California government report on SCE Smart Meter program: Rising costs eliminate consumer savings

In 2007, Southern California Edison (SCE) projected a net cost benefit from their Smart Meter program  to consumers of only $9 million over the lifetime of the project. By 2012, that “very slim margin” had disappeared under increasing costs.

The Division of Ratepayer Advocates in California investigated SCE’s program (called SmartConnect) and reported their findings in 2012. Here are excerpts from their Executive Summary:

Executive Summary:

Key Findings presented in Section V of this report include:

  • According to SCE’s AMI business case, the total cost to customers will be greater than $5 billion, rather than the $1.6 billion cost explicitly approved by the CPUC, which only included nominal deployment costs;
  • Many forecasted benefits have been delayed or reduced, which erases the projected margin of net benefits as calculated in SCE’s business case [see below];
  • SmartConnect-related costs not anticipated in SCE’s original business case have already been approved by the CPUC in other proceedings, beyond the over $5 billion cost referenced above. In many cases, these costs were approved without a showing of incremental benefits, and DRA anticipates that more will be requested;
  • SmartConnect features such as remote disconnect and SmartConnect-enabled time-varying rates have a high potential for adverse impacts for low-income and other “at-risk” customers… (p. 2)

SCE was the last electric IOU to file an AMI application (2007). At the time that PG&E and SDG&E submitted their applications (2005), SCE’s business case analysis, including multiple scenarios, showed that AMI deployment was not a cost-effective endeavor. Two of its scenario analyses showed a Present Value Revenue Requirement (PVRR), largely due to the added Demand Response from large customers that already had interval meters. SCE stated that “the technology envisioned by the Ruling is unproven and commercially unavailable at this time.” (p. 7-8)

SmartConnect was adopted based on an estimate of $9.2 million in net benefits on a PVRR [Present Value Revenue Requirement) basis owing to the time-discounted value of money… (p. 10)

The CPUC required California’s large IOUs to file AMI applications and required a demonstration that AMI systems could produce net customer benefits. Initially, SCE found that AMI was not cost-effective for its customers, but AMI technological developments in 2005 and 2006 led to the SmartConnect application in 2007, which forecasted a very slim margin of lifetime net benefits on a present value basis. The CPUC authorized SmartConnect deployment costs of $1.634 billion, and SCE customers in aggregate have so far experienced a revenue requirement increase in excess of $193.1 million to cover these costs. This is a real cost increase, one which will certainly rise as more meters are purchased and deployed, and as SCE begins to incur post-deployment costs.

…Total SmartConnect costs paid by customers will actually be more than $5 billion (nominally), accounting for post-deployment costs and the financing costs incurred over the 20 years life of the SmartConnect system. This total cost will be even greater if the cost of future AMI-enabled investments and programs are included. While SCE’s incremental cost requests have thus far been relatively conservative, it is important to note that PG&E and SDG&E have so far requested much higher amounts in incremental AMI funding: PG&E has requested and received approval for funding in excess of $500 million, and SDG&E has received funding approval for over $93 million. (p. 50)

Case Study of Smart Meter System Deployment: Recommendations for Ensuring Taxpayer Benefits; Hieta, Kao, Roberts, March 2012

California Looks Harder at the ‘Smart Grid

After pointing out numerous funding requests in other areas that are really for AMI, DRA summarized that “(t)he full cost of SmartConnect will be more than double the $1.6 billion approved for deployment costs.” They hardly needed to note what that does to the $9 million.

Robert Michaels, May 3, 2012
(also, comment by Guillermo Jones)

DRA has repeatedly criticized Smart Meters. In 2011, they called for a halt to SoCal Gas’s rollout of Smart Meters.

“Safety, not smart meters, is the priority for consumers,” said Joe Como, acting director of the Division of Ratepayer Advocates. “Circumstances have changed since the [commission] approved these unnecessary meters and in the environment of escalating energy bills, customers should not have to foot the billion-dollar bill for technology that provides them little, if any benefits.”

Consumer advocates call SoCalGas ‘smart’ meters too costly, November 2011

And in a PG&E Smart Meter upgrade proceeding in 2008 –

A few examples should set the tone for what should be a very circumspect review of many of PG&E’s claims in this Application:

• PG&E has already spent one third of its initial $1.7 billion authorization, but has only activated 2% of electric meters;

• PG&E has exhausted $70 million of its $88 million Program Management budget when the project is barely off the ground and already in need of change;

• PG&E’s information technology (IT) budget is already 33% over budget. But that should come as no surprise since history shows that PG&E has repeatedly failed in the area of IT.

Despite the fact that the Commission has clearly given California’s utilities the green light to proceed with AMI deployment, it needs to send a message to all utilities that although the sky is the limit in terms of possibilities, the reality is that ratepayers today can ill afford to spend their hard earned money fixing problems that they did not cause. It is well known now that DRA supports AMI, but only if the utilities’ business cases can reasonably assure the Commission that they will be cost beneficial. DRA is opposed to the approval of projects that are based on amorphous benefits predictions that are untested and only theoretically possible. ..

DRA would like the Commission to apply some procedural restraint on what PG&E apparently perceives to be a runaway AMI gravy train. It is respectfully submitted that a Decision approving this cost-ineffective upgrade could lead to a staggering waste of ratepayer money. Very little, in terms of PG&E’s AMI performance to date, causes DRA to have much confidence in PG&E. The jury is still out as to when, or if, its ratepayers will ever see the benefits identified in PG&E’s original, or this upgrade proposal, that would justify its enormous cost. DRA does not find this Upgrade Application to be cost-effective, and therefore respectfully recommends that the Commission reject it.

— DRA found that the associated benefits were $549 million less than the costs of the upgrade.

Opening Brief of the Division of Ratepayer Advocates, August 29, 2008
Application of Pacific Gas and Electric Company for Authority to Increase Revenue Requirements to Recover the Costs to Upgrade its SmartMeter™ Program (U 39 E); Application 07-12-009

The California Public Utilities Commission ignores their recommendations.

These results have been found over and over in other studies.

Consumers will not save money. Rates will continue increasing to cover utility company AMI/AMR costs. Energy savings will be erased by the energy use of the Smart Meter program.

Amyas Morse, head of the UK National Audit Office, said in June, 2011:

“The benefits of proceeding with this major technological and logistical undertaking are still uncertain. There is limited evidence of how much and for how long British consumers’ behaviour might change, and costs could escalate. Large-scale projects of this kind can take on a momentum of their own and so, along the way, there should be clear decision points at which the Department will need to review costs to consumers, benefits and risks and judge whether to carry on as originally planned or significantly change direction.”

More information in  “Costs exceed benefits” p. 111-115

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