Changes in regulatory requirements, market structures, and operational technologies have introduced complexities that traditional ratemaking approaches can’t address. Poorly designed rates lead to...
Demand-Response and Smart-Meter Provisions: Breakthrough or Non-Event?
Regulators and Utilities: The Ball’s in Your Court
Are the smart-metering provisions of EPACT 2005 a good thing? The answer, like most things in life, is, “It depends.” Looked at holistically, the opportunity is great. Viewed incrementally, it’s empty words on paper. It’s up to regulators and utilities to take the initiative.
EPACT 2005 establishes a new federal policy that demand response is a preferred resource. It requires the Federal Energy Regulatory Commission and Department of Energy to report on, promote, and remove barriers to demand response and smart-meter installation. It provides research and development funding. It instructs state PUCs to determine whether universal smart-meter deployment is in the public interest. And it sets a new national standard for all utilities, including municipals and co-ops, to offer time-based rates and smart meters to all their customers.
Most utilities have wanted for years to put their meters on line via fixed network AMR systems. These “smart meters” would reduce operating costs, enhance customer service, and improve outage response. These operating savings cover the majority of smart meter costs, but not always the full cost.
On the other hand, in spite of its many benefits, demand response presents a mixed picture to utilities. Utilities make money by selling more product and having bigger rate bases. Demand response means selling less.
Only one industry—utilities—asks consumers to buy less, and only because utilities are financially rewarded (via rate of return bonuses, as an example) for delivering successful energy-efficiency programs.
Demand response needs the same thing. EPACT promotes the consumer benefits of smart meters, especially demand response, and says PUCs should approve smart-meter deployments when all of the benefits—to utility operations plus consumers—exceed the costs. The whole picture, like energy efficiency, generally results in substantial net benefits to consumers. Interestingly, UtiliPoint notes that the majority of total benefits flows to consumers, with less than half going to utilities.
This is why regulators in Italy, Canada, Australia, Sweden, and elsewhere have mandated smart meters. And why the largest energy consumer protection group in the UK, Energywatch, recently called for smart meters. In California, business cases used in current proceedings at the state Public Utilities Commission show benefits exceeding costs for all three large utilities (although Southern California Edison’s filings assume incremental smart-meter technology improvements). PG&E said that “upon full deployment, [advanced metering infrastructure (AMI)] can largely be justified by the operational benefits to the utility; the AMI Project is not dependent on obtaining a high level of demand response benefits.”
Smart-meter rollouts also are a part of the picture regarding EPACT’s new national standard for utilities to offer time-based rates: Such rates can be implemented at almost no incremental cost with smart meters in place.
The holistic approach is, to paraphrase Einstein, as simple as possible, but no simpler. The recipe for utilities