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Competition at the Meter: Lessons From the U.K.

Fortnightly Magazine - November 1 1996


at the Meter: Lessons

From the U.K.Metering lies at the heart of electric competition, but may work best as a "natural" monopoly controlled by the distribution utility.Metering represents one of the more complex issues in retail electric competition (em one that suffers from major misperceptions. In fact, most industry participants remain unaware that metering techniques effective enough for competition (hourly reads, daily retrieval) already exist today not only in scale, but also at low cost.

Issues like transmission pricing receive the most attention, but metering will actually have far greater effects on consumers and any successful operation in a competitive retail environment. The United Kingdom learned that lesson in 1994, when it expanded access from retail suppliers to customers with lower load levels and discovered that over 50 percent of customers' bills had to be estimated.

The United Kingdom began opening retail electricity markets to competition in 1990. Half-hourly metering of customers, with daily data retrieval, currently forms the standard, because the Electricity Pool of England and Wales ("the Pool") prices power by the half-hour (see Figure 1). In 1998, small commercial and residential consumers will be able to choose their power suppliers. This market of 23 million potential customers will bring the metering issue to the fore.

Back in the United States, the California Public Utilities Commission (CPUC) has called for a system generally similar to that in the United Kingdom: a centralized power pool, an independent transmission grid operator, a regulated distribution company, and retail choice of energy supplier. To address implementation issues, including metering, the CPUC formed the Direct Access Working Group (DAWG) in April 1996. The DAWG examined these issues in detail, filing its draft report on August 30, 1996.

Experience gained in the United Kingdom and preliminary work in the DAWG process in California indicates that decisions on metering will affect key aspects of the competitive market, including consumer choice and confidentiality, billing rates and structures, and balancing supply and demand.

Nevertheless, current trends appear to be leading to a market in which meaningful choice is restricted to large customers and consumer protections are eroded. In such a market, economies of scale are diminished and lost.

Gauging Consumption:

A Key to Choice

In competitive electricity markets, consumers may choose between peak energy, offpeak energy, or something in between, according to the hourly prices set in the wholesale power market by the competitive power pool. Thus, the only way to determine exactly how much of each "type" of electricity consumers use is to meter them in the same way the pool operates: hourly (in California), or half-hourly (in the United Kingdom).

Marketers may bundle hours to offer a peak/offpeak or weekday/ weekend rate, but they need to know how many kilowatt-hours their customers use during each hour so they can settle with the pool. Marketers need to know these quantities daily, so they can settle with energy suppliers daily, just as the pool operates.

However, due to the perceived high cost of half-hourly metering, the United Kingdom plans to meter small commercial and residential customers by class