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AMI/Demand Response: For Real This Time?

Smart metering is coming of age. Is the utility world ready for it?

Fortnightly Magazine - September 2006

from improvements in peak shaving and customer service to reliability management and critical-infrastructure protection.

Whether the intelligent grid would cause a business transformation or not, smart metering and time-based pricing offer benefits the industry cannot ignore—for many reasons, not the least of which is the Energy Policy Act of 2005 (EPACT). Section 1252 obliges utilities and state regulators to consider adopting EPAct policies that require time-based rates and smart meters for all customers who request them.

Given the voluntary nature of the mandate, however, utility decision makers can approach their analysis in any way they choose. Some states, including Illinois, Oregon, Pennsylvania, and Texas, have been considering smart-metering questions as part of rate cases and resource-planning discussions. The Pennsylvania PUC, for example, conducted a hearing on June 22 to discuss policies that would mitigate electricity price increases in the state, and time-of-use rates and demand-response metering featured prominently on the agenda. Other states, such as Kentucky, Louisiana, Ohio, and Virginia, have initiated EPACT Section 1252 inquiries separately from other proceedings.

Accordingly, the tenor of the discussion also varies from state to state, with high-cost power states generally more attracted to AMI than low-cost states are.

“Almost every state is looking at the substantive issues in a different way, which is an exciting challenge,” says Scott DeBroff, chair of the energy practice group at Smigel, Anderson & Saks in Harrisburg, Pa., and formerly an attorney with the Pennsylvania PUC. “This discussion takes the 100 year-old utility and the 60 year-old regulatory process and smacks it right up against the future of technology. It’s similar to the beginning of customer choice. You have the same dynamic, with the ability to separate out the generation component and offer choice.”

Likewise, regulators and utilities understandably are skeptical about the promises of transformational change that seem to accompany discussions about advanced metering and the intelligent grid.

“Some see [EPACT Section 1252] as another unfunded mandate from the federal government,” says Michael Valocchi, a senior managing director with FTI Consulting in Philadelphia. “Skepticism around smart metering and demand response has developed over a number of decades, and it won’t be overcome in 12 or 18 months just because the federal government told states they need to look at it.”

After all, the idea of dynamic pricing is nothing new; Congress first asked utilities and regulators to examine time-of-use rates as part of the 1978 Public Utility Regulatory Policies Act (PURPA), and many utilities have provided such rate programs for large commercial and industrial customers for years or even decades. Utility decision makers generally understand the benefits of time-based rates and metering. They just question whether those benefits are sufficient to justify investing billions of dollars so they can meter energy on 15-minute intervals for every house, condo and Starbucks.

“The jury is still out on the efficiency gains that voluntary time-based rate structures can provide, especially for residential customers,” states a recent report commissioned by the Edison Electric Institute (EEI). “While it is difficult for economists not to believe that better pricing of electricity can benefit society, it