Establishing the Scope for The

Business Case Structure to Evaluate Advanced Metering

What factors should be considered when determining whether to invest in an advanced metering system? How can a business case be structured to properly assess the costs, benefits and potential risks?

This paper provides the Energy Commission's initial thoughts on how the business case for advanced metering should be structured to provide the joint agencies with sufficient information to analyze the pros and cons of different deployment strategies. The purpose of this paper is to solicit comments on both the scope and types of analysis the utilities should be required to provide in the Phase 2 proceeding.

The scope of evaluation proposed in this paper goes substantially beyond the analysis historically common to the traditional utility business case. A traditional utility business cases usually focuses on the costs and benefits of meter reading and directly related communication, data preparation and a subset of accounting and billing applications. Evaluations tend to overlook the broad applications that real-time data flows and access to information can have on most other utility applications. More substantially, the traditional business case evaluation for advanced metering often ignores two very critical high-value areas: (1) the opportunities that advanced metering provides to address the risks and uncertainties associated with system operation and system reliability and (2) impacts on customers and customer services. Table 1 identifies the major differences in the business case scope recommended by the Energy Commission.

Table 1. Contrasting the Traditional and Proposed Utility Business Case for Advanced Metering

	Traditional Business Case	Proposed Business Case
Methodology	Net present value of costs and benefits	Net present value of costs and benefits
Assumptions	Utility owns all equipment and process.	Contrast utility ownership with financed or outsourced options.
	Contrast base case with full implementation	Contrast base case with targeted and full implementation
	Maintain the fixed revenue requirement.	Identify impacts with and without the revenue maintenance requirement.
	Metering assumed independent of other systems and applications.	Metering considered part of an integrated suite of utility applications.
	Customer impacts not considered.	Customer impacts considered.
	Risk and uncertainty of meeting peak loads not considered.	Risk and uncertainty regarding price and system delivery constraints considered.
	New customer service and revenue opportunities not considered.	New customer service and revenue opportunities considered.

Putting Advanced Metering Into Perspective - Isolated Function or Integrated System?

Interval metered customer demand and aggregated usage data is a common denominator and foundation for most electric utility back office, customer service, and system operating functions. Billing, outage management, high bill resolution, forecasting, real-time dispatch, rate design and many other utility functions depend upon some form of metered interval data. To be most effective, metering systems must be integrated into and designed from the outset to support many other utility functions (Figure 1).

Figure 1. Meter Data Applications Within a Traditional Utility

Traditionally, metering systems are viewed as the vehicle for collecting energy usage data to support a monthly billing function. Often referred to as the `utility cash register', that perspective creates a focus on meter reading to support revenue requirements, that in turn ignores the impact that metered data has on every other aspect of utility operations. Treating metering and billing as a separate system, isolated from other utility operations, creates duplication of data and multiple systems with overlapping functionality, delayed access to information and overlapping unnecessary costs.

Two attributes determine how metered data is used to support the functions identified in Figure 1: (1) the time interval over which customer usage is measured and (2) how long it takes to access (time frame) and retrieve measurement results.

For example, traditional billing, based on tiered rates, uses aggregated kWh retrieved over monthly billing cycles. Automated meter reading systems (AMR), that rely on meter readers using hand-held recorders or drive-by vans with short-distance remote reading capabilities, can easily support conventional billing requirements. However, outage management, dynamic tariffs and many customer energy management functions, at the other extreme, often require usage interval data and data retrieval cycles measured in minutes, not the monthly cycle associated with traditional billing statements. Advanced metering infrastructure (AMI) with remote communication capability is necessary to support all of these functions. The important question is how to quantify the additional benefits and costs associated with AMI systems that are not necessarily billing related but provide much more fundamental functions such as preserving system reliability and improving customer service.

Meters used with AMR and AMI systems record the same usage information, sometimes over equivalent recording periods (e.g. once every 15 minutes). However, there are two significant differences that differentiate the eventual capabilities of AMR and AMI systems:

1. AMI systems retain and make the detailed interval data available for other uses: AMR systems aggregate the detailed interval data into a either single `running total' for the facility or into defined `billing buckets' to support a particular rate.

2. AMI systems provide remote communication to support frequent (daily or on-demand) access to metered data: AMR provides limited communication that requires either on-site or near-site capability to access metered data.

3. AMI systems can support customer access to usage data independent of the billing process while AMR systems do not provide this capability.

What is important to note is that AMI systems can be designed to support all utility functions, while conventional standard watt-hour meters and AMR systems cannot.

Table 2 identifies some of the high-value utility and customer applications and services that can be supported with an advanced metering AMI infrastructure. Implementing the AMI infrastructure creates benefits on its own, independent of the underlying tariff structure.

Table 2. Comparing the Functional Capability of Various Metering Options

Application / Function	Standard Watt Hour Meter	Automated Meter Reading (drive-by)	Advanced Metering Infrastructure with Communications
Utility Functions.
a. Automated Meter Reading	NO	LIMITED	YES
b. Outage Detection	NO	NO	YES
c. Theft Detection	NO	LIMITED	YES
d. Load Survey	NO	LIMITED	YES
e. Customer Energy Profiles -for EE / DR Targeting	NO	NO	YES
Customer Functions
a. Customer Rate Choice	NO	NO	YES
b. Customized Billing Date	NO	NO	YES
c. Energy Information	NO	NO	YES
d. Dynamic Tariffs	NO	NO	YES
d. Enhanced Billing	NO	NO	YES

The Meter as the "Utility Cash Register" - Related Example

Experience with telecommunications, financial, transportation, and many other industries indicate that the cost savings and operational impacts attributed to AMI are probably only first order effects that reflect just the most immediate and most easily attainable benefits. Experience with other industries and within the electric utility industry, consistently shows that AMI-type technology applications can trigger a series of first, second, and third order effects which increase efficiency, demand for new products and services, and the formation of entirely new business ventures (Figure 2).

Electronic supermarket cash registers and bar codes provide a good example. Prior to the advent of bar coding, product codes and pricing information were not standardized. They had to be entered separately to support each function related to the product manufacturing, distribution and sales process. Bar codes were originally developed to make checkout easier - this is equivalent to the current meter read done to support monthly billing.

The supermarket industry initially resisted the move to electronic registers and bar codes because the value was not considered sufficient to offset the required investment - in other words, the reduction in `checkout costs' (e.g. meter reading) was not considered sufficient to justify a move to a new technology. However, it soon became apparent that the same bar code used to support automated checkout, could also be used to automate the inventory function, which in turn found applications in purchasing, pricing, shrinkage analysis, automation of general accounting, and automatic order entry applications.

Figure 2. The Impacts of Improved Information Technology: Bar Codes and Metering

The next development was linking specific purchases to individual customers through the use of discount cards that captured enhanced information about customer purchasing patterns. The same bar code information then facilitated the development of entirely new applications targeted at improving customer service and value. Examples include; point-of-sale promotions, customer purchase analysis (market research), real-time price updates, dynamic promotion with point-of-sale coupons, enhanced product price/health information through localized displays, and support for portable self-checkout devices. Today, the use of bar codes is being further expanded to support real-time order entry and automated shopping applications directly from customer residences.

All of these functions have value to the customer and impacts to provider operations. Current investment decisions in bar code and related systems now consider a very wide range of cost and benefit value components.

If advanced metering follows the same pattern evidenced by the implementation of electronic cash registers and bar codes, then focusing only on the original "checkout" function (meter reading) produces a sub-optimal investment decision that grossly understates the value of metering.