Pretty Peak Promises

By Published On: September 24, 2010

Editors’ note: This is part one of a two-part series. California’s “smart” electricity meters seem unlikely to ever break even, much less provide net benefits to utility customers and the environment. Meter makers, software companies, computer companies, and communications firms—with their penchant for constant innovation and change—are clashing with the conservative utilities as the two separate industries work to accomplish what Mike Hyland, American Public Power Association senior vice president of engineering services, calls the digital overlay of the power grid. Traditionally, the power industry assumes equipment has a useful life of 20 years or more. Technology companies are changing that paradigm, raising the prospect of early obsolescence and more frequent equipment changes. This could leave investor- and publicly owned utilities, public utilities commissions, and ratepayers facing frequent meter upgrades, as well as the need to periodically update expensive energy control systems within homes designed to communicate with smart meters. Nationwide, this prospect represents tens, if not as much as a hundred billion dollars in new revenue each year to technology companies. In a revelatory moment, Hyland, for instance, shared that smart meter makers are now telling utilities they may want to replace their meters as often as every three years, comparing them to computers that will become obsolete as metering and home energy control technology advances. I asked Itron, which is supplying meters to Southern California Edison and San Diego Gas & Electric, how long its smart meters would last. Sharelynn Moore, company director of corporate marketing, equivocated. “We do see it’s not a 20 or 30-year investment,” she said. “It’s more along the line of 10 years.” Trade groups for meter makers in Washington won a federal tax change a few years back allowing utilities to fully depreciate meters in 10 years instead of 20 under the previous tax code. Now the groups are pressing lawmakers to reduce the tax depreciation period to five years and also to expand the accelerated depreciation allowance to a longer list of equipment being embedded in the smart grid. The smart meter industry already is cleaning up market-wise. Itron president Malcolm Unsworth shared the outlook for his industry with investors in a presentation that showed expenditures on meters are growing at a clip of 32 percent a year. Unsworth revealed that smart meters so far represent the single biggest expenditure in making the grid smart with a sales revenue potential of between $60 billion and $80 billion for full U.S. deployment. Once smart meters are fully deployed, the meter replacement business is likely to be more robust than it was for the old analog meters. I asked Itron’s Moore about the industry’s move to accelerate the depreciation allowance. She replied that most utility smart meter deployments assume cost recovery in as little as two to seven years. Promised benefit time frames are much longer. Hawaiian Public Utilities Consumer Advocacy executive director Dean Nishina bluntly said that as a customer your meter will be worn out before you get to use any of the information it supplies to lower your utility bill through automated controls. Meanwhile, he said, “customers have to pay for these and they get no benefits.” The big promise of regulators, economists, and technology purveyors—that meters will bring dramatic savings on peak power days, blunting the price of electricity and dramatically cutting the need to build new generating plants—remains the subject of ivory tower discussions. Utilities are capturing “benefits” on their side of the meter—including savings on meter reading and billing operations. I also acknowledge that customers are seeing indirect benefits, namely, improved outage response times and maybe more information about their energy usage. The bright vision that the meters will enable customers to save money by automatically controlling household power use is a reality only in scattered, small-scale demonstration projects reminiscent of electric vehicle fleet demonstration projects in the 1980s and 1990s. Like the electric car then, the technology needed to realize the full value of smart meters is unlikely to materialize for average customers anytime in the next five years. By then, like Windows Millennium, California’s smart meters may well face obsolescence. California regulators and utilities are reluctant to admit all this. But what’s $5 billion among friends, asks one ratepayer advocate, as long as customers pay the bill? Beyond the borders of our sunny state people discuss California’s experience with smart meters as a cautionary tale. They are taking a more measured, or metered approach, if you will. California’s costly experiment is causing other states to take a closer look at smart meter programs. Recent examples include: • In Maryland, the state Public Service Commission this summer denied automatic cost recovery for smart meters to investor-owned utilities. Regulators rejected mandatory time-of-use rates too. The commission told the utilities to install the meters on their own dime. Then it said to come back and show us the costs and benefits and we’ll authorize the appropriate level of cost recovery. • In Hawaii, the Public Utilities Commission rejected roll out of smart meters and cost recovery until the local utility brings in a specific plan showing how it will integrate its customers to provide benefits. • In Colorado, the Public Utilities Commission is reconsidering cost recovery for Xcel’s Smart Grid City project in Boulder after its price tag quadrupled. In the project, now two-and-one-half years underway, the utility promised to include home area network technology on the customer side of the meter that would allow people to automate control of their energy use and save money. So far, that equipment is yet to be installed. Even in California, publicly owned utilities are handling smart meters more cautiously than investor-owned utilities. The Sacramento Municipal Utility District is providing meters to customers for no additional charge. By doing so, it’s observing what is fast becoming the motto of public power when it comes to the smart grid, said Hyland: “We’d like to see the smart grid advance at the speed of value.” Next week in part two, at issue is how smart meters can earn their bread and butter.

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