What do customers get from AMI investments?
Chris King, president of eMeter Strategic Consulting, has testified before Congress on smart meters and demand response. He is chair or board member of several demand-response organizations. Contact him at firstname.lastname@example.org.
Along with power plants, investments in advanced metering infrastructure (AMI) are among any utility’s largest capital projects. Plenty of good operational reasons support AMI investments, including lower meter-reading costs, better outage restoration, and more timely and accurate meter reads. But beyond fewer estimated bills and less trampled gardens, what are consumers really getting from AMI?
Perhaps more important, what do utility regulators expect? After all, regulators must approve cost recovery before utilities can make what are sometimes multi-billion-dollar investments. Showing sufficient cost-effectiveness to obtain regulatory approval almost always depends on achieving demand response or other societal benefits in addition to operational savings, ranging from about 10 percent for PG&E to nearly 40 percent for San Diego Gas & Electric.1
To meet these growing policy expectations, consumers need tangible results from AMI. Regulators are looking for AMI to deliver on four of the most important life goals of Americans today—and one related specifically to electricity:
• Reliable Service;
• Convenience; and
• Environmental Responsibility.
Utility commissions are responding to their constituents by dramatically increasing emphasis on funding for energy-efficiency and demand-response programs. They believe—and expect—AMI will contribute substantially to both areas.
The good news is that pilot programs and rapidly emerging technologies validate this belief. One recent pilot found that AMI-provided information reduced total consumption by 6 percent—roughly the equivalent of replacing every incandescent light bulb in America with a compact fluorescent one,2 or removing the greenhouse-gas emissions of more than 8 million cars. By educating consumers on the link between power use and global emissions—a relationship that changes by the hour—AMI-provided data can help consumers manage carbon emissions in addition to costs.
Information and Control
Information and control—the twin promises of AMI—are the means by which consumers can pursue the four goals above and the common denominators that support all of the goals. The key information is:
• How and when electricity is used; and
• The relationships between that electricity use and costs, emissions, and resource adequacy.
Automatic control enables convenient usage adjustments to lower costs, reduce carbon output, and increase reliability.
In our high-tech age, we tend to leap first to providing information using the Internet or using new devices such as smart thermostats. However, in so doing we ignore our intuition about how the vast majority of us actually get information about our electricity use—the monthly bill.
Research supports this. In the California Statewide Pricing Pilot, 82 percent of customers said their preferred source of information is with the mailed or e-mailed bill. Idaho Power pilot customers were given the option of selecting a billing statement as the preferred medium for reviewing their usage; 87 percent responded that this is the preferred mechanism for receiving consumption data (see Figure 1, “Idaho Power Web Presentment Experience” ). The other options given were to access monthly, daily, and hourly usage on the Web.
To date, with rare exceptions, utilities with AMI have not added detailed usage information to customer bills. The focus is on utility Web sites, for a couple of reasons. One reason is the general enthusiasm for high-tech—not limited to utilities—noted above.
Another is that fewer decisions have to be made about what data to present and how: the Web allows a wide variety of graphs, tables, and charts, easily selectable by the user. Printing data with a bill necessarily would be far more limited—and require utilities to prioritize the new information onto a limited space. These are difficult decisions because the options are so many, and the costs of subsequent changes so high.
A third reason is cost. The short-term cost of posting data on the Web is relatively low, both in terms of a percentage of total AMI costs and in terms of organizational change. Utility Web sites are built and operated mostly independent of other utility information technology (IT) systems, such as the customer information system (CIS). Modifying the billing process by introducing new data to “bill, print, and mail” is a significant change. Ironically, once completed, incorporating enhanced usage data into monthly billing should be less costly to operate and maintain than a separate system.
Importantly, while a third of the customers in the Idaho program used the Web site at least once, only 1 percent used it to view their hourly data. One possible conclusion is that consumers have no interest in hourly data. The better conclusion is that their interest is based on having data in a useful context: How does hourly data relate to what’s important to the consumer? The answer appears to be, as explained below, daily use and cost data for the billing period.
Since the basic context of usage information relates to the bottom line on the customer’s bill, the answer of what’s important also relates to this bill. The typical consumer will have questions about his or her power use if the bill is unusually high (or, less often, too low). Today’s bill provides a comparison with the same month last year or the previous month, both of which are valued by consumers. But if the total use seems reasonable based on this comparison, what’s to explain the high bill?
Today, we turn to the phone and call the utility, but even then, the utility usually has no additional data. Customer service representatives can talk customers through general variables such as changes in the weather (it became hot or cold) or occupancy (a vacation occurred or a teenager came home for the summer) that affect use, but they typically lack the tools and information to answer the customer’s specific question: Why is my bill so high this month?
Daily Data: The Happy Medium
AMI allows us to break usage into monthly, weekly, daily, hourly, and even quarter-hourly periods. A consumer wanting to manage his or her bill needs to know:
• The cost of power; and
• How power is used.
Sticking with the notion that data are useful in the context of the bill, the “sweet spot” for detail is emerging as daily data. Pilot projects have shown daily data provides enough detail for consumers to relate day-to-day activities to electricity use. Examples include vacation days, holiday events, working days versus non-working days, extreme weather days versus mild days, and so on. Only the days that are unusual stand out—and those are the days consumers care about.
In contrast, hourly data is both too much to look at and too difficult to relate to events, because those events are so short-lived. Conversely, a chart that shows daily consumption can be simple, intuitive, and requires no training to understand (see Figure 2, “Daily Electricity Use”).
The daily use chart tells customers how much electricity they use. By linking events with high-use days they will know why their usage varies, for significant changes. Then, of course, they need to know how usage—an abstract and meaningless concept—relates to their bills. Consumers need cost information presented in a way that is simple to understand and convenient to use.
Managing cost requires that consumers be able to understand what the cost of power is and how the cost relates to use. They have very little understanding of both, yet a simple monthly chart enabled by AMI communicates the answer very well: daily cost of power use (see Figure 3, “Daily Electricity Cost: Conservation-Type Rates,”).
The shape of costs is very different from the shape of use. Notably, the yellow bars are much higher than the green bars—as a result of “conservation rates” (“tiered” or “inverted block” in energy jargon). If this customer were on a time-of-use (TOU) or critical-peak (CP) pricing rate, the costs of power used during each TOU or CP period similarly would be shown as separate colors.
Even with very little use of residential TOU or CP prices to date—beyond pilots—the vast majority of American consumers face two or more prices each month. These are associated with conservation rates, wherein the price goes up when a monthly usage threshold is exceeded. Most consumers have a vague awareness of the concept but virtually none is aware of the moment in the month when he or she crosses the threshold. In addition, virtually none is aware of how much costs go up at that point.
In spite of bill inserts and actual bills, consumers know neither the price (per kilowatt-hour) nor the cost (per appliance or end use) of power. Yet with a simple chart provided with the monthly bill, AMI can tell them both. AMI can tell them how daily kilowatt-hours translate to daily cost, and can tell them when they have gone from low Tier 1 prices to high Tier 2 prices. At little expense, a utility could even email or automatically call a customer with a message when the price goes up each month.
Managing Carbon Emissions
Power plants produce roughly one-third of carbon-dioxide emissions in the United States.3 Additionally, global warming is becoming a key concern for Americans and has spawned responsive initiatives by the U.S. government, the Edison Electric Institute, the National Association of Regulatory Utility Commissioners, and many other institutions.
As with price and cost, consumers have little or no understanding of the relationship between their power use and power-plant carbon emissions. Those emissions vary by the hour, based on the specific power plants that are dispatched to meet demand. AMI, by providing hourly use data, delivers an essential piece of the carbon-emissions puzzle. The other pieces are available from independent system operators, utilities, and other generation suppliers.
The first of two steps for consumers to manage their carbon is knowledge of their sources of power. Using the same daily and coloring concepts described above, a chart showing electricity use by power plant (see Figure 4, “Daily Power Plants Used”) communicates the relationship between personal electric use and generation sources, using the California dispatch order to identify resources.4
Hourly AMI data enables the correlation of usage to generation source. However, all consumers receive power from an interconnected grid into which multiple power plants feed electricity. Thus, the actual source of that consumer’s electrons cannot be determined. The chart above simplifies the presentation in a way that communicates the essential message to the consumer: As long as he or she uses less than 23 kWh per day, no coal plants will be used to provide his or her power.5
The second step for consumers wanting to make an individual difference is the link between their power use and carbon emissions. This relationship is a simple extension of the data presented in the power sources chart, utilizing typical or average carbon output values for each of the various fuel sources. Typical values are as follows:6
A daily-use chart (see Figure 5, “Daily Carbon Emissions by Fuel Type”) communicates the essential relationship by combining AMI data, dispatch data, and emissions data.
The combination of the power sources and carbon-emissions charts drives home the key message: Usage on peak and usage at the margin have a hugely disproportionate effect on carbon emissions.
Regulators have the concept of “used and useful”—i.e., that utility investments should be used by utilities and produce useful results in order to be included in ratebase. In large part, for AMI to be used and useful for consumers, AMI data must support simple decision rules. Consumers, driven by convenience and efficiency, simplify our complex world through such rules. For example, “avoid driving during rush hour, which is usually 7 to 9 a.m. and 4 to 6 p.m., weekdays.”
The relationships revealed in the simple charts allow for the development of similar, simple rules, with examples:
• On conservation rates, try to reduce consumption especially after prices increase during the month;
• On time-of-use or critical-peak pricing rates, the customer can affect his or her bill dramatically by reducing consumption during the peak or critical peak hours; and
• To reduce carbon emissions, customers should try to reduce usage on those days when they normally use more than average.
None of these rules would be intuitive, nor would most of the relationships between use and other factors be communicated, without the approach of segmented daily data linked with billing period.
Another recent development in AMI policy is in-home devices and home area networks (HANs). The Texas PUC, in its recent rulemaking, adopted a HAN interface in the meter as a basic requirement in all advanced meters qualifying for cost recovery. In its final approval of the AMI application from San Diego Gas & Electric Co. (SDG&E), the California PUC instructed SDG&E to cooperate with the other utilities in this area, but fell short of ordering its implementation.
A HAN interface is intended to support control of thermostats and, eventually, appliances. The interface also can provide real-time data to an in-home display. Companies such as Southern California Edison foresee the day when consumers go to Home Depot and pick up HAN-standards-compliant devices. These then would be provisioned on the meter or AMI network via a secure transaction with the utility.
Support for the HAN-interface concept illustrates how substantially regulator expectations regarding AMI have grown in the year since approval of PG&E’s AMI rollout. At the time of the PG&E decision, the consensus had been that hourly data and support of time-of-use, critical peak, and other dynamic prices was sufficient. Part of the shift in regulators’ perceptions is due to greater capabilities of AMI technology now offered by the market, and part is due to the development of an integrated view of AMI capabilities.
AMI: The Integrated View
In the integrated view, AMI is not about remote meter reading. Instead, AMI is about improved customer-service operations, demand response, and fighting global warming. For example, Ofgem, the electricity regulator in the UK, expresses high expectations for the potential of AMI to support electricity conservation and, as a result, to reduce carbon emissions.7
In the integrated view, AMI empowers consumers with information and control: information on prices, costs, and usage with convenient, automated control. This combination works together to achieve consumer goals around managing costs and carbon emissions, while increasing reliability through reduction in peak demand at critical times. A simple example is the combination of price information and control: Peak demand reductions from this combination are roughly double those of either strategy alone (see Figure 6, “Peak Load Reduction”).8
Consumers, as represented by their regulators, are expecting much of AMI. These expectations include significant levels of demand response or electricity conservation to bridge the gap between utility operating savings and AMI capital and operating costs. Regulatory approval results in the twin benefits of assured cost recovery and a sizeable increase to the utility’s rate base.
The opportunity to maximize regulatory support for AMI is to acknowledge and respond to these expectations. None of us knows how much AMI will increase customer satisfaction through optional services (pre-pay, selectable bill date), enhance reliability through demand response, reduce carbon emissions through conservation, or increase consumer convenience through automated controls. We do know that AMI should do some or all of these things, at some level.
In the end, continued regulatory support for AMI likely will depend on consumers seeing a tangible difference and benefit from AMI—in at least one, if not more, of these areas. The solution is not the unknowable perfect plan to achieve every one of these AMI benefits. Instead, it begins simply with a consideration for the consumer and what he or she will experience differently as a result of AMI.
1. See CPUC decisions D.06-07-027 and D.07-04-043.
2. Ontario Energy Board Smart Price Pilot Final Report, July 2007.
3. Narula, R. et al. Incremental Cost of CO2 Reduction in Power Plants,
Proceedings of IGTI ASME TURBO EXPO 2002.
4. Barbose, G. Environmental Impact of Dynamic Pricing, Report in CE 268E, UC Berkeley, May 2003.
5. This is an estimate calculated based on actual customer usage and California dispatch priorities, and provides the average point at which the individual consumer’s load crosses the system threshold at which coal plants are dispatched. Actual daily dispatch will vary, of course.
6. Derived from Marnay, C. et al., Estimating Carbon Dioxide Emissions Factors for the California Electric Power Sector. Lawrence Berkeley National Laboratory Paper LBNL-49945, August 2002.
7. Ofgem, Press Release, First Trials of Smart Energy Meters in Britain Are To Begin, July 12, 2007.
8. King, C. “Integrating Residential Dynamic Pricing and Load Control: the Literature.” EnergyPulse, Dec. 14, 2004.