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Advanced Metering: Policymakers Have the Ball

Demand response could help solve some energy problems, but not without state regulators pushing for it.
Fortnightly Magazine - September 15 2002

to such information. Advanced metering technology measures and records usage data, at a minimum, in hourly intervals, and provides usage data to both consumers and energy companies at least daily. 2 With advanced metering, utilities are able to provide customers with price signals and more detailed usage data, which gives customers the ability to manage their usage in response to such information. Advanced metering also provides utilities with many more capabilities to manage their distribution systems and operations more efficiently and reliably, with features such as outage reporting and restoration verification. Advanced metering encompasses all systems that allow electricity consumers to participate in price-based, time-sensitive demand response programs.

The potential benefit from advanced metering and dynamic pricing is significant. McKinsey & Co. estimates that annual savings from dynamic pricing implemented nationwide would be $10 billion to $15 billion, 3 as shown in Figure 2.

These benefits assume that dynamic pricing is implemented voluntarily; customers who cannot or prefer not to shift load off peak would remain on flat rates.

Puget Sound Energy (PSE) in Washington State provides a highly successful example of these policies at work. PSE's customers all have advanced meters and daily access to their time-differentiated usage and price information. To date, over 300,000 of its customers use voluntary time-of-use rates. These customers have reduced their peak load and lowered their overall energy use-and they are pleased with the program. Indeed, 89 percent of participating customers said they were satisfied or very satisfied, and over 90 percent said they would recommend the program to a friend. 4

Policy Considerations, Federal and State

In Congress, both the House and the Senate have passed versions of comprehensive energy bills that contain a tax incentive for advanced metering devices, and a new requirement for all federal buildings to have advanced meters. The Senate bill also would allow consumers to ask for, and receive, time-of-use or real-time rates from their utility.

On the federal regulatory side, FERC issued its draft rule on Standard Market Design (SMD) on July 31. Load reduction programs have caught the attention of FERC, and have been included in its proposed SMD. In the notice of proposed rulemaking (NOPR), FERC declared that regional load-serving entities must meet resource adequacy requirements (Generation Adequacy Requirement). The process must entertain all options, including demand response, and not favor one solution over another. The NOPR also noted the need for advanced meters to replace monthly meter reading, where customers see only the "imperfect" price signal of a monthly bill.

On the state front, competitive metering is no longer seen as something that states should pursue. In July, the National Association of Regulatory Utility Commissioners (NARUC) issued a report urging state regulators to re-examine competitive metering based on several factors. Perhaps most importantly, the report highlighted the fact that the costs per meter for ad hoc meter installation are proving to be five or six times the cost of doing a broad, utility-scale deployment. 5 The report also recommended that state commissions explore how to transition consumers into dynamic pricing. Further, NARUC encouraged states to