THE NEED FOR ESSENTIAL
CONSUMER PROTECTIONS:
WHITE PAPER ON SMART METER
AND DYNAMIC PRICING
Barbara R. Alexander
Consumer Affairs Consultant
83 Wedgewood Dr.
Winthrop, ME 04364
(207) 395-4143
E-mail: barbalex@ctel.net
Note: Ms. Alexander is a consultant to the Attorney General, but
this presentation should not be interpreted as the views of any
client
PURPOSE OF THIS PRESENTATION
THE NEED FOR ESSENTIAL CONSUMER PROTECTIONS:
SMART METERING PROPOSALS AND THE MOVE TO
TIME-BASED PRICING (August 2010)
AARP
NATIONAL CONSUMER LAW CENTER
NASUCA
CONSUMERS UNION
PUBLIC CITIZEN
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Summary of Recommendations with additional
supporting information
Stimulate Discussion
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A. COST EFFECTIVE; RISK
SHARING
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Smart Meter proposals must be cost effective
Surcharges and trackers should not be adopted
 Utilities typically want assurance of cost recovery for these
significant investments; seek pre-approval and surcharge or tracker
to assure cost recovery outside of a base rate case: as a result,
consumers bear full responsibility for actual costs as they occur
 What assurance is there that promised benefits will actually occur?
When? By all customers? How are benefits reflected in rates?
 New technologies: who bears risk of wrong choice? [VCRs vs.
DVDs vs. DVRs] PG&E obtained approval to increase AMI costs by
$1 B due to its mistaken smart meter technology choice; same
occurred in Texas
 These are very costly investments and the new metering system is
just the beginning: enhanced web portals, home energy reports,
upgraded billing systems, in-home devices, smart thermostats,
customer education; cybersecurity programs and consultants
 California customers paying $2-3 per month; same in Texas
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A. BENEFITS MUST BE PROVEN
AND DELIVERED AS PROMISED
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Benefits are estimated over a 15-20 year period;
many variables highly speculative
To document cost effectiveness, utilities sometimes
seek demand response and supply side benefits that
are crucial to getting to positive net benefits
Demand Response benefits are estimates: customer
participation rates; persistence of results; impacts of
wholesale market structure on value of DR and how
to return this value to customers
Who bears the risk that these estimates are wrong?
What are the bill impacts for cost recovery for this
initiative in light of other mandated programs for
efficiency programs and renewable energy contracts?
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EXAMPLES OF BASE RATE
RECOVERY DECISIONS
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Maryland Commission Order on Smart Meter
proposals rejected separate surcharge/tracker and
requires BGE and Pepco to seek cost recovery in a
future base rate case when actual benefits can be
documented as a condition of cost recovery. The
Order specifically identifies risk sharing as key to its
decision. Case No. 9208, Order 83410 (June 21, 2010)
Nevada Commission: “…at the time the Companies
seek cost recovery for the project, the Companies must
produce evidence of the progress in achieving the benefits
that were used as the basis to support this application,
including verifiable savings relating to meter reading, field
services, revenue protection, distribution planning, billing,
credit collections, and load research.”
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RATE RECOVERY; NEED TO
DOCUMENT ACTUAL BENEFITS
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Michigan Ct. Appeals rejected Commission’s approval
of cost recovery for smart meters by Detroit Edison
on the grounds that the record lack sufficient
evidence to support the alleged benefits:
At best, the actual evidence presented by Detroit
Edison to support the rate increase was aspirational
testimony describing the AMI program in optimistic,
but speculative terms. What the record sadly lacks is
a discussion of competing considerations regarding
the program or the necessity of the program and its
costs as related to any net benefit to customers.
In re Detroit Edison Co., Case No. 296374, decision released April 10,
2012; See also, In re Consumers Energy Co, 279 Mich App at 188; MCL
24.306.
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B. DYNAMIC PRICING SHOULD
NOT BE MANDATORY
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Time-varying rates have been available for many
years; customer enrollment is very low in most
states (AZ is a significant exception)
Smart meters allow for different pricing options,
traditional TOU, as well as as Critical Peak Pricing
(charge high rate for usage during wholesale
market critical peak days); Peak Time Rebate
(credit for reducing usage during wholesale
market critical peak days)
Theory: customers can shift usage or reduce
usage according to their “sensitivity to price”
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BUT WHAT DO CUSTOMERS
WANT?
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Be careful of “average” results!
Most pilots show that small group of total pilot
volunteers provide most significant results
All pilots show “winners” and “losers”
ComEd’s 8,000 opt out pilot was an expensive
failure: no valid usage or peak load reduction “on
average” compared to customers on flat rates
Rate stability is highly valued by residential
customers, particularly low use and low income or
fixed income customers (AARP survey results in CT
and PA)
What do the smart grid pilots in MA tell us?
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DYNAMIC PRICING: PEAK TIME
REBATE IS PREFERRED
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Time of Use and Critical Peak Pricing do not “empower”
customers; it presents a Hobson’s Choice to many low use,
low income, and elderly customers who must use
electricity during peak hours for health and safety reasons
(Chicago heat wave; over 700 deaths, mostly seniors living
alone)
A voluntary approach to dynamic pricing and relying on
Peak Time Rebates is preferred approach; PTR has been
successfully demonstrated to result is peak load reduction
without punitive “sticks” in the form of volatile or high
peak load prices.
States that are moving to PTR as primary pricing program
to justify demand response for smart meter business
case: SDG&E in CA, SCE in CA, ComEd and Ameren in IL,
Pepco and BGE in MD
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C. PEAK LOAD REDUCTION:
ASSESS ALTERNATIVES
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Do we need expensive smart meters to get
where we want to go-- reduce system peak
load and reduce generation supply prices?
Direct load control most effective; targets
willing participants—”set it and forget it” is
most successful in many pilots
BGE’s Peak Rewards has enrolled over
200,000 residential customers
Can peak load reduction be achieved with
more targeted direct load control program
rather than smart meters for all customers?
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D. SMART METERS: KEY
CONSUMER PROTECTIONS
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Remote disconnection for nonpayment is often
proposed as part of cost savings in smart meter
business case; eliminates premise visits to obtain
payment, declare medical emergency, or detect
unsafe and dangerous conditions for very young,
old, or infirm
Prepayment metering easily the next step—
automatic disconnect
Remote disconnection for nonpayment should be
prohibited until after the required premise visit and
contact attempts have been completed
Prepayment for essential utility services should be
prohibited
Any time-varying or dynamic pricing should be
offered as an option and bill protection should be
assured as part of the program
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RECENT DECISIONS ON
REMOTE DISCONNECTION
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The Ohio Commission rejected Duke Energy’s
proposal to waive the premise visit requirement for
disconnection for nonpayment
The NY Commission has rejected any change in
current premise visit requirements for smart meters
Maryland Commission has rejected any change in
premise visit and attempt to contact requirements
with smart meters.
California Commission has ordered premise visit for
certain customer groups
The Illinois Commission has emphasized the
requirement for a premise visit in reviewing smart
grid investment proposals
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E.
CYBER SECURITY AND PRIVACY: NEED
TO ADDRESS EARLY AND OFTEN
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Privacy: who has access to detailed customer usage
and appliance information? For what purpose?
Under what conditions?
Who can link their “home area network” device to
the utility’s smart meter? Who will certify which
devices can be linked?
Does the meter’s remote switch raise serious
concerns about disconnections of millions of
customers by the bad guys?
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CYBER SECURITY IS IN ITS
INFANCY
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Cybersecurity: Federal role is limited to
recommendations and voluntary standards due to
state jurisdiction over retail distribution utilities. Can
the states properly supervise complex and highly
confidential cybersecurity plans and programs for
each of the electric and gas utilities that have
“digitized” their systems and linked their data to the
“cloud”? This issue is complicated and made more
important when considering the distribution
operations and “grid” related investments.
Significantly more resources must be brought to bear
by state regulators.
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F. CONSUMER EDUCATION IS
NOT CHEAP!
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Any smart meter proposal that is
being justified in part on changing
customer behavior or selecting
optional pricing programs requires a
comprehensive educational program
Educational and outreach costs must
be included in business case;
Utilities must be held accountable for
results
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G.
SMART METER AND SMART GRID
INVESTMENTS MUST MEASURE
PERFORMANCE
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Utilities should be held accountable for its
estimates of costs and benefits
Detailed performance metrics should be
linked to cost recovery
Performance must be measurable
Prudency reviews and audits should be
routinely conducted
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SUMMARY AND CONCLUSIONS
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These principles or recommendations are no substitute
for fact-based analysis of costs and benefits for any
consideration for smart meter deployment;
Policies should not be adopted without a firm
understanding of costs and benefits:
 Very expensive: bill impacts are important part of
decision
 Consider purpose and cheaper alternatives
 Document benefits; avoid aspirational conclusions
 Allocate risks fairly
 Link cost recovery to performance of promises
 Don’t force customers to eat spinach!
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RECOMMENDATIONS
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SMART METER PROPOSALS MUST BE
COST-EFFECTIVE AND UTILITIES
MUST SHARE THE RISKS
ASSOCIATED WITH THE NEW
TECHNOLOGIES AND THE BENEFITS
USED TO JUSTIFY THE INVESTMENT
TIME OF USE OR DYNAMIC PRICING
MUST NOT BE MANDATORY;
CONSUMERS SHOULD BE ALLOWED
TO OPT-IN TO ADDITIONAL DYNAMIC
PRICING RATE
OPTIONS.
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RECOMMENDATIONS
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REGULATORS SHOULD ASSESS
ALTERNATIVES TO SMART METERS TO
REACH THE LOAD MANAGEMENT GOALS,
PARTICULARLY DIRECT LOAD CONTROL
PROGRAMS
SMART METER INVESTMENTS SHOULD NOT
RESULT IN REDUCED LEVELS OF CONSMER
PROTECTIONS, ESPECIALLY RELATING TO
THE IMPLEMENTATION OF REMOTE
DISCONNECTION, AND TRADITIONAL
BILLING AND DISPUTE RIGHTS SHOULD BE
RETAINED
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RECOMMENDATIONS
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PRIVACY AND CYBER-SECURITY CONCERNS
MUST BE ADDRESSED PRIOR TO A SMART
METER ROLLOUT
UTILITIES AND OTHER POLICYMAKERS
SHOULD INCLUDE COMPREHENSIVE
CONSUMER EDUCATION AND BILL
PROTECTION PROGRAMS IN ANY
EVALUATION OR IMPLEMENTATION OF
SMART METER PROPOSALS
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RECOMMENDATIONS
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INVESTMENTS IN SMART METERS
AND OTHER SMART GRID
PROPOSALS NEED TO BE VERIFIABLE
AND TRANSPARENT AND THE
UTILITIES NEED TO BE HELD
ACCOUNTABLE FOR THE COSTS THEY
WANT CUSTOMERS TO PAY AND THE
BENEFITS THEY PROMISE TO
DELIVER. COSTS SHOULD BE
REASONABLE AND PRUDENT.
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