Q&A: Pursuing profit by cutting power demand

Lowfoot Energy CEO Phil Playfair (Emily Pickrell/Houston Chronicle)
Lowfoot Energy CEO Phil Playfair (Emily Pickrell/Houston Chronicle)

Toronto-based Lowfoot Energy is beginning to move into Texas with its online business that offers residential electricity customers the chance to earn money by modifying their electricity use at peak times. It’s modeled on an arrangement utilities have had for years with industries that agree to reduce their energy use during peak demand in exchange for rate breaks – effectively selling the power back to the grid. CEO Phil Playfair says the approach might be a way to help control energy demand as summer heat tests the limits of Texas’ electric generating capacity. He spoke with FuelFix about Lowfoot Energy’s services. Edited excerpts:

FuelFix: What is Lowfoot’s business strategy?

Playfair: When utilities in Canada started rolling out smart meters, I realized that residential smart meters are similar to what industry has been using for decades, but in each home. Lowfoot takes some of the services and benefits that exist for industrial customers – for example, demand-response – and make those same benefits available for smaller customers. We allow residential customers to benefit from trading and selling their potential use of energy in the case of a high-demand event that causes the load to peak. Normally, because you can’t store electricity, you either have to fire up a plant to meet the demand or curtail the demand. For industrial customers, there’s a true option to reduce your demand and get paid for it.

FuelFix: Why has it taken so long for this demand-reduction model to reach the residential market?

Playfair: No. 1, you can’t do it without a smart meter. Smart meters are relatively new. There is also a certain amount of getting used to smart meters. And it has taken a while for companies like Lowfoot to come into the marketplace. Our model is that if I aggregate 500,000 people, reducing when I ask them to, we are talking about the equivalent of a power plant of electricity reduction.

Say, if I have 2 million customers, and at a peak time, the Electric Reliability Council of Texas would say, “I have a choice to either fire up a power plant, or I can ask Lowfoot to ask their clients to reduce the demand on the residential side.” I always want this choice to be more efficient and cheaper than it would be to ask the power plant to fire up its extra generators.

Our model is that if you reduce and can verify it, then you should get the reward, so we push that benefit straight to the consumer. That is the missing piece of the puzzle right now.

It comes down to the fact that people are motivated by greed. And it’s just a simple truism. I did ads on Facebook for save the environment versus save money, and it was 99 percent in favor of saving money.

FuelFix: How could the average consumer participate?

Playfair: If you get electricity from one of our partner representatives – which are retail electricity providers – you could start getting information from one of our weekly emails, and, depending on when there is an event, we could ask you to reduce. Depending on the market price, you will get a per-kilowatt fee or a flat fee for reducing, once we verify that you reduced, and generally we send a Paypal payment within a couple of days.

Electric customers that aren’t with one of our representatives could sign up through our website at lowfoot.com, and we have a tool that allows you to connect your smart meter.

FuelFix: How does your company provide value for your retail energy partner representatives?

Playfair: We have contracts with them, and they use us as a hedging tool. For example, if they don’t use the electricity they have scheduled and they can sell what they don’t use at a higher price, it can be hundreds of thousands, if not millions of dollars for them. You buy power on the day-ahead market, based on a forecast. You schedule to use a certain amount, but you might realize that the wholesale price has gone way up (because of higher demand). If you can get your customers to reduce, and you use a smaller amount, you could sell the remainder at the cap (the maximum allowable price for wholesale power during peak demand). Our model is that the money they save, they can share with their customers, and we share it with our members as well. At every point in the value chain, we push revenue back to our customers.

FuelFix: How would your company’s services affect the discussions taking place in Texas about the need to increase electricity generation capacity?

Playfair: The industrial guys are already involved in demand-response. The residential customers are the challenge, because there is no communication there right now. We see ourselves as providing a missing link to the market, in terms of providing information and the incentive for consumers to curtail.