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 and regulators is to start with a large portion of smart-meter technology costs, then subtract a medium-sized portion of utility operating benefits. Add a dose of utility profit incentives and subtract a small portion of demand-response benefits, enough to make the result a positive business case. Then take the rest of the demand-response benefits and pass them out to consumers over the long run.
The holistic approach leads to a common ground that benefits all stakeholders—utilities, consumers, and even regulators. The other option is business as usual.
PUCs can look solely at the narrow meter-reading benefits of smart meters and conclude the business case is not attractive. They can look at current utility tariffs and see that time-of-use rates and meters already are available—a requirement going back to the Public Utility Regulatory Policies Act. But few customers know about today’s time-of-use rates. Rate designs are rarely customer-friendly, and time-of-use meters don’t meet the EPACT requirement to have communications, or to provide consumers with more opportunities to manage their bills. State regulators rightly could conclude that state policy and regulations trump the smart-meter consumer provisions of EPACT.
But the business-as-usual option denies consumers the savings of demand response. The General Accounting Office reported in August 2004 that these range up to $15 billion per year for programs across the United States. The big picture provides a terrific tool and impetus for utilities and regulators to empower consumers to capture these savings.