Questions Exist about Smart Meters and the Energy Policy Act


[Scott DeBroff][August 16, 2006] State Regulatory Commissions across the country are conducting inquiries into the benefits and potential requirements of smart metering and advanced metering infrastructure (AMI) systems. Some states have been spurred into action because of the Energy Policy Act of 2005.

Section 1252 of the Electricity Title of EPACT specifically sets out six basic requirements regarding smart metering and its use as a means of implementing demand response programs. This section amends existing law, and references the use of new technologies to provide consumer incentives for demand reduction.

Disagreements do exist about what the Act does and doesn’t say with regard to metering. Considering that the regulatory proceedings on this point are just beginning in some states, interested parties should have a common understanding of what is required of regulators, utilities and consumers.

Some of the disagreements stem from misconceptions about what the requirements are and who is bound by them. Some common misconceptions include:

EPACT is simply a repeat performance of the Public Utility Regulatory Policies Act of 1978 (PURPA) with no new teeth.

Only “regulated” utilities and public utility commissions are covered by the directives in EPACT.

Implementation of these capabilities would require levels of investment that can’t be cost justified.

Actually, EPACT is a measured and sensible extension of the process started under the original PURPA legislation to address growing electricity demand. The activity, spurred by passage of EPACT, will hardly resemble what took place 30 years ago. Advances in metering technology alone are already playing a large part in the regulatory debate, as all interested parties discuss current and future technology capabilities that will make it easier for residential consumers to adjust consumption and respond to market signals.

EPACT requires utilities to offer time-based rates to customers and provide a time-based meter to any customer requesting it. However, it also requires state investigations of advanced metering and demand response. In many cases, state actions have already led to more aggressive goals for smart meter implementation. Also, there is a growing understanding that the benefits of AMI are not simply related to time-based rate structures, but also extend to remote load control, load shedding and other system management functions.

The question of which utilities are “covered” by EPACT is still being debated, but the language in Section 1252 makes clear that the legislation applies to regulated and unregulated utilities alike.

The original PURPA standards applied to utilities with total sales of electric energy for purposes other than resale, which exceeded 500 million kilowatt hours during any calendar year. This category includes more than 100 rural electric cooperatives and 185 public utilities. And according to EPACT, they must perform the same investigation as a state regulatory commission, into whether it is appropriate to provide and install time-based meters and other devices to enable TOU, critical peak or similar pricing programs.

In addition to determining “who” the act applies to, utilities, regulatory agencies and technology vendors are in the process of establishing “what” technology requirements, if any, are necessary to stay in compliance. There is a difference of opinion about whether state regulators should specify the technology necessary for a smart meter deployment and require standardization of certain hardware and software protocols.

That regulatory process is above and beyond the general guidance contained in EPACT concerning the functionality utilities need to provide customers. In terms of time-based rates being made available to all customers, utilities may decide to meet that requirement one customer at a time, as opposed to deploying a system-wide AMI technology right away. Nothing else in EPACT specifically relates to meter functionality requirements.

Finally, each utility uses its own method of deciding whether the return on investment (ROI) justifies deploying a new technology. A fully functional AMI system is rarely cost justified on one feature set alone. In order to make for a strong business case, an AMI system must meet other functional requirements in addition to automatically reading meters and retaining billing information.

This is where discussions about smart metering requirements usually turn to a debate about “what’s needed” and “what’s desired” from a functionality standpoint. Utilities that are required to deploy technology that is merely desirable, but not necessary to meet the intent of EPACT, will have a more difficult time making a business case for the technology. Those utilities that retain the flexibility to deploy technology to the customers and service areas where it makes the most business sense will see a more rapid return on investment.

Ultimately, even though there are many diverging opinions and viewpoints about the demand response provisions of EPACT, regulatory bodies are moving forward with plans to encourage demand response initiatives. Likewise, utilities are exploring the best business case to make in order to justify the potential deployment of new meter technology.

What remains to be seen is whether these activities will be conducted in such a way that they provide a viable path for active consumer participation in demand response programs as the law intends, or face the risk of further legislative review and enforcement.

Whatever the final results of EPACT, it certainly represents a new start.