advanced or smart meters that provide customers with real-time usage information; distribution automation; demand response that provided real-time price information to customers; smart home software to allow heating, cooling, and appliances to respond automatically to price information; and electric vehicles to accommodate the demand resulting from the use of plug-in electric vehicles. SSN's customers were primarily electric utilities and companies that operated components of the electricity grid, such as public distribution grid companies. SSN's customers were regulated, and their regulatory environments differed across the states. The principal nonmarket challenge for SSN was to facilitate the rapid deployment of smart grid applications, and that had to be accomplished through its customers and their regulators. The market challenge for SSN was to sustain its technological advantage and its market leadership in the face of numerous start-ups and the presence of giants such as Cisco Systems and IBM.61

The Company Founded in 2002 in Milwaukee, Wisconsin, the company moved to California in 2004 for better access to venture capital funding and engineering talent. The company had remained private, receiving funding from venture capital firms. In 2009 the company raised $100 million from Foundation Capital, Kleiner Perkins Caufield & Byers, Northgate Capital, and Google Ventures.62 The company had been expected to announce an initial public offering of its shares in 2010 but decided not to go public. The company had received numerous awards. In November 2010 it was ranked first in the 2010 Global Cleantech 100 out of 3,138 nominated companies from 50 countries. The opportunities for SSN were exciting with the expectation that the smart grid investments would continue at a rapid pace. In 2009 President Obama had announced a goal of 40 million smart meters installed over the next 5 years with 25 million projected by 2012. The administration's stimulus bill, the American Recovery and Reinvestment Act, included $3.4 billion in Smart Grid Investment Grants to utilities for smart grid projects, including smart meter installation.63 Whether those expenditures would continue was uncertain because of the pressures for reducing the enormous federal budget deficit. SSN had become the leading provider of software for smart meters, which was an essential component of the smart grid.

The strategy followed by SSN was to partner with smart meter manufacturers such as General Electric and Swiss meter giant Landis+Gyr so that its software platform would work with any meter. A utility, however, could not replace a smart meter with SSN's communication software with a smart meter with another company's communication software. A number of companies participated in an interoperability committee to establish a standard to allow one company's communication software to work with another company's communication software. In 2011 SSN entered into a strategic reselling agreement with Control4, allowing Control4's automatic thermostat and software to be integrated with SSN's advanced metering platform for use by utilities in getting customers to adopt intelligent thermostats. The agreement moved SSN deeper into the demand response component of home area networks. SSN also introduced a prototype of a plug-in charging system for the 2012 Prius plug-in model. SSN viewed the opportunities for smart grid platforms overseas as particularly attractive. SSN partnered with Landis+Gyr to provide smart grid applications in Brazil, which had mandated the installation of 61 million smart meters. Landis+Gyr was the first company to have its smart meter certified by Brazilian regulators. The European Union had also mandated the installation of smart meters, and the United Kingdom planned to install 50 million electric and gas smart meters by 2018. A Smart Meter Rebellion?64

The foundation for many smart grid applications was advanced metering using smart meters at the customer's premises that transmitted usage information to the utility and could receive information such as time-sensitive prices customers could manage their electricity. At the forefront of the installation of smart meters was Pacific Gas & Electric (PG&E) which by the end of 2010 had installed about 7 million meters on the path to having over 9 million installed by 2012. PG&E's rollout of the smart meters had not gone smoothly as customers complained that the new meters resulted in higher electricity bills, caused illnesses, and threatened privacy. PG&E was SSN's largest customer. Shortly after PG&E began installing smart meters, residential customers started to complain that their electricity bills were higher and that inaccurate smart meters were the cause. Many of the complaints came from Bakersfield, and PG&E investigated and found that the higher bills were due to unusually hot weather that led to greater air-conditioning use and sharply higher prices as usage increased. The company checked all its meters and found problems with fewer than 1 percent. A majority of the problems were due to improper installation and others due to communication and data retention problems.

The California Public Utilities Commission (PUC) hired an ­independent consultant to study the accuracy of the smart meters, and the consultant concluded that the smart meters were more accurate than the electromechanical meters they had replaced. Some customers complained that the wireless communication technology used in smart meters would allow hackers to enter through the meters into the electronic control and communication systems within a house. Others complained that hacking into one smart meter could provide access to other smart meters. SSN's platform had protections that isolated each meter so that entering other meters was not possible nor could a virus propagate through the network. Customers anxious about privacy were not persuaded. The most common complaint was by consumers who claimed to be sensitive to the electromagnetic field (EMF) generated by smart meters resulting in a variety of illnesses. The possible relation between EMF and illness had been studied by many researchers over the previous decades, and no study had found a relation. Moreover, in controlled experimental conditions individuals claiming EMF sensitivity could not detect whether an EMF was present or not. The California Council on Science and Technology examined the health claims lodged against smart meters and concluded that there was no evidence of a causal relation and that there was much less radio frequency exposure from a smart meter than common devices such as cell phones, baby monitors, and wireless Internet connections.65

Sandi Maurer of the EMF Safety Network said, "People are really getting sick-we're getting all kinds of anecdotal reports about sleep problems, nausea, headaches and ringing in the ears. This report simply says that there's no proof. That's not reassuring."66 Consumers asked the PUC for a moratorium on the installation of smart meters and for the option of opting out from having a smart meter. Asked about the health concerns and the request for an opt-out option, Eric Dresselhuys, executive vice president and chief marketing officer of SSN, said, "It's a Northern California phenomenon, and it's a highly emotional issue because people feel they have very legitimate health concerns. But it would be hugely inefficient, and expensive, if a small amount of customers were allowed to opt-out."67 In March 2011 the PUC asked PG&E to submit within 2 weeks alternatives to allow customers to opt out "at a reasonable cost, to be paid by the customers who choose to opt out." Opting out not only would limit the demand for SSN's smart meter platform, but would also jeopardize demand generated by home automation and responsive pricing. A principal concern was that responsive pricing might not reduce customers' electricity bills, and consumers might associate smart meters and responsive pricing with higher costs. Some states such as Connecticut and Texas had been concerned that consumers' electricity bills would not be lowered, and ordered pilot studies with responsive pricing to be conducted before smart meters were deployed.

Several states had conducted responsive pricing experiments and found that consumers reduced their peak-time usage significantly only if peak-time prices were very high. Some states that had conducted successful responsive pricing experiments that were very well received by customers were worried about consumer reactions to high rates for critical peak periods and low rates for off-peak periods. Pepco, a utility serving Washington DC and two counties in Maryland, decided not to increase peak-use prices, choosing instead to offer rebates for consumption. Steven Sunderhauf of Pepco explained, "Our general sense is that consumers would prefer a rate structure with no downside. From a purist's standpoint, I may prefer critical peak pricing because it gets the boldest response ... but using rebates will help people get comfortable with smart meters."68 The Challenge SSN faced the possibility that the rollout of smart meters could be slowed in California, and complaints in Maine threatened installation there. The reluctance of regulators to use higher peak-use prices threatened the largest home application-demand response. SSN had worked through its customers, the utilities, to gain public acceptance of smart grid technology. The utilities were largely on board but were cautious because of possible customer complaints that might lead regulators to slow the transition to the smart grid. The challenge for SSN was whether it should do more than work with and through its customers.

1. Are the consumer complaints likely to be only a California phenomenon? Could the complaints spread to other states?

2. If utilities are unwilling to use high prices at peak periods and instead use rebates, the demand response would likely be small, calling into question the benefit from smart meters. Should SSN support a cautious approach (e.g., rebates) to responsive pricing or an approach that would yield greater benefits to society?

3. Should SSN lobby the PUCs to shore up support for smart meter deployment?

4. Should SSN work for greater public support for the smart grid?

5. Should SSN work for the continued subsidization of smart grid installation?