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Achieving this goal involves completely restructuring the interface between the customers and the supplier businesses, by removing the metering and meter reading functions from endpoint distribution entities and placing them into a new regulated regional monopoly which reports to, or is a function of, whatever present government authorities currently handle contract purchasing and/or dictation of terms for purchase, of utilities on behalf of most customers. That authority is then a) stripped of its ability to interfere in utility markets and b) required to replace all customer meters with new intelligent meters which can continuously or regularly communicate with an electronic central market system in which all willing suppliers of the utility post their offer price and terms on an hourly or quarter-hourly basis. The market is operated and supervised by the newly structured authority which for now I’ll call the Market Manager. The Market Manager is also charged with operating a central database of actual customer purchases and contract terms linked to suppliers names, for billing and planning statistics purposes. The customers’ meters are intelligent enough to be programmed by the customer or their chosen service provider to select in advance from among all posted offers in the market what supplier or perhaps even mix of suppliers will be used to serve their requirement for the next hour or quarter hour. The actual usages are collected by the same communication link by which customers order their purchases.
The distribution entities will/may still need to operate the standard customer service call centers for complaints and outage management, and possibly bill collections, as now. Billing data may be provided by the Market Manager to each market participant (distribution, transmission, generation, etc) for transmittal and collection, or possibly consolidated, transmitted and even collected by the Market Manager or their service provider, for a fee, depending on legislation enacted.
It is up to the Market Manager for any given region to decide whether to contract all or parts of their responsibilities to existing distribution entities or other private sector service providers in their jurisdictions. For example, a given Market Manager may choose to contract the existing distribution entities to physically install and maintain meters, and a telephone or cable company to provide and maintain required communication services. If the existing distribution entity’s CRM system isn’t capable of being economically upgraded to provide the market database function, then any IT service provider may be contracted to do so, while an accounting firm may be contracted to provide regular audits for accuracy. Recognizing the somewhat increased potential for meter interference and energy theft due to the communication infrastructure, the same audit company should also be tasked with developing statistical methods to identify and charge persons attempting to defraud the energy suppliers by meter tampering etc.
The customers’ meters also provide a local data link, ideally by a TCP/IP protocol or similar transported by a physical cable or encrypted wireless link, to a website hosted by the processor within the meter. Using software installed on this website, the customer or their designated specialist service provider can link the meter to their on-site control system, and/or a standard computer hosted web browser, and then program the meter in cooperation with their on-site control systems, to allocate their purchases to the lowest-cost supplier available, to a preferred provider such as a more environmentally friendly generating station, or to incrementally shut down systems on their site if prices exceed programmed limits.
Metrics
Every consumer of utilities will benefit from a system such as this in three ways:
- First it enables free market competition not only for those business paradigms which have already been proposed, but for any new paradigm which may in future arise. And it does this without necessarily adding any additional civil service positions to those currently required to operate the existing market, since currently elected and appointed regulatory management and staffs can easily handle the “board of directors” functions of the Market Manager, and will no longer need to worry about rate case applications etc. Customers will benefit from having the lowest cost service which the market can provide, (though they need to be clearly informed that that price may not necessarily provide an immediate reduction in a particular jurisdiction), while every entity at every stage in the supply chain will be constrained to making their own good investment and operating decisions or be out-competed by a more efficient operator.
- Second it reduces current barriers to new technology entry in areas such as electricity supply. Since every customer meter needs to be replaced, and the replacements need to be intelligent and communicative, they can for very little added cost include provision for options such as customer generator connection and anti-islanding disconnects. There should very quickly develop an industry providing small CHP systems which replace home and commercial gas-fueled heating appliances with generators which first provide electricity, then heat energy for space heating. Given volume production of standardized units such systems would cost justify themselves very quickly especially for new installations.
- Third it enables suppliers to offer much more useful pricing signals, such as low rates in off-peak hours, surcharges for abnormal peaks or power factors at various times, and seasonal rates. Customers may select from among several pre-installed purchase allocation systems, pay a service provider to implement one or learn for themselves to implement algorithms which allocate their purchases in the market to their best advantage. Savvy customers will quickly learn to benefit themselves in such a market.
All current industry participants such as distribution, transmission, electrical generation or gas exploration, production and storage etc will gain the benefit of much reduced regulatory burdens and constraints, as rate cases, fuel surcharge applications and so on will all become historical curiosities enabling the business to focus more clearly on its primary product, and more closely interact with its real customers. Of course some regulatory oversight is likely still to be required, and I leave that topic to the experts.
In addition, every distribution entity will benefit from such a system by:
- Re-capitalizing the book value of their existing meters on startup, enabling them to do the distribution function with less capital investment from then on.
- They can also eliminate present meter-reading overheads
- They will have instant information on size and scope of outages, because the smart meters will inform the central system of any loss of service and its restoration.
- They can possibly convert their CRM system into a profit centre by contracting it to the Market Manager after upgrading it for the increased data and communications volume.
Transmission entities will benefit from:
- Far more accurate consolidated customer data which will enable then to build models which can project loads much more accurately.
- In many cases they can expect higher capacity factors on their systems, as regionally disparate suppliers avail themselves of any available capacity to enter newly opened markets.
Supply entities will benefit by:
- Gaining access to any market which they choose to enter.
- Gaining the ability to do long-term strategic planning without the need to guess at a regulator’s future direction.
Financial Analysis
In a 2005 sample analysis of national metering equipment markets , using Canada as an example, ABS Energy Research places the value of the 982,000 electro-mechanical electricity meters replaced/installed new in Canada in 2005 at a value of $48 million, from which I conclude that present electro-mechanical technology meters have a new cost of about $49 each, and the 426,670 gas meters replaced/installed new in Canada in 2005 at a value of $20 million, from which I conclude that present electro-mechanical technology gas meters have a new cost of about $47 each. Given the stated life expectancy of these meters at 40 years and the average current age at 20 years I would estimate the price for purchase from the distribution utilities of the currently installed 12.5 million single phase electrical meters to be retired at $305 million.
Ideally the gas meters need not be retired simply purchased and then an electronic sender unit fitted on. For discussion purposes, let us assume the new electronic electricity meters will cost $100 for the basic metering function, another $100 for the anti-islanding disconnect mechanism, $100 for the local intelligence (example a Linux RTOS hosting the communications and purchasing functionalities) and $100 for the communications hardware required. With another $100 contingency, we can set the new meter’s cost at $500. Amortized over 25 years at 5% interest this new investment of $549 (retirement of old meter plus purchase of new) would add $3.21 per month to each customer’s billing. Given the relatively low traffic volume compared to for example a high-speed internet connection, the large number of new connections, and the hardware modems already included in the meters, local communication service providers could probably economically bid the communication costs below $2.00 per month. Individual regional Market Managers may also consider up rating the communication capability of the meters to enable them to provide an included useful internet / VOIP / security service capability to each home, even perhaps using powerline carrier technology if no other option is more economically available in a given area. An additional monthly levy of perhaps $1.50 / month provides the Market Authority with the finances required to (themselves or by contract) maintain and calibrate meters, and operate the market and billing records computer systems.
Given then that electrical distribution entities are no longer required to supply or calibrate meters their distribution charge presently applied on every bill should then be reduced by $0.46 / month, and a further perhaps $1.00 / month to reflect their reduced costs in wages and overhead regarding meter management, calibration and reading. That leaves the system adding a net $5.25 per month to each customer’s billing.
I have no doubt that this system will in the first few years not pay back to the customers the $5.25. However, in the longer term, perhaps 10 to 15 years, there will develop clear advantages of purely market-based energy providers making sound business decisions within a transparent if existent government subsidy environment such as for renewables, coupled with the further clear elimination of many present subsidy programs such as “energy efficiency” taxes among others. I would expect these advantages to produce significant medium to long term overall cost reductions for all customers.
Some additional useful data on costs can be found in Advanced Utility Metering – Report prepared by Architectural Energy Corp, Boulder, Colorado for EERE , though the quoted prices are very high, reflecting the focus of the discussion on large three-phase metering in very small quantities. It is also noteworthy that this report states on page 31 “Case studies have shown that utility costs can be reduced by 25% or more by identifying energy savings opportunities through metering. A less aggressive estimate is approximately 5%.” Since it is not uncommon for North American residential customers to be paying well above $100 / month for electricity plus gas, even the less aggressive 5% bill reduction stated above will already very nearly cover the added $5.25 cost, leaving yet to be exploited the potential for more significant future gains from CHP furnaces, rooftop solar, off-peak charging of plug-hybrid autos etc. as those technologies develop in future.
Conclusion
Of course, for many of the above listed participants except the customer, there exists in this plan the potential for a significant downside in increased competition. There should, for example, be no logical reason to maintain regional monopolies for services such as transmission, and perhaps even distribution in certain cases. Many present restrictions such as those against private local low-voltage transmission could perhaps be open to re-evaluation given a working system such as this, and perhaps not every present participant would benefit from that. Issues of lineman safety would of course need to be paramount in all such discussions. However I believe the positives would outweigh the negatives for everyone overall. I would note however that some have suggested to me that we may anticipate some fervent opposition to this plan from existing industry players. Ideally, the way to deal with this if it should develop would be to negotiate win-win agreements with these groups, modifying the strategy where possibly provided that doesn’t compromise the overall goal.
There may also be areas where effort and creativity would need to be put into the elimination of existing monopolies before a program such as this can be implemented. As well, logical market-based methods of enabling transmission entities to maintain reliability by acquiring VAR correction and spinning reserve will need to be developed and put into practice. It is also instructive to read of the battles IEEE encountered in trying to get metering industry incumbents to agree to a metering and meter data communications standard.
There are no doubt many additional issues to be worked out in the details, especially respecting costs, but I think this presents a reasonable point on which to begin the discussion. A further useful aid to discussion is this Southern California Edison rate case filing document requesting funding for development of a very similar installation but to be owned by the distribution utility and paid for by ratepayers, which seems to me the wrong approach.
References
1. Canada – Meter Market Profile - http://www.researchandmarkets.com/feats/download_sample.asp?report_id=302460&file_name=Canada - Meter Market Profile&file_ext=pdf
2. Advanced Utility Metering – Report prepared by Architectural Energy Corp, Boulder, Colorado for EERE http://www.eere.energy.gov/femp/pdfs/33539.pdf
3. Electric Meter Deregulation: Potholes on the Road to Plug-and-Play - Four states struggle with technical standards on open architecture http://www.pur.com/pubs/3040.cfm
4. Testimony Supporting Application for Approval of Advanced Metering Infrastructure Deployment Strategy and Cost Recovery Mechanism http://www.sce.com/NR/rdonlyres/BB505C4D-D130-4C92-9952-0A05575F11BE/0/SCEMarch30_2005_Application_vol2.pdf
