PSC Requires More Study Before Allowing Major Investment in "Smart Meters"

In 2006 the PSC issued an order requiring the state's electric and natural gas utilities to develop plans for implementation and widespread deployment of "smart meters." See Not so Smart? High Tech Metering May Harm Low Income Electricity Customers, PULP Network, April 16, 2007.

In a decision issued December 19, 2007, the PSC required Con Edison and Orange & Rockland Utilities to file supplemental plans, and required assessment of demonstration projects and cost effectiveness of any plans for broader deployment. The utilities' plans had called for expediture of $712.8 million to deploy smart meters, and projected total benefits of $782.5 million, $224 million of which was calculated to come from changes in customer consumption, i.e., by shifting usage to times of day when prices presumably would be lower.

The Commission said "The $713 million AMI program cost is a significant additional future cost whose potential offsetting benefits are far from clear or certain at this point." As discussed in Not So Smart, calculations about lower market prices from peak shifting by customers with smart meters -- 30% of the projected benefits -- may rely not only upon unproven assumptions regarding the ability of very large numbers of customers to shift their usage in response to spiking prices, but also on rather robust assumptions about the competitiveness of markets, reasonableness of real time prices, and the behavior of sellers in the repetitive auction spot markets. See Cornell Professor Gives Low Marks to NYISO Electricity Markets, PULP Network, December 13, 2007.

In addition, the Commission cautioned Con Edison and O&R against the use of new technologies to accomplish remote termination of service, stating:

Finally, we remind the companies that termination of service for nonpayment is subject to Home Energy Fair Practices Act (HEFPA) regardless of whether that disconnection is performed by physical (on site) or electronic (remote) service shut off. No utility may utilize AMI for remote disconnection of service for nonpayment unless it has taken all of the prerequisite steps required by HEFPA, including the requirement of 16 NYCRR §11.4(a)(7) that customers must be afforded the opportunity to make payment to utility personnel at the time of termination. This process requires a site visit, even where a remote device is utilized.

On the same day, in a similar decision rejecting Central Hudson's plan, the Commission reiterated its concern that all HEFPA procedures must be followed:

A concern relates to the use of AMI to accomplish remote disconnection and reconnection of service. While this capability can provide benefits when disconnection and reconnection are implemented pursuant to customer requests or for system safety, Home Energy Fair Practices Act (HEFPA) regulations incorporate a “last knock” policy requiring that terminations for nonpayment be preceded by a customer’s opportunity to pay the bill to utility personnel at the time of termination, and avoid disconnection. Central Hudson is reminded that termination of service for nonpayment is subject to HEFPA regardless of whether that disconnection is accomplished by physical or electronic (remote) service shut off.

The Commission press release in the Con Edison case underscored the need for pilot projects and further assessment of costs and benefits before full deployment, stating:

This sophisticated combination of meters, and other supporting equipment, is clearly the wave of the future. However, before we approve full-scale AMI implementation, we must determine if the investment is justified and whether the meters to be installed contain features and functions that will provide consumer and system benefits, or can be later modified to add new functionality. Pilots can play a very important role in reducing the number of open questions and obtaining better forecasts of costs and benefits.

The proposed expenditure of nearly three quarters of a billion dollars is a major investment by Con Edison and O&R. If this was not better for shareholders than for consumers we doubt we would see such a plan from a utility. "Smart meters" are in vogue, pushed by the electricity deregulation crowd as the solution to unreasonable prices, and by environmentalists as a way to address energy efficiency goals. These formidable voices cheering for "smart meters" (along with the message implicit in the label that if we have an old meter we are "dumb") resonate well with the interest of utilities wanting to make large new capital investments that could allow them to demand and justify higher future earnings and higher rates.

The PSC was not only smart, it was wise to require more analysis of the costs and benefits, particularly because under the Public Service Law, time of use pricing for residential customers is strictly voluntary, and to date has not attracted many adherents.