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Regulators to Blame? How Competitive Metering Has Failed

Fortnightly Magazine - November 15 2001

failed completely to deliver. In such metering markets, licensed competitors may own, install, and/or read electricity meters. In addition, procedures have been worked out to exchange information between the metering providers and distribution utilities, and standards have been adopted to ensure accuracy, safety, and reliability. 8 The goal of regulators has been to promote innovation, customer choice, and cost reduction. 9

Several U.S. states, including California, New York, and Pennsylvania-plus the UK-have now had from one to seven years of experience with competitive metering. Others, such as Texas and New Jersey, have plans for or are considering it. Massachusetts looked at and rejected competitive metering in the short term, determining that advanced metering has many benefits but should be provided by utilities. 10

The Dismal Results

The implementation results show that competitive metering has had little success. Very few advanced meters have been installed, reaching far less than one percent of the eligible population. In Pennsylvania, the most robust competitive electric market in the U.S., only 79 meters were installed since competitive metering began two years ago. 11 In California (start date: April 1998) and the UK (start date: 1994), real-time meter installations have been limited to customers requiring it to participate in competitive retail markets: customers with peak loads above 50 kilowatts (kW)in California and above 100 kW in the UK-and competitors installed meters on less than one-tenth of one percent of California customers. 12 In New York, no competitive meter installers have been certified, and not a single meter installed.

Also, while opening the markets did attract new competitors to the utilities, those new entrants have been unable to compete. For instance, the California Public Utilities Commission certified 15 Meter Service Providers. 13 Even before the California competitive retail electricity market collapsed in late 2000, most of these providers had exited the market or had ceased activity. Most advanced meters have been provided and installed by the distribution utilities in every jurisdiction with competitive metering, including California and the UK.

Metering Economics: Avoiding Stranded Assets and Capturing Scale Economies

Metering economics are such that policymakers must provide ways to avoid stranded meter assets and to take advantage of current scale economies. In October 2000, the UK Office of Gas and Electricity Markets (Ofgem), conducted a market survey to assess the status of competitive and advanced metering. Ofgem found that the major barrier to the installation of real-time meters is the fear of stranded assets: customers, electricity suppliers, and meter operators all feared paying for the capital and installation cost of a new meter, then losing the investment upon the customer switching to a new electricity or metering supplier. 14 Meters, including installation costs, are typically depreciated over from 10 to 30 years, clearly much longer than a customer would remain with the same supplier. Thus, regulatory policies for real-time metering have to account for the need for the financing entity to amortize the equipment and installation over several years.

Puget Sound Energy's Experience with Real-Time Metering

In preparing this article, I spoke with Gary Swofford, vice president and chief operating