The concept of “opting out” from Advanced Metering Infrastructure (AMI) refers to those utility customers who choose not, or outright refuse, to receive a wireless, two-way communication-enabling smart meter from their incumbent utility. Opting out also refers to those customers who otherwise take steps that would force their utility to disable the smart meter’s wireless communications capability. Just a year ago, it would have been difficult to identify any US utility that had a formal Opt-Out program in place. Now, mostly as a result of state regulatory mandates to do so, an increasing number of utilities are developing such programs and assessing a number of complex implications created by allowing customers to “opt out.”
In my AMI Opt-Out whitepaper, I examine the following issues related to AMI Opt-Out programs: 1) the latest policy trends that are emerging in states that have current regulatory proceedings addressing utility AMI Opt-Out programs; 2) the specific program offerings, and related cost allocations, that have been posited by U.S. electric utilities; and 3) an introduction to the impacts that an Opt-Out program may have on a utility’s AMI business case. This abbreviated version of the white paper focuses on the business case implications.
Impact on the AMI Business Case.
Standard practice for AMI deployment is for a utility to first articulate the business case justifying the pursuit of deploying smart meters. This is generally the case when a utility is seeking cost recovery through rate-based increases. Customer benefits in the business case to support an AMI initiative include:
The concern with AMI Opt-Out programs is that allowing certain customers to not have a smart meter defeats the economies of scale associated with installing advanced meters and improving energy management.
However, most AMI business cases were developed without consideration of Opt-Out programs. The development of Opt-Out programs is a rather new phenomenon in the scope of AMI deployments, and thus most utilities have yet to take the steps to re-evaluate their AMI business cases, but may find the need to do so in the near term, perhaps as a result of a regulatory mandate. What these utilities may find is that there are a number of potential impacts that Opt-Out programs can have on the AMI business case, depending in large part on the size of the deployment being impacted.
The fundamental objective in re-evaluating an AMI business case is the overall level of impact caused by an Opt-Out program, and how this impact is increased or decreased by the specific Opt-Out options that a utility may offer. As a general rule, the concern that utilities should have is the extent to which the decision of a relatively small group of customers to opt out from AMI will reduce the public benefits and increase the costs of the AMI program, thus diminishing the overall value of the program that the utility may have previously articulated to its stakeholders.
Traditional, analog electromechanical meters do not support AMI communications with smart appliances, improved home energy management systems, or time-varying and discounted electric vehicle charging. Further, Opt-Out programs will have an impact on utility systems used to manage energy demand and respond to power outages, given that smart meter data can be used by utility engineers to view distribution transformer loading to properly size the equipment and to monitor voltage levels remotely.
Baltimore Gas & Electric (BGE) addressed these impacts in its recent filing to the Maryland Public Service Commission, stating its smart grid business case was built, along with other factors, on the elimination of meter reading costs. BGE has argued that, using a 1% opt-out rate as an example, the annual operational cost impact to its smart grid business case is projected to exceed $1.3M in higher meter reading costs and additional meter reading infrastructure expenses per year. Additionally, BGE has estimated that an Opt-Out program in its service territory would result in approximately $12 million in incremental capital costs including:
Altogether, BGE is estimating that the collective impact of these costs could exceed $28 million over 10 years, and in its pending rate case they are seeking approval from the Maryland PSC to require customers who choose to opt to contribute to the cost associated with this option. This would include payment of a onetime set up fee and a monthly charge commensurate with the costs of setting up the new process and maintaining meter readers and the meter reading system.
In addition to the increased capital and operational costs noted above, BGE also projected that there would be proportionately reduced benefits realized from peak demand reductions, energy conservation impacts, and associated capacity and energy price mitigation savings. These adverse impacts would not only apply to the customers opting out of AMI/smart grid but also to all other BGE customers.
The remainder of 2012 will likely see an increase of activity and policymaking around the AMI Opt-Out topic. The venue for both will likely be specific utility regulatory proceedings in individual states. It is also likely that an increasing number of state public utility commissions will either mandate that utilities under their jurisdiction create an Opt-Out program or at least submit a filing to consider options that may be viable. The activity on both fronts will create additional perspective on this topic for those utilities in which AMI deployment has not yet officially begun. As noted in the whitepaper, the impact of Opt-Out programs on individual AMI business cases can be significant depending on the scale of the utility’s deployment. Those utilities that have not yet prepared an AMI business case would be wise to include opt-out contingencies in their model. For more information, visit our Regulatory Support and Key Stakeholder Relations page here.