Governments and/or regulators have frequently mandated utilities, to install smart meters. These well-considered and well-meaning decisions are obviously good for the metering industry that is able to sell millions of meters for each mandate. This author’s question is: is a mandated rollout good for the customer? The question is not whether smart meters are good for customers, the question is – does the mandate benefit the customer?
The very fact that the government has placed a legally binding obligation makes utilities defensive. They begin to take the smart meter programme as a cost and, like all costs, the cost of the smart meter programme must also be minimised. Every mandate has an associated benefits case. Since the utility is focusing on costs, it rarely ‘owns’ the benefits case. This attitude is very different from other programmes that the utility runs off its own bat. In such cases, delivering the benefits of the programme is the key focus, and programme managers ‘own’ that benefit delivery.
The mandate also means big risks to the utility. New smart meter technology is a technical risk, all meters to be changed in a short period is a schedule risk, meters being the utility’s cash register is a revenue and cash flow risk, getting the programme wrong is a financial and reputation risk, delays are a regulatory risk.
All in all, the mandate presents a very risky cost centre with no ownership of benefits.
The utility’s executive and programme teams react accordingly. They want to see costs minimised and risks eliminated. This attitude reflects throughout the programme: the way in which contracts are structured, the way the programme is managed etc.
One casualty of risk minimisation is a cost increase! The scale of the rollout, the limited time and the programme complexity, leads the utility to transfer many of the risks to vendors. Thus vendors for head-end systems, communications (if different), installation and meters all face complex contract terms with penalties if their part of the programme goes wrong. Even though each is specialist in its own area, the mandate requires everyone to up their capacities to meet the programme goals. Tough contract terms cause each vendor to add a risk premium to its price. There could be >15% in pricing just to deal with the contract risks. Risk minimisation at an increased cost!
Another casualty of cost cutting is customer engagement. The programme rarely provides an adequate budget for customer engagement i.e. advertise the customers’ benefits and allay their fears. The key fears are: is it safe; and will this mandate mean a bigger bill for me? The liberal leaning media are naturally sceptical about governments’ mandating anything. Ill-informed stories in the press or television also set customer perceptions. Frequently these stories are ignored by the utility that expects the response to come from government.
Customers do not understand technology and indeed some are fearful of it. There is a fear that radio transmitters are harmful to health. The radio transmitter in the smart meter becomes a real or imagined health threat. When the garage door opens without command, or the pet dog becomes irritable the night after a smart meter is installed, this perception is reinforced. The media are happy to run such stories.
A mandate comes with a fixed timeline. In most, although not all, cases this timeline is agreed with the utility. This timeline is sacrosanct: failing to meet it has consequences, usually financial. A short project is almost always the cheapest, so short programme durations are also influenced by utility management. Mandated programmes tend to have ambitious timelines. This too drives costs up as vendors need to increase capacities to deliver in five years what normally took 15 and this capacity increase is amortised over the shorter duration.
All in all then, a smart meter mandate makes the programme more expensive for the customer. With the utility not ‘owning’ the benefits case, the customer is short changed there as well.
So why do governments mandate smart meters? The harsh reality is that customer benefits from smart meters are tenuous and frequently non-existent. In the UK, direct customer benefits are a questionable one third of the total benefits case. In Victoria, Australia the customer only had indirect and long-term benefits.
The Victoria mandate ended with a cost overrun; now customers are paying higher bills. Did customers know this before the programme started? Would customers have willingly accepted smart meters if they had been told this would mean A$150 per year on their bills?
The Victoria experience taught government that smart meter mandates are a poisoned chalice. Lesson learned, the Australian government is now letting energy retailers decide on the deployment of smart meters. Will other governments learn? MI This column is to create a forum for ideas, passions and perspectives on our industry that are controversial, provocative and energising. The views expressed here may be unpopular, politically incorrect, heretical or simply humorous. They may be ideas that all of us have had but didn’t care (or dare) to articulate. The opinions expressed are those of the author alone, but are probably shared by many who have yet to say so. NO MANDATES PLEASE, JUST SMART METERS! By Compos Mentis
ABOUT THE AUTHOR: Compos Mentis is Latin for “a sound mind.” This is the chosen pseudonym of a prominent European expert with more than 20 years of direct experience in metering, AMI and smart grid applications worldwide. The cloak of anonymity allows him to insightfully ”pop the balloons” of conventional utility industry thinking. If you would like to comment on this Viewpoint, please write to the author at firstname.lastname@example.org